On Saturday, February 28, 2015, Governor Charlie Baker issued a press release stating that the 2016 fiscal year budget will include a tax amnesty program.[1] Unlike the tax amnesty program for the 2015 fiscal year—which was limited to business and individual taxpayers who have already been assessed by the DOR for certain tax types[2] —the proposed amnesty for the 2016 fiscal year will be open to all tax types but will be limited to business and individual non-filers who have not yet filed and who have not yet been assessed by the DOR. Also unlike the fiscal 2015 amnesty, which was only open in September and October 2014, the new amnesty program “would run for all of fiscal year 2016.” [3]
“Creating incentives for businesses to follow through and pay what they owe will help generate much needed revenue as our administration fixes the budget problems we inherited and brings filers into the system for future payments,” said Governor Baker.[4] “This amnesty program will help craft a fiscally responsible budget that protects taxpayers, delivers much needed services to those who need it the most while protecting local aid for our cities and towns.”[5]
The Baker-Polito Administration projects that the fiscal 2016 amnesty will generate $100 million. The subheading of the press release states: “First non-filer program in over ten years to run in FY 16, generate $100M.”[6] This projection may be based, in part, on the fiscal 2003 amnesty, which ran from October 1, 2002 to December 2, 2002.[7] The last line of the press release states: “The last non-filer tax amnesty program ran in 2002, and generated $176 million.”[8]
Taxpayers should note, however, that the fiscal 2003 amnesty was not just a “non-filer tax amnesty program” as suggested in the press release. That program was open not just to business and individual non-filers, but also to those businesses and individuals that were previously assessed by the DOR (either by an original return filed without full payment, a DOR audit of an original return, or a DOR non-filer assessment).[9] As explained above, the fiscal 2016 amnesty proposed by the Baker administration will be restricted to business and individual non-filers. This may explain the relatively modest revenue projection of $100 million for the fiscal 2016 program in comparison to the $173 million generated by the fiscal 2003 program.[10]
Governor Baker’s statement that the amnesty will “[c]reat[e] incentives for businesses to follow through and pay what they owe . . . [and] bring[] filers into the system for future payments” suggests that the amnesty is aimed more towards corporate and small business taxpayers than at individuals. One possible explanation for the emphasis on business taxpayers is that the DOR can much more easily detect and assess individual non-filers than business non-filers because (a) inconsistencies between federal and individual income tax returns can easily be detected by information sharing between IRS and DOR and (b) most individual taxpayers have at least one source of income that is reported to the IRS (e.g. via Forms W-2 or Forms 1099).
The DOR has a much more difficult time identifying and assessing corporate and small business non-filers, especially for (a) tax types without a federal counterpart such as sales and use tax and (b) taxpayers that are not domiciled in Massachusetts and who have not registered with the DOR on the WebFile for Business system. Therefore, fiscal 2016 amnesty appears to be designed to encourage those corporations and small businesses with previously unreported Massachusetts liabilities to come forward voluntarily instead of expending valuable DOR resources to identify and assess these same taxpayers.
The proposed fiscal 2016 amnesty should incentivize all corporate, small business, and individual taxpayers to voluntarily disclose their back tax liabilities to the DOR without the threat of failure-to-file and failure-to-pay penalties. It is likely, however, that the bulk of the $100 million in projected revenue will be generated from corporations and small businesses not currently registered with the DOR.
Taxpayers should note that the fiscal 2016 has only recently been proposed by the Baker-Polito Administration: the Massachusetts Legislature still needs to approve the amnesty program before it becomes law. After the Legislature approves the program, the DOR will release specific guidance regarding the details of the fiscal 2016 amnesty.
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