There are three types of ways the IRS will generally check a tax return for proper accuracy and accounting. These three include the survey method, compliance check and examination.
Returns can be surveyed by the IRS without the taxpayer ever being notified. Agents can survey a return if they believe an examination would result in no material change in tax liability.
This procedure is available only if the agent has not contacted the taxpayer or the taxpayer’s representative, and has not looked at the taxpayer’s books or records. Surveying a return does not constitute an examination of the return, and thus would not subject the IRS to certain restrictions.
A compliance check is a review to determine whether a business owner or individual is adhering to recordkeeping and information reporting requirements. The IRS looks at compliance checks as an opportunity to educate the taxpayer and encourage compliance with the tax laws.
The IRS representative will inform the taxpayer that the review is a compliance check and not an audit or examination. The taxpayer can refuse to participate in a compliance check without penalty. The IRS can open an examination against the taxpayers return whether or not the taxpayer participates in a compliance check.
An examination is a review of a taxpayer’s books and records to determine the correct tax liability. An examination permits contact with the taxpayer and examination of books and records, a survey on the other hand does not. A survey is limited to review of a tax return where an examination is not warranted or necessary.