What Does the IRS Do to Encourage Tax Law Compliance?
Discover the IRS's multi-faceted strategy for tax compliance, which balances taxpayer assistance with measures designed to ensure fairness and accuracy.
The United States tax system is based on voluntary compliance, meaning the government relies on individuals and businesses to calculate their tax liability, file the correct forms, and pay on time. This system is built on the expectation that taxpayers will act honestly and accurately when reporting their financial activities.
The Internal Revenue Service (IRS) is the federal agency that administers this system. To foster high compliance, the IRS uses a multi-layered strategy that combines taxpayer assistance and education with robust reporting structures and clear consequences for non-compliance. The goal is to create an environment where taxpayers are both able and motivated to meet their legal obligations.
Taxpayer Services and Educational Resources
The IRS provides many services and educational materials to help taxpayers meet their responsibilities. The agency’s primary online hub, IRS.gov, is a vast repository of information where taxpayers can download forms and publications, like Publication 17, “Your Federal Income Tax.” The website also features interactive tools and answers to frequently asked questions, providing accessible guidance.
To make tax preparation more affordable, the IRS offers the Free File program. This public-private partnership with tax software companies provides free online tax preparation and filing. For the 2025 tax filing season, individuals or families with an Adjusted Gross Income (AGI) of $84,000 or less for the 2024 tax year are eligible for guided software at no cost. Taxpayers with incomes above this threshold can use Free File Fillable Forms, which are electronic versions of paper IRS forms but do not include step-by-step guidance.
The IRS also supports volunteer-based programs for those needing direct assistance. The Volunteer Income Tax Assistance (VITA) program offers free basic tax return preparation to qualified individuals, generally those who make $67,000 or less, persons with disabilities, and limited English-speaking taxpayers. Similarly, the Tax Counseling for the Elderly (TCE) program provides free tax help for those who are 60 and older, specializing in questions about pensions and retirement. These programs are staffed by IRS-certified volunteers and located in community centers, libraries, and schools.
For taxpayers facing significant hardship or who cannot resolve a problem through normal IRS channels, the Taxpayer Advocate Service (TAS) offers assistance. TAS is an independent organization within the IRS whose mission is to protect taxpayers’ rights and ensure fair treatment. A taxpayer can seek help from TAS if they are experiencing an economic burden, facing an immediate threat of adverse action, or have not received a response from the IRS by a promised date. TAS case advocates work to resolve individual issues and also identify systemic problems to recommend changes to IRS processes.
Information Reporting and Withholding Systems
The system of third-party information reporting is a key element in encouraging compliance. This framework requires employers, financial institutions, and other businesses to report certain financial transactions to both the taxpayer and the IRS. This process creates an extensive data trail that makes it more difficult to underreport income. The most common information return is Form W-2, which employers issue to report employee wages and tax withholding.
Beyond wages, other payments are reported on the Form 1099 series. For example, businesses must issue a Form 1099-NEC for payments of $600 or more for services performed by an independent contractor. Financial institutions issue Form 1099-INT to report interest paid and Form 1099-DIV for dividends. The IRS’s computer systems cross-reference this information with tax returns, automatically flagging discrepancies that may indicate an error.
The tax withholding system also promotes compliance by integrating tax payment directly into the flow of income. Federal income tax is a pay-as-you-go system, meaning taxpayers must pay tax as they earn income throughout the year. For employees, employers use the information on Form W-4, “Employee’s Withholding Certificate,” to calculate and deduct an estimated amount of tax from each paycheck, which is then remitted to the IRS.
This system helps taxpayers avoid a large tax bill when they file their annual return and ensures a steady flow of revenue to the government. Individuals who receive income not subject to withholding, such as self-employment income, are required to make quarterly estimated tax payments using Form 1040-ES to meet their pay-as-you-go obligation.
Examinations and Enforcement Actions
When educational resources and reporting systems are not enough, the IRS uses examinations, more commonly known as audits, to verify the accuracy of a tax return. The most common type is the correspondence audit, which is conducted entirely by mail and addresses a few specific issues, such as verifying a deduction.
A more detailed review is the office audit, which requires the taxpayer to visit a local IRS office to meet with an examiner and review records for items like business expenses. The most comprehensive type is the field audit, where IRS agents visit the taxpayer’s home or place of business to conduct an in-depth review of their books and records. Field audits are reserved for more complex individual or business returns.
If an examination determines that tax has been underpaid, the IRS can assess civil penalties. A failure-to-file penalty applies when a return is not filed by the due date, including extensions. This penalty is 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25%. If a return due in 2025 is more than 60 days late, a minimum penalty applies, which is the lesser of $510 or 100% of the tax owed.
A separate failure-to-pay penalty is charged for not paying the tax owed by the due date. This penalty is 0.5% of the unpaid taxes for each month the tax remains unpaid, also capped at 25% of the unpaid amount. If both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount. An accuracy-related penalty of 20% can be applied to the portion of underpayment due to negligence or a substantial understatement of tax, which for individuals is an understatement of more than $5,000 or 10% of the correct tax, whichever is greater. Interest is also charged on all underpayments and accrues daily from the due date of the return.
In cases of persistent non-payment, the IRS can take more serious collection actions. A federal tax lien is a legal claim against a taxpayer’s property that secures the government’s interest in the debt, and the publicly filed Notice of Federal Tax Lien can harm a taxpayer’s ability to get credit. If the tax debt remains unpaid, the IRS can proceed with a levy, which is the legal seizure of property to satisfy the debt. A levy allows the IRS to take assets such as wages, funds from bank accounts, or even physical property like vehicles or real estate.