How do you qualify to participate, and what should be done before applying?
Most programs apply to taxpayers who have both failed to file a return or underreported taxes, so you have to first make sure you qualify and you understand all program requirements. You should calculate your liability and look at the different positions you’ve taken, including what type of taxes you’ve filed for in the past and if you’re filing for all of the right taxes.
A taxpayer must pay the entire amount of taxes, plus some or all of the interest due by the program’s expiration date in order to qualify. Taxpayers may also be required to sign a settlement agreement and agree to file all future tax returns and pay future tax liabilities in a timely fashion. Any audit notice received prior to entering an amnesty program may or may not eliminate a taxpayer’s eligibility, because each program is different.
Failure to comply with all program requirements could lead to the rescinding of all program benefits and protections. Some states impose harsher penalties if a taxpayer is subsequently identified and did not take advantage of the amnesty program.
What is a voluntary disclosure program?
Voluntary disclosure programs will typically have varying look-back periods or the amount of years of past-due tax liability that must be paid once in the program. Any tax liability outside of the look-back period is forgiven.
Typical requirements under a state’s voluntary disclosure program can include any of the following:
- No previous contact with the Department of Taxation or any of its agents
- Willingness to pay all outstanding tax liabilities
- Cannot have previously registered with the state for taxes you wish to pay under the program
- Cannot be under criminal investigation or under audit
- Must not have already received a bill for outstanding tax liabilities
What are some of the differences between voluntary disclosure programs and state tax amnesty programs?
The main differences include a shorter window of opportunity and waiver of penalties and interest for amnesty programs. Amnesty programs also usually require the waiver of any tax appeal rights and have significant look-back periods. The look-back periods in voluntary disclosure programs are usually limited.
Sometimes the voluntary disclosure program is suspended while an amnesty program is taking place. The voluntary disclosure program may give you fewer benefits related to interest and penalty abatements than you would have with a state amnesty program. Every state is different, but a lot of times you’ll get different rate benefits, and an amnesty may provide better abatements than a voluntary disclosure program. You need to understand the benefits and differences between these two programs and determine which one is right for you.
Matthew Stamp is the director of state and local tax services at GBQ Partners LLC. Reach him at [email protected] or (614) 947-5302.
