States frequently announce amnesty programs. In return for settlement of back taxes, taxpayers obtain waiver of penalties and sometimes a reduction of interest. It has now become increasingly common, however, that states provide a stick to go along with the carrot of penalty waiver. Thus, Pennsylvania completed an amnesty period on June 18 in which it provided for waiver of penalties for payment of back taxes. The Governor of the Commonwealth, Ed Rendell, has announced that in the future, an additional 5% penalty will apply to all tax delinquencies that remained after June 18. In addition, he pointed out that the DOR will begin to seek to hold corporate officers personally accountable for taxes businesses owe and take other aggressive means to enforce the taxes.
Back in 2005, California announced a similar program, by which it increased the accuracy penalty from 20% to 40% and assessed an additional 50% “interest penalty” for all those taxpayers who did not apply for amnesty. Other states have followed a similar approach.
Is an offer of relief from liability coupled with a penalty for failure to take the offer really amnesty? Webster’s defines amnesty as a pardon from an authority. The consideration by the taxpayer for such pardon is the payment of back taxes. The sort of punitive measures, however, that some states impose for failure to acknowledge liability is not a pardon. Serious questions of taxpayer fairness are raised. Why should there be an additional penalty and in some cases threat of personal liability when a taxpayer has a legitimate dispute and chooses not to seek “amnesty”? The Due Process Clause of the U.S. Constitution is designed to provide every citizen their “day in court.” Imposing a penalty for the exercise of this due process right seems to be inconsistent with the basic principle of fair dealing that should be the very foundation of our tax system.