Massachusetts Tax Amnesty Program

Businesses owing certain back taxes or that have failed to file certain tax returns in Massachusetts may have an opportunity to become current on their obligations without being subject to any penalties. Massachusetts is on track to implement a limited tax amnesty program during the upcoming July 2014 through June 2015 fiscal year. As currently proposed, the taxes covered under the tax amnesty program include sales and use taxes, meals taxes (including the meals tax local options), withholding income and pass-through entity withholdings, and room occupancy excises (including room occupancy excise local options), among other taxes. Not all taxes, however, are eligible for the tax amnesty program. Most notably, income taxes and income tax returns are not currently included in the list of taxes eligible for the tax amnesty program.

In May the Massachusetts Senate passed legislation as part of the annual state budget directing the Commissioner of the Department of Revenue to establish a tax amnesty program during which all penalties that could be assessed by the Commissioner for failure to pay certain taxes and failure to file certain tax returns may be waived. The Massachusetts House previously passed similar budget legislation at the end of April. The budget legislation will next go to a joint House – Senate Conference Committee where the differences in the two budgets will be ironed out and resubmitted to the House and the Senate for approval. This is a positive sign that both the House and the Senate will ultimately agree on a bill including a tax amnesty program to send to Governor Deval Patrick for his signature.

A tax amnesty program is generally looked upon as beneficial for both the state and for businesses. Through the program, taxpayers are given an incentive to settle any back taxes and come into compliance with various tax reporting rules, and the state is able to expedite revenue collection. During the last tax amnesty program in Massachusetts in 2010, the state collected over $32.6 million from close to 8,500 eligible taxpayers, saving businesses approximately $9 million in penalties.

Under the legislation currently being discussed, the Commissioner will establish a tax amnesty program where all penalties that could have been assessed for certain taxes and tax returns would be waived without the taxpayer having to show a reasonable cause or absence of willful neglect for the failure to pay such tax or file such tax return. The program is not open to all taxpayers though. Taxpayers who are or were the subject of a tax-related criminal investigation or prosecution or who deliver or had delivered any false or fraudulent application, document, return or other statement are ineligible to participate in the program. Taxpayers who do participate in this program will be ineligible to participate in another tax amnesty program from 2015 — 2024. Taxpayers who have participated in a previous tax amnesty program may also not be eligible to participate in this one.

Additionally, the Commissioner is empowered with determining the ultimate scope of the program, so it is possible that income taxes may be part of the program, although there have been no indications that the program will be expanded to include income taxes. Penalties will be waived if the taxpayer files returns, makes the required payments and otherwise comes into compliance with the Commonwealth’s tax laws. The program will not, however, waive any interest due on past due amounts. In order to be eligible for the program, a taxpayer has to agree to pay any past due taxes on or before June 30, 2015.

The tax amnesty program will only last for two months during the fiscal year. Once the legislation is enacted into law, the Commissioner will determine which two consecutive months the program will run.

Looking at past Massachusetts tax amnesty programs gives us an idea of what we may expect under a new program, although the Commissioner is not required to implement the same type of program. Under past programs “eligible taxpayers” were sent a Tax Amnesty Notice which included a past-due amount. Eligible taxpayers were able to apply for the program and pay any past due amounts through the Department of Revenue’s website. Participants in the program did not waive any appeal rights they may otherwise have under the applicable tax laws. So participation in the program did not prevent a taxpayer from otherwise contesting or appealing a tax issue. Taxpayers who participated in the program but failed to pay the full outstanding balance were subjected to additional penalties of up to $500.

In 2008, Massachusetts also offered a tax amnesty program for individual taxpayers with existing tax liabilities. The program operated in a similar manner to the business program, permitting individual taxpayers who have received a Tax Amnesty Notice the ability to pay any past-due taxes without having penalties imposed. There does not appear to be any inclination on the part of the Massachusetts Legislature to expand the tax amnesty program to cover individuals.

As with any legislation that has not yet been finalized, the final version may vary in form and content from the proposed versions. Once the tax amnesty program has been enacted into law, Businesses that are eligible for the program should consider taking advantage of it and minimize the imposition of any potential penalties.