On February 20, 2017, the Governor of Virginia signed legislation into law that will require the Virginia Department of Taxation to administer a tax amnesty program. The legislation, House Bill 2246, requires the program to take place sometime between July 1, 2017 and June 30, 2018, for a period of 60-75 days. This amnesty program is Virginia’s first since 2009.
Participating taxpayers with unpaid tax liabilities due to Virginia will receive a waiver of all civil or criminal penalties and one-half of the interest due in exchange for payment of the outstanding tax liability. The program is available to taxpayers with liabilities resulting from nonpayment, underpayment, non-reporting, or under-reporting of their tax liabilities. Any tax administered or collected by the Department is eligible for the program.
The amnesty program does have limitations related to tax periods and assessments that are eligible for amnesty. For income tax purposes, the program generally will not apply to any tax liability that is attributable to taxable years beginning on and after January 1, 2016. Further, a liability with respect to an outstanding assessment dated less than 90 days prior to the first day of the amnesty program is not eligible for the program. As with many state tax amnesty programs, a 20% post-amnesty penalty will be assessed against any taxpayer that does not participate in the program on any tax balance remaining after the amnesty program ends. The Department will issue additional details on the exact dates of the program and the participation procedures.
The amnesty program is separate from Virginia’s ongoing voluntary disclosure program, which is generally available to out-of-state non-registered business taxpayers with an outstanding Virginia tax liability. Any businesses considering coming forward to pay their Virginia tax liabilities should examine which program is more beneficial. One important distinction is that the voluntary disclosure program grants a waiver of all tax, penalties, and interest for periods older than a three-year look-back period. Thus, businesses with a tax exposure that is greater than three years may find the voluntary disclosure program more appealing despite it not offering the same level of penalty and interest waivers for the periods for which tax will be paid.
If you have any questions about Virginia’s amnesty program, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.
On August 4, 2015, the Maryland Comptroller’s office hosted an informal gathering for tax practitioners to ask questions of the Comptroller’s staff regarding the upcoming Maryland tax amnesty program, as well as the processing of refund claims related to the Wynne decision.
The tax amnesty program, which will take place from September 1, 2015 to October 30, 2015, gives Maryland taxpayers the opportunity to come clean on any outstanding tax liabilities. The program allows for the waiver of civil penalties and one-half of any outstanding interest due to the nonreporting, underreporting, and/or nonpayment of Maryland state and local income tax, withholding taxes, sales and use taxes, and admissions and amusement taxes.
In the August 4th meeting, the Comptroller’s staff clarified that the amnesty program does not apply to tax year 2014, as amnesty is only being offered for tax liabilities arising from returns due on or before December 31, 2014. It was further stated that the Comptroller’s expectation is that taxpayers participating in the program will disclose their tax liabilities for all back tax years. Thus, taxpayers with unfiled returns for more than three prior years should consider participating in the Comptroller’s voluntary disclosure program, which typically limits a taxpayer’s disclosure and payment of outstanding tax liabilities to the most recent three-year period while foreclosing the Comptroller’s ability to assess the taxpayer for any year prior to such period. The Comptroller anticipates that the applications for participation in the amnesty program will be available on its website by August 28, 2015. Taxpayers that have significant outstanding Maryland tax liabilities can benefit from entering into the amnesty program, but they should consider whether the voluntary disclosure program is a better option.
The Comptroller’s staff also updated practitioners on its processing of Wynne-related refund claims. For readers not familiar with the decision issued by the U.S. Supreme Court in Wynne, please see Aronson’s blog on the Court’s ruling. The Comptroller has set a goal of processing all of the approximately 10,000 protective refund claims by the end of 2015. It is unclear, however, how long it will take the Comptroller to process all of the refund claims currently being filed by taxpayers that, rather than filing protective claims for 2012 and 2013, waited until the decision in Wynne was issued in May of 2015. The Comptroller is receiving these types of refund claims on a daily basis.
The Comptroller estimates that approximately 55,000 Maryland residents are due a refund. Even assuming that a significant portion of those taxpayers will not file refund claims because their refunds are of an insignificant amount, the additional claims could easily number in the tens of thousands. The Comptroller is processing the refund claims in the order in which they were received, so taxpayers that filed separate protective claims (based on the applicable year’s statute of limitations) will be receiving separate refund checks for each year at different times. The Comptroller fully expects the processing of the more recently filed refund claims to overlap with the 2015 filing season, which is expected to delay the completion of processing all of the Wynne refund claims.
Maryland taxpayers with outstanding liabilities will have a chance to come clean through a tax amnesty program that will take place later this year. On April 14, 2015, Governor Hogan signed legislation that requires the Comptroller to administer a tax amnesty program from September 1, 2015 to October 30, 2015. The program allows for the waiver of civil penalties and one-half of any outstanding interest due to the nonreporting, underreporting, and/or nonpayment of Maryland state and local income tax, withholding taxes, sales and use taxes, and admissions and amusement taxes.
Maryland’s 2015 amnesty program applies to tax returns or payments due prior to January 1, 2015. To participate in the amnesty program, a taxpayer must do one of the following during the amnesty period:
The third option will allow taxpayers to negotiate a payment plan with the Comptroller as long as full payment is made by the end of 2016. It’s important to note that a taxpayer that enters into an agreement with the Comptroller is still required to file the outstanding tax return(s) during the amnesty period. Further, the waiver of one-half of the interest for taxpayers entering into such an agreement does not apply to interest accruing for periods after October 31, 2015. Finally, taxpayers that participated in a prior Maryland amnesty program between 1999 and 2014 or the 2004 settlement period program are ineligible for the 2015 amnesty program.
Maryland last administered a tax amnesty program in 2009. The 2009 program generated $38.9 million, approximately $31 million of which was from individual income tax.
The Comptroller will likely administer the program similarly to the 2009 program, which means that taxpayers will be required to submit an amnesty application that is accompanied by the unfiled tax returns and/or payment of the tax and one-half of the interest. If a taxpayer is not paying the entire outstanding liability, the application should allow taxpayers to have an option to enter into a payment plan.
There are a few important things to think about when considering applying for the amnesty program. First, taxpayers that have an outstanding assessment or are currently under audit are eligible to participate in the program. Second, there is no penalty for not participating in the program. Other state tax amnesty programs often impose an amnesty penalty (in addition to other penalties) on tax liabilities paid after their program that were eligible for payment under the program. Third, the program does not explicitly allow for a limited look back period with respect to the returns that must be filed by a taxpayer. Thus, rather than participating in the amnesty program, taxpayers with unfiled returns for more than three prior years should consider participating in the Comptroller’s voluntary disclosure program. When participating in the voluntary disclosure program, in exchange for voluntarily paying the most recent three years of tax, the Comptroller typically agrees to not to assess tax for any period prior to such three-year period. This is an important consideration for individuals or businesses that have not filed back year returns because the Comptroller generally has the authority to issue assessments against non-filers indefinitely (i.e., there is no statute of limitations). The voluntary disclosure program also offers a waiver or penalty, but all the interest must be paid.
Taxpayers that have significant outstanding Maryland tax liabilities can benefit from entering into the amnesty program. Whether the program is the best course of action, however, will vary for each individual taxpayer. Factors such as the expiration of the statute of limitations for a particular liability and whether the voluntary disclosure program is a better option should be considered before entering into the program.
If you have questions about paying an outstanding Maryland tax liability please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6298.