Pennsylvania Tax Amnesty Program

1. Pennsylvania Tax Amnesty Program By: R. Nicholas Nanovic

2. Establishment of Program • Enacted October 9, 2009 • Citations • Act 48; House Bill 1531 • See 39 Pa.B. 6872 (12/05/09) for guidelines • Applicable Period: • April 26, 2010 thru June 18, 2010 • Net Amnesty Revenue Estimate: • $191.4M (2009-2010); -$57.1M (2010-2011)

3. Taxpayer’s Liability • Participating taxpayer will pay: • 100% of tax liability • 50% of accrued interest • 0% of penalties • Participating taxpayer cannot be subject to administrative or judicial proceeding regarding eligible tax • Taxpayer waives right to pursue an administrative or judicial proceeding with regard to tax amnesty returns filed under the program or to claim any refund of money paid under the amnesty program.

4. Agriculture Cooperative Tax Bank and Trust Company Shares Tax Capital Stock or Foreign Franchise Tax Cigarette Tax Corporate Net Income Tax Electric Cooperative Tax Employer Withholding Tax Fuel Use Tax Gross Receipts Tax Hotel Occupancy Tax Includes Local Hotel Occupancy Tax for Philadelphia and Allegheny County International Fuel Tax Agreement Inheritance and Estate Tax Interstate Bus Compact Tax Liquid Fuels Tax Loans Tax Marine Underwriting Profits Tax Malt Beverage Tax Motor Carriers Road Tax Mutual Thrift Institutions Tax Oil Company Franchise Tax Parimutuel Wagering and Admissions Tax Public Utility Realty Tax Realty Transfer Tax Sales and Use Tax Includes Local Sales and use Tax for Philadelphia and Allegheny County Surplus Lines Tax Unauthorized Insurance Tax “Eligible Tax”

5. “Eligible Tax” • Tax liability must be due as of June 30, 2009 • Exception: • Unknown liabilities due prior to July 1, 2004

6. “Unknown Liability” • An unknown liability is a liability for an eligible tax for which either: • No return or report has been filed, no payment has been made, and the taxpayer has not been contacted by the Department concerning the unfiled returns or reports or unpaid tax, or • A return or report has been filed, the tax was underreported, and the taxpayer has not been contacted by the Department concerning the underreported tax

7. Eligible Taxpayers • Person • Association • Fiduciary • Partnership • Corporation • Other entity required to pay or collect any eligible tax

8. Ineligible Taxpayer • Taxpayer that has received notice prior to April 26, 2010 that taxpayer is under criminal investigation for an alleged violation of any law imposing an eligible tax; • Taxpayer named as defendant in a criminal complaint prior to April 26, 2010, alleging a violation of any law imposing an eligible tax; or • Taxpayer currently a defendant in a criminal action for an alleged violation of any law imposing an eligible tax

9. Taxpayer Requirements • File an online Amnesty Return with the Department • Make payment of all taxes and one-half the interest due to the Commonwealth • File complete tax returns for all required tax periods for which the taxpayer previously has not filed a return • File complete amended returns for all required periods for which the taxpayer underreported tax liability

10. Example 1 • Martha does not file a tax return for 2006. Martha’s tax return would have shown a liability of $5,000. Martha has never been contacted by the Department regarding the liability. • Martha may participate in the amnesty program by filing an amnesty return and her 2006 income tax return. Martha will pay $5,000 plus one-half of the accrued interest.

11. Example 2 • Wesley does not file a tax return for 2003. Wesley’s tax return would have shown a liability of $8,000. Wesley has never been contacted by the Department regarding the liability. • Wesley may not participate in the amnesty program. Wesley has an “unknown liability” due prior to July 1, 2004. • Liability was due by April 15, 2004 • Wesley may participate in Voluntary Disclosure Program

12. Forgiveness of unknown liabilities • Taxpayer that, pursuant to amnesty program, reports and pays unknown liabilities due as of July 1, 2004 or later is not liable for taxes of the same type due prior to July 1, 2004 • Taxpayer must comply with all other requirements of amnesty program

13. Example 3 • Al does not file a tax return for 2003 or 2006. Al’s tax return would have shown a liability of $8,000 (2003) and $5,000 (2006). Al has never been contacted by the Department regarding these liabilities. • Al may participate in the amnesty program by filing an amnesty return and his 2003 and 2006 income tax returns. Al will pay $5,000 plus one-half of interest.

14. Notice • Department will send written notice to last known address of each tax delinquent. • Delinquencies for multiple tax types = multiple notices • No notification for unknown liabilities

15. Deferred Payment Plan • Taxpayers participating in deferred payment plan are eligible for amnesty • Eligible taxpayer would pay remaining balance of tax liability plus 50% of remaining accrued interest. Penalties abated. • Taxpayer not credited with payments of interest prior to amnesty period

16. Example 4 • Richard owes $22,000 for tax liability for 2004, 2005, and 2006. On January 1, 2009, Richard agreed to pay monthly installments. On April 26, 2010, Richard liable for $7,000 of taxes plus penalties and interest. • Richard is eligible for tax amnesty program. Richard would pay $7,000 plus one-half of unpaid accrued interest. No credit for interest and penalties paid on $15,000.

17. Financial Hardship • Taxpayer certifies on amnesty return that making full payment would create severe financial hardship • Fifty percent or more of amount due must be paid with amnesty return or within amnesty period, and • Balance due must be paid in no more than two installments on or before the end of the amnesty period

18. Future Amnesty • Taxpayer waives eligibility for any future amnesty program.

19. Continued Compliance • Department may assess and collect waived penalties and interest if, within two years after the end of the program, either event occurs: • Taxpayer becomes delinquent for 3+ consecutive periods in payment of taxes or filing of returns on semi-monthly, monthly, quarterly, or other basis • Taxpayer becomes delinquent and is 8+ months late in payment of taxes due or filing of returns on an annual basis

20. Deficiency Assessment • If Department issues deficiency assessment with respect to a tax amnesty return, the Department has authority to impose penalties and pursue criminal action with respect to difference between amount reported on amnesty return and current amount of tax.

21. Undisclosed Liabilities • Department is allowed to pursue civil or criminal proceedings against any taxpayer for: • Any tax not disclosed on tax amnesty return • Any amount disclosed on tax amnesty return but not paid

22. Penalty for Non-payment • Taxpayer penalized 5% of amount of unpaid tax liability and penalties and interest if: • Taxpayer had failed to remit eligible tax due • Taxpayer had an unreported or underreported liability for an eligible tax on or after the day after the end of the amnesty program.

23. Voluntary Disclosure Program • Application • Contact Voluntary Disclosure Office to obtain a case number • Provide information to Department regarding: • Types of tax due • Dates that tax liabilities began • Detailed description of Pennsylvania activities • Explanation of failure to file and pay taxes • Verify that taxpayer not previously contacted by Department • Complete Business Activities Questionnaire (DAS-77)

24. Voluntary Disclosure Program • Taxpayers owing non-corporate tax • Pay tax liability and interest for current year plus three previous years; all penalties waived • Additional years’ liabilities will be forgiven • Taxpayers owing corporate tax • Pay tax liability and interest for current year plus five previous years; all penalties waived • Additional years’ liabilities will be forgiven • Registered taxpayers ineligible

25. Amnesty > Voluntary Disclosure • Formal procedure • Waive 50% of interest • Unknown and known liabilities

26. Any Questions?