The 2017 Virginia General Assembly enacted three provisions creating a new Virginia Tax Amnesty Program. Previous amnesty programs were conducted in 1990, 2003 and 2009. These provisions, collectively referred to as the Amnesty Laws, authorize the Department of Taxation (“VADOT”) to administer a Virginia Tax Amnesty Program (herein referred to as “Amnesty”) to increase and accelerate the collection of delinquent taxes. Under Amnesty, all penalties and 50 percent of the interest will be waived upon payment of the taxpayer’s remaining balance. At the end of the amnesty period, any remaining amnesty-qualified liabilities will be assessed an additional 20 percent penalty.
Amnesty will run for a 62-day period, beginning on September 13, 2017, and ending on November 14, 2017 (the “amnesty period”). Generally, any taxes administered or collected by VADOT are eligible for Amnesty. If an assessment or delinquent return is not eligible for amnesty benefits, or if a taxpayer does not comply with the requirements of Amnesty, penalties and interest will not be waived.
Opportunity for Taxpayers
Besides allowing a period of time where taxpayers can catch up on past bills, Amnesty provides a significant opportunity for businesses that, for whatever reason, may not have filed Virginia income tax returns but should have. This may be, for example, because a taxpayer was not aware their level of activity in Virginia was sufficient to create a taxable presence in the state. Amnesty may allow those taxpayers to significantly reduce their exposure for taxes, penalties and interest for past years and establish proper compliance going forward. Additionally, taxpayers under audit that are close to completion may be able to benefit from the waiver of penalties and 50 percent of interest if the assessment payment is made during the amnesty period.
Generally, individuals and businesses may participate in Amnesty to satisfy tax bills and file delinquent returns for taxes administered or collected by VADOT. To qualify, bills must be related to an amnesty-eligible period and have an assessment date on or before June 15, 2017, while returns must be applicable to an eligible period. Amnesty applies to many types of taxes, and the eligibility periods are specific to the type of tax. For individual, corporation, trust and partnership income tax returns, the eligibility period is for taxable years 2015 and prior (for fiscal year taxpayers, this would include years ending 12/31/15 and prior). For most types of sales and use taxes and withholding taxes, the eligibility period is the month of April 2017 and prior. The guidelines for Amnesty include a detailed list of the various types of taxes and the periods of eligibility.
The following are not eligible for amnesty benefits:
- Bills and accounts paid before September 13, 2017
- Federal tax assessments
- Local tax assessments
- Bills with an assessment date after June 15, 2017 (with certain exceptions)
- Obligations of a taxpayer under criminal investigation or prosecution for filing a fraudulent return or failing to file a return with the intent to evade tax
- Obligations of a taxpayer with an active jeopardy or fraud assessment
- Any tax liability attributable to an issue that is the subject of a decision by a Virginia court rendered on or after January 1, 2016
Amnesty benefits will be granted on a bill-by-bill or return-by-return basis. For example, if a taxpayer has three outstanding tax bills and three delinquent returns but cannot pay all of the tax and half the interest, they still may participate in Amnesty to satisfy some of the amnesty eligible bills or delinquent returns. Taxpayers are not required to satisfy all outstanding bills and delinquent returns to participate.
Payments Related to Bills
To qualify for amnesty benefits, payments must be postmarked by November 14, 2017. Payments that are sent to VADOT without a specified bill number will be applied to bills that are amnesty-eligible first in order from smallest to largest Amnesty amount due and then to non-amnesty bills from newest to oldest.
Payments Related to Returns
To receive the amnesty benefits, taxpayers are required to file all relevant tax returns and associated documentation, such as statements, W-2’s, etc. as would have been required if the return had been filed timely and properly during the amnesty period. Taxpayers that underreported income or overstated exemptions or deductions must file an amended return during the amnesty period to receive amnesty benefits. Payment of any additional tax must accompany the return.
Taxpayers that file returns that are not under audit for an amnesty-eligible period without payment or with insufficient payment will be assessed for any additional tax, penalties and interest. If the assessment is paid by the later of the end of the amnesty period or within 30 days of the date the assessment is issued, the taxpayer will receive amnesty benefits. The liability for an assessment generated from an audit of a business for an amnesty-eligible period must be paid during the amnesty period.
Interest and Refunds
An interest rate of 5 percent will be used to determine the interest on previously unfiled returns or underreported income. Refunds for previously unfiled tax returns are subject to the three-year statute of limitations regarding refunds. Taxpayers may receive a refund (or credit towards other liabilities) for an overpayment on a previously unfiled return only if the return is filed within three years from the original due date of the return.
If a taxpayer files an amended return during the amnesty period that reduces his tax liability, the taxpayer will not receive amnesty benefits; instead, a refund will be issued in such case. Refunds will also be issued to taxpayers that overpay their amnesty amount through oversight or miscalculation. If a payment is received during the amnesty period for a bill or delinquent return that is not amnesty eligible, the payment will not be refunded. All refunds are subject to offset against outstanding Virginia tax bills as well as amounts owed to state and local governments and to the IRS.
The guidelines include explanation of how Amnesty would apply to many special situations that are beyond the scope of this tax alert. These include: assessments that do not include tax; payment plans that have been entered into with VADOT; joint return issues; certain assessments “converted” to corporate officers; bills on stop (temporary hold by VADOT); assessments under appeal; offers in compromise; contested assessments; taxpayers in bankruptcy; fraudulent returns and jeopardy or fraud assessments; and issues subject to a Virginia court decision on or after January 1, 2016.
At the conclusion of Amnesty, any tax liability that was eligible for amnesty benefits but remains unpaid will be subject to a 20 percent penalty on the amount of the unpaid tax. Tax liabilities that were not eligible for amnesty benefits will not be subject to the 20 percent penalty. The guidelines describe several exceptions to the 20 percent penalty related to assessments for additional amounts, payment plans, amounts being appealed, bills addressed through bankruptcy proceedings, assessments related to certain audits or examinations, among others.
Most taxpayers that are eligible for amnesty benefits will receive a notice through the mail. It may be that an individual or business might have an outstanding tax bill or delinquent return and has not received a notice in which case they should review their situation for eligibility. If a taxpayer wishes to have a third party discuss their tax matters with VADOT, they must submit a properly completed Power of Attorney, Form PAR 101 and be specific as to which tax matters the taxpayer has given their representative express authority to discuss or receive correspondence for.
VADOT has established an Amnesty website at www.VATAX.gov which provides an entry point for taxpayers to begin the process. Additional resources and information are available at this website, including eligibility guidelines, payment options, tax forms, interest calculators and links to other VADOT resources.
We Can Help
With any tax amnesty program, it is important to thoroughly assess a taxpayer’s situation and closely follow the rules of the amnesty program. Because this program has a rather small window and only runs through November 14, interested taxpayers need to act fast. If you need assistance in evaluating or entering into the Virginia tax amnesty program, please contact your Elliott Davis Decosimo tax advisor.