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If not, and the business owner acknowledges they How often can one be subject-
COMPLIANCE CHECK Q.
should have, the IRS may ask the owner to file ed to compliance checks?
them voluntarily. If the business owner does not
What is a compliance check?
Q. voluntarily file the forms, the IRS may prepare IRS can make compliance checks as
A.
often as facts and circumstances warrant. Because
A compliance check is a review conducted substitute returns under Internal Revenue Code
A. compliance checks are not examinations, the limita-
by IRS, under Title 26 of the Internal Revenue Code, Section 6020(b) or initiate an examination.
tions on reopening examinations provided by Section
to determine whether a business owner (or individual) • The IRS will not ask to examine any books and
7605(b) do not apply to compliance checks.
is adhering to recordkeeping and information reporting records during a compliance check or ask ques-
requirements. It is neither an inspection, under section tions, regarding tax liabilities. This means that the
7605(b) of the Internal Revenue Code, nor an audit, IRS will not ask business owners why they treat an
Once a business owner has
under Section 530 of the Revenue Act of 1978. expense a certain way or the reason they treat a Q.
been checked for compliance,
A compliance check does not directly relate to deter- worker as an employee or independent contrac- does he/she have safe haven
mining a tax liability for any particular period. The check tor. IRS typically asks these types of questions protection under section 530
is a tool to help educate business owners about their during an audit or examination to determine of the Revenue Act of 1978?
reporting requirements to help increase voluntary an individual’s or business entity’s correct tax
No. Since compliance checks are not
compliance. At the beginning of a compliance check, the liability. If, during a compliance check, the IRS
A.
audits, the business owner does not hold safe
IRS representative will inform the business owner that decides an audit or examination is appropri-
haven protection under section 530 of the Revenue
the review is a compliance check and not an audit or ate, the IRS will notify the business owner that
Act of 1978.
examination. it is commencing an examination before asking
questions that relate to tax liability.
• A compliance check is a review of informa-
Additionally, a business owner may not rely on an
tion forms or documents that the IRS requires
audit started after December 31, 1996, for safe
business owners (tax customers) to file or main-
Is there a penalty for refusing to haven protection, unless the audit included an
tain; for example, 940s, 941s, 8027s, W-2s, Q.
submit to a compliance check? examination of whether the individual involved,
1099s, or W-4s. During a compliance check,
or any individual holding a similar position as the
the IRS may ask business owners whether they No. A business owner (or individual) may refuse
A. person involved, should be treated as an employee of
understand or have questions about the to participate in a compliance check without penalty.
the taxpayer for employment tax purposes.
filing requirements for these forms. The IRS may The IRS has the option of opening a formal investigation,
also ask the business owners if they filed the whether or not the business owner agrees to participate
proper forms for any workers to whom they made in a compliance check.
payments.
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