According to the IRS’s Internal Revenue Manual, taxpayers in the United States assess their tax liabilities against themselves and pay them voluntarily. This system of self-assessment and payment is based on the principle of voluntary compliance. Voluntary compliance exists when taxpayers conform to the law without compulsion or threat.
Compliant self-assessment requires a taxpayer to know the rules for filing returns and paying taxes. The IRS is responsible for providing information to taxpayers, which includes the following:
- Written materials that clearly explain the rules, and
- Forms that permit the self-computation of tax liability.
In addition, the IRS must also provide a means to preserve and enhance our voluntary compliance by fairly, consistently, and accurately administering a system of penalties.
Although penalties support and encourage voluntary compliance, they also serve to bring additional revenue into the Treasury and to indirectly fund enforcement costs. However, collecting additional funding is not the reason for creating or imposing penalties. Penalties advance the mission of the IRS when they encourage voluntary compliance. The IRS has formalized this obligation to the public in its mission statement: “Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”
Voluntary compliance is achieved when a taxpayer makes a good faith effort to meet the tax obligations defined by the Internal Revenue Code.
Penalties support voluntary compliance by assuring compliant taxpayers that tax offenders are identified and penalized.
Since the IRS has the obligation to advance the fairness and effectiveness of the tax system, penalties should do the following:
· Be severe enough to deter noncompliance,
· Encourage noncompliant taxpayers to comply,
· Be objectively proportioned to the offense, and
· Be used as an opportunity to educate taxpayers and encourage their future compliance.
The primary objective of penalties as shown above is to encourage compliance, deter noncompliance, and educate taxpayers. Consequently, when a penalty is assessed and does not accomplish this objective, it may be proper to ask the IRS to abate the penalty. Under certain circumstances, the IRS will grant abatement requests and remove penalties and the interest on those penalties.