Allen D. Madison (University of South Dakota Law School) has posted The Legal Framework for Tax Compliance (Tax Lawyer, Vol. 70, No. 2, 2017) on SSRN. Here is the abstract:
When the time comes to file a tax return, a taxpayer must take into account the legal framework for the entire tax compliance process. This process includes determining one’s own tax liability, timely reporting and paying the liability, and considering that the taxpayer and the Service each have a limited amount of time to make changes to the initial reported amount.
The first step, determining one’s own tax liability, is no small task. Determining how much to pay the government has no natural analog as in other areas of the law. Although the idea that stealing is bad is instilled in us at such an early age that it seems natural, trying to decide how much tax to pay without guidance from the government would be fruitless. The government communicates its expectations for what each taxpayer is required to pay through statutes, administrative guidance, and judicial opinions. The substantive law is an immense body of law, and a framework for tax compliance ought to discuss how to translate it. Translating the government’s expectations for determining one’s own tax liability requires construing statutes, weighing administrative guidance, and evaluating precedent.
The second step in tax compliance is reporting and paying the tax liability. Unfortunately, these two concepts are not as interconnected as one might think so they require separate discussion. The requirements for reporting and paying have completely difference sources of law, are subject to different penalty rates for noncompliance, and are treated differently when it comes to extending due dates. A taxpayer may also amend her initial reporting. When there is an error in the taxpayer’s favor she may request a refund by filing an amended return.
The final step involves the consideration of how long the taxpayer and the Service have to ask for more money. Generally, each has three years to do so. The taxpayer has three years to claim a refund if she has overpaid, and the Service has three years to assess additional tax if the taxpayer has underpaid. These limitations periods are subject to various exceptions. These exceptions are generally more lenient on the government who legitimately needs more time to examine a taxpayer’s reporting in certain situations.