A compliance audit is a review that is conducted by the IRS under Title 26 of the Internal Revenue Code to determine whether a taxpayer is complying with accounting and information reporting requirements. Your federal income tax return for the year shown above was randomly selected for a compliance research check. We need to review randomly selected tax returns to better understand tax compliance and improve the fairness of the tax system. If we find any errors during the audit, we will give you the opportunity to explain them. The results of this and other compliance investigations will improve our efforts to help taxpayers understand and follow tax law, reduce unnecessary and costly investigations, and reduce the burden on taxpayers.
Please read the enclosed note 1332, why your return is being reviewed. What is the IRS National Research Program (NRP)? The IRS meets its need for up-to-date compliance information about the National Research Programme (NRP). The NRP is a comprehensive effort by the IRS to measure compliance with different tax types and different taxpayer groups.
This challenge is akin to a company that shows its shareholders that it is worthy of their investment and business. The NRP pioneered a comprehensive approach to case formation that provides auditors with a wide range of information about the taxpayer. Likewise, the tax authority must measure taxpayers’ compliance with federal income tax laws against contributing factors so that customer-focused programs and services can be improved or developed, and compliance information and tools can be improved. The measure of filing compliance is the percentage of tax reported on timely filed tax returns that are filed on time.
If a compliant taxpayer is contacted unnecessarily or ineffectively by the IRS, public perception of the effectiveness and fairness of the federal tax system could be compromised. This IRM provides an overview of the need for current compliance measures and the National Research Program (NRP) approach to measuring and reporting compliance. Compliance measurement research, also known as a tax gap, examines how much tax is not paid voluntarily and on time. To ensure the validity of reporting compliance NRP studies, IRS auditors review the information on sampled returns and record any adjustments, regardless of how small or whether the adjustments favor the tax authority or taxpayers.
You’ll improve the IRS’s ability to detect violations, reduce the burden of unnecessary IRS contacts on compliant taxpayers, and support IRS operations departments’ strategic goals, program development, and resource allocation. Better formulas will ensure that non-compliant taxpayers are more likely to be selected for audit and that compliant taxpayers are less likely to be audited unnecessarily. This distinction is important, although the IRS does not have sufficient data at the time to clearly distinguish the level of non-compliance that results from intentional rather than unintentional errors. The correct estimation of DIF formulas requires accurately reported returns against which incorrectly reported items can be compared.
Under the Reform and Restructuring Act of 1998 (RRA ‘9), Congress mandated the IRS to provide services to taxpayers at a new and much higher level of service in the most cost-effective and least burdensome way possible.