The South Carolina General Assembly approved a law in 2015 allowing the South Carolina Department of Revenue to offer an amnesty program to taxpayers in the state who have not filed tax returns and/or owe state taxes. Adoption of the tax amnesty law for the state was advocated by the South Carolina Department of Revenue.
The tax amnesty law, South Carolina Code Section 12-47-397, is designed to encourage voluntary compliance and payment of taxes owed to the State. The law authorizes the Department of Revenue to establish an amnesty program and to designate the period of time for the program, provided it gives the General Assembly at least 60 days prior notice of the commencement of the program. The main features of the tax amnesty law are:
- The Department of Revenue at its discretion shall waive penalties and interest owed by a taxpayer, or a portion of them, where the taxpayer voluntarily files delinquent tax returns and pays all taxes owed.
Amnesty may also be granted to a taxpayer who files an amended return to correct an incorrect or insufficient original return and pays all taxes owed.
- The Department of Revenue may grant amnesty to a taxpayer that has filed his or her returns with the state, but has not paid the required taxes dues, and is able to fully pay the taxes owed now, and during an “extended amnesty period”, beginning on the date of the close of the amnesty program/period and running for a period of time as determined in the discretion of the Department of Revenue. The Department of Revenue and the taxpayer may also enter into an installment agreement to fully pay the taxes owed, provided the agreement is established during the time in which the amnesty program is open.
- If a taxpayer is granted amnesty, the Department of Revenue shall not initiate a criminal investigation or refer the taxpayer to the Office of the Attorney General for criminal prosecution for the tax or tax periods covered by the granting of the amnesty.
- However, if a state criminal investigation or prosecution of a taxpayer is pending, amnesty is not available under the program.
- The Department of Revenue shall not waive penalties and interest for one filing period if the taxpayer has taxes due for any other tax period.
- A taxpayer who has an appeal pending with the Department of Revenue and is contesting taxes, penalties and interest owed may still participate in the amnesty program, but the taxes must be paid, with penalties and interest presumably being subject to waiver in whole or in part. Payment of taxes by a taxpayer with an appeal pending will not constitute “a forfeiture of appeal or an admission of liability for the disputed assessment.”
- Finally, if amnesty is granted by the Department of Revenue under the program, the Department of Revenue is still given the right to review and rescind any amnesty granted, on the basis of mutual mistake, fraud or a misrepresentation by the taxpayer, and can prosecute a taxpayer criminally for filing false or fraudulent returns under the program.
With the adoption of the law in 2015, SCDOR has been given the statutory authority to propose an amnesty program for those who have not filed tax returns or paid their taxes to the state. However, it has been over 18 months since the adoption of the law by the State, and SCDOR has not yet announced implementation of a tax amnesty program
The amnesty law was approved by the South Carolina General Assembly while Rick Reames was the Director of the state tax agency. Director Reames recently left the Department of Revenue, however, and the new Director is Hartley Powell. Director Reames is credited with tackling security issues at SCDOR resulting from the well-publicized internet security breach at the tax agency, and also with focusing on building internal agency moral. Traditional income tax audits and criminal tax fraud investigations also increased under Director Reames’ leadership.
While Director Reames increased state income tax audits, and more aggressively prosecuted tax cheats, these efforts alone will not bring back the many thousands of South Carolinians who still may not have filed their tax returns or paid taxes to the State. Personal financial problems, health issues, divorce and re-marriage, and life’s challenges all play a factor in the decision of many to not file their tax returns and pay taxes. Threatening individuals with tax audits and even jail simply does not work for the vast group who do not file their tax returns or pay taxes. An incentive, instead, must be offered to encourage tax compliance.
The IRS has successfully implemented federal amnesty programs over the last number of years, focusing on offshore bank accounts and unreported foreign income. These offshore bank account and foreign income amnesty programs specifically supplement the long-standing “voluntary disclosure” program of the IRS to promote tax compliance. The IRS reports that tens of thousands of individuals have come in under these amnesty/disclosure programs, raising billions in back tax revenue, and bringing these individuals into the federal tax system as compliant taxpayers. Additionally, many states have adopted their own tax amnesty programs, and, by all reports, these programs have each been successful as well.
With new leadership at the South Carolina Department of Revenue, it is hoped that the Department will focus on implementing a tax amnesty program under the law adopted by the General Assembly back in 2015. Director Powell is urged to consider implementation of such a program in 2017, so that the State of South Carolina may join the IRS and many other states in bringing our taxpayers into compliance.