If government statistics are correct, almost all of us engage in what the Internal Revenue Service (IRS) calls “voluntary tax compliance.” One of the IRS’s principle goals is to maximize this voluntary compliance. For example, the IRS has an official policy stating that civil tax penalties are primarily designed and imposed against taxpayers to encourage voluntary compliance. Closing the “tax gap,” the difference between the tax properly due and the amount the IRS receives through voluntary compliance, is a persistent problem for the IRS. In most congressional reports, the IRS emphasizes voluntary taxpayer compliance as a foundational principle of the U.S. tax system.
Yet, most taxpayers do not believe they have a choice when it comes to filing and paying their taxes. There is often a great deal of confusion and consternation when taxpayers discover that the IRS refers to this annual filing ritual as “voluntary.” What does voluntary compliance mean? Does it mean taxpayers can volunteer to file returns and pay taxes, as one might volunteer to make a charitable donation? Does it mean taxpayers do not have to comply with the tax laws if they do not feel like it? How can it be a federal crime to not file or pay taxes if compliance is voluntary? This is a very real problem for taxpayers, as demonstrated by U.S. Tax Court cases litigating taxpayer confusion over the meaning of voluntary compliance. Additionally, at times the Tax Court has taken a very stern position on noncompliance, to the detriment of confused taxpayers.
To the common ear, the term “voluntary compliance” may seem an odd, even Pickwickian, turn of phrase. It implies that compliance with the federal tax laws is voluntary. The Tax Court, however, has labeled such an interpretation as “arrogant sophistry.” Taxpayers have a legal obligation to comply with the tax laws, just as they are obligated to comply with all rules that carry the force and effect of law. Penal sections of the tax code reinforce this obligation. Therefore, the government’s position is that voluntary compliance means that taxpayers behave in a way required by law, but without direct compulsion from the IRS.
Still, this definition does not comport with the current use and understanding of the word “voluntary.” The modern connotation implies an act done because one wants to do it, not because one has to. A voluntary act is an unrestricted act in the absence of a pre‐existing obligation. Since taxpayers have a legal obligation to act in accordance with the internal revenue laws, tax compliance is anything but voluntary in this sense.
This Essay offers a government perspective as to why the IRS uses this 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. The Essay then recommends changing the term from voluntary to cooperative compliance to retain the government’s meaning while lessening taxpayer confusion.