Small Business Tax Tips

Tax Amnesty

Tax amnesty is a golden opportunity for delinquent taxpayers. It's your chance to come clean and pay taxes that you owe but still get a bit of a break from the tax collector.

The only sure things in life are death and taxes, right?

You're on your own with the death part, but when it comes to taxes the IRS might be willing to cut you a break. It's called tax amnesty and it could be a convenient option if your business has fallen behind on its tax responsibilities.

In theory, the purpose of tax relief programs is to provide a remedy for individuals and businesses that "forget" to file their tax returns or "accidentally" overstate expenses and deductions. In practice, it's your opportunity to come clean before the IRS tracks you down. The vehicles the IRS and state tax departments use for tax relief are usually either voluntary disclosure programs or tax amnesty programs. Although they sound similar, each of these programs has its own quirks and consequences.

Voluntary Disclosure Programs

Voluntary disclosure programs encourage people to file delinquent tax returns and pay any tax balances that are still outstanding.

These programs tend to be open-ended in nature, meaning there is usually not a specific deadline after which you are simply out of luck. However, in order to qualify for a voluntary disclosure program, you must initiate the action.

In other words, if the IRS or state tax department sends you a notice indicating that you may have unpaid taxes or delinquent filings, it's already too late - you're disqualified from taking advantage of the voluntary disclosure program.

But if you do qualify, the tax department is usually willing to waive certain penalties and further prosecution.

Tax Amnesty

Tax amnesty programs are similar to voluntary disclosure program. As the name implies they provide amnesty, but only for a specified period of time.

The purpose of a tax amnesty program is for the state to collect as much back taxes as they can in a very short time period. Comply with the terms of the amnesty program and you will reap the reward of waived penalties.

However, if you fail to come clean during the amnesty period the state will be neither lenient nor sympathetic to your plight. The best way to find out which amnesty programs are currently available in your state is to contact your state tax department directly and respond appropriately.

Voluntary Compliance

Even though voluntary disclosure and tax amnesty are the most common tax relief programs, every once in awhile the IRS or state tax departments will offer something called a voluntary compliance program.

Voluntary compliance programs combine elements of the other two programs to provide a narrowly-defined fishing expedition for tax departments that are unable to identify specific taxpayers who are out of compliance. For example, a state tax department might offer a voluntary compliance program for individuals who have eluded taxation through an avenue that is undetectable through typical monitoring procedures.

Like amnesty programs, these programs usually have a firm deadline so it's in your best interest to get in on available programs while you still can.

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