On April 11, Kentucky enacted legislation authorizing a tax amnesty program to be conducted during the state's 2012-2013 fiscal year, covering most tax types imposed by the state, and applying to liabilities incurred during nearly ten years of tax periods.1
The amnesty program, which will be conducted for a period of 60 to 120 days ending by June 30, 2013,2 will be available to all taxpayers owing taxes, penalties, fees, or interest subject to the administrative jurisdiction of the Kentucky Department of Revenue, with the exception of:
- Ad valorem taxes levied on real property;
- Ad valorem taxes on motor vehicles and motorboats collected by the county clerks;
- Ad valorem taxes on personal property payable to local officials; and
- Penalties related to tobacco stamps3 or tobacco licensees and manufacturers.4
The program will apply to tax liabilities for taxable periods ending or transactions occurring after December 1, 2001, and prior to October 1, 2011.5
Amnesty Program Conditions
Under the program, taxpayers are required to file completed tax returns for all periods as stated on the application and pay the full amount of tax and one-half the interest due6 at the time of filing.7 Any additional tax owed will be payable within 30 days of notification from the Department. Installment payments may be allowed at the Department's discretion, but all required payments under the amnesty program must be made by May 31, 2013.8 The full rate of interest will apply to amounts paid pursuant to an installment payment agreement.9 In addition, taxpayers are required to timely file all returns and make payments when due for three years following the date amnesty is granted.10 Amnesty will be invalidated for taxpayers who do not make payments as required under the program.11
An eligible taxpayer may participate in the amnesty program whether or not the taxpayer is under audit, but participation is conditioned upon the taxpayer's agreement to waive all rights to protest, administratively or in court, taxes under the amnesty program.12
Through participation in the amnesty program, taxpayers will avoid paying 50 percent of the interest accrued on taxes included in the amnesty application.13 Further, Kentucky will waive criminal prosecution and civil penalties that could be imposed by the Department for the taxable years or periods for which amnesty was requested.14
Post Amnesty Cost of Collection Fees and Increased Interest Rate
After the expiration of the amnesty period, additional fees and an increased interest rate on continuing tax liabilities will apply as follows:
- Cost of collection fee equal to 25 percent of taxes due to the Department for any reporting period;
- Cost of collection fee equal to 25 percent of taxes that are assessed and collected after the amnesty period for taxable periods prior to October 1, 2011;
- Cost of collection fee equal to 50 percent of taxes for any previous period for which amnesty was available, but the taxpayer failed to file during the amnesty period; and
- Increased interest rate (2 percent above the statutory rate) on any amnesty-eligible tax liability that is still outstanding after the expiration of the amnesty period and that is not covered by an installment agreement.15
The enrollment process for the newly adopted amnesty program has not yet been established. The Department is likely to provide additional administrative information and guidance with respect to the procedures of the amnesty program. Also, the Department will need to announce the specific dates of the program. It is interesting to note that the cost-of-collection "fee" to be imposed by the Department following the amnesty period is material on a percentage basis, and arguably could be considered a penalty rather than a run-of-the-mill fee.
The enactment of this legislation provides a potential opportunity for taxpayers to evaluate their Kentucky presence and possible filing responsibilities. Because the program will only last a maximum of 120 days, this is a good time for taxpayers to start their analysis and prepare for the possibility of participation in the amnesty program. While the benefits of participating in the program may be considerable, the cost-of-collection fee and increased interest rate that may be applicable for failing to participate or fully pay outstanding tax liabilities are significant and should be considered by taxpayers that might have a filing responsibility in the state.
1 H.B. 499, Laws 2012.
2 KY. REV. STAT. ANN. § 131.400(4)(b).
3 KY. REV. STAT. ANN. § 131.630.
4 KY. REV. STAT. ANN. § 138.205.
5 KY. REV. STAT. ANN. § 131.400(4)(b). Note that while the statute states "after December 1, 2001," it would appear that since a prior Kentucky amnesty conducted in 2003 covered periods "before December 1, 2001," transactions or periods including the December 1, 2001 date are intended to be included in the new Kentucky amnesty program.
6 KY. REV. STAT. ANN. § 131.425(1)(b).
7 KY. REV. STAT. ANN. § 131.420(1).
8 KY. REV. STAT. ANN. § 131.420(3).
9 KY. REV. STAT. ANN. § 131.425(3).
10 KY. REV. STAT. ANN. § 131.420(1)(d).
11 KY. REV. STAT. ANN. § 131.420(3)(e).
12 KY. REV. STAT. ANN. § 131.420(2).
13 KY. REV. STAT. ANN. § 131.425(1)(b).
14 KY. REV. STAT. ANN. § 131.410(1)(a).1.
15 KY. REV. STAT. ANN. § 131.440(1)(b).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.