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Note: The following is an excerpt from the introduction to the
article as published in The State and Local Tax Lawyer. Author citations have been
omitted for brevity.
Federal and State Constitutional Challenges to State Tax Amnesty Programs
Brandee A. Tilman *
I. INTRODUCTION
Most states enact tax amnesty programs to serve three main purposes. First, states want to create a one-time financial windfall for the state department of revenue;1 hence, tax amnesty programs will often surface in times of extreme state budget shortfalls. Essentially, the tax amnesty programs are designed to be a temporary and quick-fix for a more severe problem in the state’s efforts to balance its budget. Second, states want to increase future tax revenue growth “by adding the names of non-filers to the state tax rolls.” A tax amnesty program enables states to attract many non-filers, who otherwise might not come forward willingly. The benefit of increasing the state tax rolls is that states now have names and contact information for taxpayers who are likely to fall into non-compliance in the future.3 The third purpose of state tax amnesty programs is to improve state tax compliance rates overall.4 States accomplish this goal by encouraging those who are not in compliance to come forward voluntarily in hopes that coming into current compliance will result in continued future compliance with state tax laws.
States can design tax amnesty programs in many ways. Most states enact programs that encourage taxpayers to voluntarily come forward and file tax returns and pay outstanding tax liabilities. States achieve this effect by offering incentives to encourage participation in the state amnesty programs. Common incentives include a complete waiver of all tax penalties, a complete waiver of accrued interest, or a waiver of the state’s right to pursue civil or criminal prosecution stemming from the non-compliance. However, these incentives sometimes come at a high cost to taxpayers. Some states require a waiver by the taxpayer of all rights to later claim a refund relating to the amounts reported under the tax amnesty programs.
Part II of this Article will discuss the recent state tax amnesty programs enacted by California, Illinois, North Carolina, and Mississippi.In particular, Part II will describe the guidelines developed by each state for participation in the state tax amnesty program, including eligibility requirements, benefits of participation, and consequences of non-participation.6 Part III of this Article will subject certain elements of each state tax amnesty program to potential constitutional challenges under the Due Process Clause, the Equal Protection Clause, and the Excessive Fines Clause of the U.S. Constitution and the state constitutions of California, Illinois, North Carolina, and Mississippi, respectively. Part IV of this Article will provide a practitioner’s guide on how to confront the potential constitutional challenges to state tax amnesty programs, including some suggestions on what advice practitioners can offer clients deciding whether or not to participate in any given state tax amnesty program.
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* Manager, State Tax Controversies, Corporate Tax Department, The Walt Disney Company;
University of Colorado, Boulder, B.A., 1997; University of California, Davis School of Law, J.D.,
2000; Georgetown University Law Center, LL.M. in Taxation, 2005. The author wishes to thank
John B. Burns, Richard A. Capino, and Philip M. Tatarowicz for their helpful comments in reviewing
this paper and Diann L. Smith for suggesting this challenging and interesting paper topic. This
Article represents solely the opinions of the author and not The Walt Disney Company or any of its
affiliates.
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