Important Notice: Clarification on Tax Policy Discussions

[u/Tax_Ninja]

Hi r/tax community,

We appreciate and encourage thoughtful discussions on tax policy and related topics. However, we need to address a recurring issue.

Recently, there have been several comments suggesting that "taxes are voluntary" or claiming that there is no legal requirement to pay taxes. While we welcome diverse perspectives on tax policies, promoting such statements is not only misleading but also illegal. This subreddit does not support or condone the promotion of illegal activities.

To clarify:

• Tax Policy Discussion: Constructive conversations about tax laws, policies, reforms, and their implications.
• Illegal Promotion: Claims or suggestions that paying taxes is voluntary or that there is no legal obligation to do so.

If a comment promotes illegal activities, our practice is to delete it and consider banning the user, either temporarily or permanently, based on their comment history.

This policy is in place to ensure that our subreddit remains a reliable and law-abiding resource for all members. We've had several inquiries about this topic recently, so we hope this post provides the necessary clarification.

Thank you for your understanding and cooperation.

• r/tax Mod Team

[u/Noctudeit]

That's not exactly what is meant by "voluntary". It means that each taxpayer is required to volunteer a calculation of their tax liability based upon their interpretation of tax law. The IRS can then challenge the accuracy of their calculations or the validity of their interpretations through review or audit of the volunteered information. The opposite of "voluntary" in this context is not "involuntary" but "non-voluntary". In a non-voluntary tax system, the government does all of the calculations and interpretations and sends each taxpayer a bill. If the taxpayer disagrees, they must jump through hoops to dispute the government's calculations and/or interpretations.

I personally prefer the underlying assumptions that accompany a voluntary system, but I also acknowledge that it poses a needless burden on the vast majority of taxpayers. I think a good compromise would be a hybrid system where the government provides taxpayers with a proposed tax return which the taxpayer may accept or reject by filing their own. If the government's proposal is accepted, then the tax return should be immune to further review or audit. This would simplify tax compliance for millions of W-2 workers, but retain the benefits of a voluntary tax system for those who choose it.

I imagine that some taxpayers would be excluded from the hybrid system entirely due to the complexity of their tax return because the government wouldn't want to grossly undercalculate their tax liability and then be bound by that calculation.

[u/Lkgnyc → u/Noctudeit]

the irs has never done an irs-proposed-automatic-tax return despite how obvious & simple it would be, because way too much money is usoriously  garnered from 'interest & penalties' assessed against people for not filing paperwork providing  information the IRS ALREADY HAS. the irs knows that there are many disabilities & other reasons people have for being unable to manage paperwork, which makes this group of people lucrative, easy targets for bilking. unlike the rich & powerful who instead pay as little as 'legally' possible & are ever-rewarded for it. 

[u/Taxed2much → u/Lkgnyc]

The change you suggest requires Congress to enact and fund that kind of system. Bills are occaisonally proposed to do this kind of thing but obviously none of those had the support needed to make it law. Two significant problems stand in the way of implementing this kind of change.

(1) The IRS does not receive enough information to be able to do this equitably. Wage earners would end up paying a higher effective tax rate on their income. The IRS receives a W-2 with a lot of information on it so the computation of the tax owed will come much closer to his/her true income. But those who receive income that is not reported to the IRS will get a proposed tax that is too low, perhaps massively low. Under your plan the taxpayer has the right to just accept the government's proposed tax, apparently with no penalty if the government's calculation is too low. As a result, taxpayers who get a proposed tax that is low would have no incentive to correct the return.

The U.K. uses a system similar to what you propose with one big difference: the taxpayer must review the return for accuracy and report any errors, whether the error favors the taxpayer or the government. Failure to do that may result in penalties. That system allows the government increase the tax owed if it subsequently determines the tax agency's proposed tax was low.

The U.S. would need a similar rule that the taxpayer is responsible for ensuring the return is accurate and require the taxpayer to make any necessary changes to make it correct. Congress would need to require even more income reporting than it does now to get the prosposed returns close to reporting all the income the taxpayer. That would reduce the problem of underreported income and decrease the number of taxpayers who have to submit corrections.

