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Upcoming State Tax Amnesty Programs Present Great Opportunity Author: Karen
J. Boucher, CPA Editor's note: Ms. Boucher chairs the AICPA Tax Division's State & Local Taxation Technical Resource Panel. If you would like additional information about this article, contact Ms. Boucher at karen.j.boucher@us.andersen.com .
During the 2001 legislative sessions, Louisiana, Maryland and Ohio enacted limited tax amnesty programs. Such programs present a great opportunity for taxpayers to eliminate penalties and in some cases interest on past-due state tax liabilities, and for tax practitioners to assist clients in determining their prior tax liabilities and filing the required applications and returns within the program time frame. The enacted amnesty programs vary in length of time, eligible taxpayers and the benefits that result from using the programs. While Louisiana and Maryland will offer amnesty programs of approximately two months, Ohio's program will run for three months. Louisiana will waive penalties and interest for eligible taxpayers applying within its amnesty program. Ohio's program provides for waiver of penalties and half of the interest, while Maryland's program only waives penalties.
Louisiana Louisiana HB 992, which was signed into law as Act 136, allows a 60-day tax amnesty period between Sept. 1Oct. 31, 2001. The program covers taxes imposed by reason of or pursuant to authorization by Louisiana law and collected by the Department of Revenue (DOR). Amnesty will be granted to those taxpayers applying during the amnesty period, who have filed a tax return for each tax period for which amnesty is requested, complied with the terms and provisions of Act 136 and paid the entire amount due. Amnesty may be granted even for those taxpayers who have been previously notified by the DOR in writing of a failure to file a timely return or of existing tax liabilities for any tax period. In addition, amnesty may be granted even if a lien exists against the taxpayer's property; the DOR has initiated proceedings under an assessment and distraint procedure; or the DOR has entered into an installment agreement with the taxpayer. Amnesty will not be granted:
For taxpayers that are granted amnesty, all interest and penalties on qualifying delinquent accounts will be waived. In addition, the DOR will not seek civil or criminal prosecution for any taxpayers for the tax period for which amnesty has been granted.
Maryland Maryland HB 828, which has been signed into law as Chapter 275, requires the Comptroller to declare an amnesty period for delinquent taxpayers from Sept. 1, 2001Oct. 31, 2001. Only the following taxes are covered under Maryland's amnesty program: state and local income taxes, withholding taxes, sales and use taxes, and admissions and amusement taxes. Although penalties attributable to nonpayment, nonreporting or underreporting of the noted taxes are waived, the Comptroller may not waive any interest charges. The Comptroller will waive all civil penalties (except previously assessed fraud penalties) for taxpayers that pay the tax, plus interest, and (if applicable) file a delinquent return during the amnesty period. In addition, except for criminal charges pending in court or under investigation, such taxpayers will not be charged with a criminal tax offense due to any return filed and tax paid during the amnesty period. Unlike the Louisiana and Ohio laws, Chapter 275 increases specified criminal penalties from $5,000 to $10,000 under various tax laws, effective at the end of the amnesty period, thus providing another reason for delinquent Maryland taxpayers to consider filing the applicable returns and paying the past-due tax within the amnesty program.
Ohio Ohio's amnesty program, which runs from Oct. 15, 2001Jan. 15, 2002, is included within the Biennial Budget Bill (HB 94, Laws 2001). The amnesty program applies to corporate franchise tax; personal income tax; sales and use taxes; certain personal property taxes; and certain taxes on utilities and natural gas and gas companies. The program does not include taxes for which a notice or assessment or audit has been issued, a bill has been issued, or an audit is currently being or has been conducted. Under Ohio's amnesty program, taxpayers properly applying for the program and paying the qualifying delinquent taxes and half of any interest during the amnesty period will be granted amnesty for any penalties and half of the interest otherwise imposed as a result of delinquency in the payment of those taxes. In addition, no criminal prosecution or civil action will be brought against the taxpayer.
Voluntary Disclosure Programs May Provide Better Results Although the merits of the amnesty programs for noncomplying taxpayers seem significant, before signing up (or recommending that a client sign up) under such programs, a comparison should be made of the amnesty benefits to the benefits available under the state's long-standing voluntary disclosure programs, which typically are not affected by the amnesty programs. In many situations, companies have nexus for income/franchise tax, sales and use taxes or both in states in which they are conducting business, but are not properly collecting tax and filing returns. In those states in which no filings have been made, the statute of limitations for assessing prior-year taxes never tolls; therefore, a state could assess tax against a company for an unlimited number of years. Additionally, the associated penalties and interest could easily double the assessment. Voluntary disclosure programs allow businesses to voluntarily report and pay past-due tax liabilities. Under a voluntary disclosure program, the prior-period tax liabilities typically are resolved by requiring the taxpayer to pay only the delinquent tax for a number of past years; the "look-back period" that the states will collect tax from is typically limited to three or four years. In contrast, most amnesty provisions do not limit the "look-back" period; thus, a taxpayer could be required to pay tax for many more years than would be the case under the voluntary disclosure program. While full interest usually will be due if a taxpayer enters into voluntary disclosure, penalties are usually abated. Accordingly, if the amnesty program waives all (or part) of the interest charges on the delinquent taxes, the amnesty program may be a better alternative than the voluntary disclosure program. Eligible taxpayers and taxes also should be considered. Typically, taxpayers are eligible to participate in the voluntary disclosure programs only if the state DOR has not previously contacted the taxpayer about the tax. However, as noted, Louisiana amnesty may be granted even for those taxpayers that have been previously notified by the DOR. In general, most amnesty programs are limited to certain types of taxes, while voluntary disclosure programs usually apply to any delinquent tax. Accordingly, a taxpayer not eligible to participate in an amnesty program may be able to obtain similar benefits under the state's voluntary disclosure programs. The majority of states that offer a voluntary disclosure program also participate in the voluntary disclosure program developed by the Multistate Tax Commission. Initial contact with representatives from either program typically is made through a third party (usually an accountant or attorney), with the taxpayer remaining anonymous throughout the negotiation and agreement process. The AICPA State and Local Taxation Technical Resource Panel has prepared a 50-state voluntary disclosure practice guide, which (among other information) includes the name, telephone number and address of the states' voluntary disclosure program contact person; the number of years for the lookback period; and whether penalties or interest or both are waived. The voluntary disclosure practice guide should be available on the AICPA's Website (www.aicpa.org) by the end of September. |
