State & Local Tax Alert

Transcription

1 State & Local Tax Alert Breaking state and local tax developments from Grant Thornton LLP Louisiana Enacts Three-Period Tax Amnesty Program Louisiana has enacted a tax amnesty program that will be held during the following three separate periods: (i) at least two months during 2013; (ii) at least one month during the second half of 2014; and (iii) at least one month during the second half of This marks the third tax amnesty program enacted since 2001 and will apply to all taxes administered by the Louisiana Department of Revenue except motor fuel taxes. The amnesty program also excludes penalties for failure to submit information reports that are not based on an underpayment of tax. The Department will determine the exact dates during which the amnesty program will occur, and the benefits of participating in the amnesty program substantially differ according to which year amnesty is taken. Program Overview Under the amnesty program, eligible taxpayers will submit an application form to be developed by the Secretary of the Department for use during the prescribed amnesty periods and will pay all tax, fees and costs (if applicable), and any interest due upon filing the application. 2 The Secretary also reserves the right to require applicable tax returns be filed with the application. No installment agreements will be entered into for periods approved under amnesty. The amnesty agreement will bar the taxpayer from the right to protest or initiate any administrative or judicial proceeding for the specific tax and period for which amnesty is granted. The program will be effective as follows: 2013: Effective for a period of at least two months as set by the Secretary, prior to December 31, If approved, the Secretary will waive one-half of the interest and all of the penalties associated with the tax : Effective for a period of at least one month to be set by the Secretary, between July 1 and December 31, If approved, the Secretary will waive 15 percent of all penalties associated with the tax, but no interest will be waived. 6 1 Act 421 (H.B. 456), effective June 21, H.B. 456, 3(G). 3 H.B. 456, 3(B). 4 H.B. 456, 3(G). 5 H.B. 456, 3(B). 6 H.B. 456, 3(G). Release date July 23, 2013 States Louisiana Issue/Topic All Taxes Contact details John LaBorde T E john.laborde@us.gt.com Scott Steinbring T E scott.steinbring@us.gt.com Pat McCown T E pat.mccown@us.gt.com Terry Gaul T E terry.gaul@us.gt.com David Rohlmeier T E david.rohlmeier@us.gt.com Dan Manley T E dan.manley@us.gt.com Giles Sutton T E giles.sutton@us.gt.com Jamie C. Yesnowitz Washington, DC T E jamie.yesnowitz@us.gt.com

2 Grant Thornton LLP : Effective for a period of at least one month to be set by the Secretary, between July 1 and December 31, If approved, the Secretary will waive 10 percent of all penalties associated with the tax, but no interest will be waived. 8 Taxes Eligible for Amnesty The following taxes are eligible for amnesty: Taxes due prior to January 1, 2013, for which the Department has issued an individual or business proposed assessment, notice of assessment, bill, notice or demand for payment not later than May 31, 2013; Taxes for periods which began before January 1, 2013; and Taxes for which the taxpayer and the Department have entered into an agreement to suspend the running of prescription until December 31, Note that the taxes eligible for amnesty are the same for all three periods of time during which a taxpayer may apply for amnesty. Matters Under Examination and in Litigation The amnesty statute provides the following concerning matters that are under examination or in litigation: Taxpayers involved in field audits or litigation must include all issues and eligible periods in the amnesty application and agree to the Department s interpretation of the law on all such issues. 10 Taxpayers participating in amnesty during 2013 will also agree to abide by the Department s legal interpretations approved under amnesty for all taxable periods beginning in 2014, 2015 and The treatment of taxes for tax years beginning during 2013 (including the 2013 calendar tax year) appears unaddressed. Taxpayers participating in amnesty during 2014 or 2015 similarly must agree to abide by the Department s interpretations for the three taxable years subsequent to the year in which the amnesty agreement is reached. Failure to abide by the Department s interpretation of law for these periods will subject the taxpayer to the negligence penalty. 12 Taxpayers involved in litigation that elect to participate in the amnesty program must agree to pay applicable attorney fees and their own costs of litigation. 13 Taxpayers who have paid under protest and filed suit will, upon amnesty approval, have their payment released from escrow and applied in accordance with the grant of amnesty H.B. 456, 3(B). 8 H.B. 456, 3(G). 9 H.B. 456, 3(C). An agreement to interrupt the running of prescription is made under LA. REV. STAT. ANN. 47: H.B. 456, 3(E)(1). 11 The law does not address whether the taxpayer would be bound by the Department s legal interpretations if such interpretations change in post-amnesty tax years. 12 Negligence penalties are imposed under LA. REV. STAT. ANN. 47: H.B. 456, 3(E)(2). LA. REV. STAT. ANN. 47:1512 provides for the Secretary to employ private counsel who may be paid reasonable expenses, not to exceed 10 percent of the taxes, penalties and interest at issue.

