Tax Amnesty

The relief available varies significantly by jurisdiction. For example, Massachusetts’ 2024 program waived most penalties but generally did not waive interest other than interest directly attributable to waived penalties. Maine’s 2003 program required payment of full tax plus one-half of the interest, while waiving the remaining interest and all penalties. Because state amnesty programs are temporary and jurisdiction-specific, current relief opportunities may differ from prior programs or may not currently be available.

How State Tax Amnesty Programs Work

A typical amnesty program requires the taxpayer to act during a short filing period, submit required returns or amended returns, and pay the tax and required interest by the deadline. Massachusetts required an online amnesty request, separate by tax type, plus filing and payment during the amnesty period. West Virginia’s 2004 rules similarly required timely filing of amnesty applications and payment of tax plus 50% of interest, with detailed rules for installment agreements in hardship cases.

Programs often include:

• penalty waivers, sometimes broad and sometimes limited
• reduced interest in some states
• limited lookback periods for qualifying non-filers in certain states; and
• restrictions for taxpayers already under audit, in litigation, in bankruptcy, or involved in fraud or criminal matters.

This is where tax penalty forgiveness and tax penalty relief become meaningful: the taxpayer still pays tax, and often interest, but avoids some of the most expensive additions to liability. Depending on the state, waived items may include late-file, late-pay, estimated tax, electronic filing, or substantial understatement penalties, including a Failure-to-File Penalty where the program expressly covers it.

Tax Amnesty vs. Voluntary Disclosure Agreement (VDA): What’s the Difference?

A State Amnesty Program is temporary and public. A Voluntary Disclosure Agreement is generally an ongoing administrative process under which an eligible taxpayer voluntarily discloses prior liabilities in exchange for limited lookback treatment and penalty waiver or reduction. Louisiana’s VDA rules define the agreement as a contract under which the taxpayer pays tax and interest on undisclosed liabilities, while the state waives or remits some or all penalties and limits collection to the agreed lookback period, except for collected-but-unremitted taxes.

Key differences include:

• Amnesty is available only during a fixed window; a VDA may be available year-round depending on state rules.
• Amnesty terms are standardized; a VDA is more tailored and often negotiated within published parameters.
• VDAs often permit anonymous initial contact through a representative, while amnesty programs usually require direct filing and payment.
• Both usually exclude taxpayers already contacted by the state for the same liability, but the exact disqualifiers differ.

For businesses managing multistate exposure and broader Tax Controversies, the choice between amnesty and a VDA depends on timing, audit posture, tax type, and whether the business collected but failed to remit trust taxes.

Which Taxes Are Typically Covered Under State Tax Amnesty Programs?

Coverage depends entirely on the state’s authorizing rules. Many programs apply broadly to taxes administered by the state revenue department, but carve out specific exclusions. Massachusetts included most tax types, such as personal income tax, corporate excise, and sales/use tax, while excluding certain taxes and fees outside the commissioner’s sole penalty-waiver authority.

Commonly covered taxes include:

• income taxes;
• sales and Use Tax;
• withholding taxes;
• corporate franchise or excise taxes; and
• certain assessed liabilities already billed by the state.

Trust taxes receive special treatment in many states. If tax was collected or withheld but not remitted, states may deny limited lookback treatment or impose stricter conditions.

How to Take Advantage of a State Tax Amnesty Opportunity Before It Closes

A business should first identify all affected states, tax types, and periods, then compare the amnesty terms against any available VDA option. Next, confirm whether the business has already been contacted by the state, entered a settlement, or falls into another exclusion category.

Then the business should:

• gather filing history and quantify unpaid tax, interest, and penalties;
• determine whether all missing returns must be filed for the covered period;
• verify payment timing and method requirements; and
• ensure submissions are complete, because incomplete filings may jeopardize relief.

Deadlines are strict. Missing the filing or payment deadline can forfeit amnesty benefits and expose the taxpayer to full penalties, interest, and possible enforcement.

FAQ

How frequently do states offer Tax Amnesty programs?
States do not offer them on a regular schedule. Many programs are one-time or infrequent legislative initiatives, while some states go many years without one. Availability depends on state budget, enforcement priorities, and statutory authorization.

Are interest charges also waived under most Tax Amnesty programs?
Not always. Some states waive all penalties but little or no interest, while others waive part of the interest. The answer depends on the specific program terms, payment timing, and whether the liability involves collected but unremitted tax.

Can a business participate in both a VDA and a Tax Amnesty program?
Usually not for the same liability at the same time without careful state-specific analysis. A business may use different compliance paths for different states or periods, but overlapping relief often depends on eligibility restrictions and prior disclosures.

What happens if a business misses a state Tax Amnesty deadline?
The business generally loses access to the special relief and may owe full tax, penalties, and interest. Some states may still offer a VDA or settlement path, but the temporary amnesty benefits usually expire once the deadline passes.

How BT Can Help

For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact DiAndria Green, Partner in Bennett Thrasher’s State and Local Tax (SALT) practice, or call us at 770.396.2200.