More Tax Amnesty Programs on Tap

December 8, 2009
Michael Sheehan

Many states are turning to tax amnesty programs to give their budgets a much-needed shot in the arm. Some tax experts see 10 to 15 states instituting programs next year.

Many states faced with shrinking revenues and mushrooming deficits are turning to tax amnesty programs to give their budgets a much-needed shot in the arm. The theory is that adding cash to state coffers through an amnesty program is easier and less costly than pursuing delinquent taxpayers through legal channels. The concept is gaining popularity; chances are good that if your state hasn’t put together an amnesty program, it will soon.

So far this year, 12 states have held amnesty programs, up from the annual average of two or three, and some tax experts see another 10 or 15 states coming on board next year, including Pennsylvania and possibly New York and Illinois. The conditions of each amnesty program differ from state to state but whatever the terms, an amnesty program can be a bargain for a laggard taxpayer. Almost all of the tax amnesty programs conducted this year waived any penalties associated with nonpayment of back taxes and most of them forgave any interest due. Some states even put a limit on how far back they could look for past tax liabilities.

Taxpayers who think they may be eligible for a state tax amnesty program need to act quickly once an amnesty program is announced. Most programs have a very short time period for filing returns and paying any back taxes. Some states have even enacted extra penalties for wayward taxpayers who fail to take advantage of the amnesty program. For taxpayers who think they may be eligible for an amnesty program, it’s a good idea to consult a tax professional or a lawyer with extensive tax law experience.