State tax amnesty programs: the advantages and disadvantages.
The Tax Adviser › Vol. 35 Nbr. 6, June 2004
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State tax amnesty programs: the advantages and disadvantages.
Editor's note: Mr. Peterson chairs the AICPA Tax Division's State & Local Tax Technical Resource Panel (TRP). Ms. Nakamura is a member of the TRP.
For more information about this column, contact Mr. Peterson at dfpeterson@larsonallen.com or Ms. Nakamura at karen.m.nakamura@us.pwc.com. Tax amnesty programs offer qualified taxpayers an opportunity to clear outstanding tax liabilities in exchange for a complete or partial abatement of interest and penalties that might otherwise be imposed. In addition, they provide states and localities much-needed revenue without the costs associated with audit and enforcement. Although the programs are generally a "win" for taxpayers and tax administrators alike, taxpayers should address a number of important considerations before signing on to any amnesty program. This column summarizes some of those considerations, and cautions readers to speak with their tax adviser before taking any action. States' Motivation for Amnesty In general, amnesty programs are intended to improve overall compliance with tax laws by eliminating underreporting errors and adding nonfilers to the tax rolls. In addition, they give states and localities an easy way to generate a one-time revenue boost, with the trope of continued revenue flow through improved compliance. Most importantly, they are a quick solution to budget short falls, which have been significant in recent years. For example, a study by the National Conference of State Legislators (NCSL) found that states are running a $2.5 billion cumulative budget gap for 2004. (1) While the 2004 gap represents an improvement over the 2003 gap of $25.7 billion, the improved financial outlook may be short-lived; the states project a $35 billion cumulative budget gap for 2005, with little opportunity for an easy fix (such as the use of "rainy day" funds, which many states r...See the full content of this document
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