Is The U.S. Tax System Voluntary?

If you live in the US, one thing is certain – you will most likely be paying taxes.  However, the Supreme Court’s opinion in Flora v. United States is often quoted by those who believe paying tax is voluntary: “Our system of taxation is based upon voluntary assessment and payment, not upon distraint.”  In this article we will answer the question of is the U.S. tax system voluntary?

If the United States tax code is voluntary does that mean you don’t have to file your tax return? Better yet, does this mean you don’t have to pay tax ever again? Hold on just one second! Although the Supreme Court uses the wording “voluntary” it doesn’t mean you don’t have to pay your taxes.

Failure to file and failure to pay taxes due with your tax return can yield penalties, interest, and even jail time. So what does it mean when people say the tax code is voluntary?

What Does Voluntary Mean?

The word “voluntary,” as used in Flora v. United States and in IRS publications, refers to the system of allowing taxpayers to determine the correct amount of tax, complete the appropriate returns, and pay any tax due rather than have the government determine tax for them.

There are several taxes that are not voluntary and are calculated and assessed by the government or local taxing authority. For example, the town where you live will assess property taxes and send the bill to the homeowner. For the most part, you don’t have to fill out a property tax return to determine what your property tax will be for the year.

Federal income tax on the other hand allows taxpayers to calculate their own income taxes and determine if they should receive a refund or have taxes due. The burden of paying the correct tax during the year, taking the proper deductions, and reporting all taxable income falls on the individual taxpayer.

This system allows taxpayers to use the tax code to legally pay the least amount of tax possible. If the system was involuntary then the IRS would just send you a bill of what they think you should pay in tax – I’m sure nobody wants that.

Do I Have to Pay Taxes?

Failure to file a tax return could result in criminal penalties, including fines, imprisonment, as well as civil penalties. Although Treasury regulations establish voluntary compliance as the general method of income tax collection, Congress gave the Secretary of the Treasury the power to enforce the income tax laws through involuntary collection.

The word voluntary does not mean you have an option in whether or not you want to pay the tax it just pushes the burden of compliance onto the taxpayer. If you chose to not pay the correct amount of tax then the IRS will use every tool possible to enforce the laws.

Why Do We Have a Voluntary System?

The United States has a voluntary tax system because the Internal Revenue Code (IRC) is immensely complicated. Imagine if you had IRS agents trying to calculate what each individual taxpayer owed at the end of the year? Under the current IRC that would be impossible.

Instead, the current tax system pushes the burden of calculating and paying the appropriate amount of tax onto the taxpayer. Even though the IRC is the law of the land, not all taxpayers play by the rules. Between 2008 and 2010, the IRS estimated the average annual tax gap (the difference between what should have been paid and what was actually paid) to be $458 billion. That’s why the IRS conducts regular audits of tax returns.

So if anyone wants to bet that paying tax is voluntary don’t be surprised when the IRS comes knocking on your door when you fail to file your tax return for a couple of years.