*** NOTE: THE APPLICATION WEBPAGE FOR CT TAX AMNESTY IS NOW LIVE AT https://www.getrightct.com. I have written an updated article with new details about the program which is available here.***
On June 23, 2021, Governor Ned Lamont signed SB 1202, implementing the state budget for the FY 2022-2023 biennium. Section 486 of the act directs the Commissioner of Revenue Services to establish a tax amnesty program applicable to taxable periods ending on or before December 30, 2020. The program application period is set to begin on November 1, 2021 and run through January 31, 2022, meaning there will be only a 3 month window during which to seek relief.
What we know about the provisions of the amnesty program:
While we’re awaiting more detailed guidance from the DRS as to how the amnesty program will be implemented, the legislative mandate sets a baseline of what to expect from the amnesty program. Per the bill, those that apply and are accepted into the amnesty program will be afforded a 75% reduction in interest that would otherwise be due, a waiver of any civil penalties applicable to the delinquency, and protection from criminal prosecution. The amnesty program is available to individuals, partnerships, LLCs, corporations, and estates, and the amnesty provisions apply to all tax types administered by the Department of Revenue Services, save for the Motor Carrier Road Tax. This means that the state income tax, business entity tax, sales and use tax, withholding tax, corporate income and passthrough entity tax, and gift tax should all be eligible to receive favorable treatment under the amnesty program. Amounts due under the amnesty program must be paid in full to the DRS with the taxpayer’s application to the program.
Subsection 7(d) of §486 references subsection (d) of section 12-35i of the CT general statutes which was enacted as part of the state’s 2013 tax amnesty program. Subsection (d) of 12-35i provided that any person who had an unfiled tax return for taxable periods ending on or before November 30, 2012 and who did not timely file an amnesty application during the 2013 amnesty program would be subject to a penalty equal to 25% of the tax owed for such taxable period. Subsection 7(d) of §486 of the new budget bill explicitly states that this penalty does not apply to unfiled tax returns for tax periods ending before November 30, 2012 so long as those returns are filed through the upcoming amnesty program and amounts due are paid in full.
How the new amnesty program stacks up to the CT Fresh Start Program from 2018:
It remains to be seen whether the amnesty program established under this bill will be more inclusive than the prior amnesty program, the “CT Fresh Start Program” the Department of Revenue Services ran between October 31, 2017 and November 30, 2018. Based on the text of the bill, I think it might. By the terms of the legislation, the new amnesty program should be available to any person (including businesses), that owe any type tax (save for the Motor Carrier Road Tax), for any taxable period ending on or before December 30, 2020. The CT Fresh Start program was billed more as a voluntary disclosure program, and specifically targeted those who had unreported taxes (e.g. unfiled returns), whereas this new amnesty program, at least by the terms of the legislation appears to provide relief to those with both unfiled returns and unpaid taxes.
The 2018 Fresh Start program was not available to any CT taxpayer who had received a bill from the DRS with respect to the particular tax period or was under audit. The provision excluding those who had previously received a bill from the CT DRS kept many taxpayers from being able to take advantage of the 2018 CT Fresh Start program. The legislation mandating this new amnesty program does not dictate any such restriction, but again, we’ll need to wait for the DRS to publish formal guidance before saying for certain. The interest eligible for abatement under the Fresh State Program was not as favorable as what is being offered under the new amnesty program (50% reduction vs. 75% reduction, respectively), though the Fresh Start Program did provide a limited look-back period for taxpayers who had never registered to file or previously filed a return for the tax type being disclosed. The legislation mandating the new amnesty program does not contemplate a limited look-back period, and as the DRS generally requires that any unfiled return be filed prior to entering into an agreement with a taxpayer, expect to be required to file any return the DRS believes to be unfiled in order to take advantage of the new amnesty program’s provisions.
If you may benefit from the new amnesty program, start making preparations now:
It is worth pointing out that by the terms of the legislation, applications for this amnesty program will only be accepted by the DRS for a 3-month period between November 01 2021 and January 31, 2022. This is a very short window (for comparison, the 2018 CT Fresh Start Program accepted applications for a full year). In instances where returns have all been filed and it’s simply a matter of applying for the amnesty program and securing the funds necessary to pay the balance due, the short program timeline is unlikely to pose significant hurdles. However, in cases where there are a number of state returns that will need to be prepared and filed in advance of submitting the amnesty application, the window is rather short and rapidly approaching. If you believe you may be able to benefit from making an application to the forthcoming amnesty program and have outstanding state income tax returns that will need to be prepared and filed in order to do so, the time to act is now so that you’re in a position to apply to the program once the application window opens in November.