The Federal Government made a big splash recently by announcing a tax amnesty plan aimed at U.S. citizens hiding money in accounts at
Right now at least 34 states are running some kind of a pay-less-than-you-might-owe program for delinquents, and others are thinking about it. Because the word "amnesty" often riles compliant taxpayers, many states call their catch-up-on-back-tax schemes "voluntary compliance" or "voluntary disclosure" programs. They're not always publicized widely, and some seem to have no time limit. You can find a list here.
States that have gone out of their way recently to announce new amnesty programs include Alabama, Arizona, Connecticut, Massachusetts, Nevada, New Jersey and Virginia.
As in the federal program, miscreants who come forward are generally protected from criminal charges except in extreme cases where authorities are already investigating them. Peace of mind is a big attraction of these plans, but so are savings.
While details vary, the typical state amnesty plan runs for about six months. Usually, taxpayers must pay all their back taxes and interest and get a pass on most or all penalties. But a bill moving through the Maryland legislature would waive some or all interest too, and Connecticut's amnesty provides for interest to be paid at a reduced rate. By contrast, in the federal program taxpayers have to pay not just interest but some penalties; they are spared the stiffest penalties that could have resulted in the confiscation of all their offshore money.
Generally, payments of back-state taxes are deductible on your federal tax return for the year you make the payments. Penalties and interest are not. Be forewarned: The states are free to share tax information about you with the IRS. This might not be a problem if, as is often the case, you paid your federal income taxes in full all along and just tried to duck state taxation in, say, New York, by claiming residency in state-income-tax-free Florida or Texas. It's also not a problem if you're paying to clear up a long-standing state assessment or tax lien or a back-sales tax bill.
But the information sharing could be problematic if you're anteing up state taxes on income that's news to the IRS. Should you be trying to clean up a huge amount of deep doo-doo, using a tax professional to plan and make the overture might be advised.
According to the Federation of Tax Administrators, since 1982 at least 41 states plus the District of Columbia and even the Northern Marianas Islands, a U.S. commonwealth, have offered more than 100 separate formal, limited-period tax-amnesty programs. Some jurisdictions like Connecticut, Louisiana, New Jersey and New York have done it four times. Their amnesties have varied widely in length, scope and effectiveness. Several, in Idaho, Louisiana, North Dakota and Texas, collected $500,000 or less.
On the other hand, New Jersey has reaped more than $300 million on average from its last two amnesties, in 1996 and 2002. The apparent record haul is $583 million, by New York in 2003.
Officials see amnesties as an easy and cheap way to collect revenue--little more than the cost of a publicity campaign and maybe some extra staffing to answer the phones. They downplay the possibility that such frequent deals could discourage regular legal tax compliance.
Playing the public relations game, states have learned to put out low-ball projections on how much they'll raise. (During this latest round of amnesties, they've professed great concern about the impact of the national economy.) New Jersey says it expects only $100 million, a fraction of its usual take, while Arizona says it anticipates just $6 million, barely 8% of the $73 million it collected during its last amnesty in 2002.
