Too much of a good thing?
taxnews
Tax amnesty programs bring in revenue, but at a price
BY ROGER RUSSELL
It’s always better for a taxpayer to come
forward voluntarily when they are in violation of a tax rule or regulation. In addition to
the greater flexibility the Internal Revenue
Service gives to examiners when dealing
with voluntary disclosures, the IRS and the
states have had a number of formal programs
encouraging taxpayers to come forward in
exchange for greatly reduced penalties, and a
reduction in the amount of interest owed.
While the programs do produce immediate
revenue, some oppose the idea of amnesty
because it seems to reward bad behavior. “It’s
better to have people in the system than out,”
said Saul Brenner, tax partner at Berdon LLP.
“But there are people doing their civic duty,
paying taxes all these years, and now you’re
giving a pardon to those who failed to do this
— so what’s the point of being compliant? It’s
rewarding bad behavior, which is one reason
why a general amnesty hasn’t occurred at the
federal level.”
“States like amnesty programs for the sim-
ple reason that it brings in money and helps
them with the cash crunch du jour,” said Rob-
ert Kerr, senior director of government rela-
tions at the National Association of Enrolled
Agents. “But from the tax administrative
standpoint, amnesty is a bad idea because it
undermines a belief in the justness of the sys-
tem. It’s even worse when there are recurring
amnesties. It works better when they say, ‘This
is the only one, and we’re not kidding. We’re
not doing another one for X years.”
It operates like a store sale, agreed Roger
Harris, president of Padgett Business Servic-
es. “If you know a store has a sale every week,
you wait for the sale. If people know there will
sooner or later be a ‘tax sale,’ they’ll wait until
there is one to pay their taxes in full.”
“Amnesty programs are really a business
deal for both sides,” said Wayne Berkowitz,
head of the state and local tax group at Ber-
don. “The taxpayer can come clean and move
on with his life. The state gets immediate rev-
enue, and it gets taxpayers on its rolls that it
didn’t have and may not have found.”
“Another great benefit of voluntary disclosure is that there is often a limited look-back,”
he added. “If the taxpayer should have been
filing for the past 20 years, not only will he
get the penalties abated, but they won’t go
back after a certain point, typically three or
six years.”
Tax amnesty programs at both the federal and state level have
met with varying degrees of success, as tax agencies have introduced programs designed to meet the dual goals of generating
revenue and bringing more taxpayers onto the tax rolls. More
than half the states have had some form of amnesty or voluntary compliance program in the past decade.
CONFESS FIRST
But the caveat on most amnesty programs is
you have to come forward before they find
you, Berkowitz noted. “You have to get to
them first,” he said. “If there are any notices
out there, they won’t let you play.”
State tax issues, especially those involving
nexus, are generally more complex than at
the federal level, Berkowitz observed. “With
the states, there’s always the question as to
whether or not there’s nexus. It’s not so clear-
cut,” he said. “A buyer of a business that hasn’t
filed may come in and do due diligence, and
want to straighten things out even where it’s
not clear that there was a filing requirement.
The seller may not have been a bad citizen,
but just didn’t realize that going into a state
a certain number of times constituted nexus
and triggered a filing requirement.”
Berkowitz sees the use tax area generating
amnesty programs in the future. “Where peo-
ple make Internet purchases, in many states
the vendor is not obligated to pay sales tax,
but there’s a requirement that the purchaser
pay use tax. Most people individually don’t
comply with this,” he said. “States are looking
to get more revenue from this area.”
States are moving from special amnesty
programs to permanent voluntary disclosure,
according to Berkowitz. For example, New
York’s program covers all taxes, including in-
come, corporate and sales. Any taxpayer who
meets the eligibility criteria can participate,
even if their nonpayment was the result of
fraudulent or criminal conduct.
CHARITIES’ RETURNS EXPOSE
SOCIAL SECURITY NUMBERS
NEW YORK — A new study has found that
the Form 990 tax returns filed by tax-exempt organizations frequently expose the
Social Security numbers of tax preparers,
donors, employees, scholarship recipients and others to the public.
The study, from Identity Finder, used
its Identity Finder DLP 6.0 software to
search through 2,892,475 Form 990s
from tax years 2001 through 2006 for
personally identifiable information such
as SSNs. Even though SSNs are not generally required on a Form 990, Identity
Finder found that 132,362 organizations published 472,866 SSNs, of which
171,005 were unique. Between 2001 and
2006, more than 18 percent of all nonprofits or their tax preparers published at
least one SSN on their public tax return,
the study found. In all, 287,238 Form 990
returns contained at least one SSN.
High school and college scholarship recipients, tax preparers, directors,
employees, trustees and donors were
the primary groups whose SSNs were
exposed. At least 35 percent of the SSNs
belonged to tax preparers who identified themselves by their SSN instead of a
Preparer Tax Identification Number.
For a copy of the report, visit www.
identityfinder.com/990report.
INTERNATIONAL AMNESTY
Since 2009, the IRS has created three separate tax amnesty programs to encourage U.S.
taxpayers to report and pay taxes on assets
held overseas. While the first two have expired, the third has no expiration date but
can be cancelled at any time. The program
requires the U.S. taxpayer to pay any overdue
tax, penalties and interest on unreported income, and pay an additional penalty based
on the amount of unreported funds held in
the foreign account.
“The cost of the FBAR [Foreign Bank Ac-
See AMNESTY on
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IRS EXPLORES TELECONFERENCES
FOR WORKING WITH TAXPAYERS
WASHINGTON, D.C. — The Taxpayer Advocate Service at the Internal Revenue
Service is beginning to test a way for taxpayers to engage in face-to-face teleconferences with case workers to help them
deal with their tax problems, and the
program may expand to audits as well.
National Taxpayer Advocate Nina Olson
recommended that the IRS use the technology to conduct “virtual face-to-face
audits” with taxpayers as a way to overcome persistent problems with the IRS’s
correspondence examination process. In
a blog post in April, Olson pointed out
that the IRS’s highly automated correspondence examination program leads to
problems such as confusing audit notices
that result in low response rates and high
rates of default tax assessments.
