TAX AMNESTY WHEN YOU NEED IT MOST

Maryland Amnesty Program Begins September 1

By: Leigh Kessler & Giovanni V. Alberotanza

The Maryland Comptroller imposes hefty penalties and charges a whopping 13% interest rate on delinquent taxes. This fall, however, taxpayers will have a unique opportunity for relief under a new Maryland Tax Amnesty Program.

Governor Larry Hogan recently signed a bill into law that requires the Maryland Comptroller to implement a 2015 Maryland Tax Amnesty Program (“Amnesty Program”) for eligible individuals and corporations that owe delinquent taxes. The Maryland Comptroller has declared an amnesty period for certain taxpayers from September 1, 2015 through October 30, 2015. Under the Amnesty Program, the Comptroller will waive most civil penalties and one-half of any interest due on most types of delinquent taxes, including individual and corporate income taxes, withholding taxes, sales and use taxes, and admissions and amusement taxes. The waiver applies to taxpayers who failed to file returns, taxpayers who filed their returns but underreported their correct tax liability, and taxpayers who have current unpaid tax liabilities. In addition to the waiver of civil penalties and one-half of the interest, in most circumstances taxpayers will not be prosecuted for criminal tax offenses.

The new law benefits taxpayers who wish to come into compliance with their Maryland tax obligations, but is also expected to fatten Maryland coffers by significantly increasing State revenue. The Amnesty Program is expected to increase net Maryland general fund revenue by $11.4 million in fiscal year 2016 and $3.6 million in fiscal year 2017 due to an increase in delinquent personal income and sales and use tax payments. Additionally, net local government revenue is expected to increase by $3.2 million in fiscal year 2016 and $0.9 million in fiscal year 2017.

General Eligibility

To qualify for the Amnesty Program, individuals and corporations must file delinquent returns, pay their entire tax liability, and pay one-half of any interest due on that tax liability during the amnesty period. If a taxpayer is unable to pay their tax liability and one-half of the interest in full during the amnesty period, the new law allows the Comptroller to enter into a payment agreement with the taxpayer so long as the payment plan calls for payment in full by December 31, 2016. It is important to note, however, that the Comptroller will have discretion over the terms of any payment agreement and, if the taxpayer fails to meet the terms of that agreement, the waiver of civil penalties and one-half of the interest pursuant to the Amnesty Program would be void. Subject to certain exceptions, the Amnesty Program applies to all tax liabilities associated with tax returns due on or before December 31, 2014.

Proposed Exceptions to Eligibility and Certain Program Terms

Although general eligibility for the Amnesty Program is broad, potential participants should be aware of exceptions built into the law. For example, the Amnesty Program does not apply to any taxpayer who was granted amnesty under a prior Maryland tax amnesty program held between 1999 and 2014. Furthermore, participants who wish to enter into an extended payment agreement should be aware that the Comptroller is not required to waive any interest that accrues after October 30, 2015, which is the last day of the amnesty period. Moreover, the law does not authorize the Comptroller to waive any previously assessed civil fraud penalties.

Taxpayers with potential criminal exposure should ensure that they fully understand the terms of the Amnesty Program’s protection from criminal prosecution before contacting the Comptroller.   For example, the Amnesty Program provides no protection from criminal charges already pending in a Maryland court. Moreover, a participant in the Amnesty Program is not exempt from any criminal prosecution if the matter was already under investigation by certain Maryland agencies including the Office of the Attorney General, the Office of the State Prosecutor, and the Office of the State’s Attorney. Unlike similar programs in other states, however, the new law does not prohibit taxpayers from participating in the Amnesty Program if they are currently under audit. Taxpayers considering the Amnesty Program should also consider potential federal civil and criminal tax consequences before entering into the program.

Taxpayers Will Need To Act Quickly

Maryland taxpayers who are not in compliance with their tax obligations should consult Leigh Kessler or Giovanni V. Alberotanza as soon as possible to determine whether they can take advantage of this unique opportunity. Ms. Kessler can be reached at (410) 649-4991 or lkessler@rosenbergmartin.com. Mr. Alberotanza can be reached at (410) 649-4990 or galberotanza@rosenbergmartin.com.