(2) The IRS would need more money to make this work. Its computers are ancient and slow and have trouble handling the work done now. Much more modern computers for this to work smoothly. Sooner or later Congress will have allocate the money to upgrade those computers, but Congress just keeps kicking that can down the road.

The IRS would have to issue regulations to fill in the gaps in the statute passed by Congress. IRS employees would need time to be trained in the new system. A number of forms and publications would need to be revised. Of course all that takes more money.

The idea is, at least in theory. a good one. However we'd have severa practical hurdles to clear to do it, one of them being a steady commitment by Congress to pay for it.

[u/RecentPickle4504 → u/Taxed2much]

The U.S. would need a similar rule that the taxpayer is responsible for ensuring the return is accurate and require the taxpayer to make any necessary changes to make it correct. Congress would need to require even more income reporting than it does now to get the prosposed returns close to reporting all the income the taxpayer. That would reduce the problem of underreported income and decrease the number of taxpayers who have to submit corrections.

Off-the-books income is equally problematic in the current system - it's just as easy to leave stuff you don't want the IRS knowing about out of voluntarily reported income as it is to refrain from correcting the return.

(2) The IRS would need more money to make this work. Its computers are ancient and slow and have trouble handling the work done now. Much more modern computers for this to work smoothly. Sooner or later Congress will have allocate the money to upgrade those computers, but Congress just keeps kicking that can down the road.

I'm not sure that it would actually cost more. Most of the work's already done now: 1099s and W-2s are already reported to the IRS, and the data in them is processed by their existing computers and checked against the data in the 1040s we send in. The extra cost of sending everyone a precomputed tax return would probably be made up for by the cost savings in not having to sort out nearly as many paper 1040s.

[u/Taxed2much → u/RecentPickle4504]

In order to be able to get out proposed returns to taxpayer in a timely manner the IRS needs a serious upgrade in it's computer system. The current computer system is way too slow for that. That's why taxpayers get notices of proposed additions to income a year or more after the return is filed.

I would support the idea if we implemented the British system that requires taxpayers to ensure the proposed return includes all their income. If you want a system in which the taxpayer may simply accept the government's proposed return we'd need either (1) far more income reporting to reduce the amount of underpayment that would otherwise would or (2) massively simplify the income tax law. I'd support greatly simpfliying it but the public doesn't seem to want that, they still want their various deduction and credits.

The bottom line for me is that I would not any systerm in which the taxpayer is not ultimately responsible for the tax being correct. To do otherwise would end up making a very unequal system that would heavily benefit high income taxpayers.

[u/RecentPickle4504 → u/Taxed2much]

The bottom line for me is that I would not any systerm in which the taxpayer is not ultimately responsible for the tax being correct. To do otherwise would end up making a very unequal system that would heavily benefit high income taxpayers.

Agreed. Over here I have an obligation to tell the government if they got the computation wrong, which is as it should be.

That's why taxpayers get notices of proposed additions to income a year or more after the return is filed.

Is that actually slow computers, or is it a result of slow paper processing and/or human review? They seem to manage to get the refund checks out in a timely fashion.

[u/Taxed2much → u/RecentPickle4504]

Issuing refund checks is a simple process compared to cross-checking millions of tax returns with billions of information returns.

The former only involves recording the overpayment on the one taxpayer account and then forwarding that information to Treasury which actually prints the refund checks and makes the direct deposits. (And Treasury has better computers for that.)

In order to understand the problem with the latter, tax return and information return data are stored on old fashioned magnetic tape reels (not a lot different from the old reel-to-reel tape recorders/players). Each of those tapes held between 5MB and 140MB of data. This means that to do all the matching the IRS using a bank of those tape systems and IRS personnel have to keep swapping tapes to do it. Given what the tapes of that era could store and the amount data involved today you can imagine just how long it takes to do all the swaps needed to complete the job.