Tax Amnesty Coming to Maryland

Maryland taxpayers with outstanding liabilities will have a chance to come clean through a tax amnesty program that will take place later this year.  On April 14, 2015, Governor Hogan signed legislation that requires the Comptroller to administer a tax amnesty program from September 1, 2015 to October 30, 2015. The program allows for the waiver of civil penalties and one-half of any outstanding interest due to the nonreporting, underreporting, and/or nonpayment of Maryland state and local income tax, withholding taxes, sales and use taxes, and admissions and amusement taxes.

Program Details

Maryland’s 2015 amnesty program applies to tax returns or payments due prior to January 1, 2015. To participate in the amnesty program, a taxpayer must do one of the following during the amnesty period:

1. File a delinquent return(s) and pay the tax plus one-half of any interest due;
2. Pay the tax plus one-half of any interest due on a previously filed return(s) for which the taxpayer is under paid; or
3. Enter into an agreement with the Comptroller to pay a delinquent tax liability plus one-half of any interest on or before December 31, 2016.

The third option will allow taxpayers to negotiate a payment plan with the Comptroller as long as full payment is made by the end of 2016. It’s important to note that a taxpayer that enters into an agreement with the Comptroller is still required to file the outstanding tax return(s) during the amnesty period. Further, the waiver of one-half of the interest for taxpayers entering into such an agreement does not apply to interest accruing for periods after October 31, 2015. Finally, taxpayers that participated in a prior Maryland amnesty program between 1999 and 2014 or the 2004 settlement period program are ineligible for the 2015 amnesty program.

Maryland last administered a tax amnesty program in 2009. The 2009 program generated $38.9 million, approximately $31 million of which was from individual income tax.

Insight

The Comptroller will likely administer the program similarly to the 2009 program, which means that taxpayers will be required to submit an amnesty application that is accompanied by the unfiled tax returns and/or payment of the tax and one-half of the interest. If a taxpayer is not paying the entire outstanding liability, the application should allow taxpayers to have an option to enter into a payment plan.

There are a few important things to think about when considering applying for the amnesty program. First, taxpayers that have an outstanding assessment or are currently under audit are eligible to participate in the program. Second, there is no penalty for not participating in the program. Other state tax amnesty programs often impose an amnesty penalty (in addition to other penalties) on tax liabilities paid after their program that were eligible for payment under the program. Third, the program does not explicitly allow for a limited look back period with respect to the returns that must be filed by a taxpayer. Thus, rather than participating in the amnesty program, taxpayers with unfiled returns for more than three prior years should consider participating in the Comptroller’s voluntary disclosure program. When participating in the voluntary disclosure program, in exchange for voluntarily paying the most recent three years of tax, the Comptroller typically agrees to not to assess tax for any period prior to such three-year period. This is an important consideration for individuals or businesses that have not filed back year returns because the Comptroller generally has the authority to issue assessments against non-filers indefinitely (i.e., there is no statute of limitations). The voluntary disclosure program also offers a waiver or penalty, but all the interest must be paid.

Taxpayers that have significant outstanding Maryland tax liabilities can benefit from entering into the amnesty program. Whether the program is the best course of action, however, will vary for each individual taxpayer. Factors such as the expiration of the statute of limitations for a particular liability and whether the voluntary disclosure program is a better option should be considered before entering into the program.

Schedule a consultation with an experienced Aprio advisor to discuss your State and Local Tax needs.