I worked installing equipment in dental offices for a few years, including compressors. Most manufacturers made silencing hoods that would fit over the compressor. We also would heavily insulate the closet (or area) where the compressor was installed. The hoods were metal, with fiberglass insulation inside. These hoods were lined of course to keep the fiberglass contained. So, I would recommend both insulating the closet, build a loose hood that fits over the compressor yet allows free air flow to the intake. One other consideration is to use rubber isolation feet on the tank. By isolating the tank from the floor you will reduce both vibration and noise levels. Some offices where noise was a serious issue, we also used sound deadening foam panels, especially where the compressor room shared a common wall with another space.

Hope this is of some help to you.....