Tax Amnesties: Evaluating the Latest State Offers Analyzing Penalty Interest Lookback and Other Terms Analyzing Penalty, Interest, Lookback and Other Terms presents presents Amid States' Expanding Nexus Policies A Live 110-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Gary Bingel, Director, State and Local Tax, Amper Politziner & Mattia , Bridgewater, N.J. Patrick Duffany, Tax Partner, J.H. Cohn , Glastonbury, Conn. Michael Jacobs, Partner, Reed Smith , Philadelphia Karen Currie, Jones Day , Dallas y Thursday, February 11, 2010 The conference begins at: 1 pm Eastern 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View , select Navigational Panels , and chose either Bookmarks or Pages . If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10
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T Tax Amnesties: Evaluating the A ti E l ti th Latest State Offers Webinar Feb. 11, 2010 Gary Bingel Michael Jacobs Amper, Politziner & Mattia Reed Smith bingel@amper.com mjacobs@reedsmith.com Patrick Duffany Karen Currie J.H. Cohn Jones Day pduffany@jhcohn.com kcurrie@jonesday.com
Today’s Program • Introduction To Amnesties, slides 3 through 12 ( Gary Bingel ) • • Key Terms Of Recent Upcoming Amnesties slides 13 through 28 Key Terms Of Recent, Upcoming Amnesties, slides 13 through 28 ( Michael Jacobs ) • F Framework For Deciding Whether To Enroll In An Amnesty, slides 29 k F D idi Wh th T E ll I A A t lid 29 through 45 ( Patrick Duffany and Karen Currie ) • Other Factors To Consider In Evaluating An Amnesty, slides 46 through 50 ( Gary Bingel ) 2
3 Introduction To Amnesties
Introduction • Why are amnesties so hot? – Extreme budget shortfalls Extreme budget shortfalls – Nexus expansion – FIN 48 – Other reasons • Amnesty vs. VDA? 4
Why Are Amnesties So Hot? • Extreme budget shortfalls – FY 2009 budget gaps (total all states $110 billion) – AZ: $3.7 billion AZ: $3.7 billion – CA: $37.1 billion – FL: $5.7 billion – IL: $4.3 billion IL $4 3 billi – NJ: $6.1 billion – NY: $7.4 billion 5
Why Are Amnesties So Hot? (Cont.) • Budget shortfalls estimated to continue for several years as economy recovers recovers • FY 2010 total state budget shortfalls estimated to be $194 billion • The current shortfalls are 2x – 3x worse than last recession (2002 – 2005) 6
Why Are Amnesties So Hot? (Cont.) • Raises revenues without raising taxes • Gets delinquent taxpayers current • Perception that there is a LOT of money out there to be gained – Poster child is NJ, which estimated $200 million in revenues and raised $725 million 7
Why Are Amnesties So Hot? (Cont.) • Expansion of nexus-creating activities – Economic nexus Economic nexus – Affiliate nexus – Agency nexus • These provisions being applied retroactively • More and more companies are finding they are taxable in more and more places 8
Why Are Amnesties So Hot? (Cont.) • • FIN 48/ASC 740 10 FIN 48/ASC 740-10 – Due to changes in financial reporting requirements, these issues are being examined more closely – More companies are more cognizant of exposure and looking for M i i t f d l ki f ways to remediate • Creation of “phantom income” 9
Why Are Amnesties So Hot? (Cont.) • Is it just timing? • There is some evidence that amnesties merely accelerate collections – Post amnesty, VDA collections generally drop off – Loss of interest revenues? • May actually be net loss 10
Amnesty Vs. VDA? • • Many states halt VDA programs during an amnesty Many states halt VDA programs during an amnesty • Need to carefully evaluate terms and conditions of both • Materiality? 11
Amnesty Vs. VDA? (Cont.) • Traditional amnesties – Waiver P&I Waiver P&I – Unlimited lookback • Traditional VDA – Waive penalties but not interest – Limited lookback 12
13 13 Key Terms Of Recent, Upcoming Amnesties Amnesties
Key Terms Of Recent And Upcoming Key Terms Of Recent And Upcoming Amnesties Common features of 2009 amnesties 2010 amnesties District of Columbia Di i f C l bi Massachusetts New York Pennsylvania/Philadelphia Wisconsin (sales and use tax) Illinois (proposed) 14 14
2009 – A Big Year For Amnesties Alabama Alabama New Jersey New Jersey Arizona Oregon Connecticut Vermont Delaware Virginia Hawaii Louisiana Maine Maryland (individuals and Maryland (individuals and small businesses only) Massachusetts 15 15
2009 Amnesties – Common Features Limits to eligibility: Some programs were limited to known liabilities Limits to eligibility: Some programs were limited to known liabilities ( e.g . Connecticut), while others were related to unknown liabilities (e.g. Alabama), and still others only applied to liabilities for periods ending before a specific date ( e.g . Virginia) Waiver of appeal rights: Delaware and Virginia required waiver of appeal rights. Louisiana required waiver of appeal and pledge of consistency for future years. Connecticut made taxpayers with consistency for future years. Connecticut made taxpayers with pending appeals drop appeals in order to qualify for amnesty Availability of voluntary disclosure alternative: E.g. New Jersey shut down its VDA program during the 2009 amnesty down its VDA program during the 2009 amnesty Non-participation penalties: Louisiana (20%), New Jersey (5%), Oregon (25%), Virginia (20%) 16 16
District Of Columbia Authorized by D.C. Council, awaiting details on implementation from D.C. Chief Financial Officer’s Office Will apply to taxes for periods ending prior to Dec. 31, 2009 Full waiver of penalties and collection fees Will not apply to real property taxes and ballpark fees 17 17
Massachusetts Timing: Two-month period ending before June 30, 2010 (all g p g ( payments must be made by June 30, 2010). Exact dates TBD by commissioner Eligible Taxes: TBD by commissioner. Taxpayers with previously assessed liabilities (including those under appeal) will be able to participate Full penalty waiver (no waiver of interest) No requirement that appeal rights be waived Non-participation penalty: Maximum of $500 per taxpayer (waivable for reasonable cause) 18 18
Massachusetts (Cont.) Taxpayers subject to tax-related criminal investigation/prosecution cannot participate Unclear whether intangible holding companies and non-filing financial institutions will be able to participate This is the second Massachusetts amnesty in two years 19 19
N New York Y k Penalty and Interest Discount (“PAID”) Program. Timing: Jan 15 through March 15 2010 (all payments must be made Timing: Jan. 15 through March 15, 2010 (all payments must be made by March 15) Eligible taxes: Taxes that have been assessed and final on or before Dec. 31, 2006. The Department is notifying eligible taxpayers, but , p y g g p y , taxpayers that do not receive notification can still participate. Amounts being paid under installment payment agreement are eligible if paid in full by March 15, 2010 Partial penalty and interest waiver: (80% waiver for amounts billed Partial penalty and interest waiver: (80% waiver for amounts billed on or before Dec, 31, 2003; 50% waiver for amounts billed on or before Dec. 31, 2006) Taxpayers convicted of a tax-related crime cannot participate with p y p p respect to tax liabilities that were the source of the conviction Program not available for amounts that include fraud penalties or penalties for failure to participate in 2005 tax shelter voluntary compliance initiative compliance initiative 20 20
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