3 State Tax Amnesty Programs in 2020

These programs will waive penalties if you pay your back taxes

Man seated at a cafe table with laptop, looking thoughtful
•••

ljubaphoto / Getty Images

 

Amnesty is a governmental act of pardon. It's a decision not to punish a person, business, or 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 states 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.

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 were also included.

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 application.

State Amnesty Programs in 2019 / 2020

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 in 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 June 30, 2021. The program was included in Governor Steve Sisolak's Fiscal Report released on July 6, 2020. Exact details and the timing of the 90-day period have not been announced.
  • North Carolina's amnesty program affects only corporate taxpayers. It runs from August 1, 2020 through December 1, 2020.
  • The state of Washington offers a voluntary disclosure program that has been extended from July 15, 2020 through November 30, 2020, but this applies only to businesses as well. Unregistered businesses can come forward to own up to and pay previously due taxes during this 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 is indicative that they're open to the idea of amnesty programs, and what sort of relief they provided can indicate what they might again 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.
  • 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 15 through November 15, 2019.
  • New Jersey forgave interest and penalties due on taxes from November 1, 2018 until January 15, 2019.
  • New Mexico's Fresh Start Program expired on December 31, 2018. It waived penalties and interest.
  • 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 are 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 penalties and interest.

This list is by no means all-inclusive. Check your state's Department of Revenue 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," such as the program offered by Washington State in 2020, mostly concern sales and use taxes 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. 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 enacted by the tax authority.

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

Federal Tax Amnesty

It's a wonderful thought, but 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 People First Initiative. This measure was taken in response to the coronavirus pandemic. Interest and penalties on taxes due did not accrue during this time period.

These initiatives helps struggling taxpayers avoid failure-to-pay penalties, and by making 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.

Article Sources

  1. Arizona State Legislature. "Arizona Tax Amnesty Descriptions." Accessed Aug. 28, 2020.

  2. Multistate Tax Commission. "State Tax Amnesties." Accessed Aug. 28, 2020.

  3. Nevada Governor Steve Sisolak. "Governor Sisolak releases Nevada COVID-19 Fiscal Report & Fiscal Year 2021 budget summary ahead of Legislative Special Session." Accessed Aug. 28, 2020.

  4. Washington State Department of Revenue. "Voluntary Disclosure Program." Accessed Aug. 28, 2020.

  5. Connecticut State Department of Revenue Services. "Fresh Start Welcome Page." Accessed Aug. 26, 2020.

  6. Federation of Tax Adminstrators. "Current/Upcoming Amnesties." Accessed Aug. 28, 2020.

  7. Streamlined Sales Tax Governing Board. "Tennessee." Accessed Aug. 28, 2020.

  8. Taxpayer Advocate Service. "Coronavirus (COVID-19) Tax Relief." Accessed Aug. 28, 2020.