Virginia Approves Tax Amnesty Program for Businesses and Individuals

On September 5, 2017, the Virginia Department of Revenue (“VDR”) provided guidelines regarding how you can reap the benefits of its new Tax Amnesty Program. This program was authorized by Virginia’s General Assembly earlier in the year and waives all penalties and 50 percent of interest on a participant’s balance due.

The program will run from September 13, 2017, to November 14, 2017, giving taxpayers just over two months to take advantage of this program and get a fresh tax start. Most liabilities that qualified for the program and are unpaid at the end of the amnesty period will be assessed an additional 20 percent penalty.

Eligibility

You can generally qualify to participate in this amnesty program, if you are required to file tax returns with the VDR. To obtain the program benefits, delinquent or amended returns must relate to an eligible amnesty period. Tax bills must have an assessment date on or before June 15, 2017, and must also relate to an eligible amnesty period.

Even if you were granted an extension at some point, you can still qualify for amnesty if your return’s original due date was on or before June 15, 2017. For example, if the original due date was January 15, 2017, and you received an extension until July 15, 2017, you can still participate in the program.

Different taxes have different periods of eligibility. A few of the highlights include:

  • Corporate Income Tax: Taxable year 2015 and prior
  • Employer Income Tax Withholding: Month of April 2017 and prior
  • Estate Tax: Returns due by March 30, 2008, and prior
  • Fiduciary Income Tax: Taxable year 2015 and prior
  • Individual Consumer’s Use Tax: Returns due by May 1, 2017, and prior
  • Individual Income Tax: Taxable year 2015 and prior
  • Inheritance Tax: Remainder interests that come into possession before September 15, 2016
  • Pass-Through Entity Information Return: Taxable year 2015 and prior

A full list of taxes and their corresponding eligibility periods is available in this Tax Amnesty Eligibility chart.

On the other hand, the VDR made it clear that the following items are not eligible for amnesty benefits (taken from “Guidelines for the Virginia Tax Amnesty Program”):

  • Bills and accounts paid before September 13, 2017
  • Federal tax assessments
  • Local tax assessments
  • Bills with an assessment date after June 15, 2017, with certain exceptions for bills issues during the amnesty period (see “Terms” and “Special Cases” in the original guidelines)
  • All obligations of a taxpayer under criminal investigation or prosecution for filing a fraudulent return or failing to file a return with the intent to evade the tax
  • All obligations of a taxpayer with an active jeopardy or fraud assessment
  • Any tax liability attributable to an issue that is the subject of a decision of a Virginia court rendered on or after January 1, 2016

How to Participate

There’s no application form for the Virginia Tax Amnesty Program. In order to receive amnesty benefits, you are expected to file your past due or amended returns and make your payments by the end of the amnesty period or within 30 days of the date when the assessment was issued, whichever is later.

If you want to participate and receive the benefits, you’ll need to file any delinquent tax returns (including associated documentation, such as income statements, W-2s and other pertinent forms) by November 14, 2017. Anyone who under reported income or overstated their deductions and exemptions must file an amended return during the amnesty period in order to qualify for relief under the program.

You’ll also need to pay all the tax plus half the interest that’s due on any amnesty-eligible bill or delinquent return during the amnesty period of September 13 to November 14, 2017. The Commonwealth will apply an interest rate of 5 percent per year to determine the interest on unfiled returns and under reported income, beginning with the due date of the return and ending on September 12, 2017.

Amnesty will be granted on an individual basis per bill or per return. For example, if you have three returns that are eligible but can only pay one of them, you may qualify for amnesty for that bill but not the others, even if they are for the same type of tax. You don’t have to satisfy all outstanding bills and delinquent returns in order to receive benefits on at least some of your tax liabilities.

The Virginia Department of Taxation (“VDT”) has made sure taxpayers have different payment options to choose from:

  • QuickPay: a free, secure online way to research and pay your bills
  • VATAX Online
  • Credit card at officialpayments.com (a fee will apply)
  • Sending a check payable to the Virginia Department of Taxation by mail (the full guidelines have the full list of addresses to use)

Penalty for Not Participating

A 20 percent penalty will generally be assessed on most tax liabilities that aren’t paid in full before the amnesty period ends if amnesty was available. This penalty will be imposed in addition to any other penalties but won’t be applied to outstanding penalties or interest.

One exception to this penalty (but not the only one) applies if you currently owe money to the VDR for penalties or penalties and interest but not for the associated tax. In this case, the penalty and interest will be automatically waived if the interest due is less than $50 if the associated tax was eligible for amnesty.

If you entered into a payment plan to pay your taxes any time before September 13, 2017, you can still receive amnesty benefits, as long as you continue to comply with the terms of the payment plan. You can also avoid the 20 percent penalty for not paying by the end of the amnesty period if you enter into a payment plan during the amnesty period, as long as you stay current with your payments.
The guidance also provides that the penalty will not be assessed on certain tax liabilities that are either being appealed, are subject to an offer in compromise during the amnesty period, or are generated by an audit of a business or individual related to an amnesty eligible period. You can also avoid the penalty if the Commissioner determines that you had reasonable cause for not participating in the amnesty program.

Effects on Collections Activity

This amnesty program will have no effect on normal collection activities by the VDT. Be aware that VDT can still move forward with any collections-related activities, including (but not limited to) audits, liens, and pending court cases between now and November 14.

More Helpful Tips to Know

As you may have guessed, there are some miscellaneous things included in this legislation, including exemptions and how to handle special cases.

For example, if you have a pending appeal about a tax matter that is eligible for amnesty and you decide to go ahead and pay it under this program, your payment will be treated by VDT as your agreement to withdraw your current appeal and to waive your right to additional administrative or judicial proceedings.

Special rules apply to tax liabilities related to certain Virginia court decisions rendered on or after, January 1, 2016. Tax liabilities related to these issues are not eligible for the amnesty program, but they also will not be subject to an additional 20 percent penalty. These rules apply to tax liabilities related to the following issues:

  • The claim of Exception 1 to the addition relating to intangible expenses that were raised in Kohl’s Department Stores, Inc. v. Department of Taxation, Case No. 760CL 12-1774 (Circuit Court of the City of Richmond, Feb. 3, 2016)
  • The denial of a request for an alternative method of allocation and apportionment under Virginia Code Section 58.1-421, which was at issue in Kohl’s Department Stores, Inc. v. Department of Taxation, Case No. CL13-3104 (Circuit Court of Arlington County, November 30, 2015), dismissed by the Virginia Supreme Court (June 9, 2016)

Action Steps

Making sure you follow all the steps to meet eligibility for the Virginia Tax Amnesty Program might take some time – but it could also potentially save you thousands of dollars, depending on what you owe in your current tax situation.

There are many special exceptions and details included in this legislation. If you want to find out more specifically how you could benefit from participating in this amnesty program – or just need help navigating the many details of this bill – you have two choices. You can reach out to your Cherry Bekaert advisor to find out if there are any details you should know about. You can also contact the State and Local Tax (“SALT”) team for help assessing your liabilities – and your options – in Virginia and other states. Either way, it’s a first step to getting the answers you need.