State Tax Amnesty Programs – Are They a Fit for Your Company?

Companies with known underpaid taxes can accrue a significant amount of delinquent interest and penalties if the unpaid tax amount is substantial and has been increasing over a long period of time. Therefore, when a company becomes aware that a taxing jurisdiction is offering a Tax amnesty program, they should strongly consider whether taking advantage of the program is right for their company. This article focuses on the general opportunities and complications associated with tax amnesty programs. As of the date of this article, Alabama, Connecticut, and Texas have amnesty programs scheduled for 2018. Given that the Texas Amnesty Program begins May 1, 2018, we will also provide some helpful information about the program later in this article.

Amnesty programs are considered beneficial to taxpayers because they typically offer waiver of 100 percent of penalties due on unfiled taxes and an abatement of all or a portion of the statutory interest due. However, many amnesty programs do not include the most current periods open for audit. Settling a tax underpayment related to the 2016 tax year through an amnesty program may create a benefit, but it may simultaneously notify the state of a 2017 liability.

Timing is crucial because most amnesty programs are only open from one to three months. Taxpayers have a limited window of time to comply, requiring taxpayers to move quickly once amnesty is announced and the covered period begins. Frequently the enacting law simply grants a state’s Department of Revenue the authority to administer an amnesty program. Furthermore, politicians typically pass the bill granting a tax amnesty program in the year that the program is to occur. As such, timing can be an issue for the Departments because they may only have a few months to assemble amnesty teams, generate forms, issue materials explaining the amnesty program, and create an amnesty website. Likewise, taxpayers may not have enough time to determine if amnesty is the right course of action, especially when there is a disputed technical tax matter that the taxpayer is not ready to concede. 

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