Amnesty is a governmental act of forgiveness. It's a decision not to punish a person, business, or other entity for some wrongdoing. Under a tax amnesty program, a state provides a time period during which people can file late tax returns or pay off outstanding tax debts without penalty. It's a great way for a state to raise some quick revenue, and it helps taxpayers as well.
Amnesty programs seek to solve three tax problems: late tax returns, taxes owed, and understated tax liabilities.
How Tax Amnesty Works
A state will typically waive late filing penalties when past-due tax returns are filed during an amnesty period. Most will also waive late-payment penalties, and sometimes they'll even waive the interest if the outstanding balance is paid in full during the time period when amnesty is offered.
States will typically waive accuracy and fraud penalties as well if a taxpayer files an amended return to report their true and correct tax liability. They must also pay any additional tax owed during the amnesty period.
Tax Amnesty: An Example
Arizona has offered several amnesty programs over the years. One of the state's Tax Recovery Programs ended in 2015. It reduced or waived civil penalties and interest for unpaid tax liabilities for any tax year ending before January 1, 2014, for annual filers, or before February 1, 2015, for all other filers.
Taxpayers had to submit amnesty applications, payments for past-due taxes, and all original or amended returns in order to qualify. They were ineligible for the program if they had ever been under criminal investigation or the subject of criminal litigation. Convictions for tax crimes also disqualified taxpayers, and they would be ineligible if they had agreed to a resolution for their tax debt with the state.
In return, the Arizona Department of Revenue waived or abated any civil penalties and interest. The ADR also agreed to forego any administrative, civil, or criminal actions. Tax returns were still candidates for audit, however.
Anyone who applied for amnesty surrendered their right to appeal any decisions made in the case.
Taxpayers had to include payment of the outstanding tax due with their amnesty applications.
State Amnesty Programs in 2020 and 2021
Amnesty periods are by no means ongoing or permanent, and not all states offer them. Statuses can change yearly. Only three states offer active amnesty programs for tax year 2020:
- Nevada will waive interest and penalties if you pay delinquent taxes at any point during a 90-day period to end no later than May 1, 2021.
- North Carolina's amnesty program affected only corporate taxpayers. It ran from August 1, 2020, through December 1, 2020.
- The state of Washington offered a voluntary disclosure program that was extended from July 15, 2020, through November 30, 2020, but this applied only to businesses as well. Unregistered businesses could come forward and pay previously due taxes during that time.
States specify the terms and the effective dates of their programs, as well as which types of taxes are included.
Some Expired Tax Amnesty Programs
Several states offered programs that have since expired, but they bear mentioning. The fact that they did so in the past shows that they're open to the idea of amnesty programs, and what sort of relief they provided can indicate what they might provide in the future.
- Connecticut's amnesty program covered individual, corporate, and sales and use taxes through November 30, 2018. The taxes must have come due prior to December 31, 2016. The state waived penalties and 50% of any interest that had been charged.
- The Texas amnesty program ended on June 29, 2018. It covered taxes and
returns due before January 1, 2018, with some exceptions such as returns
that were under audit and certain business taxes.
- Tennessee's amnesty program spared only businesses. There was no single
universal cutoff date. Businesses that enrolled in the Streamlined Sales
Tax (SST) program were eligible for amnesty for the ensuing 12 months
after they signed up. Those that met this requirement were eligible for a
waiver of all taxes due, as well as of penalties and interest.
- Illinois offered an amnesty program for taxes that came due from June 30, 2011, through July 1, 2018. Interest and penalties were abated if taxes were paid from October 1 through November 15, 2019.
- New Jersey forgave interest and penalties due on taxes from November 1, 2018, through January 15, 2019.
- New Mexico's Fresh Start Program expired on December 31, 2018. It waived penalties and interest.
This list is by no means all-inclusive. Check your state's department of revenue's website to find out what it might have offered in the past and whether there might be plans afoot for future programs.
An Alternative to State Tax Amnesty
Many states offer another option for taxpayers to pay their delinquent tax bills and to get relief from penalties and, hopefully, interest as well. These "voluntary disclosure agreements" (VSAs), such as the program offered by that state of Washington in 2020, mostly concern sales and use taxes and corporate income tax.
The purpose of VDAs is to encourage taxpayers who might have potential liability to voluntarily come forward and pay the tax due. Under such a program, you can come forward if you haven't been contacted by your state's department of revenue about your tax delinquency and pay your back taxes and interest. You must agree to pay your taxes on time going forward, and you'll escape any punitive measures that might have been imposed by the tax authority.
Each state has its own laws and rules, but most limit the "look-back" period to three to five years. That limits penalties and interest.
Federal Tax Amnesty
The IRS doesn't offer tax amnesty unless you happen to have undisclosed offshore accounts. It does provide an offer-in-compromise option and installment agreements, however, which make it easier for taxpayers to pay back taxes and avoid tax liens.
The federal government did push back the April 15, 2020, tax due date to July 15, 2020, under the IRS's People First Initiative. Interest and penalties on taxes due did not accrue during that time period. The 2021 due date was extended as well, from April 15 to May 17, 2021, in response to the ongoing coronavirus pandemic. No interest or penalties accrued during that time.
These initiatives help struggling taxpayers avoid failure-to-pay penalties, and they make installment agreements available to more people.
NOTE: The Balance does not provide tax advice, and tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice, and it is not a substitute for tax advice.