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Tax Amnesty 101: Will Kentucky’s new program benefit you or your business?

During the recently concluded 2012 Regular Session, the Kentucky General Assembly passed House Bill 499, which created a tax amnesty program. The program could present taxpayers with a variety of benefits, but certain qualifications must be met in order to participate. What do you need to know about the program’s potential impact on you or your business?

Program timeframe

While not yet set, the Kentucky Department of Revenue will conduct the amnesty program sometime between July 1, 2012 and June 30, 2013; it will run at least 60 days, but no more than 120 days. The amnesty program will provide a window of opportunity for some taxpayers to resolve qualifying Kentucky tax liabilities for taxable periods ending or transactions occurring after Dec. 1, 2001, and prior to Oct. 1, 2011.

Benefits and drawbacks

One benefit of this new amnesty program is that a taxpayer may be eligible for a waiver of all penalties (both civil and criminal) and fees for the taxable years or periods for which the tax amnesty is requested and granted; another is a waiver of half of the interest accrued on the tax liability involved in the amnesty.

However, the amnesty program contains more than just “carrots.” There are “sticks,” too. The amnesty program permits the department to impose additional interest, penalties and “cost-of-collection fees” (of up to 50 percent) if a taxpayer does not disclose an amnesty-eligible tax liability during the amnesty window.

Eligibility

The amnesty program is available to any taxpayer owing taxes, penalties, fees or interest for all Kentucky taxes except for certain ad valorem taxes on real property and personal property, including motor vehicles and motor boats, and penalties related to certain cigarette tax-related violations. A taxpayer is eligible for the amnesty program despite being under audit by the department or being the prior recipient of an assessment, notice or demand for payment by the department. The amnesty program, however, does not apply to a taxpayer under criminal investigation or involved in criminal litigation with the Kentucky or federal government pending on the day of the taxpayer’s application for tax amnesty.

To be eligible for the amnesty program, the taxpayer must file an application with the department, file all returns and/or amended returns for tax periods which have not been filed or were underreported, pay all tax owed in full, and timely file all returns and make all payments due for three years following the amnesty program. In the case of severe hardship, HB 499 offers an option for an installment agreement – though all tax must be paid by May 31, 2013. Amnesty payments generally cannot be refunded.

Potential disqualifications

HB 499 authorizes the department to invalidate any amnesty received by the taxpayer for failure to:

  1. timely file any tax return or pay any tax and interest due for any period between Dec. 1, 2001, and Oct. 1, 2011; or,
  2. timely file any tax return or pay any tax for up to three years following the date amnesty was granted to the taxpayer.

Under HB 499, if a taxpayer fails to fulfill any of these obligations, then any civil penalties, fees and interest that were waived through the amnesty program will be reinstated, subject to immediate collection by the department, and not subject to protest.

The department has yet to release any administrative or public guidance regarding implementation of the program. Bingham Greenebaum Doll LLP will continue to monitor the development of any additional details related to the program. If you have questions about how this program will affect you, please contact one of the attorneys in our Tax and Finance Practice Group.

DISCLOSURE REQUIRED BY CIRCULAR 230.  This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service.  If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.  Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party.  Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.

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