A tax amnesty program is an opportunity for a very specific group of taxpayers that allows them to pay back a certain amount to the IRS, generally in one lump sum. Once paid, this transaction forgives certain tax liabilities accrued from previous tax periods. This forgiveness includes interest and penalties and allows taxpayers to drop the fear of being criminally prosecuted. However, this opportunity is usually revoked if the IRS begins an investigation into past-due tax. In some rare cases, if tax amnesty is available and the taxpayer does not follow through with it, harder penalties accrue.
What is Amnesty? Tax Amnesty Meaning
Amnesty is defined as an official pardon, such as one from the government or a governmental organization such as the IRS. Tax amnesty is a chance for taxpayers who owe back taxes to the IRS to pay back their taxes without the corresponding penalties, such as accrued tax penalties or interest. While most IRS tax relief programs are prescribed with extremely detailed rules, tax amnesty is extremely loosely defined. It has no set terms and can be offered to taxpayers and corporations alike. It may be offered to all residents in a certain state, or to a highly specific group of people
In addition to waiving penalties or interest, a tax amnesty program may also be offered to taxpayers who know that they have unpaid tax debt that the IRS has not yet discovered. These types of programs encourage indebted taxpayers to come forward and pay off their outstanding balance. In turn, they promise not to impose punishments on those unpaid taxes, and may even allow criminal offenses to go without prosecution.
If a taxpayer is eligible for a tax amnesty and refuses to take advantage of it, they may end up in extremely hot water. The IRS does not just look down on taxpayers who don’t take advantage of tax amnesty; the IRS may punish them, too. Taxpayers who choose not to participate in an amnesty program that they’re eligible for pay end up with greater penalties in addition to those already in place. Generally speaking, as soon as the IRS begins to investigate a suspicion that a taxpayer knowingly chose not to participate in an amnesty program, the amnesty program’s offer is withdrawn.
There is No Universal Federal Tax Amnesty Program
You read it right. There isn’t one universal amnesty program. You can’t email or phone the IRS and ask for the program because more often than not, they won’t know what you’re talking about. This is because it is not handled through the IRS, but state-to-state. As such, specifics of these programs will vary by your state. If you’re looking to apply for a tax amnesty program, you’ll want to be sure to do the proper research to make sure that the information you’ve acquired on amnesty programs is what your state offers. It’s important not to bank on a certain program, because it could be far different from the one offered to you – that is, if it’s offered at all.
What the will ultimately be reviewed in your case is the extent of your noncompliance and the risk involved with your portfolio. To note here, it’s important to receive proper legal advice in regards to choosing a program because there are a plethora of advantages and disadvantages to each specific program.
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Similar Qualities Between Amnesty Programs
Although there are multitudes of different tax amnesty programs out there, there are also many similarities that we will explain here:
- Many programs require legislative action before the program is offered. This legislation, on top of allowing for someone to be eligible, details all the elements at play within the specific program itself (parameters, duration, timing, penalties and interest waivers, the amount of taxes required, payment provisions, and which taxpayers qualify).
- Most states only offer the program for a certain amount of time. This period of time can be anywhere from one to six months, but two months is the most common amount of time delegated.
- The programs are generally limited to nonfiling taxpayers. This means that yes, if you’re currently under audit or have an investigation set against you, you’re not going to be qualified for any sort of amnesty program. This goes without saying, but criminal investigations being sought out for any tax matter will revoke the taxpayer of their eligibility.
- Most often, these programs cover all taxes liable, but in some cases amnesty programs will cover a specific type of tax (for example targeting specifically income tax, or foreign income tax). However, as a keynote here, a taxpayer should expect most programs to cover all types of tax.
- The type of payments differ, but as a rule of thumb most amnesty tax programs require the taxpayer to pay all tax debt once an agreement has been made. In some rare cases, the settlement will involve a payment plan.
- In some cases the program will provide a limited waiver of interest. At the same time, most programs will provide a waiver of penalties that would have otherwise been outstanding. This is one of the huge benefits of entering a tax amnesty program.
- This aspect is important, as it can hurt taxpayers without their knowledge: a large number of programs will tack on heavy post-amnesty penalties to someone who is eligible to enter the program does not do so. This is tough, because sometimes the taxpayer is unaware they are eligible
- Amnesty programs may not be here to stay. As time goes on, it is possible we see a closing of such programs.
Why do some states incorporate the program?
The short answer here is extra revenue. If a state is hungry for money, imposing a tax amnesty program could help them generate revenue they otherwise wouldn’t obtain. Instead of asking someone to ‘pay everything right now’ they’ll wait it out and receive an amount that they otherwise would not have. That’s why states and the IRS can’t impose a perpetual program, as taxpayers wouldn’t ever feel pressured to pay up immediately.
NY Tax Amnesty
New York, for instance, doesn’t offer a tax amnesty program. Instead of a tax amnesty program in New York, there are two other programs that offer tax relief to qualified taxpayers. First, New York offers the Offer in Compromise (OIC) program, much like any other US state. This is a program that allows American taxpayers to settle their tax debt with the IRS with a lower payment than they owe. In order to qualify for an OIC, a taxpayer must be able to prove that paying the entirety of their owed amount would cause extreme economic hardship. This is when paying an outstanding tax debt would cause a taxpayer to be unable to pay for their necessary and basic living expenses. To apply for an OIC, a taxpayer must provide thorough evidence of their economic hardship.
