March 4, 2020
Wisconsin updates "voluntary disclosure" program for business non-filers. Is it time to come out of the cold?
The days when a business didn't have to worry much about taxes in other states are coming to an end. The 2018 Wayfair decision meant you could be taxed in a state without ever setting foot there. States are mining data and using artificial intelligence to snag businesses trying to fly under the radar. If you don't file, you never start a statute of limitations running, so the accumulated back taxes can be ruinous.
But how do you get right with the state taxers? A common approach is "voluntary disclosure." A third party - often a preparer - will contact the state revenue department and negotiate a deal. These are attractive to the revenue officials, as they get taxpayers filing who they might never identify otherwise. Once the state signs off, the taxpayer's identity is revealed; they file the agreed on old returns, pay up, and promise to be good taxpayers.
Allison Gregory, Senior Manager for Eide Bailly's State and Local Taxes Group, has participated in many such arrangements. She says that states typically negotiate in good faith and "in the wake of Wayfair, they are more urgent."
Wisconsin, like many other states, has a formal program for such deals. The state has just proposed new rules that illustrate how these deals can work. From Wisconsin's proposal:
The Wisconsin Department of Revenue encourages businesses and individuals who are not in compliance with Wisconsin tax laws to voluntarily come forward. Taxpayers may remain anonymous throughout the voluntary disclosure process.
The anonymity is a big comfort. Once a state knows who you are, you lose a lot of negotiating power.
Wisconsin offers some carrots to come in from the cold:
Benefits of Voluntary Disclosure
Written agreement to restrict the statute of limitations.
Waiver of negligence penalties.
Reduction of Interest from 18% to 12%, except for withholding taxes, motor vehicle floor taxes and intoxicating liquor floor taxes which remain at 18%.
Possible reduction in number of periods for which returns must be filed.
Elimination of the risk of being discovered under audit.
The first one - the restriction of the statute - is key. Taxpayers who never file never start a statute of limitations. That means they are exposed to taxes going back... forever. Forever being a long time, that can get expensive.
Like many states, Wisconsin requires taxpayers to meet some conditions before they will negotiate:
The following conditions must be met for a taxpayer to qualify for voluntary disclosure treatment.
No tax returns filed for the period in question.
No registration for the type of tax involved during the period in question.
No contact by the department within the last 6 years regarding a registration/filing requirement or an assessment/audit assignment.
Any partners of partnerships, shareholders in S corporations, trusts, or trust beneficiaries are considered to have been contacted if the pass-through entity has been contacted.
Any owners of disregarded entities are considered to have been contacted if the disregarded entity has been contacted.
Note: The request for completion of nexus questionnaires by the department constitutes the commencement of an office audit.
The last one is a big deal. If you wait for them to ask, it's too late. If it's not too late, then it's a good time to contact Eide Bailly's SALT team about getting right with the states.
Related: Identifying Your Sales Tax Risks.
Your Tax Refund Doesn’t Tell You How Much You Paid in Taxes - Erica York, Tax Policy Blog. "Tax filing season brings up many questions for taxpayers, such as, 'How big will my tax refund be?'or, 'Will I have a balance due when I file taxes this year?' However, one of the biggest questions taxpayers should ask is, “How much did I pay in taxes?” If taxpayers focus solely on the size of their tax refund, they miss a key part of the equation that’s often overlooked: the impact tax withholding has on tax filing."
This conclusion is obvious to tax practitioners. Absent a real income surprise, you can guarantee a refund by sandbagging withholding and estimated taxes. Yet to most taxpayers the Form 1040 is a mysterious black box. The only part they can understand is the refund that comes out of the box -- or, heaven forfend, the check that goes back in.
Pace of individual income tax returns ahead of 2019 - O. Kay Henderson, Radio Iowa. "A greater amount of Iowa income tax refunds has been issued so far this tax season when compared to this time last year. According to the Legislative Services Agency, $52 million more in individual income tax refunds has been issued in the past two months compared to January and February of last year."
Payroll Tax Cut Unlikely Despite President’s Backing - Jad Chamseddine, Tax Notes ($). "President Trump urged the House to consider a payroll tax cut, but a top White House official denied that it is a priority for the administration."
File major disaster claims on Form 4684 - Kay Bell, Don't Mess With Taxes. A Presidental disaster declaration seems likely. "...that official designation will allow those suffered property damage to get special relief from the Internal Revenue Service and possibly file a tax claim to help cover their losses. The IRS also has a special webpage with its tax actions in connection with disaster declarations."
IRS Gives Big Tax Reporting Break To Foreign Trusts - Robert Wood, Forbes. " The IRS recognizes that many innocent taxpayers have faced the automatic and harsh application of penalties, but it’s time for a new day. The bottom line is that the IRS now sees these foreign retirement and similar trusts quite differently than other foreign trusts."
Rev. Proc. 2020-17 - Exemption From Filing Forms 3520 and 3520-A for Applicable Tax-Favored Foreign Trusts - Andrew Mitchel LLC. "Rev. Proc. 2020-17 also includes procedures for eligible individuals who have been assessed a penalty under Code §6677 for failing to comply with Code §6048 with respect to an ATFFT (without regard to whether such failure was due to reasonable cause) to request an abatement of the penalty assessed, or a refund of the penalty paid."
Interview: Coronavirus and China's Tax Response - David Stewart, Tax Notes Opinion. A transcript from the (excellent) Tax Notes Talk Podcast of an interview with a professor in Shanghai. "Actually most places in China have been under quarantine during the past month."
Massachusetts House Proposes Doubling Down on Worst Features of State Corporate Excise Tax to Fund Transportation - Michael Lucci, Tax Policy Blog. "Measuring any tax, even a corporate minimum tax, based purely on receipts rather than income is highly non-neutral and discriminates against high-volume, low-margin businesses like retailers, along with businesses that break even or experience annual losses."
Corporate Taxes: Are They Fair? Who Really Pays Them, And When? - Renu Zaretsky, TaxVox. “Corporate taxes: Taxing richer people now, and everybody else eventually.”
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.