Tax amnesties are effective tools for raising revenue both in the short and long term. The long-term revenue impact comes from bringing previously-noncompliant taxpayers into the system on a prospective basis - it's a lot harder to stop paying taxes once you're in the system.

If a taxpayer does not take advantage of the amnesty program but later determines that he or she could have done so, the taxpayer can seek to file with Oregon under its voluntary disclosure program. The voluntary disclosure program, which is of long standing in this state, allows taxpayers to file back taxes without being subject to penalties - presumably this would apply to the 25% amnesty penalty as well. The voluntary disclosure program does not allow for the waiver of any interest due, but it does limit the "lookback period" to three years, unlike the amnesty program which extends to all open years. (Many taxpayers should use the voluntary disclosure program rather than the amnesty program for this very reason - the state is leaving it to the taxpayer to choose.) The key is that the taxpayer has to come forward and cannot be "caught" by the state.

The Sallie Mae involvement is a good question!

Sallie Mae has a subsidiary known as Asset Performance Group(APG) which is a debt collection firm.

I would assume that would be the link

The long-term revenue impact comes from bringing previously-noncompliant taxpayers into the system on a prospective basis

That's a nice story, but is there any empirical data to back it up? Also, what are the revenue effects of the loss of morale among previously compliant taxpayers?

I think I may be one of these people... but I'm not sure. We payed very little federal income tax last year, but then when I did the state tax form, it said we owed an additional $1000 to the state. I figured I must be doing it wrong because I don't see how we could possibly owe that much (not to mention there's no way we could come up with that much more money). I don't know what to do: if I do owe, but don't contact the state, maybe they'll overlook me; but if they don't, then I guess they garnish my husband's already meager wages. If I do contact them, there'll be no penalties, but I still won't be able to pay them. If I'm afraid of the state, and can't afford a tax accountant, who the heck helps people comply with state taxes?

Jack,

It is a nice story - that's why virtually every state has had a voluntary disclosure or amnesty program at one time or another. These programs work.

I cannot speak for the entire state, but I have personally negotiated several voluntary disclosure agreements with Oregon as well as other jurisdictions on behalf of previously non-compliant taxpayers. Off the top of my head, I can think of a baker's dozen of companies that are now filing income tax returns in Oregon that were not doing so previously. (Granted, in this economy a few of them are paying minimum taxes thanks to some losses, but that's not the point.) I will not say how much these companies are paying in taxes, but the collective tax payments vastly exceed the penalties waived. And those taxes keep getting paid every year.

In each case, the company in question came forward voluntarily and obtained penalty relief. They were not contacted by the state, so I suppose we'll never know if they would have been found by Oregon and dinged with penalties in addition to their outstanding tax and interest liability.

Does it hurt your morale as a taxpayer to have these taxpayers in Oregon's system, paying taxes and filing returns, even though they all avoided a one-time penalty? Or would you rather have them hanging back, refusing to file returns and waiting for the day that Oregon's Department of Revenue tracked them down - a day that may have never come?

Offering taxpayers a break to come forward on their own is pure common sense. What incentive is there for taxpayers to come forward if they will be treated exactly the same as if they are caught by the state? Why not just wait for the state to catch you?

I fail to see how a common sense program like voluntary disclosure or a short-term amnesty program could possibly hurt the morale of a reasonable person. The basic rule stands: if the state catches you, you get hit with penalties in addition to back taxes and interest. But if you come forward on your own, some relief should be available - but you're still going to pay your back taxes and interest on those taxes.

Do you have any evidence that these programs damage taxpayer morale to the extent of hurting revenue? That would be interesting data.

Annie -

You might want to contact the good folks at the Portland Promise Center. According to their website, the PPC works with the Volunteer Income Tax Assistance program, which provides tax compliance assistance at no charge. Check it out at portlandpromise.org. I hope it helps.

Scott: Thanks for the anecdotes. I asked for data. You have none. And yes, my morale is diminished by the fact that your deadbeat clients got away with the penalties that they so richly deserve.

Jack:

My clients are not deadbeats. A deadbeat would not come forward and admit to a previously undetected tax liability and pay all associated back taxes along with interest. A deadbeat would wait until caught and then try to skate on whatever they owed. That isn't the same thing.

