What are the laws that legally keeps the IRS from just sending everyone a bill?

Factual Questions
21

Another factor in Canada is the ability to attribute some costs and deductions to either spouse - charitable receipts, tax credits for registered savings plans, etc. I assume the same goes for the USA?

For example, I can income-split retirement income with my wife. last year I did so, resulting in her paying slightly more tax, so as to keep my income below the threshold for repaying unemployment insurance, which made the total bill less.

What we see is that all sorts of programs are added to the tax code to appease this or that lobby. Perhaps the USA is not as ludicrous as Canada, which discussed or has (I think, never used most of them?) deductions for fitness/medical, transit, daycare, elder or disabled care, carbon tax, property tax, retirement savings and carry-over, … the list goes on. That does not even take into account the complexities of people who buy and sell items to generate capital gains on a regular basis, or the even more complex issues of rental properties.

Here, and I presume in the USA, if all you do is earn a salary (tax deducted at source) and maybe have a tax-deductible registered retirement savings, then the “send a bill” option would work. The risk is that the most needy would perhaps miss out on deductions not fully covered by reporting (child care? Medical expenses?).

If there’s an item in the tax code, it’s there to encourage a behaviour or save someone with a lobby group some money.

Plus, where you’ve made an obvious error on the form, the tax people will helpfully send you a bill or a refund based on their calculations. If you miss something because you forgot to report it… well, the tax people might figure it out, might not.

22

People do pay quarterly estimated taxes. The withholding tables are online if you want to do that. It’s a big hassle and everyone I know who does it, resents it (but not enough to sell off their investment properties and work for a wage).

23

I work for a wage and still have to pay quarterly estimated taxes. Because I am an American who lives outside of the U.S.

My Swiss tax accountant charges 50% of the American tax accountant, plus I pay for all the other fun of being a non-resident American (FATCA, FBAR). In the days before all tax returns were digital, I could stack the paperwork from the Swiss taxes and the American taxes side-by-side and see that the paperwork for the American taxes is more than 3x the Swiss taxes.

24

I think the question is really what authority would the IRS use to send a bill to every American and demand they pay those taxes? And the problem for the IRS would be that they have no such authority. If you want to point to a “law” that says they can’t send a bill to everyone, I would start with the Fourteenth Amendment that says that the government can’t deprive you of property without due process of law. Due process, in this case, being a duly passed law that gives the IRS the authority to send everyone a bill and demand payment.

25

There’s no legal or procedural issue stopping the IRS from sending everyone a letter in March saying “this is your estimated tax liability. If you disagree, complete your own return in the traditional way. Otherwise sign this and send a check by March.” Under current law they’re free to send you advisory notices, you’re free to make the case that they’ve miscalculated.

I know this, because every year the IRS collects taxes from me with no 14th Amendment issues whatsoever, and sometimes when I underpay, they send me a notice saying they think I owe more (they have always been correct). Again with no 14th Amendment issues whatsoever.

The only thing AIUI is that it would be expensive to institute such a new procedure, and it wouldn’t pay for itself. That means Congress would need to budget the expense. But between the TurboTax lobby and Republicans who want taxes to be painful and therefore unpopular, that’s just not going to happen.

26

Do most Americans get a tax bill? In Canada, most regular employees get refunds, but most self-employed and investors get bills.

The IRS wouldn’t send everyone a bill because most people wouldn’t owe money, I expect.

27

About 3/4 of Americans who file a federal tax return get a refund (as opposed to having to send in a payment with their return), yes.

https://smartasset.com/checking-account/tax-refunds-and-their-hidden-cost-2020

28

I own a small business and do quarterly estimated taxes because my income is unpredictable and I don’t want to be hit with a massive bill at the end of the year. It is indeed a huge pain in the ass, so much so that I hire a professional accountant to deal with it for me, but better than the alternative. I think this is a pretty common practice for small business.

29

One problem I see is that would it impede further investigation? Let’s say I had a regular W-2 job and some income on the side. I get the letter from the IRS and realize that I owe way more than that, but hey, what do I know? The IRS said I only owe this so I will only pay this. What if I am not that financially savvy and believe that is really all I owe? Does it stop there? What if the IRS then audits me? Can I use their earlier letter as a defense?

And if they are going to be checking anyways, all this “solution” does is have the government act as tax preparer for everyone and a very poor and basic one at that.

30

Which is my basic point in responding to txtumbleweed. Yes, you can reduce your withholding to zero and pay quarterly. People do that for various reasons. It’s a hassle, but not enough to change whatever livelihood requires them to do that.

31

There aren’t any new problems here. The letter would simply be “This is an estimate we prepared for you. You may pay the estimated balance on the enclosed form, or you may reject this estimate and prepare the traditional way. This is not an exemption for any income that may be reported to us later, for which you may get an additional bill.”

This is no different to me forgetting to report a stock trade in April, and getting a letter in August saying “you underreported $1000 of income. No hard feelings, but you must respond with either a check or a document explaining why you don’t owe this.” Happens to me all the time, this seems routine because I’m used to it by now.

Anyone who needs a high-powered tax preparer could continue doing that, just shred the estimate the IRS sends and prepare their own return.

But most people don’t need a high-powered tax preparer. For about half my life, my tax return was simply taking 4-5 forms and entering them into a 1040. The IRS would send a letter if I forgot one. It would have saved a lot of stress if they sent me a pre-filled form and say “sign it if it looks right, otherwise do it yourself.”

