Beginning September 1, 2015 and ending October 31, 2015, the Arizona Department of Revenue (Department) will offer a tax amnesty program, officially known as the “Tax Recovery Program.” Arizona’s last tax amnesty was in 2011.
The amnesty program will cover all taxes administered or collected by the Department, including both corporate and individual income taxes as well as transaction privilege (sales) tax, but excluding luxury and withholding tax. The program also covers the following lesser known taxes: the car rental surcharge (§ 5-839), the hotel tax (§ 5-840), county jail district excise taxes (§ 48-4022), the spring training car rental surcharge (§ 48-4234), and the public health services district transaction privilege tax (§ 48-5805).
The amnesty program applies to liabilities incurred during any tax period ending before January 1, 2014 (for taxpayers filing annually—this would cover income tax returns through the 2013 year but not for the 2014 year or after) or February 1, 2015 (this would cover sales tax returns for the monthly periods up to and including January 2015 but not for any months afterwards).
Must File an Application:
To participate in the amnesty program, taxpayers must file an application with the Department during the amnesty period—September 1 through October 31, 2015). Electronic applications are not allowed. The application asks for the following information:
- Type of tax
- Tax period
- Tax liability
- Any returns or reports (including amended returns/reports) to support the application
- Copy of the latest applicable billing notice (for applications based on established liabilities)
The application is available on the Department’s website.
Must Pay the Full Amount of Tax:
Full payment of the tax due must accompany the application. Payment must be made by cash, check, or money order. No credit card or other electronic payments are allowed. The Department is not allowing payment plans under the amnesty program.
A “Gross Return” Can be Filed for Income Tax if the Taxpayer Does Not Have All the Information:
For income tax returns, if the taxpayer does not have sufficient information to file a complete tax return, he or she may file a gross income return, computing the tax due using the established rate brackets based on the average tax rates for the year(s) in question.
All Penalties and Interest Will be Abated, No Criminal Action and No Refunds:
If a taxpayer complies with all of the requirements of the section, the Department will waive all penalties and interest for the tax periods and taxes in the application without the taxpayer needing to prove reasonable cause or the absence of willful neglect. Following a grant of amnesty, the Department may not bring any administrative, civil, or criminal action regarding the tax periods in question. A grant of amnesty does not entitle the taxpayer to a refund or credit for any amount previously paid.
A taxpayer is ineligible for the amnesty program if any of the following circumstances apply:
- As of January 1, 2015, he or she was a party to any criminal investigation, administrative proceeding, or litigation for failure to file, failure to pay, or tax fraud in Arizona or federal court
- He or she was the subject of any past tax-related criminal investigation, indictment, or prosecution resulting in a conviction, guilty plea, or no-contest plea
- He or she was convicted of a crime relating to the period or tax in the amnesty application
- He or she is a party to a closing agreement with the Department for the periods in question
- The amnesty application does not include any amount of unpaid tax
The director will deny or revoke a false or fraudulent amnesty application or the application of a taxpayer who otherwise attempts to evade tax through the amnesty program.
Returns Filed With the Application are Subject to Verification:
Returns or reports filed as part of an amnesty application are subject to verification (another word for “audit”) by the Department. If you are currently being audited, the Department recommends you contact your auditor to discuss your tax liability.
Any Ongoing Appeals Must be Dropped:
Additionally, an application for amnesty constitutes a waiver of all administrative and judicial rights of appeal for the periods in question. Taxpayers are not permitted to pay part of an assessment under the amnesty program and protest the remaining amount. Any appeals will be dismissed upon notification from the Department that amnesty was granted for the period in question. Taxpayers must also withdraw from a pending proceeding or litigation before an amnesty application will be granted. Nonetheless, the taxpayer retains all administrative and judicial rights of appeal for any additional tax assessed by the Department during a subsequent audit.
Taxpayers that may have any delinquent taxes, or returns for years or periods that have not been filed, may want to consider taking advantage of the amnesty program. While the full amount of the tax must be paid, all interest and penalties (usually late payment and/or late filing) will be abated. Another important consideration is that a taxpayer participating in the amnesty program will not be subject to any criminal prosecution, which would mainly apply to cases where the taxpayer failed to file his or her income tax returns for prior years. Additionally, taxpayers that have protested a tax assessment and are in the administrative or judicial appeals process can take advantage of the amnesty program but will be required to drop their appeals. With the last amnesty program in 2009, it may be awhile before ArizonaSALT initiates another program.
For additional information, please see the Department’s Tax Recovery website.