While we all loved the 2002 biographical crime drama starring Tom Hanks, I have never been a proponent of the Frank Abagnale approach of “catch me if you can” to state and local tax planning. While the justice system clearly found that Mr. Abagnale had some degree of intent, the complexities of state and local taxation often put taxpayers in a “catch me” position without even knowing if anyone can, will, or should have any reason to catch you.
The inspiration for this week’s blog comes from the Massachusetts Department of Revenue release of draft guidance regarding a pilot Voluntary Disclosure Program. At first blush, the Program appears to differ from those of other states (no surprise here) in that the stated purpose is for “Settlement of Uncertain Tax Issues.” The program is also only open to business taxpayers for liabilities of $100,000 or more. To complicate matters even further, the draft guidance asks the disclosing party to make a settlement offer.
While every States’ program is different, some of the more important common features are that the program will apply for virtually any tax, generally a limited look-back period will be offered, and the issue doesn’t need to be an “uncertainty.” As long as the jurisdiction hasn’t come to you first, the excuse of “I forgot to pay taxes…” generally will work and usually get you a limited look-back along with the abatement of some or all of the penalties.
While every state has different requirements and different benefits, the common thread here is that if you have any suspicion at all as to whether a state or local tax may have slipped through the cracks, it is better if you go to them before they come to you.
If you have any questions about a potential voluntary disclosure of unpaid taxes, please contact your Berdon advisor or email me at firstname.lastname@example.org.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.