The Tax-osaurus Rex, or the fearsome offshore voluntary disclosure programs, has made thousands of taxpayers panic since it smashed through the scene a few years ago. While some chose to run and probably ended up torn to parts by vicious raptors (collectors), others are trying to survive by disclosing their foreign accounts and making up for previous tax returns and FBAR transgressions. Unfortunately, federal raptors aren’t the only terrors that’ll drive you behind a kitchen counter; ‘friendly’ state raptors are sniffing taxpayers out.

“You Just Went and Made a New Dinosaur?”

Well, the few states with state income tax were tempted to get a piece of the IRS’s action. After all, taxpayers who didn’t report their interest income from an undisclosed Swiss account probably didn’t report it for state tax purposes. Therefore, if you’re amending up to eight income tax returns to disclose and report income to the IRS, prepare to amend your state tax returns as well.

Now most states have their own offshore voluntary disclosure programs. While some are knock-offs of the IRS’s program, some are quite unique despite being the me-too type. Regardless, getting these out of the way, even if your state doesn’t mandate it, is definitely the right way to go. This is especially true since the state can seek criminal penalties even if the IRS has already decided against gobbling you whole.

The following are the states with offshore voluntary disclosure programs of their own. However, this information may change in the future, so always rely on professional legal opinion to ensure that you’re covered and safe from your local raptors before they decide that you’re their next meal.

• Arizona – The Arizona Department of Revenue offers its program for those who haven’t fulfilled their individual tax, corporate tax, use tax, transaction privilege tax or withholding tax obligations in the state but would like to come into compliance with current filing requirements. The qualifications are quite superficial, which is why you should consult with your tax lawyer to find out if you’d be well served going under the program. (More Information)

• Connecticut – The Connecticut Department of Revenue Services (DRS) offers businesses and individuals who are not in compliance with the state’s tax laws to come forward voluntarily or ensure that their accounts are in compliance. A taxpayer may be disqualified from this if they were contacted by the department, caught misrepresenting facts, or if they failed to comply with the terms of the agreement. While it does mirror the federal programs, you’ll need to find out whether the look back is six or eight years for standard. (More Information)

• Florida – The voluntary disclosure administered by the Florida Department of Revenue applies, but isn’t limited, to sales and use tax, county tax (a.k.a. discretionary sales surtax), corporate income tax, communications services tax, documentary stamp tax, gross receipts tax, fuel taxes, insurance premium tax, and reemployment compensation tax. The department will consider the three years preceding taxpayers’ requests. So if you’re a business entity with foreign holdings, file right away. (More Information)

• Georgia – The Georgia Department of Revenue’s Voluntary Disclosure Agreement (VDA) program is available for individuals and businesses alike. Participants will receive a waiver of all penalties as well as a time limit for disclosing and paying previous liabilities. The look back period is usually for a minimum of three years for all tax types. However, the department can extend the period to five years for taxpayers who filed their federal income returns but not their Georgia individual income tax. (More Information)

• Indiana – Indiana’s Department of Revenue has established a voluntary disclosure program, but it’s relatively simpler than the rest on this list. The program is only available for taxpayers who don’t have brick-and-mortar nexus with Indiana. The rest may submit requests, but the department will offer an alternative proposal. Anonymity is a must while applying formally; therefore you’ll need to work with a third-party representative. (More Information)

• Iowa – A non-specific program, Iowa’s voluntary disclosure program covers individual income tax, corporation income tax, motor fuel tax, franchise tax, use tax and local option sales tax, fiduciary income tax, withholding income tax, and cigarette and tobacco tax. (More Information)

• Kansas – Kansas’ Department of Revenue offers another non-specific voluntary disclosure program which alleviates penalties for late filing and payment while mandating the payment of interest. (More Information)

• Kentucky – The Kentucky Department of Revenue designed its program to tackle taxes administered by the department as well as domestic or foreign taxpayers who are subject to taxation in the state. It isn’t for taxpayers who underreport taxes due while filing returns. Now the program’s description is quite superficial, which is why you’ll need to consult with an expert before applying. (More Information)

