During its 2017 legislative session, the Virginia General Assembly enacted legislation authorizing the Virginia Department of Taxation (“Department”) to administer a Virginia Tax Amnesty Program. On September 5, 2017, the Department issued Ruling of Commissioner, P.D. 17-156, which sets forth the details of the amnesty program, including taxpayer eligibility criteria, eligible taxes, amnesty benefits, and a “post- amnesty penalty.” The Virginia Tax Amnesty Program will begin September 13, 2017, and end November 14, 2017.
Details
Eligibility
Individuals and businesses may participate in the amnesty program to satisfy tax bills and file delinquent returns for taxes that are administered or collected by the Department, including sales and use taxes, income taxes, bank franchise tax, pass-through entity information returns, and a number of other state taxes. Local taxes, such as the business and professional license tax, are not eligible taxes. To qualify, a tax bill must be related to an amnesty eligible period and have an assessment date on or before June 15, 2017, while returns must be applicable to an eligible period.
Amnesty-eligible periods depend on the type of tax and are set forth in detail in P.D. 17-156. For example, the amnesty-eligible period for individual and corporate income taxes and pass-through entity information returns is taxable year 2015 and prior, while the amnesty-eligible period for Retail Sales and Use Tax is the month of April 2017 and prior. P.D. 17-156 must be consulted to determine the applicable amnesty-eligible periods, as they vary for a range of different Virginia taxes.
Any tax liability that is attributable to an issue that is the subject of a decision of a Virginia court rendered on or after January 1, 2016, is not eligible for the Virginia Tax Amnesty Program. P.D. 17-156 provides that the following issues are not eligible for amnesty:
- The claim of “Exception 1” to the addition to income relating to intangible expenses under Va. Code § 58.1-402.A.8., which was at issue in Kohl’s Department Stores, Inc. v. Dept. of Taxation, No. 760CL 12-1774 (City of Richmond Cir. Ct., Feb. 3, 2016) (and recently affirmed by the Virginia Supreme Court, in Kohl’s Department Stores, Inc. v. Dept. of Taxation, No. 160681 (Aug. 31, 2017)); and
- The denial of a request for an alternative method of allocation and apportionment under Va. Code § 58.1-421, which was at issue in Corporate Executive Board v. Dept. of Taxation, No. CL13-3104 (Arlington Cty. Cir. Ct., Nov. 30, 2015), dismissed by the Virginia Supreme Court (June 9, 2016).
In addition, taxpayers under criminal investigation or prosecution for filing fraudulent returns or failing to file a return with the intent to evade tax are not eligible. All obligations of a taxpayer with an active jeopardy or fraud assessment are not eligible.
Amnesty Benefits
In exchange for filing delinquent tax returns and paying all tax due, one-half of the interest due and all penalties will be waived. Amnesty benefits are granted on a bill-by-bill or return-by-return basis. Thus, if a taxpayer has three tax bills due and three delinquent returns, but can only afford to pay some of the tax and half of the interest due, the taxpayer may still participate in amnesty and satisfy some of the amnesty-eligible bills and/or delinquent returns. However, the unpaid amounts will be subject to the “post-amnesty penalty.”
The payment of amnesty-eligible tax bills must be postmarked by November 14, 2017. All relevant tax returns and associated documentation must be filed within the amnesty period. Taxpayers that underreported income or overstated exemptions or deductions must file amended returns during the amnesty period. Payments of tax must accompany the returns.
Post-Amnesty Penalty
Any tax liability that was eligible for the Virginia Tax Amnesty Program but that remains unpaid at the conclusion of the amnesty will be subject to a 20 percent penalty. The penalty applies to unpaid taxes only and not to any outstanding balances of penalties and interest. The penalty is also in addition to any other penalties that are applicable to the unpaid tax liability.
Insights
- Virginia is the latest state, in addition to New Jersey and Oklahoma, to announce the start of tax amnesty or voluntary disclosure programs. These programs present an opportunity for taxpayers to come into compliance with their tax obligations, and reduce related accounting reserves, if any.
- P.D. 17-156 provides a number of other details about the Virginia Tax Amnesty Program, including special situations, and should be consulted.
- Taxpayers considering participating in the Virginia Tax Amnesty Program should consult with their financial statement auditor and tax advisor to evaluate and determine the potential financial statement implications with respect to income taxes under ASC 740, including the impact on current and deferred taxes, uncertain tax benefits, and disclosures, as well as with respect to sales/use and indirect taxes under ASC 450, including impact on reserves and accruals.