Essential Things You Need to Know about IRS Compliance Check

Essential Things You Need to Know about IRS Compliance Check

IRS compliance check is far from an audit. It is more like a chat and an effort from the Federal-State Local Employment Tax (FSLET) Compliance Program. We will explore the meaning and implication of IRS compliance check for taxpayers

Understanding Compliance Checks

When you get a compliance check notice, it is different from an audit or an investigation. The IRS is not checking to see if you have unpaid taxes but to see if you know how to go about the various tax forms made available to you.

Examples of such forms are 940s, 941s, 1099. W-2 and W-4. They are not after your taxes or financial records. They want to know if you know what to do and if you have any questions.

If you have paid an employer or freelancer, Uncle Sam wants to know if you send the right form to the IRS after. If you did not, you might send it. If you chose not to, the IRS would make available substitute returns based on the Internal Revenue Code Section 6020(b). In extreme cases, this could trigger an audit. 

With this, it is in your best interest to file the forms. An audit will turn your life and record upside down. It takes time and is rather stressful compared to a compliance check.

What Should You Expect During a Compliance Check?

You will not get a phone call from Uncle Sam but a mail notifying you of the compliance check. The IRS will not call you except you are already in business with them – an IRS check or an audit.

Before initiating the contact, the agent assigned to you will examine your personal and business tax summaries. During the process, you will have to provide every tax form you have filed to the agent. 

Again, this is not in a bid to determine your tax liability. It is not as invasive as an audit. For people dealing with back taxes, the IRS determines your status as any of the following:

  • Not collectible: they adjourn the case for two or three years

  • Monthly installment candidate – the IRS detects your unpaid tax and organizes a full payment plan using a monthly structure.

  • Offer in Compromise candidate–as long as the IRS understands that you cannot pay the money in full, they will settle for an offer in compromise.

Reasons the IRS Perform Compliance Checks and Why You?

Bear in mind that IRS compliance checks are a means to help you – well, the IRS thinks so. They want to ensure that you get everything right with your taxes.

For people filing a tax return, the IRS gets a score comparing your deductions to the average. A high score sends a flag of potential issues, although not an audit yet.

Many people might wonder why they are getting checked. This is because you are part of everyone with a higher score and lucky to land a compliance check. The reason might be traced to any of the following:

  • Many people had a high score, and yours was higher.

  • You had business with taxpayers flagged for an audit.

  • Your deductions are way more than the average tax filers.

  • Some of your deductions raise an eyebrow like high entertainment, excessive auto expenses, travel costs. The numbers are just not adding up.

Handling a Compliance Check

While there is the opportunity to refuse a compliance check, it is instead an aggressive move, according to the IRS. A wise move is to have a representative, getting you away from Uncle Sam. Here are some moves in dealing with an IRS compliance check:

  • Watch out for arithmetic mistakes. Many times, this triggers the tax return issue

  • Be sure to have a correct social security number on all your forms 

  • Make sure your signature is on all your forms 

  • Also, crosscheck the return to make sure everything is in order

In addition, try and avoid the following:

  • Supplying too much or too little information to Uncle Sam is a bad call. Give them only the facts. Hiding stuff or giving out excessive info could prolong the case.

  • If you have only one copy of documents or only the originals, do not give the agency. The possibility of getting it back is low, and you might need it again.

  • Be sure to collect copies of everything you sign with the IRS.

  • Avoid argument or getting defensive. It might lead you to an inspection.

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