Tax Amnesty Law
If you owe back taxes to the Internal Revenue Service, there are several ways to compromise with the agency and arrange to have those taxes canceled, or paid over a period of time (either in part of in full). This is known as tax relief or resolution. Tax amnesty is a different program, and refers to illegal avoidance of taxes or deliberate deception on the part of the taxpayer.
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Tax Evasion and the IRS
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There are criminal penalties attached to tax evasion. The IRS, and any state or local taxing authority, can prosecute those who deliberately avoid the payment of taxes, fail to file tax returns, misstate their income or deductions, illegally shelter income from tax, or otherwise commit fraud on their annual tax returns. The penalties include substantial fines and jail time.
Voluntary Disclosure
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The IRS Voluntary Disclosure Program allows taxpayers who have committed tax fraud or tax evasion to come forward, cooperate with the IRS and avoid criminal prosecution. This "tax amnesty" program is designed to encourage those who might be subject to criminal prosecution avoid that event, and help the agency collect past-due taxes without going through the expense and complications of a criminal trial.
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Negotiations and Forgiveness
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The Voluntary Disclosure Program requires that the taxpayer pay any past-due taxes, as well as penalties and interest, in full. The income on which the taxes are due cannot come from illegal activity nor can it already be the subject of an IRS investigation. Once the IRS begins a civil or criminal investigation, the Voluntary Disclosure Program is no longer available.
Non-IRS Programs
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States, counties, and cities also have tax amnesty programs. Most of these allow for partial payment of back taxes in exchange for full disclosure and cooperation. Both the city of Los Angeles and the state of Louisiana announced tax amnesty programs in 2009, and in both cases the taxing authorities collected substantially more than was expected. Foreign countries also have instituted tax amnesty programs, which are targeted toward businesses that shelter their incomes in offshore accounts in order to avoid payment of domestic income taxes.
Negative Results
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In some cases, a tax amnesty program can have negative results for delinquent taxpayers. Those who do not take advantage of the program -- either because they are not aware of the program or are unable to pay back taxes at all -- are penalized more harshly when the tax authorities finally catch up to them. In addition, the audit that occurs when a taxpayer submits to a tax amnesty program can uncover tax liabilities of which the individual or business was unaware and is not prepared to pay.
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References
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