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Both Businesses and Indiana Could Benefit from Proposed State Tax Amnesty Bill

Businesses Should Weigh Consequences Before Participating

The Indiana legislature is currently considering a bill that would create an eight-week tax amnesty program. During this time period, individuals and businesses who have not paid or who have underpaid taxes may come forward without penalties or interest. According to the Indiana Legislative Services Agency, the program could generate between $20 million and $269 million for the state.

A total of forty-one (41) states have previously implemented similar tax amnesty programs, most with a high degree of success. In most cases, the state legislatures use a "carrot and stick" approach -- during a grace period, individuals and businesses coming forward would have penalties and interest on unpaid taxes waived. However, for those individuals who do not take advantage of the amnesty period, interest and penalties are significantly increased should the deficiency be discovered in the future.

In addition to a one-time revenue boost for the state, tax amnesty programs tend to increase future tax revenues by increasing the tax base for future years. Moreover, tax amnesty programs can assist a state in raising funds without necessarily having to raise taxes on other state taxpayers.

Nevertheless, individuals and businesses considering participation in a tax amnesty program need to consider the consequences. In most circumstances, a state will require the individual to waive the right to file a refund claim or seek administrative or judicial review regarding any tax liability presented during amnesty. Otherwise stated, if an individual has a good faith legal argument why the tax is not due, it makes sense to explore this argument prior to approaching the Department of Revenue under the terms of the tax amnesty program.

As of the publication of this e-newsletter on February 8, 2005, the bill has passed the House, and is currently being considered in the Senate.

For more information on the proposed state tax amnesty bill and its potential impact on you and your business, contact your attorney or any attorney in the Bose McKinney & Evans LLP Tax Group.