Presentation on theme: "Considerations for a Tax Amnesty Program Approaches and Best Practices"— Presentation transcript:
1Considerations for a Tax Amnesty Program Approaches and Best Practices Chad WilsonSenior Director of OperationsContingency Services, Pioneer
2What is a Tax Amnesty? What is Tax Amnesty? A tax amnesty is a an accelerated revenue-generating strategy allowing specific taxpayer groups to pay past due tax obligations over a limited period of time in exchange for the forgiveness of a portion of certain tax liabilities, including interest, penalties and/or criminal prosecutionIn some cases, tax amnesty legislation imposes harsher penalties on those who are eligible for amnesty but do not participate in the amnesty program, generally deemed a “carrot-and-stick” approachAmnesty programs have been implemented at both the city and state levels of government
3Tax Amnesties: Good or Bad? The answer is: bothTax amnesties can be used to pay for critical municipal services, plug budget holes, or refill a “rainy day” fundHowever, some see amnesties as questionable public policyCan be viewed as an “out” for serial delinquent taxpayersDoes not necessarily promote voluntary taxpayer compliance
4So, Why Use It? Why Run a Tax Amnesty Program? Tax amnesties are traditionally a politically-driven, short-term strategy to accelerate revenues to provide additional time to repair structural deficit problemsRevenue from an amnesty can help municipalities avoid politically unpopular cost-cutting alternatives, such as:Raising taxesDeep spending cutsReduction of vital government servicesFurlough of employees
5Consider…A National League of Cities Report 1 entitled “City Fiscal Conditions in 2011” from September 2011 stated that the “The nation’s city finance officers report that the fiscal condition of cities continues to weaken in 2011 as cities confront the persistent effects of the economic downturn… In response, cities are continuing to cut personnel, infrastructure investments and key services.”“Findings from the National League of Cities’ latest annual survey of city finance officers include:“As finance officers look to the close of 2011, they project declining revenues, with corresponding spending cutbacks in response to the economic downturn; …“Ending balances, or “reserves,” while still at high levels, decreased for the third year in a row as cities used these balances to weather the effects of the downturn;“Confronted with these pressures and conditions, cities are making personnel cuts, delaying or cancelling infrastructure projects and cutting local services — cuts that have implications for jobs and national economic recovery.”“2011 reveals a number of continuing and troubling trends for city fiscal conditions… The local sector of the economy is now fully in the midst of realizing the effects of the recession from and the, to date, anemic economic recovery… (emphasis added)“Large state government budget shortfalls in 2011 and 2012 will likely be resolved through cuts in aid and transfers to many local governments;…”1. National League of Cities, “City Fiscal Conditions in 2011” By Hoene & Pagona, September 2011
6How Are Governments Reacting? Why Pioneer?How Are Governments Reacting?
7Reacting with Tax Amnesty Legislation Governments are including tax amnesty as part of their deficit mitigation strategiesAmnesty programs typically require legislative authority to implement, generally allowing for:Authority to waive penalties, interest, and release tax liensAbility to waive criminal prosecution for delinquent taxesEstablishment of program start-date and durationAbility to identify and approve back-end enforcement tools, such as additional assessments for not taking part in an amnestyLegislation identifies specific tax types and qualifying tax years of unpaid tax liabilities for amnesty eligibilityMost recent amnesty legislation applies to all known and unknown tax liabilities (assessments, delinquencies, deficiencies, under-filers, non-filers and protested accounts) in order to generate maximum revenue
8City and State Tax Amnesties Since 1982, 45 states have conducted more than 90 successful tax amnesty programs recovering more than $10 billion 1Approximately 66% of these amnesties have been broad-based programsBroad-based amnesties have generated ten (10) times the revenue as compared to restricted or targeted amnesty programsFive states have never run a tax amnesty program: AK, MT, TN, UT and WYAmnesty revenues have ranged from $300k (Idaho) to more than $4 billion (California)19 states conducted tax amnesty programs during (Driven by the “dot.com” recession of 2001)There were nine state tax amnesty programs in 2010 and three in 2011Los Angeles, Toledo, Philadelphia, Richmond, and other cities have run amnesties.1 Federation of Tax Administrators, “State Tax Amnesty Programs: November 22, 1982 to Present”Updated September 2011
9Our Recent Experience 390% 590% 300% 280% Why does this matter? PROGRAMIndianaOklahomaDelawarePhiladelphiaClient’s Goal:$65 million$21.8 million$10 million$25 millionTimeframe:60 days56 days45 daysMetrics:1.2 million+ telephone attempts700,000 pieces of targeted mail183 hours of supplemental call center operations support68,000 participants744,000+ telephone attempts300,000+ pieces of targeted mail289 hours of supplemental call center operations support170,000+ telephone attempts79,500+ pieces of targeted mail192 supplemental hours of call center operations support400,000+ telephone attempts83,000 Web site hits7,500+ walk-in visitors27,000 participantsResults:$255 millionrecovered$129 million recovered$30 million recovered$72 million recovered% of Goal Recovered:390%590%300%280%Why does this matter?Running it right means driving up your revenues!
