With concern over the fact that the U.S. Internal Revenue Service is unable to function at a level it should due to limited funding, there are some politicians and tax industry professionals who fear the voluntary tax compliance model will not be able to stand. As the IRS is having a difficult time keeping pace with the resources it currently has, the idea of having to go after those individuals and businesses choosing not to comply will spread its resources even thinner.
According to John Koskinen, IRS Commissioner, the government relies heavily on Americans to voluntarily comply with their tax filings, as noted by The Blaze. Koskinen added that the IRS needs an additional allotment of funding for next year, or this could be a serious problem.
“My concern is at some point, the voluntary tax compliance system begins to erode,” Koskinen said. “And as I’ve said, that’s not an on-off switch. You can’t one day and say, ‘wow, I didn’t know that was going to happen, here’s some more money.'”
So what is voluntary tax? And if it is so important to the functionality of the IRS, how can it be a voluntary item?
Voluntary tax compliance
By including the word “voluntary” in the description, many taxpayers have the wrong idea about what exactly the term means. In fact, this is a favorite focus for tax protestors who feel that they don’t have to pay taxes, as they are voluntary. However, this is not the case.
In fact, the word voluntary refers to the behavior of the taxpayer, not the taxes themselves, as noted by Snopes. Consumers volunteer their tax filing to the U.S. government by handling the process themselves and being honest in their compliance, how much they made, filling in the correct information on the form, etc. This model is in place so the IRS doesn’t have to go through every single transaction and come after the individuals or businesses themselves, which would be exhausting for all parties involved.
Yet, with misinterpretations of the definition floating around and the IRS having a difficult enough time keeping up to speed, some industry leaders wonder how long it will take for taxpayers to stop acting voluntarily, knowing the government organization in charge of the process is limited in its resources.
Are IRS budget cuts to blame?
According to The Hill, the IRS didn’t answer 60 percent of the calls it received this tax season. While some politicians believe there is more to blame than simply the budget cuts, members of the IRS complain about being understaffed and overworked, and fear that their jobs might become more difficult if people stop volunteering their tax information.
Koskinen said taxpayers are losing faith in the system, which they see as dysfunctional. If this becomes a reality, and the IRS can’t function at an optimal level, it could miss out on a significant amount of tax dollars. According to The Salt Lake Tribune, while the budget cuts to the IRS are intended to save the government money, they are actually causing harm as taxes aren’t able to be adequately accounted for. Koskinen estimated that about $2 billion have gone uncollected this year alone. And if the budget cuts continue, he assumes that number will only continue to grow.
“A decision to keep underfunding the agency will punish taxpayers, reduce the revenue needed to fund the government, and inject risk into our system of voluntary tax compliance,” Koskinen said.
The Blaze noted that the IRS currently acquires between $50 and $60 billion per year through their own enforcement methods when taxpayers don’t comply. However, when compared to the total $3 trillion in total tax revenue the IRS took in last year, that $50 billion seems pretty small. If these allotments start to switch, then the IRS foresees a significant problem.
“We’re coming to a point where the significant reductions in the IRS budget will degrade the agency’s ability to continue to deliver on its mission,” Kosinen said, according to Forbes. “People need to understand the IRS is going to have to do less with less.”
