I was. Got out clean. I didn't cheat though They asked for records for year they auditing, year before and year after.
I'd recommend this book : http://www.amazon.com/Beat-I-R-S-Ga..._bbs_sr_1/103-5573624-2470259?ie=UTF8&s=books I've read it myself, and thought it was worth it. The author compiled over 1000 random tax returns from CPAs (their socials, names, ect were not viewable), and put them in a "supercomputer" (I thought this was a term from the 70's). By doing so, he found several correlations. The first being that you are statistically less likely to be audited if you file for an extension. The first extension (it goes until August 15th I think) doesn't require any explanation on your part, just filling out a simple form I believe. You would still have to make your tax payment by April 15th to avoid fines/interest, but they don't get your actual return until you choose to send it in. The book is a bit dated, so I doubt that all the practices of the IRS he describes are the same, but it was defintely worth the read.
What worries me is that my record keeping is substandard although I know how much I made (or lost). What makes it hard is that I have over 4000 trades for 2006, and it's a lot of work to keep all list accurate (I spend most of my time developing system, not book keeping). Can I just show them how much I made from the brokerage statement? or do I have to go through each trade with them, if it comes to it?
Actually, the one time I was audited, they went thru my entire confirm list one by one and it took 13 hours. They want to see each trade UNLESS you do mark to market accounting.