Compliance checks defined.

• Author: Gribens, Bruce K.

In an effort to educate taxpayers as to how compliance checks, audits and examinations differ from one another, the IRS will print a new publication, Compliance Check, Audit, or Examination, focusing on the goals of these different procedures. Although these terms are not defined by the Internal Revenue Code, the Service has drawn a distinction between them, based on the agent's intent and the scope of the review.

The main difference between audits and compliance checks is their objective: an audit determines the taxpayer's correct tax liabilities, whereas a compliance check determines whether a taxpayer is satisfying its recordkeeping and information reporting requirements.

The publication refers to a compliance check as a "review." The objective of this review is to determine whether business owners are satisfying all of their recordkeeping and informational reporting requirements. Additionally, the taxpayers undergoing a compliance check may receive additional education regarding their recordkeeping and filing responsibilities (resulting in increased voluntary compliance), but will receive no additional protection against future audits or examinations. The publication specifically states that the compliance check is not designed to determine the taxpayer's tax liability for a particular period.

"Examinations" are defined as the fact-finding portion of audits, encompassing a systematic inspection of the taxpayers' books and records, as well as questioning the taxpayers about their books and records, or a combination of both.

Since compliance checks do not qulify as an audit, the IRS has taken the position that taxpayers who have been the subject of a compliance check receive no safe harbor protection under Section 530 of the Revenue Act of 1978. Thus, it is the Service's position that taxpayers who have experienced a compliance check do not have any resulting protection against employment tax...