Individuals and companies that owe taxes to the state are being given a chance to pay up without interest, fees or penalties during a two-month amnesty window opened by the Indiana Department of Revenue.
The tax amnesty-the first one offered by Indiana and unusually generous compared with other states’ programs-is touted as a way to add an estimated $65 million to the state’s coffers and provide delinquent payers with a way to clear debt off their books.
More than $1.3 billion is owed to the state by businesses and individuals.
But, while financial planners say the deal is a good one for most, they encourage taxpayers to consult with an adviser before signing the irrevocable agreement to accept the amnesty conditions.
The amnesty period runs from Sept. 15 to Nov. 15 and covers any tax period that ended before July 1, 2004. Eligible participants include taxpayers who have not filed a return or who have underreported their tax liability.
With the exception of inheritance, estate and generation-skipping taxes, all taxes and fees the department collects are eligible for amnesty. Property taxes and unemployment taxes are not administered by the department, so are not covered by the program.
The amnesty waives all normal penalties, interest and collection fees.
Typically, states that offer tax amnesty periods waive penalties and fees, but not interest.
More than 170,000 individuals who live in Indiana owe the state nearly $190 mil
lion in taxes, said Stephanie McFarland, spokeswoman for the Indiana Department of Revenue. Of that, 33,000 Marion County residents owe $32 million. Out-of-state individuals owe $22 million.
Indiana-based businesses owe $535 million and those based elsewhere owe slightly less.
The tax amnesty, which was passed in April as a one-time-only program by the General Assembly, was part of Gov. Mitch Daniels’ platform.
The goal is to increase revenue and help the state recover its fiscal integrity, McFarland said.
The $65 million targeted to be collected is included in the state’s current fiscal budget.
Also included in the budget is $2.5 million to administer the program. More than half will be spent on marketing, with the rest covering operating expenses.
Tax delinquents who choose not to participate face steep penalties: interest-Indiana charges 3 percent-and fees they would have paid without the amnesty offering-plus double the penalty amount, which varies depending on filing status and the type of tax owed.
Exceptions to having to pay the heftier post-amnesty penalty apply to individuals who have:
an existing payment plan with the Department of Revenue;
a hold on a liability as a result of an audit, bankruptcy or protest;
a tax appeal filed in the Tax Court; or
proof that notice of an outstanding tax bill was not received.
It’s for some of those reasons that Mark Richards, a tax-planning attorney with
locally based law firm Ice Miller, said taxpayers should take a hard look at their situation before opting into the program.
“If taxes owed is in dispute, the amnesty could settle that,” Richards said. “But depending on the merits of the taxes owed, it might be better to litigate.”
The program overall is a good one, though, he said. It offers both a carrot in waiving interest and a stick in double penalties and will likely get taxpayers on the rolls that aren’t there now.
And amnesty provides a safety net for those who have committed fraud and might otherwise face criminal or civil prosecution.
“They’re taking a risk in choosing not to pay,” Richards said. “If they choose not to
take advantage of the protection, they may pay the consequences.”
Still, Richards has heard some grumbling that the program gives a break to people who don’t deserve it at the expense of those who have been doing what they’re supposed to-paying their taxes.
“The program is good for those who pay as they should because it’s good for the state,” Richards said.
Forty-three other states and the District
of Columbia have offered tax amnesty programs since 1982, according to Washington, D.C.-based Federation of Tax Administrators, a not-for-profit made up of the tax and revenue departments of the 50 states, the District of Columbia and New York City.
Some states have offered more than one amnesty since 1982, according to FTA.
Indiana has no plans to offer a second, McFarland said.