IRS Voluntary Compliance — What does it really mean? What should you do?


Let's talk about frustrations, about the sources of our agitation. It's frustrating when people are dishonest about what a word means or try to redefine a word to mean the complete opposite of its definition. This isn't rocket science, but for some specific government organizations — *cough* the IRS *cough* — they just don't get it.


One of the most difficult and agitating things about the US tax system is the claim, by the IRS, that our system is one of "voluntary" compliance.  It seems like such an absurd lie that only a US congressman could actually believe it, right?



If you're not already nodding your head in agreement and thinking to yourself, "This guy gets it!," then allow me to illustrate my point: you've just given someone a choice, "punch yourself or I'll punch you." Now, if that person was to actually hit themself, they would be stark raving mad to claim that their action was entirely voluntary. Forced with two options that lead to the same destination — getting hit — it's not tough to see that your "options" are limited at best.


Likewise, with the US income tax, the law mandates a choice of sorts. That choice is a resounding "comply or else." Your decision to comply is NOT voluntary. You seek compliance with the IRS because you are afraid of the "or else."

IRS voluntary compliance — where did this terminology come from?

On Paul Caron's twitter feed, he had a link to something interesting: a University of Pennsylvania Law Review article written by a government employee. J.T. Manhire of the US Department of the Treasury, to be specific. From theabstract of one of his articles, "What Does Voluntary Tax Compliance Mean?: A Government Perspective":


"There is often a great deal of confusion and consternation when taxpayers discover that the IRS refers to the annual filing and payment ritual as “voluntary;” especially since most taxpayers do not believe they have a choice when it comes to filing and paying their taxes. What does voluntary compliance mean? Does it mean taxpayers can volunteer to file returns and pay taxes, much as one might volunteer to make a charitable donation?


Does it mean taxpayers don’t have to comply with the tax laws if they don’t feel like it? How can it be a federal crime to not file or pay taxes if compliance is voluntary? This essay offers a government perspective as to why the IRS uses this sometimes perplexing term. After investigating (and dismissing) a possible literal defense, the essay surveys the IRS’s history to see why voluntary compliance is such a critical part of the U.S. tax system."


Voluntary compliance explained: What the IRS originally meant

Mr. Manhire does a terrific job of explaining the manner in which the IRS uses the word "voluntary." His point is entirely reasonable and calls you to look at the context of the "voluntary" in voluntary compliance. It goes something like this: originally, all income taxes were assessed through audit, unlike today where 97% of taxes are self-assessed. This 100% audit rate was not a big deal for the Treasury because few Americans were actually subject to the income tax. Under normal conditions, it was only applicable to the very wealthy.


So, let's think about this original context: at the beginning, it was impossible to be in "voluntary" compliance with the income tax. Whether you liked it or not, you were going to be audited and assessed on a yearly basis. There was no choice in the matter. As logic would have it, you cannot volunteer if you have already been drafted!


But, as the income tax began to affect more and more people (contrasting the promises of 16th Amendment proponents who insisted it would only "soak the rich"), the IRS couldn't audit everyone. Instead, they had to rely on taxpayers to self-assess their taxes by sending in their self-prepared tax returns, and the IRS would only audit a small percentage of the filed returns.


If we go back to the beginning, the word "voluntary" is used to describe a situation where the baseline action is an audit. That means that the word "voluntary" is used by the IRS to describe a taxpayer's actions (entirely a case of perspective dictating one's truth). However, the word "voluntary" should not be used by a taxpayer to describe their own actions.


Consider the following hypothetical dialogue between two IRS examiners:

Bob: "Did you audit that taxpayer?"


Steve: "No, the taxpayer volunteered their information and assessed their own taxes."


Can you see how "voluntary" compliance sort of makes sense?


A better option: Cooperative compliance

The problem is that we as taxpayers think of taxes from our perspective, not the IRS's. Therefore, we are left understanding "voluntary" as meaning what we've always understood it to mean. If the income tax is truly voluntary then there should be no consequences if we do not comply. Sadly, that's just not the case. Mr. Manhire recognizes that this is a real problem and makes it clear that it's not enough to just recognize that something is wrong.


That's why we appreciate his solution. True, it is not as wonderful a suggestion as calling for an abolition on the taxing of personal income (excluding times of war), but it is still a well-considered and worthwhile offering. Not only will it help clear the air, but it will also stop taxpayers from going down a path that will only lead to heartache and pain. Finally, add in the benefit of protecting IRS employees from being harassed about something that they have little control over. That's it, folks, we've got a winner. Cue Mr. Manhire:


"Yet, I believe there is a better option. As long as the word “voluntary” retains its modern, non-medieval meaning, and as long as some taxpayers’ brows furrow in puzzlement every time they hear the term voluntary compliance, confusion will endure. For the sake of clarity, I recommend the IRS change the term from voluntary compliance to cooperative compliance."


I concur. Cooperative compliance is a far more accurate description.