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Tuesday, September 15, 2009

Paid off your tax debts? That was a mistake.

As viewers of Monday night football now know, Oregon's about to have a tax amnesty period -- when people who haven't filed their state income tax returns, or who have filed such returns with erroneous items in their favor, can come clean without penalty. Not only will the state waive any penalties, but it will also cut the usual interest rate on the delinquent taxes (currently 6%) in half.

This works only if the tax folks are not already on to you. If you've already filed and shown that you owe, or if you haven't and the state has already contacted you about it, no dice. And the amnesty period doesn't start until October 1, two weeks from Thursday.

There are many interesting law and policy aspects to amnesty, which has been run in several other states. It raises money in the short run, but it tends to have deleterious effects on the morale of honest taxpayers, and it may undermine future compliance.

You have to wonder how it will work in the current, rotten economy. Who's going to blow the whistle on themselves and add one more bill collector to a raft of creditors that are already hounding them? Maybe some folks will want to get the debt out in the open so that they can have it on their list when they file for bankruptcy -- that won't raise much money.

And doesn't this leniency breed future noncompliance? Once the amnesty period expires on November 19, won't people with tax skeletons in their closet think, "I'll just wait for the next amnesty period and turn myself in then"? It reminds me of "urban renewal" programs -- once you give some developers tax handouts, no one will develop anything without them.

Lastly, what about the federal IRS? If you're on the lam from both the state and the feds, and you come clean with the state as part of this program, won't the feds come a-knockin'? And are the feds granting amnesty from penalties and interest these days? Nope.

UPDATE, 9/16, 5:36 p.m.: More details on the amnesty program are discussed in this followup blog post.

Comments (10)

Why is it that the cheats, liars and thieves always get everyone to bend over backwards for them? What about the honest folk who never do this crap. To hell with the State DOR.

You make it sound easy to know if you have an obligation to file a tax return in Oregon.

Not all taxpayers who will be filing tax returns under amnesty were willingly disregarding their tax obligations.

A growing number of states have been adopting rules that change doing business in a state from a physical presence to an economic presence.

Does a company located in Vancouver, Washington that never sets foot on Oregon soil do business in Oregon if they advertise on a Washington radio station and that advertisement entices Oregon customers to purchase items from the Washington company?

Does an “800” telephone number cause the company to be taxable because the customer ordered from out-of-state?

Does sending a representative into Oregon, by an out-of -state company, to determine why a product failed constitute doing business in Oregon?

All these kind of questions sometimes lead to different answers in the corporate world of taxation nexus. Amnesty programs give companies a fair way to clean up past return obligations that were previously unknown or unresolved.

I don't follow your point at all. Does an amnesty program make unclear law any clearer? No. If you owe back taxes, you owe them today, every bit as much as you will on October 1.

To hell with the State DOR.

Or is this baby mandated by the legislature? Anybody know off the top of their head?

The simple truth is that state revenues have tanked; and many of the self-employed have a difficult time coming up with taxes due for this year and possibly past years as well. It's always "easy" when you simply collect a paycheck and all your taxes are paid for you by your employer. It's a lot more difficult when you have to dredge through an entire year's records to figure out what you owe in taxes - and hopefully have enough in your bank account to pay them.

If I understand it properly, forgiven debts must be declared as income to the debtor, at least on federal returns; how does state tax amnesty forgiveness affect the federal liability?

The income would be realized in the year the debt is forgiven; therefore, any discharge-of-indebtedness income from this program would go on a 2009 federal income tax return. It would not affect federal liability for past years.

It's an interesting question as to 2009, however. All that is being forgiven are penalties and part of the interest -- I'm not sure off the top of my head whether that would be income for federal purposes or not. Maybe it's just a tax-free "stimulus" rebate?

If you have a rule then enforce the rule uniformly. That should be the case whether you're dealing with leash laws or tax liabilities.

If you are not going to enforce the rule uniformly then don't have it.

The amnesty program was adopted pursuant to SB 880, not by administrative rule. This is a product of the legislature, unlike the state's voluntary disclosure program, a long-standing program that has allowed taxpayers who aren't in the system to come forward and pay back taxes and interest in exchange for a waiver of penalties and a limitation of the number of years the state will audit. The DOR was heavily involved in SB 880, to be sure.

Jack, amnesty won't result in more tax-related lawbreaking. We know this is true, because this is what we are told about amnesty for illegal aliens. Amnesty never results in more people coming illegally to the country to wait for the next amnesty. So by the same logic, having a tax amnesty won't result in non-payment of income taxes. See? All that worry for nothing.

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