Tax Law

Florida Announces Three-Month Amnesty Period

Florida has announced a tax amnesty program, beginning on July 1, 2010 and ending on September 30, 2010. The amnesty only applies to tax liabilities due prior to July 1, 2010. It is a one-time opportunity for eligible taxpayers to satisfy tax liabilities and avoid potential criminal prosecution, penalties and interest as provided by the amnesty program. Most Florida taxes are covered by the amnesty, including, but not limited to, sales and use, corporate net income, and intangibles taxes.

A taxpayer may participate in the amnesty program whether or not the taxpayer is under audit, inquiry, examination or civil investigation initiated by the Florida Department of Revenue (Revenue) and regardless of whether the amount due is included in a proposed assessment, actual assessment, bill, notice or demand for payment issued by Revenue. Taxpayers under any sort of criminal investigation may not participate. Additionally, amounts subject to a pending administrative or judicial proceeding are eligible for amnesty as well. If the taxpayer is under audit, an assessment has been issued, or there is a pending proceeding, the amount the taxpayer will have to pay to take advantage of the amnesty is any tax due plus 75 percent of the interest due. If none of the foregoing conditions apply to the taxpayer's situation, the interest due is reduced to 50 percent. Penalties are generally waived under the amnesty program as well, but there may be some fairly unique situations under Florida's certified audit program whereby taxpayers may have the choice of waiving either penalties or interest.

In addition to the general penalty waiver, Revenue may not initiate a criminal investigation against or refer for prosecution any taxpayer participating in the amnesty program with respect to a failure to timely pay the tax disclosed in the amnesty program. In order to participate in the amnesty, a taxpayer must expressly waive its rights to contest taxes it is paying under the amnesty program. To the extent that formal proceedings (either judicial or administrative) have begun, the taxpayer must withdraw the protest or agree to dismiss the proceeding. Likewise, taxpayers must agree to waive any right to claim a refund or protest or otherwise appeal a denial of a refund claim; such a waiver must include payments of penalties and interest paid prior to July 1. Credits or refunds as a result of participation in the amnesty program are strictly limited to amounts determined by Revenue to have been made in error.

The amnesty program also contemplates the use of a payment plan, called a "stipulated payment." In order to participate in a stipulated payment, a taxpayer must pay 12.5 percent of the balance up front and pay the balance in no more than seven monthly installments. Interest will accrue on balances under the stipulated payment plan. Failure to make a monthly payment or otherwise being delinquent will void the stipulated payment agreement and the agreement to participate in the amnesty program, and the full amount of the liability, including any interest and penalty, are due and payable.

Revenue is given the power to rescind amnesty based upon fraud, misrepresentation, or mutual mistake of fact. Any taxpayer that files under the amnesty program a false or fraudulent return, forms or documentation or otherwise attempts to defeat or evade the tax is subject to penalties and criminal prosecution.

Pepper Perspective

This is the latest in a wave of amnesty programs that have been announced recently. The waiver of penalties and 50 percent of the interest for taxpayers that have delinquent liabilities that they wish to clear up seems pretty standard compared to what state taxing authorities have offered in recent amnesty programs. The increased assessment of interest for those taxpayers that are under audit is unique, interesting and somewhat surprising. For those taxpayers that are far along in the administrative pipeline, the chance to reduce interest expense by 25 percent (and waiver of penalties) does not seem to be a significant economic incentive, depending on the hazards of litigation associated with the taxpayer's issues with the state. The payment plan is also a somewhat unique twist, and may encourage taxpayers who are undecided about participation for financial reasons to participate.

The material in this publication is based on laws, court decisions, administrative rulings, and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Internal Revenue Service rules require that we advise you that the tax advice, if any, contained in this publication was not intended or written to be used by you, and cannot be used by you, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

This article is republished with permission of Pepper Hamilton, LLP. Further duplication without the permission of Pepper Hamilton, LLP is prohibited. All rights reserved.