Each year, many states announce amnesty programs in an effort to incentivize taxpayers to pay state tax. Most programs, in one form or another, offer partial or full interest and penalty abatement if taxpayers pay back taxes owed. While the programs seem like a win for states in theory, as a state and local tax attorney, I can promise that such programs lead to problems. Auditors in the various states are told to close down improperly completed audits in an effort to get taxpayers in the amnesty program. This, in turn, leads to poorly conducted audits that must be protested and litigated. In short, state and local tax professionals in those states should be licking their chops for the bombardment of work that will likely ensue.
The most recent states to implement a version of an amnesty program are Arkansas, Connecticut, and Louisiana.
Arkansas’ amnesty program applies to franchise taxes and runs from September 1st through December 31st, 2013. In order to participate, taxpayers must submit all reports and forms and pay the computed tax to the state. If a taxpayer meets the requirement of the deal, then Arkansas will waive all interest and penalties for delinquent taxpayers.
Similarly, in Louisiana, a Tax Amnesty program went into effect on September 23rd, 2013. The Louisiana amnesty program is broader than Louisiana in that it covers most state and local taxes. Taxpayers only have until November 22, 2013 to enter into the program if they meet certain requirements. If accepted into the program, Louisiana will waive half of the outstanding interest and all penalties associated with the tax. Louisiana boasts that it is nothing like New York, who will take the driving privilege away from its taxapayer “scofflaws,” but rather will reward its state tax delinquents. Louisiana estimates it will raise about $200 million by “rewarding” its state and local taxpayers who owe somewhere in the neighborhood of $700 million of back state and local taxes.
Taxpayers in Connecticut have until November 30th, 2013 to come forward and settle outstanding tax liabilities. Like Louisiana, this program will cover all state and local taxes administered by Connecticut’s Department of Revenue. If a Taxpayer pays in full, Connecticut offers a 75% interest reduction and full penalty abatement.
If you or your client’s businesses owe a significant amount of tax in any of those states it is a good time to come forward and pay it. One can be sure that there will be some backlash; however, taxpayers who owe money for similar periods may owe penalties and interest that will not get abated. In our experience, these types of programs tend to force auditors to issue hastily completed audit reports which burden the states’ revenue departments. On the flip side, for the state and local tax professionals in those states, as well as SALT professionals with multi-state clients, get ready for the frenzy between now and the end of the year.