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Tax amnesty is a term used to describe a one-time offer to settle an outstanding tax debt for an amount that is less than the current debt. A local, state, or even a national tax agency may offer amnesty of this type. Jurisdictions that offer some form of tax amnesty usually have specific regulations regarding who may qualify for this form of tax forgiveness, and how qualified individuals and businesses go about applying for state or federal tax amnesty.
While the actual process of tax amnesty will vary from one jurisdiction to another, just about every amnesty program shares a few basics. One has to do with defining who is eligible to apply for the amnesty and avoiding the possibility of liens against property or bank accounts, or garnishment of wages as a means of settling the outstanding tax liability. In some nations, the total tax debt must exceed a minimum amount before amnesty is a possibility. Any taxpayer owing less than that amount may be able to work out a payment schedule with the tax agency, although this approach normally means incurring additional late fees and other penalties until the debt is paid in full.
Another common element of tax amnesty is the identification of a specific amount that must be paid in order to avoid further attempts to collect the overdue taxes. Typically, the agency will base this figure on a percentage of the total debt owed, sometimes making allowances for the overall income level of the taxpayer. Depending on the circumstances, the figure included in an approved amnesty settlement may be as much as 70 percent less than the original amount of taxes owed.
A third common component of tax amnesty is the establishment of a specific settlement date. Should the taxpayer fail to remit the reduced tax amount to the agency by that settlement date, the offer of amnesty is withdrawn and the full amount of the tax debt is reinstated. It is not unusual for additional late fees and penalties to be applied to the balance on the taxpayer’s account. At that point, the agency may begin proceedings to attach property or garnish wages as a means of collecting the total amount of taxes due.
When utilized properly, tax amnesty can provide a great deal of emotional and financial relief for taxpayers who have undergone some type of financial reversal that prevented them from paying taxes in a timely manner. By reducing the debt to a more manageable amount and stopping the accrual of late fees and penalties, the taxpayer can pay off the debt and continue efforts to overcome those adverse circumstances, ideally to the point of avoiding the accumulation of a large tax debt in the future.