Tax Amnesty Programs - Are They a Good Thing?

When the 2009 Pennsylvania State Budget passed back in October of last year, there was a provision for a Tax Amnesty Program that would run from April 26, 2010 through June 18, 2010. Pennsylvania, along with 48 other states, will be facing a budget shortfall in 2010. To close the gap without depriving much needed funding from certain programs, states need to raise revenue but are hesitant to increase their tax rates. One of the best ways to increase revenue for a state is to collect on delinquent tax liabilities.

According to the Pennsylvania Institute of Certified Public Accountants (PICPA), Pennsylvania is expected to raise $190 million of revenue through its amnesty program. However, this may be a conservative figure. In 2009, New Jersey estimated that they would raise $100 million through its amnesty program but ended up collecting approximately $725 million! Therefore, the timely balancing of Pennsylvania's next state budget could be dependent on the success of the 2010 Tax Amnesty Program. Several other states will be conducting amnesty programs of their own in 2010 to address shortfalls in their budgets.
 
For a taxpayer, the primary reason for entering into the Pennsylvania Amnesty Program is abatement of penalties and half the interest for eligible delinquent Pennsylvania tax liabilities. The tax delinquencies must have occurred as of June 30, 2009, whether or not they were known or unknown at that time. It is unclear at this time if Pennsylvania will extend the waiver of penalties and half the interest for tax delinquencies occurring during the period of June 30, 2009 through the date of the Amnesty Program. As it stands now, full penalty and interest will be assessed for taxes incurred after June 30, 2009.
 
Participating taxpayers, including individuals as well as businesses, must apply for the program by filing an Amnesty return online. Additionally, they must file all delinquent tax returns or amended returns (some returns are required to be filed electronically) and make required payments of tax and half the interest within the amnesty period. If not done so previously, the taxpayer must also register for an account with the Department of Revenue for certain taxes. In addition, remaining balances of deferred payment plans can be relieved of penalties and half the interest if the balance is completely paid by the end of the Amnesty Period.
 
Most taxes administered by the Department of Revenue are eligible for the Program. Taxes imposed by political subdivisions of the Commonwealth, except for Sales and Use and Hotel Occupancy Tax for Philadelphia and Allegheny County, are not eligible for the Program. However, Philadelphia will be conducting an amnesty program of its own with similar terms that runs from May 3 through June 25, 2010. Below is a list of Pennsylvania taxes that qualify for the Amnesty Program (this is not an all-inclusive list):
 
  • Bank and Trust Company Shares Tax
  • Capital Stock or Foreign Franchise Tax
  • Corporate Net Income Tax
  • Employer Withholding Tax
  • Personal Income Tax
  • Realty Transfer Tax
  • Sales & Use Tax (including Local Sales and Use Tax for Philadelphia and Allegheny County)
By entering into the Pennsylvania Tax Amnesty Program, a taxpayer relinquishes their rights to protest or pursue a refund for the particular tax delinquency in which the taxpayer entered into the Amnesty Program. However, the Department of Revenue reserves the right to audit or investigate the delinquencies reported during the Program.
 
If all tax liabilities are paid and all returns are filed within the Amnesty Period, the taxpayer is not liable for any amount of that particular tax that might have been due in a period prior to July 1, 2004. The taxpayer must remain compliant for at least two years after the Program to avoid the Department re-imposing the penalties and interest that were originally abated during the Program.
 
Any taxpayer that participates in this Amnesty Program will not be allowed to participate in future Amnesty Programs. After the Amnesty Period is over, Pennsylvania may assess an additional 5% non-participation penalty on all un-paid taxes, penalties, and interest that were eligible for the Amnesty Program. Exceptions are made for deferred payment plans, active appeals, and bankruptcy. One item to note, the Pennsylvania Voluntary Disclosure Program is closed to new applications indefinitely and will not commence again until at least after the Amnesty Program is complete.
 
For more information on entering the Pennsylvania Tax Amnesty Program, another state's amnesty program, or to share your opinion of tax amnesty, please contact me.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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