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June 08, 2020

Ohio Department of Taxation Plans to Establish a Tax Amnesty Program

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A common discussion we have with business clients and individuals comprises of tax planning and the impact of tax liabilities. For example, in some instances, clients may have failed to collect and pay over, or simply may have failed to pay over taxes to the Ohio Department of Taxation. Taxing authorities, including the Ohio Department of Taxation, recognize that this happens, and offer voluntary disclosure and tax amnesty programs. In light of these programs, clients have the opportunity to come out of the cold, and pay their tax liabilities, while minimizing the impact of penalties and interest, and most importantly, criminal tax exposure. The Ohio legislature has recently introduced a new tax amnesty program addressing these kinds of issues which is discussed below.

Background

Generally, tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount of money in exchange for forgiveness of a tax liability—including interest and penalties— relating to a previous tax period(s) without fear of criminal prosecution.

On April 16, 2020, the Ohio legislature introduced H.B. 609 Tax Amnesty (the “Tax Amnesty Bill”). It is currently under review by the Ohio Senate’s Ways and Means Committee. The Tax Amnesty Bill establishes a three-month amnesty period during which taxpayers owing past-due state taxes and certain fees, may discharge the debt by paying the delinquent tax or fee without having to pay the penalty and accrued interest normally due.

Nardone Comment: This is a big deal and opportunity for potential savings.

 Purpose of Tax Amnesty

There are many explanations about the purpose and public policy for the tax amnesty program. Tax amnesty is one type of voluntary compliance strategy implemented to increase tax base and tax revenue for a particular state. Tax amnesty is different from other voluntary disclosure programs, partially because the tax amnesty program may waive a portion of the taxpayers' tax liability. The idea is that the introduction of amnesty in any fiscal year helps the state treasury raise tax revenues by adding taxpayers that have not declared their assets previously to the tax revenue coffers. The main purpose is to encourage individuals and businesses to declare their wealth as it may arise, and pay their taxes. Under this scheme, the taxpayer has to pay some amount of tax while avoiding payment of penalties and interest and avoiding criminal prosecution. States introduce this scheme when they believe that individuals and businesses are not reporting their tax obligations, and when the states are in need of revenue.

Nardone Comment: I had the pleasure of discussing the Tax Amnesty Bill with Law360, please see the link here. I would certainly encourage folks to follow Law360 on this issue, as well as other issues and changes in the law. Law360 is a great resource.

Detailed Analysis

The Tax Amnesty Bill establishes a temporary, three-month tax “amnesty” from January 1, 2021, to March 31, 2021, concerning delinquent state taxes. It also covers delinquent state income tax withholding remittances by employers and certain fees administered by the Ohio Department of Taxation (A detailed list of taxes and fees covered under the amnesty is detailed in the “Covered Taxes and Fees” section below). The amnesty applies only to taxes that were due and payable as of the bill’s effective date and that were unreported or underreported. The amnesty does not apply to any tax for which a notice of assessment or audit has been issued, for which a bill has been issued, or for which an audit has been conducted or is pending.

If during the amnesty, a person pays the full amount of delinquent taxes or fees owed, the Tax Commissioner must waive all penalties and accrued interest that are normally charged. The Tax Amnesty Bill authorizes the Commissioner to require a person to file returns or reports, including amended returns or reports.

In addition to receiving a waiver of penalties and accrued interest, a person who pays the amount due is immune from criminal prosecution or any civil action with respect to the tax or fee paid, and no assessment may be issued against the person for that tax or fee.  The most recent general tax amnesty was conducted in 2018.

Covered Taxes and Fees

The taxes and fees covered under the amnesty are:

  1. Income tax;
  2. Commercial activity tax;
  3. State sales and use taxes;
  4. Financial institutions tax;
  5. Public utility excise taxes;
  6. Kilowatt-hour tax;
  7. MCF (natural gas) excise tax;
  8. Insurance premiums taxes;
  9. Cigarette/tobacco/vaping excise taxes;
  10. Alcoholic beverage taxes;
  11. Motor fuel excise tax;
  12. Fuel use tax;
  13. Petroleum activity tax;
  14. Casino wagering tax;
  15. Severance taxes;
  16. Wireless 9-1-1 charges;
  17. Tire fees; and
  18. Horse racing taxes.

Local taxes, including school district income taxes and county and transit authority sales and use taxes, are not covered by the amnesty.

Administration and Revenue Disposition

The Commissioner must issue forms and instructions for the amnesty, must publicize the amnesty to maximize public awareness and participation, and may take any other action necessary to implement the amnesty.

Summary and Recommendation

I frequently speak with clients about the importance of minimizing disruption and maximizing profits in regards to their business, as well as in their personal lives. We certainly do not recommend falling behind on taxes because that will absolutely cause disruption in both your personal life and your business. But, let’s also be practical, it happens. There are times, for one reason or another, where clients do fall behind on their tax liabilities. So, when that occurs, the goal remains the same, minimize the disruption of the current circumstances. And, in this instance, availing oneself of Ohio’s tax amnesty program in 2021 may be one primary way to do just that. So, if you find yourself in a situation where you have fallen behind on any of the taxes discussed above, let’s consider and analyze what the best strategy may be to minimize disruption, including availing yourself of the tax amnesty program in 2021.

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« IRS Issues Frequently Asked Questions Regarding Credits Related to the Families First Coronavirus Response Act – Very Helpful! | Main

June 08, 2020

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