• Louisiana – The Louisiana Department of Revenue also offers a non-specific program where taxpayers can anonymously and voluntarily pay their taxes at either no penalty or a reduced one. The program covers all the taxes the department covers, including individual income tax, excise tax, sales and use tax, and severance taxes. (More Information)

• Maryland – The Comptroller allows individuals as well as businesses to report and pay their previously due tax liabilities in the state. However, the non-specific program mirrors the federal program without really providing much detail. (More Information)

• Minnesota – The Department of Revenue in Minnesota offers its program to qualifying individuals with back taxes. In addition to reducing/waiving some penalties when possible, the program may allow you to limit how far back the department can audit through your records. (More Information)

• Mississippi – The Mississippi State Tax Commission’s program aims to promote compliance and benefit taxpayers with previous filing obligations and liabilities. Again, this is a non-specific program which you’ll need help for. (More Information)

• Montana – Specifically addressing foreign accounts, the Montana Department of Revenue’s voluntary disclosure program mandates reporting foreign assets on both state and federal returns. However, the program doesn’t specify a look back time, so you’ll need to touch base with specialists. (More Information)

• New Hampshire – Administered by the New Hampshire Department of Revenue Administration, the program helps resolve prior tax liabilities. It covers all tax types tackled by the Department as well as any type of domestic or foreign taxpayer. However, the state doesn’t have income tax on unearned income such as foreign investment earnings. (More Information)

• New Jersey – The Department of Treasure, Division of Taxation in New Jersey announced a voluntary compliance program that would follow the IRS initiative and identify assets and reported income from offshore accounts. The program is for both individuals and businesses that “realize they have a tax filing obligation or that their business activity creates nexus for New Jersey state tax purposes”. The look back period is four years in total, three prior years and the current year. Moreover, taxpayers may avoid paying civil penalties, but they will need to pay the 5% late payment penalty and 5% amnesty penalty. If you choose, however, to forgo this opportunity, certain discovery will force the imposition of all penalties and may lead to criminal prosecution. (More Information)

• New York – New York’s Tax Department’s Voluntary Disclosure and Compliance program invites taxpayers who owe back taxes and haven’t filed related returns to avoid penalties and possible criminal charges. The look back period in this case is a minimum of six years or the number of years the offshore account was held if it was less. On the other hand, if you’re in an IRS OVDI program, the look back period will be equal to the tax years you’re required to file with the IRS. (More Information)

• North Carolina – North Carolina Department of Revenue has established a tricky program that applies to taxpayers who failed to file returns and pay taxes to the department. Its main goal, though, is to resolve corporate income, franchise tax, and sales and use liabilities when nexus is an issue. (More Information)

• Ohio – The Ohio Department of Taxation rolled out its own voluntary disclosure program to encourage individual taxpayers to tackle and resolve income tax liabilities they believe they may have. As a result, they can avoid the consequences of a nexus investigation, audit or assessment. Since the program is for “those who believe they have a liability”, it’s not specific and can be misleading without professional guidance.(More Information)

• Pennsylvania – Pennsylvania’s voluntary disclosure program offers individuals and businesses that recently became aware of their tax obligations a chance to come forward. Again, penalties will be waived and only tax and interest should be paid. However, you’ll need to prove that you’re one of those who weren’t aware of their obligations till recently. (More Information)

As for the rest of the states with income taxes, they have their own programs which are only for business compliance or for non-filers.

“That’s How It Always Starts. Then Later There’s Running and Um, Screaming.”

After finding out that your T-rex horrors aren’t limited to the IRS, your mind must be screaming “RUUNNN!” However, in the words of Dr. Alan Grant from Jurassic Park, “T-Rex doesn’t want to be fed. He wants to hunt.” Therefore, don’t give the IRS and the state the chance to pile evidence against you and penalize you heavily. We’re here to help you find a balanced approach that allows you to comply with both the IRS and the state without affecting your nest egg. That way, you can truly sit back and enjoy the ride.  Connect with me on TaxConnections.

Original Post By:  Michael DeBlis