New York also offers a program in lieu of NY Tax Amnesty that’s known as the Voluntary Disclosure and Compliance Program. This allows taxpayers who know of outstanding debt that the IRS has not yet discovered to come forward and notify the IRS about their debt and pay the balance without additional interest or penalties. When they take advantage of this program, they must also agree to pay all future taxes on time and in full.
But why would the IRS allow a taxpayer to pay less than what’s owed?
The IRS only has a decade to get their taxes from you. If they see a deal that’s going to help them collect on any amount owed, they’re more than likely going to settle. Just as well, it’s in the government’s best interest to have programs that help forgive debt and help individuals pay taxes when they’re experiencing tough times. Tax Amnesty Programs are one of those platforms that can be considered ‘for the people.’
Unfiled Tax Returns
At this point, you’re probably trying to determine what sort of federal tax amnesty program you need. First off, that depends exclusively whether or not you have filed your past tax returns. If you haven’t, in correlation with IRS’s policy, you’ll have to file the last six years.
Tax amnesty becomes more complex when taking foreign income or assets into consideration when filing your taxes. If these distinctions apply to your case, you may want to use a foreign amenity program. Foreign assets and income can often be penalized to an extent that they will greatly exceed the cost of your taxes due. Foreign amenity programs help to mitigate your penalization risk. If the opportunity is available to you, it is highly recommended.
What are some common misconceptions of Tax Amnesty Programs?
Due to the state-by-state nature of Tax Amnesty programs, there are a lot of misconceptions that occur. This is due in part to the fact that while one program in one state may promise one thing, another program in a different state will not. With these crossovers, taxpayers are often confused about what their immediate program offers, or can receive the wrong information.
You must present the entirety of a taxpayer’s tax history
This isn’t the case. A huge benefit of a tax amnesty program is that you are allowed to only disclose a certain part of your tax history. With the number of documents and filing needed to obtain a taxpayer’s entire history, the IRS decided it best to limit the amount of time. In terms of different state programs – the longest history required by a state is eight years while others only have to file as little as three.
It’s very rare to receive Tax Amnesty
Actually, this is very wrong. In the last few years the IRS has striven to become more ‘for the people.’ Their programs are ever more lenient – especially after its incorporation of Streamlined Procedures, where taxpayers are now allowed to submit written statements explaining that their noncompliance was not intentional. This feat has allowed for many taxpayers to become ‘eligible’ or approved for tax amnesty programs.
Penalties will be worse once I’ve filed
Again, this is not necessarily the case – unless there’s a huge red flag that proves you deliberately avoided taxes and they penalize you for extreme fraud. This, of course, is very rare. In many cases, once the tax returns have been filed and the IRS decides that the case is ‘clean,’ the taxpayer can actually suffer zero penalties and instead be completely forgiven.
There are only a limited amount of options available
Wrong too. Despite Tax Amnesty programs, depending on your specific tax situation there could be multiple IRS options available to you. If you’re looking to settle your score with the IRS, it’s important that you do the proper research to evaluate just what’s offered to you.
IRS Tax Amnesty Programs are here to stay
Not true. It could be, but at this point the IRS has given no statement or indication that Tax Amnesty programs are going to be around for an extended period of time. It’s important that this knowledge is spread, as taxpayers do not want to think they ‘don’t need to rush’ because the programs will always be at their disposal. In fact, the IRS has stated that the program will end when it feels that all taxpayers who want to participate have heard of the process. In this case, it’s recommended that you settle your debt to the IRS as soon as possible.
Am I Qualified for a Tax Amnesty Service?
If you are looking for a tax amnesty service, you may find many claiming they can help you get “cents on the dollar” of your tax debt. The truth: only QUALIFIED taxpayers who can PROVE that their financial circumstances allow for a hardship status are capable of getting their tax debt resolved with the IRS. However, this does not mean that there are not options available that will make your tax burden manageable and even save you money. When it comes to the IRS tax code, there are very specific rules that dictate which individuals and businesses are allowed amnesty on their debt. This is why it’s incredibly important that you consult a professional tax consultant, as they will be able to detail whether or not you’re eligible, and what other options you may have.
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How Can Community Tax Help?
At Community Tax, our tax team does a very detailed and rigorous investigation of every client’s financial situation to determine the best tax resolution program to offer to the IRS. Only taxpayers who qualify for “Currently Non-Collectible” status with the IRS are put in a status with the agency that means that the federal government will not take levy actions against them because it would cause undue hardship on their living situation. A majority of individuals and businesses do not fit into that description. Community Tax enrolled agents, tax attorneys and CPAs who are part of our tax resolution team will work with these customers to ensure that they get the best program available. Our team will help you enter into installment agreements, in which taxpayers pay a monthly amount to the IRS over a period of 12-60 months. We have also helped thousands of taxpayers apply and get accepted into an IRS Offer in Compromise, in which the taxpayer is able to pay a lower lump sum of debt back to the IRS provided they can pay within six months of acceptance.
Community Tax has assisted thousands of clients from across the country in getting millions of dollars in savings on their tax debt. We don’t guarantee results, instead, we conduct an investigation of your individual situation and work with you to determine the best way forward in resolving your debt. We are a tax amnesty service that is realistic about our client’s expectations and protective of our customer service reputation. Call us today for more information about your amnesty options 1-888-676-4319.