The Internal Revenue Service recently extended the filing deadline for the federal voluntary disclosure program targeting offshore assets and accounts from September 23 to October 15, 2009. The objective of the federal program is to bring taxpayers who have undisclosed foreign accounts and other foreign assets into compliance with U.S. tax laws. Participation in the federal program raises state income tax issues because taxpayers generally will be required to file amended state income tax returns as a result of filing amended federal income tax returns for the six-year look-back period (2003 through 2008), and because most, if not all, of the state tax authorities have information-sharing agreements with the IRS that will alert them to the filing of amended federal income tax returns. Therefore, taxpayers participating in the federal program should consult counsel to develop a strategy for disclosing offshore assets and related income to the appropriate state tax authorities.

The vast majority of states have not yet developed—or at least have not publicized—any specific voluntary disclosure programs similar to the federal program that encourage taxpayers to disclose state tax liabilities related to income from foreign assets. As described below, Connecticut recently introduced a voluntary disclosure program specifically designed to complement the federal program. Other states are likely to follow in the near future, as more taxpayers attempt to satisfy their state income tax obligations as a result of participation in the federal program.


The Connecticut Department of Revenue Services recently announced the Connecticut Offshore Voluntary Disclosure Program, which includes terms similar to the federal voluntary disclosure program initiated by the IRS. The Connecticut program runs through January 15, 2010.

Connecticut’s voluntary disclosure program is designed to encourage taxpayers to come forward with information regarding their previously unreported income from foreign bank accounts and other foreign assets. Disclosure allows taxpayers to bring themselves into compliance with their obligations under the tax laws and provides certainty in determining the extent of their liability. Perhaps the most important feature of voluntary disclosure is that taxpayers can generally eliminate the risk of criminal prosecution if they satisfy the requirements of the program.

The Connecticut program includes a six-year limited look-back period comparable to that offered under the federal program. Unlike the federal program, Connecticut will waive all civil penalties.

Other States

Other states may soon follow Connecticut’s lead and offer similar programs.1 Meanwhile, there are options available in other states for taxpayers to disclose previously unreported income and attempt to limit their liability. A number of states currently offer general tax amnesty programs that may include waiver of civil penalties and reduced interest provisions. However, some of these amnesty programs, including Maryland’s, do not include provisions that limit the look-back period. This can be a problem for taxpayers with unreported income going back many years because it can be difficult to obtain the necessary records to file accurate returns for older tax periods. Consequently, taxpayers may be unable to obtain adequate protection against civil and criminal penalties in such instances.

Another alternative that may be available is a general voluntary disclosure agreement with the state. Some states–for example, New York and Georgia–have statutory or administrative programs under which a taxpayer may voluntarily disclose and pay any type of outstanding tax liability, not just those pertaining to income from foreign assets. Even states that do not have formal or published voluntary disclosure programs are often willing to work with taxpayers on a case-by-case basis to reach an agreement that will allow taxpayers to bring themselves back into compliance with the state’s tax laws and limit their liability.