10What’s Allowed in Virginia Tax Amnesty programs are allowed in VirginiaThe General Assembly must legislatively approve any amnesty programSenate Bill 1533 in 2009Established the Virginia Tax Amnesty ProgramHouse Bill 796 in 2010Established the Richmond Tax Amnesty Program
11Tax Amnesty Types and Strategies Why Pioneer?Tax Amnesty Types and Strategies
12Two “Types” of Tax Amnesty BROAD-SCOPE vs. RESTRICTEDAs governments continue to evaluate strategies to help close budget shortfalls, they face a number of decisions as to which combination of revenue generating tools will prove most financially helpful. While broad-scope tax amnesties are widely accepted strategies used by nearly every city and state to generate needed revenues during difficult economic times, an alternative restrictive and narrower voluntary compliance initiative is also being considered by some cities and states. The primary difference between a broad-scope and a narrower, more restrictive program can be best characterized by the following:Broad-Scope AmnestyRestricted AmnestyGenerates far greater revenue than alternative compliance initiatives because this program targets both known and unknown tax liabilities.Generates far less revenue when compared to broad-scoped tax amnesty programs because these generally target unknown tax liabilities. With this approach, any taxpayer who is delinquent on their taxes, or has not filed or under-reported their earnings, can participate in the amnesty program.Under a restrictive tax amnesty program, only unknown taxpayers who have not filed returns for taxes owed, under-reported their earnings, or have utilized abusive tax avoidance transactions are eligible to participate in the amnesty.
13Tax Amnesty Program Strategies Locked-In ApproachProactive StrategySupplemental approach to offset limited resources through a short-term public-private partnershipOutreach strategy designed to maximize public awareness and participation during a limited window of opportunityExperienced and highly trained tax amnesty personnel, supported by broad-based operational strengthPowerful tools and strategies that locate, educate and support taxpayers through an accelerated amnesty processContingency fee structured to incentivize exceeding the city’s, county’s, or state’s goalsReassign and deploy internal staff, diverting resources from current compliance effortsAlert tax professionalsOrganize media campaignEstablish and maintain regular business hours, 9:00 am – 5:00 pm, Monday - FridayPublish program details on city, county or state websiteAlert, train and prepare staff for in-bound trafficOn occasion, incur additional cost to hire small team of temporary personnel
14Comparison of the Two Approaches Recent amnesty activity from cities and states that either projectedor collected more than $30 million.StateAmnesty End DatePublic-Private PartnershipGoalCollectionsTotal GoalTotal RecoveredPhiladelphia6/25/10Yes$25m$72m$419 million$1.783 billion=425%Virginia12/5/2009$48m$103mDelaware10/30/2009$10m$33mLouisiana10/31/2009$150m$466mNew Jersey6/15/2009$100m$725mOklahoma11/14/2008$21.8m$129mIndiana11/15/2005$65m$255mPennsylvania6/18/10No$190m$261m$657 million$472million72%New York3/15/2010$250m$50 mConnecticut12/31/2009$75m$56.7mIowa10/31/2007$54m$28.2mMichigan6/30/2011$88m$76m
16Key Takeaways“Netback” should be the starting point in your decision-making process when considering a tax amnesty programTry not to think in terms of what an amnesty program will cost your department or agency“This program will cost our department $5 million”Instead, think in terms of what the “netback” to your department or agency will be“This program will have a net back to our department of $35 million”
17Key Takeaways A well-run amnesty will be very short term, 45-60 days This narrow window will nudge taxpayers towards actionAnd this brief timeframe minimizes disruptions to normal, day-to-day department operationsUse print, online, and radio marketing to build a sense of urgencyAlert taxpayers that amnesty is coming, but will only be available for a brief timePromote the ability to “wipe the slate clean”Also promote the “stick” of the amnesty, the fact that penalties will be assessed for those eligible who don’t take partPossible increased enforcement for non-participantsThe money will come in, but it will come in late in the programOur experience has shown that people participate in the amnesty as the program runs, but with a flurry towards the end