3 Grant Thornton LLP - 3 Taxpayers with existing liens on their property 15 and taxpayers on whom the Department has initiated proceedings against under the assessment and distraint procedure 16 are eligible for amnesty, but must pay any and all lien fees associated with the tax periods for which they have applied for amnesty. 17 Taxpayers who are parties to any criminal investigation or criminal litigation in any federal or Louisiana court for non-payment, delinquency or fraud in relation to any Louisiana state tax are ineligible for the amnesty program. 18 Effects of Filing Amnesty Application An amnesty application must include a written waiver of all rights, restrictions and delays for assessing, collective or protesting taxes and interest due. 19 The filing of an application makes tax, interest and penalties: (i) immediately due and payable; (ii) subject to the distraint procedure; (iii) ineligible for refund, credit or a claim against the state; and (iv) ineligible for redetermination. 20 However, a taxpayer is eligible for a refund or credit if the overpayment arises after the amnesty application is submitted and is attributable to a properly claimed Louisiana net operating loss or an adjustment made by the Internal Revenue Service (IRS) to the taxpayer s federal income tax. 21 A taxpayer that files an application for amnesty retains all administrative and judicial rights of appeal with respect to any additional tax assessed by the Department for the subject period. 22 Post-Amnesty Penalties A post-amnesty cost of collection penalty of up to 20 percent may be applied by regulation to deficiency assessments for a period for which amnesty was taken. 23 This penalty is in addition to all other penalties, fees or costs assessed. The cost of collection penalty is not imposed if the deficiency results from adjustments made by the IRS and those adjustments are timely reported by the taxpayer to the Department. The penalty may be waived by the Department when it is demonstrated that the deficiency was not due to negligence, intentional disregard of administrative rules and regulations, or fraud. 14 H.B. 456, 3(E)(3). Taxpayers must pay under protest and file suit under LA. REV. STAT. ANN. 47: This applies to taxpayers with movable or immovable liens on their property under LA. REV. STAT. ANN. 47: LA. REV. STAT. ANN. 47: :1573 provide the assessment and distraint procedure. 17 H.B. 456, 3(F). 18 H.B. 456, 3(H). Also, a taxpayer that delivers or discloses any false or fraudulent application, document, return or other statement to the Department in connection with an amnesty application is not eligible to receive amnesty and is subject to the greater of the fraud penalty under LA. REV. STAT. ANN. 47:1604 or $10, H.B. 456, 3(I). The protest provisions are in LA. REV. STAT. ANN. 47: :1565 and 47: Ineligible for redetermination under LA. REV. STAT. ANN. 47:1565(C). 21 H.B. 456, 3(I). The taxpayer must provide notice of the federal adjustment to the Secretary within 60 days of receipt of the adjustment from the IRS. 22 Id. 23 H.B. 456, 3(K). The Department is authorized to impose the cost of collection penalty only with respect to the difference between the amount shown on the amnesty application and the correct amount of tax due. Though not explicitly stated, it would appear that the amnesty cost of collection penalty would not apply in the case where a person or entity does not participate in the amnesty program and the Department later makes an assessment for tax years that would have been eligible for amnesty relief.

4 Grant Thornton LLP - 4 Further, taxpayers that participate in the amnesty program and later fail to comply with any payment or filing provisions administered by the Secretary during the five subsequent taxable years are subject to the greater of a statutory negligence penalty 24 or $ Despite the draconian nature of this particular penalty, specific grounds for waiver of the penalty are not included in the Act. Voluntary Disclosure Program In addition to the amnesty program, the Department also has in place a program within which taxpayers can anonymously offer to pay previously undisclosed tax liabilities. 26 Eligibility is limited to taxpayers who are not registered for a tax, but have had filing requirements for such tax. They also cannot have already been contacted by the Department regarding such filing requirement. Taxpayers merely complete an Application to Request Voluntary Disclosure Agreement form. 27 If qualified, the Department mails back a blank Voluntary Disclosure Agreement (VDA). Taxpayers pay only tax and interest under the VDA program as all delinquency penalties are generally waived, except in cases when the tax has been collected but not remitted. The largest VDA benefit to taxpayers is the limitation on the potential look-back period to include liability for the current calendar year plus the three immediately preceding calendar years. In some instances, participation in the VDA may provide a better resolution than the result provided by the amnesty program. Commentary The Department is expected to issue informal guidance, and/or to promulgate rules, addressing the implementation and detailed procedures of the amnesty program. To take advantage of the upcoming amnesty program, taxpayers must await and follow the Department s guidance. Although taxpayers may comply with the 2013 amnesty program in 2013, 2014 or 2015, 2013 offers the greatest benefit to eligible taxpayers in that all penalties are waived for certain applicants as well as one-half of the interest charges. The amnesty programs for 2014 and 2015 only offer 15 and 10 percent penalty waivers, respectively, and no waivers of interest. Also, due to the drawn-out nature of this amnesty program, it is unlikely that another amnesty program will be offered in the foreseeable future. The potential application of the post-amnesty cost of collection penalty is likely to be a source of controversy and possible litigation. Taxpayers should carefully consider tax periods, issues and amounts to include in or exclude from any amnesty program applications as well the potential effect of amnesty applications on subsequent tax periods. It appears that the Department will be motivated to ensure that the amnesty program is a success as the Secretary is directed to retain for the Department an amount equal to all 24 The applicable negligence penalty is imposed by LA. REV. STAT. ANN. 47: (generally the greater of five percent of the tax or deficiency found to be due, or $10). 25 H.B. 456, 3(L). 26 Voluntary Disclosure Agreement, Louisiana Department of Revenue, July 1, For further information, see the Louisiana Department of Revenue s Web site at 27 Form R

5 Grant Thornton LLP - 5 penalties waived under the program and reimbursement of certain program costs. 28 The remaining amount collected will be paid into the state treasury. 29 The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. Tax professional standards statement This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed. To the extent this document may be considered written tax advice, in accordance with applicable professional regulations, unless expressly stated otherwise, any written advice contained in, forwarded with, or attached to this document is not intended or written by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. 28 H.B. 456, 4(A). 29 H.B. 456, 4(B).