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.
- The rules surrounding amnesty vary by state, type of applicant, tax liability details, and time frame for back taxes.
- Some states offer voluntary disclosure agreements (VDAs). which provide similar relief from penalties and some tax liability for failure to pay in previous years.
- The IRS does not have a general amnesty program for federal taxes, but it does offer repayment plans for back taxes.
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.
In Arizona as in many state amnesty programs, 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 2021 and 2022
Amnesty periods are by no means ongoing or permanent, and not all states offer them. Statuses can change yearly. Only one state offers an active amnesty programs for tax years 2021 and 2022, though legislation may be enacted in others:
- Connecticut's amnesty program covers individual, corporate, and sales and use taxes through January 31, 2022. The taxes must have come due prior to December 31, 2020. The state waives penalties and 75% of any interest that has been charged.
- California introduced the Tax Amnesty Revenue and Recovery Act in February 2021, but it is still in bill form. If passed, the state will offer amnesty during a two-month window from September 1 through October 31, 2022, and waive penalties and criminal actions for individual and corporate taxpayers for tax liabilities carried over from the 2020 tax year.
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.
- Nevada waived interest and penalties if you paid 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.
- 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" (VDAs), such as the program offered by that state of Washington, 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.
These initiatives help struggling taxpayers avoid failure-to-pay penalties, and they make installment agreements available to more people.
Frequently Asked Questions (FAQs)
What's the difference between amnesty and voluntary disclosure?
State tax amnesty programs are set up as temporary windows of forgiveness to encourage individuals and businesses who owe taxes from years prior to settle their debts, without the fear of criminal penalties or excessive interest charges. Voluntary disclosure agreements may offer the same benefits, but are not limited to a certain timeframe, and rely on the taxpayer to come forward.
How can I find out if my state has an amnesty program?
Each state is different in terms of how they impose and collect taxes, and legislation is subject to change. To get the most accurate and up-to-date information, visit your state's Department of Revenue website.
If I move from one state to another, which tax law applies to me?
You are subject to state tax laws during the time you lived there. This means if you moved in the middle of a tax year, you may have tax liability in more than one state. Similarly, amnesty programs in any given state will apply to your residency and tax liability there, and cannot carry across state lines.