18Our Tax Amnesty Best Practices Recommendations Why Pioneer?Our Tax Amnesty Best Practices Recommendations
19Tax Amnesty Best Practices Recommendations All the following recommendations support the public policy goals of maximizing a municipality’s revenue and not unduly undermining existing voluntary compliance initiatives.Timing: Mid-September to Mid-November or Mid-April to Mid-June.At the outset a city, county or state must consider at what point during the calendar year is the optimal time to conduct a tax amnesty. Cities and states have experienced successful tax amnesties in the fall, and also in the spring following the traditional tax filing season. Though, in most instances, we recommend the fall time period because it is not during peak tax season and is at a time of year when taxpayers are likely to be less preoccupied with other activities, such as summer vacation or holidays.Duration: days.This is a standard amnesty period that is long enough to give taxpayers time to learn about the program and short enough to create a sense of urgency. This length is also ideal for the taxpayers who have to file.Eligible Debt Types: Make the broadest array of debt types (individual and business) eligible.The more debt types eligible increases the likelihood for greatest revenue recovery. It is also very important to make sure the program will be open to “known” and “unknown” taxpayers, which creates the greatest opportunity for revenue generation.Age of Inventory: Limit participation to those whose debts have become delinquent since the last amnesty period, if applicable. Typically, a greater look-back period equates to greater revenue recovery.Standard practice for cities, counties and states that have previously conducted an amnesty program. Also, many cities, counties and states do not incorporate limitations such as this and allow taxpayers to participate in the upcoming program even if they did not participate in a prior amnesty offering.
20Tax Amnesty Best Practices Recommendations Incentives to encourage taxpayer participation: Consistent with standard amnesty practice, waive all penalties—both civil and criminal. Consider waiving some accrued interest and releasing liens and garnishments, too.Greater incentives lead to greater participation.Post-amnesty compliance initiatives: Increased back-end penalties for eligible taxpayers who do not participate in a tax amnesty.A “carrot” (waived penalties) and “stick” (increased penalties and/or enforcement if you are eligible and do not participate) approach generally leads to higher participation rates and increased revenues.Payment Plans: We recommend that payments plans be offered as they are beneficial to taxpayers who might not to able to afford a lump-sum payment. However, we recommend that payment plans associated with a tax amnesty should not be longer than six months. Additionally, if payments plans are authorized, then they must be appropriately monitored during the post-amnesty period to ensure compliance.
22Tax Amnesty: Things to Remember Tax amnesties are very infrequent events with major revenue at stake, revenue that can be used to plug budget gaps or pay for vital government servicesGet your administration involved to promote the unique value of the tax amnesty programGet involved in the process to help craft program guidelines and structure that set you up for successSeek funding flexibility to administer program and meet revenue objectivesAppoint an internal Tax Amnesty Program Director to oversee projectCreate an internal team or task force from key stakeholders within your department who will be involved with the projectConsider a partner since tax amnesties are large, brief accelerated programs that requires excellent planning, implementation, and follow-throughAnd last, hang on and enjoy the ride!