Presentation on theme: "Considerations for a Tax Amnesty Program Approaches and Best Practices Chad Wilson Senior Director of Operations Contingency Services, Pioneer."— Presentation transcript:
Considerations for a Tax Amnesty Program Approaches and Best Practices Chad Wilson Senior Director of Operations Contingency Services, Pioneer
What 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 prosecution In 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” approach Amnesty programs have been implemented at both the city and state levels of government
Tax Amnesties: Good or Bad? The answer is: both Tax amnesties can be used to pay for critical municipal services, plug budget holes, or refill a “rainy day” fund However, some see amnesties as questionable public policy – Can be viewed as an “out” for serial delinquent taxpayers – Does not necessarily promote voluntary taxpayer compliance
So, 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 problems Revenue from an amnesty can help municipalities avoid politically unpopular cost-cutting alternatives, such as: – Raising taxes – Deep spending cuts – Reduction of vital government services – Furlough of employees
Consider… 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 2007- 2009 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
Reacting with Tax Amnesty Legislation Governments are including tax amnesty as part of their deficit mitigation strategies Amnesty programs typically require legislative authority to implement, generally allowing for : – Authority to waive penalties, interest, and release tax liens – Ability to waive criminal prosecution for delinquent taxes – Establishment of program start-date and duration – Ability to identify and approve back-end enforcement tools, such as additional assessments for not taking part in an amnesty Legislation identifies specific tax types and qualifying tax years of unpaid tax liabilities for amnesty eligibility Most 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
City and State Tax Amnesties Since 1982, 45 states have conducted more than 90 successful tax amnesty programs recovering more than $10 billion 1 Approximately 66% of these amnesties have been broad-based programs Broad-based amnesties have generated ten (10) times the revenue as compared to restricted or targeted amnesty programs Five states have never run a tax amnesty program: AK, MT, TN, UT and WY Amnesty revenues have ranged from $300k (Idaho) to more than $4 billion (California) 19 states conducted tax amnesty programs during 2002-2003 (Driven by the “dot.com” recession of 2001) There were nine state tax amnesty programs in 2010 and three in 2011 Los 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
Our Recent Experience PROGRAMIndianaOklahomaDelawarePhiladelphia Client’s Goal: $65 million$21.8 million$10 million$25 million Timeframe: 60 days56 days60 days45 days Metrics: 1.2 million+ telephone attempts 700,000 pieces of targeted mail 183 hours of supplemental call center operations support 68,000 participants 744,000+ telephone attempts 300,000+ pieces of targeted mail 289 hours of supplemental call center operations support 170,000+ telephone attempts 79,500+ pieces of targeted mail 192 supplemental hours of call center operations support 400,000+ telephone attempts 83,000 Web site hits 7,500+ walk-in visitors 27,000 participants Results: $255 million recovered $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!
What’s Allowed in Virginia Tax Amnesty programs are allowed in Virginia – The General Assembly must legislatively approve any amnesty program Senate Bill 1533 in 2009 – Established the Virginia Tax Amnesty Program House Bill 796 in 2010 – Established the Richmond Tax Amnesty Program
Two “Types” of Tax Amnesty Broad-Scope AmnestyRestricted Amnesty Generates 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. BROAD-SCOPE vs. RESTRICTED As 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:
Tax Amnesty Program Strategies Locked-In Approach Proactive Strategy Reassign and deploy internal staff, diverting resources from current compliance efforts Alert tax professionals Organize media campaign Establish and maintain regular business hours, 9:00 am – 5:00 pm, Monday - Friday Publish program details on city, county or state website Alert, train and prepare staff for in-bound traffic On occasion, incur additional cost to hire small team of temporary personnel Supplemental approach to offset limited resources through a short-term public-private partnership Outreach strategy designed to maximize public awareness and participation during a limited window of opportunity Experienced and highly trained tax amnesty personnel, supported by broad-based operational strength Powerful tools and strategies that locate, educate and support taxpayers through an accelerated amnesty process Contingency fee structured to incentivize exceeding the city’s, county’s, or state’s goals
Comparison of the Two Approaches State Amnesty End Date Public- Private PartnershipGoalCollectionsTotal Goal Total Recovered Philadelphia6/25/10Yes$25m$72m $419 million $1.783 billion = 425% Virginia12/5/2009Yes$48m$103m Delaware10/30/2009Yes$10m$33m Louisiana10/31/2009Yes$150m$466m New Jersey6/15/2009Yes$100m$725m Oklahoma11/14/2008Yes$21.8m$129m Indiana11/15/2005Yes$65m$255m Pennsylvania6/18/10No$190m$261m $657 million $472 million = 72% New York3/15/2010No$250m$50 m Connecticut12/31/2009No$75m$56.7m Iowa10/31/2007No$54m$28.2m Michigan6/30/2011No$88m$76m Recent amnesty activity from cities and states that either projected or collected more than $30 million.
Key Takeaways “Netback” should be the starting point in your decision-making process when considering a tax amnesty program – Try 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”
Key Takeaways A well-run amnesty will be very short term, 45-60 days – This narrow window will nudge taxpayers towards action – And this brief timeframe minimizes disruptions to normal, day-to-day department operations Use print, online, and radio marketing to build a sense of urgency – Alert taxpayers that amnesty is coming, but will only be available for a brief time – Promote 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 part – Possible increased enforcement for non-participants The money will come in, but it will come in late in the program – Our experience has shown that people participate in the amnesty as the program runs, but with a flurry towards the end
Why Pioneer? Our Tax Amnesty Best Practices Recommendations
Tax 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: 45 - 60 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.
Tax 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.
Tax 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 services Get your administration involved to promote the unique value of the tax amnesty program Get involved in the process to help craft program guidelines and structure that set you up for success Seek funding flexibility to administer program and meet revenue objectives Appoint an internal Tax Amnesty Program Director to oversee project Create an internal team or task force from key stakeholders within your department who will be involved with the project Consider a partner since tax amnesties are large, brief accelerated programs that requires excellent planning, implementation, and follow-through And last, hang on and enjoy the ride!