Tax & Accounting Blog

Kentucky Offers Tax Amnesty, Cutting Interest in Half and Waiving Penalties

1042-S, 1099, Cost-Basis Reporting, Information Reporting for Wealth Management, International Reporting & Compliance, ONESOURCE, Tax Information Reporting, TIN Compliance, W-8 & W-9 Foreign Reporting June 18, 2012

The new Kentucky Tax Amnesty Act authorizes a tax amnesty program, which will be run by the state Department of Revenue for a period of no less than 60 days and no more than 120 days beginning on a date yet to be set in the fiscal year July 1, 2012 to June 30, 2013.

The amnesty will be available to all taxpayers owing taxes, penalties, fees or interest for any taxable period occurring after December 1, 2001 and prior to October 1, 2011. All Kentucky taxes are included except for property tax, vehicle tax, personal property tax and tax penalties previously assessed by the Department. Withheld Kentucky income tax, Kentucky sales and use tax and Kentucky corporate income tax are all among the taxes included in the amnesty program. Amnesty forms will be developed and issued by the Department of Revenue.

Tax amnesty participants must file all tax returns due for the period for which amnesty is applied for and must pay all of the tax due, but will pay only 50% of the interest on the past-due tax amounts. Penalties and fees will be waived and no criminal prosecution will ensue. No refund or credit will be available for any interest, fee or penalty paid to the Department of Revenue prior to the time the taxpayer requests amnesty under this new program. The applicant must also agree to pay all taxes in full when due and file all tax returns when due for three years following the date on which amnesty is granted under this program.

Installment agreements for payment of the overdue tax may be arranged with the Department at the discretion of the Department, but to secure the terms of the amnesty, all installment payments must be made by May 31, 2013. Interest at the then-current rate will be applied to the unpaid balance of amnesty filings from the time the installment agreement is approved until all of the installments have been paid. Installment payers that do not complete the required payments by May 31, 2013 will have all interest, penalties and fees reinstated and subject to immediate collection.

After the expiration of the tax amnesty period, special penalties will apply to unpaid taxes that were eligible for the amnesty but for which the taxpayer did not take advantage of the amnesty. This will include interest at a rate 2% above the regular Kentucky rate beginning on the day after the end of the amnesty period, and a cost-of-collection fee of 25% or a cost-of-collection fee of 50% for a taxpayer that failed to file under both this new amnesty program and Kentucky’s previous amnesty program in 2003.