32

Yes, I just wanted to clarify that “living off investment income” isn’t the only reason someone might choose to go that route.

33

I kind of think at this point, there’s both a tax preparation industry AND a lot of people employed by the IRS that would be impacted negatively if bills were sent.

However… I bet it would help a lot of people out if they just sent you a letter saying what they think you should owe. This way, for the 75% of people who fill out simple returns, it would be more or less “the answer” that they could check their tax-filing work against, and for the other 25%, it would be something they could just compare against, if they’re going long-form.

You could even sort of skirt any sort of requirement that tax forms be filled out, by having a check-box for “Pay the amount on the letter” and an amount to enter, and then attach the letter (or not). Kind of like a bill, but not quite.

34

It bears mentioning that this is the same thing as a bill, because a bill is also just “this is what we think you owe.”

A bill isn’t an ironclad reckoning of a balance due. What happens if your electric company discovers they’ve underbilled you for service? Do they say “OK, I guess you don’t owe that” and write off the lost revenue? Do they haul you into court for the difference? Neither. They just send you an updated bill with an explanatory line item, and you pay it.

It could be this easy with the IRS. As I already mentioned, they already do some form of telling taxpayers “you guessed wrong, send more.” An up-front billing process would just eliminate the guessing game.

We could take this a step further and let every American have a government-provided savings account. You could direct-deposit a fraction of your paycheck for taxpaying purposes, and they could automatically debit the amount they bill you. Or if you’re due something like a stimulus payment or social security, they could deposit it directly there.

There is so much we could be doing to reduce friction in these government interactions, but certain people insist on the friction because of the hostility it creates toward government obligations in general.

35

The problem here is not the inherent unconstitutionality of any plan to bill everyone for their taxes; the problem is simply that Congress has never given the IRS the authority to do what the OP proposes.

I’m not sure what’s happening to you but it sounds like you are doing a mediocre job of preparing your tax return and the IRS keeps finding deficiencies. They do that only do so after you have asserted that you owe, and pay them, less money. That is not what the OP proposed.

36

The IRS has the authority to send taxpayers notices of what the IRS believes it is owed. This already happens in the case of field audits. No new authority would need to be required.

This is correct, I am extremely lazy in reporting micro amounts of investment income. I don’t get paid to catch errors like that, but the IRS does.

Correct, they are not precisely the same thing. But it demonstrates that the IRS already has the ability and authority to compute tax due and send a bill. I don’t think Congress approves every individual type of mailing that the IRS does.

37

It might help everyone here if they would do a web search for the document “An Overview of Federal Regulations and the Rulemaking Process.” A two-page document. I’ll quote a couple of sentences:

Congress often grants rulemaking authority to federal agencies to implement statutory programs.

Congress delegates rulemaking authority to agencies for a number of reasons. Perhaps most importantly, agencies have a significant amount of expertise and can “fill in” technical details of programs that Congress has created in statute.

Therefore, to control the process by which agencies create these rules, Congress has enacted procedural statutes, such as the APA, that dictate what procedures an agency must follow to establish a final, legally binding rule.

Beyond Congress’s power to legislate, Congress may also use the traditional tools of congressional oversight to direct agency priorities. Such congressional actions might include holding committee hearings or gathering information on an agency’s rulemaking activities.

Congress may use the “power of the purse” to require agencies to act in certain ways.

38

Can Americans actually do that? Or is that only for people with non-wage incomes?

As far as I know Canada does not allow an employer to fail to withhold taxes on wages; you can fill out a form each year which estimates your income and how much tax to deduct - usually for having extra tax taken off so you don’t end up owing big dollars at year end.

I assumed all countries take this position - saves the IRS or equivalent from chasing most taxpayers at year-end, or having to deal with “but I have no money left to pay taxes” for people who can’t manage money.

39

Although it’s a minor point, the ideas highlighted here have been annoying me through this thread. Technically, most people already have paid their taxes all through the preceding year and the govt already has their money. Filing your tax return is simply running over the numbers and figuring out if the amounts you’ve already paid were correct, and evening-up at the end of the year.

You’re figuring out the change the waiter should bring you from the bill you’ve already paid with a $20 bill. You might even think of figuring out the tip (which is personal to you) as equivalent to letting the govt know about your kid’s medical bills or other deductions they don’t actually know about.

One thing I haven’t seen mentioned yet is that the tax forms you (and the govt) get at the end of the year summing up what you made and what you should have owed come out at the end of the year, so you can’t really do your return up ahead of time. But, you have 50 million people needing to file returns and far fewer govt employees to check them. That’s why it takes until august for them to get to your return and point out your mistake.

You can get a lot of refunds/etc done much faster by having 50 million people do their own up front, then have a few thousand govt workers double check them through the rest of the year and snag the 10% (or whatever number) of people who messed up. Would you want to wait until summer or fall for the govt to send you a refund you could have calculated yourself moths earlier?

40

One other thing to add is that in Canada at least, you can ignore sending in your return and the govt will do it for you. BUT, if it turns out you owe them, you’ll get late filing penalties and owe them interest for the amount you underpaid. If they owe you however, they don’t pay you any interest. So if you are sure you’ve paid enough, you could technically wait for the govt to do your taxes for you and not pay any penalties. But that’s a gamble.