FAQ: What is Tax Amnesty?
Is there such a thing as tax amnesty and how do
I apply for it?
The Internal Revenue Service does not have an amnesty program. There is, however, an internal Voluntary Disclosure Policy. Under this policy, the Internal Revenue Service will typically decline criminal prosecution in cases where a taxpayer voluntarily comes forward prior to the initiation of a criminal investigation and voluntarily discloses the error or deficiency. The Taxpayer must then make an effort to pay whatever taxes, penalties and/or interest is owed. This program is geared to provide relief from the fear of criminal prosecution and does not provide a mechanism for the reduction or elimination of income taxes, interest, and most civil penalties owed.
Voluntary Disclosure is not an official policy of the Internal Revenue Service. Thus, the Service claims that it is not bound by this initiative. Nevertheless, the Voluntary Disclosure policy was recently updated and expanded to encourage taxpayers who avoided the payment of income taxes through the use of overseas corporations, bank accounts and credit card accounts (although this official initiative has ended). The good news is that there have been relatively few cases in which the Internal Revenue Service has even attempted to prosecute a taxpayer who properly complied with the policy.
Unlike the federal government, state taxing authorities, such as the Michigan Department of Treasury, will occasionally offer some type of tax amnesty program to encourage taxpayers to come forward voluntarily, get back into the tax system, and pay back what they owe without the threat of criminal prosecution and sometimes even with a reduction in penalties and interest. The criteria required for these programs, however, vary from state to state and are subject to availability through changes in the law.
If you believe that one of these programs may be right for you, you should immediately consult with an experienced tax attorney. Both the timing and the approach taken are crucial to best ensure that you qualify for the applicable amnesty program.
