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State Tax Amnesty Programs in 2020

State Tax Amnesty Programs in 2020

Amnesty is an act of mercy on the part of the government. It is the decision not to punish a person, business, or entity for a crime. Under a tax amnesty program, a state provides a period during which people can file income tax returns or pay unpaid tax debts without fines. It's a great way for states to increase revenue and help taxpayers quickly.

Amnesty programs aim to solve three tax problems: tax arrears, taxes owed, and underestimated tax obligations.


How the tax amnesty works

A state typically waives late filing fines when late tax returns are filed during an amnesty period. Most will also waive late payments and sometimes even lose interest if the remaining balance is paid in full during the amnesty period.

In general, states waive penalties for accuracy and fraud, even if the taxpayer submits a correct return to report true and fair tax liability. They must also pay any additional fees due 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. 

The following types of taxes were eligible for the amnesty: income tax, car rental surcharge, county excise duty, and any other special taxes administered by the Department. Tax on the use of electricity and natural gas, severance tax, tax on consumption in prisons, jet fuel exercise and use tax, hotel tax, tax on water use, telecommunications service consumption tax, transaction privilege tax, and use tax.

Taxpayers had to file amnesty requests, overdue tax payments, and all original or amended returns to be eligible. They were not eligible for the program if they had previously been a criminal investigation or litigation subject. The convictions for tax violations disqualified taxpayers, and they would not be eligible if they agreed to a resolution of their tax debt to the state.

Instead, the Arizona Department of Revenue waived or reduced civil penalties and interest. ADR has also agreed to waive any administrative, civil or criminal action. However, tax returns were still candidates for verification.

Anyone requesting an amnesty waives the right to challenge any decision taken in this matter. Taxpayers had to include payment of the tax due in their amnesty request.


State amnesty programs in 2019/2020

Amnesty periods are neither continuous nor permanent, and not all states offer them. States can change every year. Only three states have active amnesty programs in 2020:

  • Nevada will waive interest and penalties if you pay taxes at any time during 90 days ending on or before June 30, 2021. The program was included in the governor's tax report. However, the exact date and details for the 90 days have not been announced.

  • The North Carolina amnesty program is only for corporate taxpayers. It ran from August 1, 2020, to December 1, 2020. 

  • Washington State offers a voluntary disclosure program that extended from July 15, 2020, to November 30, 2020, which also applied to businesses. 

States specify the conditions and effective dates of their programs and the types of fees included.


An alternative to the state tax amnesty

Many states offer taxpayers another option to pay late taxes and get exemptions from fines and, hopefully, interest. These "voluntary disclosure agreements," like the program proposed by Washington State, refer primarily to sales and use taxes and income taxes.

The purpose of these VDA programs is to encourage taxpayers who may be in debt to volunteer and pay the tax owed. If you haven't been contacted by the state revenue department about your tax defaults, you can register and pay the unpaid taxes and interest. You must agree to pay taxes on time in the future and avoid any punitive measures that may have been imposed by tax authorities.

Each state has its laws and rules but must 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 have undisclosed accounts abroad. However, it offers several commitment options and installment contracts, making it easier for taxpayers to pay their taxes and avoid tax burdens.

According to the IRS People First Initiative, the federal government extended the tax due date from April 15, 2020, to July 15, 2020. This action was taken in response to the coronavirus pandemic. During this period, no interest or penalty was accrued on taxes due.

These initiatives helped struggling taxpayers avoid penalties for non-payment and made payment mechanisms accessible to more people.


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