Instead of having taxes withheld at every pay period then filling a tax return the following year to determine further liability or refund status, I'm wondering if it's possible to defer pay period withholdings to say year end. One intent of this would be to maximize potential investment income on the extra gross income, like a no interest/penalty loan of sorts from the IRS.
No. The IRS will assess an "Underpayment Penalty" if you have not been paying as you go through the year. You would have to have a reasonable amount withheld at least quarterly to avoid the penalty.
Generally you will owe the underpayment penalty if you owe more than $1,000 at year end, or have had less than 90% of your actual tax due withheld through the year.
As Quid discusses, the IRS is not in the business of giving free loans. The government needs the money throughout the year, and it needs to collect it evenly throughout the year.
As a practical concern, 55% of Americans have no savings and live hand to mouth. If those people deferred their taxes to an April 15 balloon payment, realistically they would be unlikely to manage their savings to meet it. April would come and they just wouldn't have it! This would create a very expensive enforcement and collection problem for the IRS. And a cash flow problem for the citizen now accustomed to tax free income, because his paycheck now shrinks by double or triple the normal withholding - garnished for his past taxes, penalties and interest, and of course the normal withholding for this year. And his lawyer bill.
There is a big exception. If the underpaid tax was caused by income that occurred at the end of the year, then the IRS gives you a wave. They don't expect you to pay estimated tax evenly if the income wasn't even. I did exactly that when I converted an IRA to a Roth in an gap year. The small income of that year accrued no tax; the conversion ran the tax bull up to about $5000 but it happened in November. I paid on April 15 and never heard another thing about it.