Knowing that my clients are now paying Oregon taxes hurts your morale. That's your right, I suppose. Is that going to change how you file your taxes? Are you going to take deductions to which you aren't otherwise entitled? Are you going to underreport your income? My guess is no, you're going to be just as law-abiding as you have always been. It's hard for me to see how a voluntary disclosure/amnesty program would harm revenue as you speculate.

You already have data from the state showing how much revenue it expects to generate from the amnesty program. Do you have any data supporting your speculation that "hurt morale" will adversely affect revenue? I have personal experience with these programs raising revenue and improving compliance. Do you have anything besides a question?

You did not answer the other question - would you rather have these taxpayers refuse to come forward because they don't want to pay penalties? If there's no benefit to taxpayers who come forward voluntarily to settle previously owed liabilities, then you're putting all the responsibility on the Department to catch them. And the Department can't catch everyone.

I am all for hitting taxpayers who are caught by the Department with all the penalties in the arsenal. Benefits offered through voluntary disclosures and occasional amnesties are just common sense.

Guess we'll have to agree to disagree.

People who don't pay their taxes on time and don't even file a tax return are deadbeats. Even if they pay late.

If penalties deter people from paying, they ought to be repealed. For everyone. But they're there for a reason. Popping up and waiving them, out of the blue, diminishes their effectiveness considerably.

data from the state showing how much revenue it expects to generate

That's pretty funny. Predictions are now data?

"Popping up and waiving [penalties], out of the blue, diminishes their effectiveness considerably."

Data, please? Sounds like someone hasn't talked with a tax director or CFO in a while.

If multistate taxation were simple, I might possibly agree with your "deadbeat" assessment. But it isn't - many tax practitioners just don't know enough about it to properly advise their clients. Internal tax departments have not been immune to layoffs, further depriving businesses of resources. Given that the threshold issue in multistate tax is whether the state has the constitutional authority to tax a given taxpayer, bad advice often leads to taxpayers you would, incorrectly, call "deadbeats."

Here's an example. One of my clients was represented by a well-established Portland firm with a respected tax pratice. You know the firm. The head of the tax practice advised this company - based back east but expanding their sales to Oregon - that they could avoid nexus with Oregon by using a team of independent contractors as a sales force rather than their own employees. This attorney - whom you know - was unaware of the U.S. Supreme Court decision squarely on point that holds to the contrary. This attorney is a good tax attorney, but is a federal practitioner and not as familiar with state issues as one would wish.

The company relied on this attorney's advice and for three years made sales into Oregon without filing returns on the grounds that Oregon lacked the constitutional authority to tax. I met the client's tax director (a strong fed guy with no state experience) and we talked about Oregon taxes. He was horrified to find out that he had taken a foolish filing position in Oregon.

Within six weeks we had negotiated a voluntary disclosure agreement with Oregon and paid back taxes and interest for all three years. They did not pay penalties. The company continues to file Oregon tax returns.

This business relied on the advice of a well-respected local attorney who happened to give them bad advice. As soon as they were aware of the problem, they remedied it. By no definition - no matter how simplistic, knee-jerk, or uninformed - is this client a deadbeat.

There are deadbeats out there, and I say throw the book at them. I just prefer to know the facts before I start throwing.

The company relied on this attorney's advice and for three years made sales into Oregon without filing returns on the grounds that Oregon lacked the constitutional authority to tax. I met the client's tax director (a strong fed guy with no state experience) and we talked about Oregon taxes. He was horrified to find out that he had taken a foolish filing position in Oregon.

The taxpayer should not have been subject to penalties. If it were, then the penalty provisions need to be changed, not waived. To the extent that the lawyer gave bad advice, that should be the lawyer's malpractice insurance carrier's problem, not the taxpayers'.

Anyone who pays late should pay interest. They had the time value of the money. If your client paid the tax and the interest, that's the right result. Under amnesty, which is the subject of this post, the client would not pay full interest -- not the right result.

The Department of Revenue resisted amnesty for many years, and with good reason. Amnesty is a gimmick that sacrifices long-term goals for short-term revenue, plus a cut for a private collection agency company.

There are deadbeats out there, and I say throw the book at them.

No, that's not what you say. Amnesty lets deadbeats off the hook along with the saintly people that you represent. And you say amnesty is good.