Practice and Procedure: Alabama’s Tax Amnesty Program is Set for Summer 2016

Last week, the Alabama Department of Revenue announced that it has finalized the development of a tax amnesty program as stipulated in the Alabama Tax Delinquency Amnesty Act of 2016. The department launched a website to provide details on the program and also to facilitate the application process for interested taxpayers.

The amnesty program will run for two months this summer, from June 30 through Aug. 30, 2016, and will cover taxes due prior to Jan. 1, 2015 or taxes for taxable periods that began before Jan. 1, 2015. Most taxes administered by the department are eligible for the program, including individual and business income taxes, sales and use tax, lodgings tax, severance taxes, cigarette taxes and business privilege taxes. Some notable exclusions from the program are motor fuel taxes and certain healthcare and environmental taxes.

Taxpayers who are not eligible for amnesty include:

  • those who have been contacted by the Alabama Department of Revenue within the last 5 years;
  • those who are party to a criminal investigation or litigation;
  • those who have been scheduled for audit or are currently under investigation;
  • those who have entered into a Voluntary Disclosure agreement with the department prior to June 30, 2016; and
  • those with an outstanding debt shown on department records in the form of a bill, assessment or civil collection action.

In essence, Alabama’s tax amnesty program is targeting tax evaders who are thus far undiscovered by the department.

Taxpayers who are approved for the program will benefit from a limited look-back period of three years; and while participants must pay the full amount of tax due, 100 percent of the penalties imposed and 50 percent of the interest accrued will be waived.

Participants will also be required to forego their right to protest or initiate an administrative or judicial proceeding related to the tax and tax period for which amnesty is granted. They will also be subject to the negligence penalty for failing to comply with future tax filing and payment requirements between Jan. 1, 2016 and Dec. 31, 2023.

Currently, Massachusetts is about halfway through its 2016 amnesty program, which is set to end on May 31, 2016. This is the third consecutive year that Massachusetts has offered an amnesty program, and like the Alabama program, eligibility is largely limited to those who have not filed returns or paid taxes previously. Massachusetts is also permitting those who did not report their full tax liability on previously filed returns to participate in the program.

South Carolina is another state that could announce a tax amnesty program for 2016. Last year the General Assembly passed S.B. 526, which granted the South Carolina Department of Revenue permission to plan and implement a tax amnesty program in order to encourage the voluntary disclosure and payment of taxes owed to the state.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do state tax amnesty programs reflect sound tax policy?

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