(February 2,2005) The California Chamber of Commerce is working with state officials and other interested groups to remove unintended negative consequences from the “tax amnesty” program launched yesterday.

The Chamber and other taxpayer representatives are concerned that the breadth of the new program will catch numerous taxpayers unaware, exposing them to extreme financial penalties even though they have not deliberately failed to pay or report taxes accurately.

To participate, a taxpayer must file an application by March 31, 2005 and indicate for which years or tax reporting periods the amnesty is requested. The taxpayer has until May 31, 2005 to pay all taxes and interest owed, or enter an installment agreement.

New Penalties
Unfortunately, along with the program are harsh new penalties that could be imposed on all taxpayers, large and small, corporate and individual, for any unpaid taxes for tax years before 2003. The penalties may be imposed regardless of whether a taxpayer was under audit, protest or litigation under the amnesty period.

For example, after the end of the amnesty period, the Franchise Tax Board (FTB) will assess a 40 percent accuracy-related penalty (doubled from 20 percent) and a 50 percent interest penalty for deficiencies assessed for tax years prior to 2003.

Starting April 1, both the FTB and BOE will apply the 50 percent interest penalty from the due date of the original return through March 31, 2005, with no exceptions or dispute allowed.

The tax program applies to all taxpayers for all open tax years before 2003, covering both sales and use taxes administered by the state BOE, and the personal and corporate income and franchise taxes overseen by the state FTB.

The two entities differ, however, on specifics such as waiving fees (the FTB will waive most fees for amnesty participants, but the BOE won’t); and whether they will take installment payments (for business taxpayers, FTB won’t, but the BOE will).

Changes to the Program
The Chamber believes the FTB and BOE implementation of the so-called “tax amnesty” program should not punish taxpayers who in good faith are paying their taxes. Taxpayers who believe they have a legitimate issue with their tax assessment or who are under audit should not be indiscriminately penalized. Nor should inadvertent errors be subject to the harsh new penalties.

The Chamber is working with the appropriate parties to correct the unintended consequences of the tax amnesty program.  Whether that solution will be legislative or administrative is still unknown.

Applications
All taxpayers that wish to participate in the tax amnesty program must apply and file any required tax return(s) by March 31, 2005.  Applications are available at www.taxes.ca.gov or may be requested by calling (800) 400-7115.