Have you ever eaten chocolate cake when you’re trying to watch your weight? You take the first bite and you think, “Just this one bite. I’ll take one bite and I’ll deal with the consequences later.” But then you take another bite. And another. And eventually, you’ve eaten the whole piece. At that point, you start to think, “Well, I’ve already blown my diet. I can’t fix it now. I’ll eat another piece.” And it gets worse from there.
That’s how many of my tax compliance clients feel. They never start out to get behind on their taxes. It usually starts with a little delay – maybe an illness or a personal issue. And then the delay gets bigger. And bigger. And at some point, the client starts to think that the problem is bigger than they can deal with. So they don’t. And what started out as a little piece becomes the whole cake.
It’s easy to believe when you get behind that there’s no possible way to get back on your feet. And taxes, like most financial problems, take their toll on other parts of your life: I’ve had clients go on meds, burst into tears, confess to not sleeping, file for divorce, threaten suicide, you name it, all because they believe that their tax problems are too far gone to fix. And that stinks.
That’s why I’m a big believer in the idea of tax amnesty and I have been for years. It’s an opportunity for a fresh start. And it works “not because of the fear of getting caught but because of the opportunity to get it right.”
This year, taxpayers in Louisiana will have the opportunity to participate in the state’s “Fresh Start” program. The state is offering tax amnesty for two months beginning September 23 and ending on November 22. The program is an opportunity for delinquent taxpayers to resolve their outstanding liabilities and with fewer penalties.
The amnesty program is tiered in an effort to get taxpayers to settle up quickly. If you qualify and participate in 2013 during the September to November window, 100% of the penalties and 50% of the interest will be waived. Additional windows will be available during 2014 and 2015 but the penalty reductions are significantly reduced to 15% and 10% respectively. More details on the program are available on the state’s amnesty web site.
I’m not crazy about the tiered system. I like to give my clients finite windows for resolving their tax issues and extending the opportunity to participate in the program, in my opinion, allows taxpayers who might already have procrastination or issues meeting deadlines additional excuses to push off resolving their tax liabilities.
However, I do applaud Louisiana for thinking outside of the box in an effort to encourage compliance. It is estimated that around 300,000 people who owe nearly $700 million in back taxes will be eligible for the program. Of those big numbers, statistically, only 10% are expected to participate. Some might see this as a failure. But Louisiana has to think of this as found money. It’s a chance for the state to attract tens of millions of dollars in taxes – plus interest – without expending much in the way of additional resources.
Louisiana knows that these kinds of incentives work: the last time the state offered an amnesty program, in 2010, the state raked in an additional $482.7 million. Similarly, the tax amnesty program in New Jersey in 2009 brought in more than three times its initial goal of $200 million. In Philadelphia, when the City opened its amnesty program, a single taxpayer settled up with a payment of $2 million.
With those kinds of numbers, I’ve often wondered why the federal government hasn’t offered incentives for taxpayers to settle up. True, there is a voluntary disclosure program (for domestic as well as offshore disclosures) but it doesn’t have quite the appeal of a traditional amnesty program. With increasing worries about the tax gap – the amount of taxes collected versus the amount of taxes expected – does it make sense for the federal government to take a second look at amnesty? I would love to hear your thoughts.
