4 State Tax Amnesty Programs in 2018

These programs will waive penalties if you pay your back taxes

Tax forms for previous years. People who need to file late tax returns can get a break on penalties during a tax amnesty.

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Amnesty is a governmental act of pardon or a decision not to punish a person, business, or entity. 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 states to raise some quick revenue.

Problems That Amnesty Can Fix

Amnesties seek to solve three types of tax problems: late tax returns, taxes owed, and understated tax liabilities.

The state will typically waive late filing penalties as long as past-due tax returns are filed during the 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 amnesty period.

The state typically waives penalties as well, such as late payment fees and accuracy and fraud penalties when a taxpayer files an amended return to report his true and correct tax liability. He must also pay the additional tax owed during the amnesty period. 

Status of Active State Amnesty Programs

Amnesty periods are by no means ongoing or permanent and not all states offer them. Statuses can change yearly. Only four states offer active amnesty programs as of May 2018: Connecticut, Indiana, Texas, and Tennessee.

When they establish and publicize their tax amnesty programs, states specify the terms and the effective dates, as well as exactly which types of taxes are included.

Connecticut's amnesty program covers individual, corporate, and sales and use taxes through November 30, 2018. The taxes must have come due prior to December 31, 2016. The state will waive penalties and 50 percent of any interest.

Indiana's program ends on December 31, 2018, for taxes that came due after January 1, 2017. It covers both income and sales and use taxes. Indiana will waive all taxes due prior to 2017, as well as penalties and interest.

As for Texas 403, you're rapidly running out of time if you owe taxes to this state. The program ends on June 29, 2018. It covers taxes and returns due before January 1, 2018, with some exceptions such as returns that are under audit and certain business taxes.

Finally, Tennessee's amnesty program spares only businesses. There's no single universal cutoff date. Businesses that have enrolled in the Streamlined Sales Tax (SST) program are eligible for amnesty for the ensuing 12 months. Those that meet this requirement are eligible for a waiver of all taxes due as well as penalties and interest.

Other States

Both Alabama and South Carolina have announced that they'll offer amnesty programs in the near future. As of May 2018, South Carolina had not yet specified the types of taxes that will be covered. Alabama's eligibility period will run from July 1, 2018, through September 30, 2018, for all taxes except property taxes and those associated with motor vehicles and fuel.

The remaining states have no current or anticipated programs, but this could change at any time so check with your state's Department of Revenue periodically for current updates.

How State Tax Amnesty Works: Arizona as an Example

One of Arizona's Tax Recovery Programs—it's actually offered two in recent years—ended in 2015. The program 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. You were ineligible for the program if you had ever been under criminal investigation or the subject of criminal litigation. Convictions for tax crimes also disqualified you, and you would be ineligible if you had agreed to a resolution for your 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 his right to appeal any decisions made in the case. 

The following tax types were eligible for amnesty: income tax, car rental surcharge, county excise taxes and any other privilege excise tax administered by the Department, electric and natural gas use taxes, jail excise tax, jet fuel excise and use tax, severance tax, tax on hotels, tax on water use, telecommunication services excise tax, transaction privilege tax, and use tax.

Taxpayers had to include payment of the outstanding tax due with their amnesty application.

An Alternative to State Tax Amnesty

Many states offer another option for taxpayers to pay their delinquent tax bills and get relief from penalties and hopefully interest as well, although these "voluntary disclosure agreements" mostly concern sales and use tax and corporate income tax.

The purpose of these VDA programs is to encourage taxpayers who might have potential liability to voluntarily come forward and pay the tax due. If you haven't been contacted by your state's Department of Revenue because of your tax delinquency, you can come forward, pay your back taxes and interest, and agree to pay your taxes on time going forward.

Each state has its own laws and rules, but most limit the "look back" period to three to five years, which limits penalties and interest.

Federal Tax Amnesty

It's a wonderful thought, but the IRS doesn't currently offer tax amnesty unless you happen to have undisclosed offshore accounts. It does provide the Fresh Start Program, however, which makes it easier for taxpayers to pay back taxes and avoid tax liens. Even small business taxpayers can benefit from Fresh Start.

The initiative helps struggling taxpayers by taking steps to provide new penalty relief to the unemployed, including avoiding failure-to-pay penalties, and by making installment agreements available to more people.

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