We are seeing a lot of amnesty program activity taking place among the states right now. So what is an “amnesty program”? It is a specific initiative determined by a state’s legislature and governor, where delinquent taxpayers can come forward, make themselves known to the state, and file tax returns (and pay taxes) on specific taxes that the state designates through the program. An amnesty limits the taxable period covered, (e.g. all taxes due before 1/1/13), and the time period for coming forward (e.g. the taxpayer must come forward between 9/1 – 10/15/15 to be eligible).
The benefit to an amnesty program is it allows taxpayers to come forward voluntarily for back taxes. The understanding is that the taxpayer comes forward and the state will generally waive penalties and interest; it’s a method of bringing companies into compliance in a non-punitive way.
Sounds like a great idea – right?
Amnesty Program Objections
We haven’t reported on amnesty programs much in the past because of our three main objections to the way they work:
- Exact fact pattern: Amnesty programs are often written to waive interest and penalties on taxes prior to a certain date, like January 1, 2013. The problem is that, since we’re in the middle of 2015, the taxpayer would still need to file almost three years of tax returns, and would likely be hit with additional penalties and interest on those years. The truth is that negotiating under a voluntary disclosure agreement might actually be a more cost-effective option for them.
- Limited taxes covered: Sometimes the amnesty program only covers certain taxes, such as sales tax, but not income or franchise taxes. In this case, we may save interest and penalties on sales tax, but have no way to reduce penalties on other taxes that may be due.
- Rigid rules: Because the windows for filing for an amnesty program are very narrow, clients need to pull information together very quickly to be compliant with the terms. We’ve seen scenarios where the state includes wording indicating that returns filed under amnesty cannot be amended, particularly for overpayment. So, in essence, a company has to pull all the necessary tax data together in a very short period of time, file the returns and paperwork under amnesty, write a big check (sometimes) and send everything in within 45 days – and it must be correct! If they had all that in order, they probably would have been filing already!
Current State Amnesty Programs
Still, sometimes it’s worth considering an amnesty program if the client’s fact pattern makes sense.
There are currently six states in amnesty:
- Arizona
- Filing dates: September 1, 2015 – October 31, 2015
- Benefits include: Civil taxpayer penalties and interest being reduced or waived.
- Taxes covered: All taxes administered by the Arizona Department of Revenue.
- Note: This amnesty program does not apply to Arizona’s luxury tax or withholding tax.
- Find out more here.
- Indiana
- Filing dates: September 15, 2015 – November 16, 2015
- Benefits include: Interest, penalties and collection fees being waived.
- Taxes covered: Income, sales, withholding, inheritance, estate and generation-skipping transfer tax liabilities.
- Note: You are ineligible from this amnesty program if you participated in 2005 or the Streamlined Sales Tax Amnesty. You’re also prohibited from participating in future amnesty. Non-participants are subject to a double penalty for any liability discovered post amnesty.
- Find out more here.
- Kansas
- Filing dates: September 1, 2015 – October 15, 2015
- Benefits include interest and penalties being waived.
- Taxes covered: Privilege, income, estate, cigarette, tobacco products, liquor enforcement, liquor drink, mineral severance, state sales and use, and local sales and use.
- Find out more here.
- Maryland
- Filing dates: September 1, 2015 – October 30, 2015
- Benefits include penalties and 50% of interest being waived.
- Taxes covered: Personal income, corporate income, withholding, sales and use, and admission and amusement.
- Find out more here.
- Missouri
- Filing dates: September 1, 2015 – November 30, 2015
- Benefits include interest and penalties being waived.
- Taxes covered: Income, sales, use and corporate franchise.
- Find out more here.
- Oklahoma
- Filing dates: September 14, 2015 – November 13, 2015
- Benefits include interest and penalties being waived.
- Taxes covered: Mixed beverage, gasoline and diesel, gross production and petroleum excise, sales and use, income, withholding and privilege.
- Find out more here.
Check back next week for a real-life example that shows how complicated and confusing amnesty programs can be. In the meantime, please contact us if you have any questions about the amnesties currently underway, or would like to consider this option for your business!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit. To learn more, contact us today at www.MilesConsultingGroup.com.
