Everything You Need to Know About Tax Amnesty Programs

You don’t often get a second chance to put things right and that is not always the case when it comes to sorting out your taxes but if there are some things that you need to come clean about or information that needs amending there is a program that offers an opportunity to put the record straight.

Whether you are late with your tax returns, late paying the taxes you owe, or need to declare some understated tax liabilities, these are typical scenarios that are covered by a tax amnesty program and it provides a resolution that could suit you and the tax authorities.

Here is a look at what you need to know about tax amnesty programs.

Why do they offer an olive branch in the first place?

Tax authorities are not renowned for being kind-hearted or lenient when it comes to failing to pay your taxes on time or not declaring the right amount of tax that you owe but there are exceptions and these are worth exploring if you find yourself in a tight spot.

In basic terms, a tax amnesty is an official act of pardon that allows an individual or a business to file late tax returns or pay off their tax debts without being subjected to the usual penalties that would normally apply when you are regarded as being non-compliant.

There is a simple reason why they offer you the opportunity to bring your tax affairs into line without incurring an added penalty and that reason is money.

It has been discovered that by offering a tax amnesty in certain scenarios and under specific conditions it can be an excellent way to generate a bit of extra cash for the public purse.

How it works

In a typical tax amnesty situation, a taxpayer will be able to file an amended return that is more reflective of their true tax liability and they will be given a window of opportunity to pay the tax owed within a specified timeframe.

Fail to do that, and all bets are off, meaning you will probably be chased for what you owe and the penalties that would have been waived will then become due.

Nothing is set in stone

There is an air of randomness attached to state amnesty programs and it is not guaranteed that it will be offered and they are not a permanent feature of tax collection methods.

Not every state offers a tax amnesty program and you just have to watch out for a public announcement where the terms and conditions together with the start and end date for the amnesty are revealed.

You will also discover that each state that is offering a tax amnesty program will set their own terms and conditions. Some states might waive penalties altogether whereas some might offer to waive half of the interest charges that would normally be due.

Your financial adviser or accountant would normally have a good handle on what is going on in your area and the specific terms of the amnesty program being offered.

It may also be the case that the program only applies to businesses and doesn’t include individuals, so it is difficult to predict when an amnesty program will be launched and what the terms of that amnesty will be.

Understanding the rules of engagement

It is always a wise idea to seek professional guidance if you are trying to put your tax affairs in order as it can be a complicated process and you also need to fully comprehend the implications of coming forward and filing under a tax amnesty program.

One typical example to consider would be that in return for being granted a tax amnesty you may well be told that you will have no right of appeal and that the decision made in response to your tax declaration will be final and non-negotiable.

You might also discover that the terms of the amnesty program require you to make payment of the extra taxes you owe at the same time as you file your amended return.

There is another way

It is always worth investigating your options with an adviser if there is an opportunity to put matters right via a tax amnesty program but it is equally relevant to explore whether there might be an alternative route to take that could also provide a resolution.

As already outlined, tax amnesty programs are not always available in your state but a more permanent feature of the tax landscape is an option known as a voluntary disclosure agreement.

Under one of these agreements, you may well be given an opportunity to bring your taxes up to date while getting relief from some of the penalties and interest charges that would normally apply.

The same principle applies to a voluntary disclosure agreement as a tax amnesty program, namely, the provision of a scheme that encourages a taxpayer to come forward without being asked and agree to pay the tax that is due.

You will discover that each state operates within its own tax laws and rules, although there is a degree of uniformity in that the standard period for going back into your tax history is normally between three and five years, also limited penalties and interest to this period of time.

No such good news

The federal tax authorities are not so willing to adopt a forgiving nature and the IRS won’t offer you access to a tax amnesty program.

However, it should be noted that it does have a “Fresh Start Program” which is designed to offer a more palatable way of putting your tax affairs in order and avoid tax liens in the process.

The bottom line is that if you have got behind with your taxes or need to tell them more information that should have been declared previously there may be a way to do this without being stung by punitive penalties and interest charges, but only if you can find a suitable tax amnesty program to sweeten the pill.


Arnel Ariate is the webmaster of Money Soldiers.

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