Tax Amnesty
Before You Apply for Tax Amnesty
by William Perez
Taxpayers of all types, both individuals and business, sometimes "forget" to file a tax return, or sometimes they "overstate" expenses and deductions in order to get a bigger refund. Tax Amnesty and Voluntary Disclosure programs are designed with these taxpayers in mind.
The Goal of a Tax Relief Program
Both Tax Amnesty and Voluntary Disclosure programs encourage people to file and to pay their back taxes. In return, the tax agency may reduce penalties, or even waive the penalties entirely. In order to qualify for the waiver of penalties, the taxpayer must pay the entire amount of taxes due, plus any interest, by the program's deadline. Also, the taxpayer may have to sign a settlement agreement in which the taxpayer agrees to file and to pay all taxes on time in the future.
Amnesty Programs
A Tax Amnesty program provides comprehensive tax relief. Typically an amnesty has a very short window of opportunity. The goal is to collect as much back taxes as possible in a very short period of time, usually two or three months. Generally, the state will waive penalties if you file returns and pay your taxes during the amnesty period. And usually the state will impose larger than normal penalties if you fail to take action during the amnesty period.
Voluntary Disclosure Programs
A Voluntary Disclosure program tends to be more open-ended. Voluntary Disclosure programs encourage people to file and to pay their back taxes without the state having to contact the person first. If you have received a letter from the state asking you to file a return, or proposing that you owe more taxes, then you do not qualify for a Voluntary Disclosure program. Several states have on-going voluntary disclosure programs. This means there is no firm deadline.
Voluntary Compliance Programs
A hybrid of the two programs is called a Voluntary Compliance Initiative. Typically, the voluntary compliance initiative will run during a short period of time, and targets taxpayers in very specific situations. However, the tax agency does not know who these taxpayers are. For example, the IRS operated a Voluntary Compliance Initiative to uncover taxpayers who utilized certain types of tax shelters to hide income.
