The final weeks of Kentucky's tax amnesty are winding down. Delinquent taxpayers have until November 30, 2012, to apply for amnesty or else face tougher penalties and fees, plus a higher interest rate.
The amnesty program began October 1, allowing most persons or businesses owing back taxes to the Commonwealth of Kentucky to pay up without penalties or fees and with the interest owed cut in half.
“We’ve seen a great response so far,” said Lori Flanery, Secretary of the Finance and Administration Cabinet. “Since amnesty began some six weeks ago, we’ve received thousands of payments for millions of dollars. We’ve also fielded more than 20,000 phone calls, and our website has had page views from more than 31,000 unique visitors. So, overall the response has been strong, but we expect a significant increase in activity as the deadline approaches.”
To provide additional assistance, the Kentucky Department of Revenue is extending operating hours at its 10 field offices around the state. Each office will be open regular hours plus extended hours as noted:
Saturday, Nov. 17: 9 a.m. to 2 p.m.
Saturday, Nov. 24: 9 a.m. to 2 p.m.
Monday, Nov. 26 through
Thursday, Nov. 29: 8 a.m. to 7 p.m.
Friday, Nov. 30: 8 a.m. to 9 p.m. (or until last taxpayer in line leaves)
Payments have come in from every county in Kentucky and from all states except Vermont and Montana.
“In most cases, the amount owed by a person or business is not a large sum,” said Tom Miller, Commissioner of the Department of Revenue. “So we recommend that all taxpayers who qualify for amnesty to take advantage of it. After the deadline, penalties are more severe and the enforcement efforts get more aggressive.”
Tougher Penalties Take Effect at End of Amnesty
Taxpayers won’t like what happens if they fail to take advantage of tax amnesty. The amnesty legislation calls for all penalties and fees to be reinstated once amnesty is over, which may include:
· 25 percent cost-of-collection fee;
· 25 percent assessment fee;
· 50 percent fee for not filing a tax return;
· 25 percent fee on liabilities discovered through an audit; and
· all interest owed will be reinstated, plus another 2 percent added to the interest rate.
On average, taxpayers save about 30 percent on their total tax bill under amnesty. After amnesty, their liability will substantially increase, even tripling in some cases.
Here’s an example of how the harsher penalties can add up based on a person who owes $100. The annual interest rate on back taxes is normally 6 percent. Under amnesty, the rate is cut to 3 percent. A person who owes $100 in back taxes for just one year would owe just $103 during amnesty.
However, if the taxpayer doesn’t take advantage of amnesty, the interest rate increases to 8 percent beginning December 1, 2012. But it doesn’t end there. Here’s how the math could add up:
$108 = amount owed after amnesty before fees and penalties
$108 + 25 percent collection fee = $135
$135 + 25 percent fee if Commonwealth has to assess how much is owed = $168.75
$168.75 + 50 percent fee if amount is based on an unfiled income tax return = $253.13
$253.13 + 25 percent fee if amount owed is discovered through an audit = $316.41
All this is based on owing $100 in back taxes. This sample case demonstrates how the penalties can add significantly to the amount owed. Each taxpayer’s case can differ.
“This program has teeth,” said Sec. Flanery. “If you wait for us to come collecting, you’ll pay much more than if you had paid under amnesty.”
For taxpayers who want to take advantage of amnesty but can’t afford it, the Department of Revenue offers payment plans for those who can prove hardships. Under this plan, 25 percent of the amount owed must be paid with the request with the balance paid in full by May 31, 2013. Penalties and fees are still waived, but the interest is not reduced.
Once a taxpayer takes advantage of amnesty, the person or business must continue to make all tax payments for the next three years. Failure to do so will cause all fees, penalties and interest to be reinstated.
Kentucky last conducted an amnesty in 2002, which netted the state more than $40 million. More is expected this time, but a final number won’t be known until this summer because hardship payments aren’t due until the end of May.
To spread the word about Tax Amnesty, an advertising and public relations campaign is underway across the Commonwealth. Ads are appearing in newspapers and magazines and on websites. TV and radio commercials continue to generate awareness and Department of Revenue officials are making presentations to numerous groups and public events.
To learn more about Tax Amnesty, visit www.amnesty.ky.gov.