The Lord of Ring author’s estate is readying a battle to win more treasure. Their target? New Line Cinema (TWX) who produced and distributed the Oscar-winning movie trilogy “Lord of the Rings” based upon J. R. R. Tolkien’s books of the same name. On Monday the Tolkien Trust, trustees of a private family trust of heirs, and the British arm of HarperCollins Publishers filed a breach of contract complaint in Los Angeles Superior Court against the studio for failing to pay them at least $150 million.

The complaint states that the trustees and the publisher are entitled to a 7.5 percent share of the gross receipts, as per a 1969 contract with United Artists that New Line inherited in 1998. According to the complaint, New Line’s trilogy generated about $6 billion in gross receipts worldwide. In addition to the money they claim to be owed, the plaintiffs are seeking unspecified punitive damages and are asking that New Line’s rights to make any subsequent films based on “The Hobbit” or “The Lord of the Rings” be terminated.

In essence, the trustees are calling for an audit of  New Line’s financial books. In the complaint they allege that the studio “clearly engaged in the infamous practice of creative ‘Hollywood accounting,’” by excluding certain revenue from calculations, racking up costs and in the process not paying out any money. As New Line prepares the paperwork to defend themselves, it is important to realize that financial audits, especially tax audits, can present themselves on short notice. Some mistakes on tax forms will not warrant a full audit. Some seemingly perfect filings can be audited at random. For this reason everyone should be prepared. If you do find yourself involved in a tax audit it is most important to have proof of everything you claimed.

“You should be more concerned that you have the proper documentation than with actually being audited,” says Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants. Having a good financial record keeping system in place will make it easier to retrieve records that may be needed. Norman Solomon, a certified public accountant with CPA, Inc. says that the federal statue of limitations for audits is three years from the file date but some states, like California, have an extended statue of limitations.  Solomon suggests keeping records for one year longer than the applicable statue of limitations.

Also be aware of  what the IRS traditionally investigates such as large charitable donations, home-office right offs, and personal exemptions.  When it comes to these claims it is especially crucial to have proper records.   “This is not to say you shouldn’t donate to charities or claim what is legally correct,” says Ochsenschlager. “It just means you need to keep your receipts and paperwork.” Another way to offset the chances being audited is to disclose the reasons behind any unusual claims.  Inquiries from the IRS about unusually large donations, or a substantially large increase or decrease in salary can sometimes be deflected if they are accompanied with an explanation.  Says Solomon: “You should develop a certain sensitivity as to what the government is looking for and provide adequate disclosure when filing taxes.”

A little common sense doesn’t hurt either. Remembering to fill out the forms completely and to sign the return will certainly help in keeping the IRS away.