Ohio Tax VDAs, Amnesty Programs, Offers in Compromise and Back - - PDF document

27th Annual

Tuesday & Wednesday, January 23‐24, 2018

Hya Regency Columbus, Columbus, Ohio

Ohio Tax

Workshop RR

VDAs, Amnesty Programs, Offers in Compromise and Back Channel Efforts - The Best Tool to Move Forward Is?

Wednesday, January 24, 2018 2:00 p.m. to 3:00 p.m.

Biographical Information

Mark F. Sommer, Member Frost Brown Todd LLC, 400 West Market Street, Suite 3200, Louisville, KY 40202 (502) 779-8150; Fax: (502) 581-1087 msommer@fbtlaw.com Mark F. Sommer, Esq., is a Partner of the Firm and tax attorney resident in the Louisville office of the law firm of Frost Brown Todd LLC, where he leads the Firm’s Tax

• Teams. Now in his 28th year of private practice, Mark's comprehensive practice

focuses on controversy, litigation and planning relating to tax matters, primarily state and local tax matters and incentives. Mark is a Fellow in the American College of Tax Counsel, one of only four from the Commonwealth of Kentucky and also is a recognized “Super Lawyer” in Kentucky. Mark has also been recognized as one of the Best Lawyers in America for twenty years in Tax Law and in Litigation & Controversy – Tax and was recognized by State Tax Notes as one of its “Persons of the Year” in 2013. Mr. Sommer has written extensively in the area of state and local taxation and is a frequent speaker and lecturer on state and local tax matters. Mr. Sommer obtained his JD from the University of Cincinnati, College of Law and his BSBA from Xavier University. Mark E. Holcomb, Of Counsel, Dean Mead 215 S. Monroe Street, Suite 815, Tallahassee, FL 850-999-4100 mholcomb@deanmead.com

• Mr. Holcomb offers clients 32 years of experience practicing in state and local taxation.

He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients

• n a broad range of state and local taxes, including corporate income and franchise tax,

sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. Nicole Randall, Attorney, Office of Chief Counsel, Appeals Management Ohio Department of Taxation 30 East Broad Street, 22nd Floor, Columbus, OH 43215 614-387-2988 nicole.randall@tax.state.oh.us Nicole began her career with the Department of Taxation in September 2016. She is an Attorney in the Appeals Management Division. She works primarily with settlements and problem resolutions with attorneys, CPAs, taxpayers, and the Ohio Attorney General’s Office on certified assessments. Prior to joining the Department of Taxation, Nicole was an Assistant Attorney General for over nine years in the Collections Enforcement section where she represented various state clients. She received her B.A. from Capital University and her J.D. from Capital University Law School.

27th Annual Ohio Tax Conference

January 23‐24, 2018

VDAs, Amnesty Programs, Offers in Compromise and Back Channel Efforts

– And The Best Tool to Move Forward Is?

Mark E. Holcomb, Esq. Nicole Randall, Esq. Mark F. Sommer, Esq. Of Counsel Appeals Management Member Dean Mead & Dunbar Ohio Dept. of Taxation Frost Brown Todd LLC Tallahassee, FL Columbus, OH Louisville, KY

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Agenda

• Overview of state voluntary disclosure and amnesty

programs

• Typical terms
• Current and recent amnesty programs
• Pros/cons and strategies for each
• Offers in Compromise
• Back Channel Efforts
• Evaluating when to use which

Introduction

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• Voluntary tax compliance system
• State collection and enforcement costs
• Incentivize and enable taxpayers to

report/resolve outstanding liabilities

• Allow taxpayers to:
• Reduce or eliminate tax exposure
• Achieve certainty in tax compliance, and also

financial accounting

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Voluntary Disclosures

• Opportunity to self‐disclose and pay previously

unpaid or underpaid tax liabilities and deficiency interest

• Formal and informal programs
• E.g., Fla. Stat. §213.21(7)
• www.floridarevenue.com/dor/taxes/voluntary_dis

closure

• https://revenue.ky.gov/Collections/Pages/Volunta

ry‐Disclosure.aspx

• Exception: NM – managed audit only

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• Typical terms and conditions
• No prior contact by state
• How specific must contact be?

(hard vs. soft contact)

• Limited look‐back period (3 to 5 years)
• Full Penalty waiver
• Oftentimes bars criminal liability
• File prior returns or spreadsheet under oath
• Promise prospective compliance

Voluntary Disclosures

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• MTC Voluntary Disclosure Program
• “Faster, more efficient and less costly than

approaching each state separately”

• http://www.mtc.gov/Nexus‐Program/Multistate‐

Voluntary‐Disclosure‐Program

• Sales, use, income and franchise taxes
• States excluded: AK, CA, IL, IN, ME, MS, NV, NY, OH,

PA, RI, VA, WY

Voluntary Disclosures

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• MTC Voluntary Disclosure Program
• Detailed procedures
• Timeline ‐ ~4 months on average
• Confidentiality
• Application with good faith estimate
• Look‐back period of 3 ‐ 5 yrs.
• Min. tax liability $500 per state
• File returns & pay tax + interest due

Voluntary Disclosures

• MTC Online Marketplace Seller VDA Initiative
• http://www.mtc.gov/The‐Commission/News/Report‐on‐the‐National‐

Nexus‐Program‐Online‐Marke

• Inventory or other nexus‐creating activities of marketplace

provider/facilitator

• 24 states and D.C. participated
• Applications filed w/ MTC between 8/17/17 – 11/1/17
• Register and begin collecting/remitting tax by 12/1/17
• Prospective compliance (generally) except for specific states and D.C.

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Voluntary Disclosures

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• Florida Alternative
• Certified Audit Program
• Registered taxpayer
• No DOR audit notice
• Engage DOR‐certified auditor
• DOR‐approved audit plan
• Full penalty waiver
• Interest waiver
• First $25,000
• 25% of excess over $25,000

Voluntary Disclosures

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• Resolve tax liabilities known and unknown to

state

• State may notify taxpayers with known liabilities
• Carrot and stick approach
• Significant penalties may be imposed for

failing to participate

Amnesty Programs

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• Common terms and conditions
• Limited taxes and periods
• Eligibility may be restricted
• Civil and criminal penalty waiver
• Interest compromise (usually)
• File returns/pay liability within limited timeframe
• Limited/no ability to compromise tax due
• Refund of payments usually barred

Amnesty Programs

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• Current/upcoming amnesty programs
• OH: 1/1/18 – 2/15/18
• CT: 10/31/17 – 11/30/18
• RI: 12/1/17 – 2/15/18
• TX: 5/1/18 – 6/29/18
• Historic amnesty programs
• MTC lists amnesty programs since 2009

[www.mtc.gov/nexus‐program/state‐tax‐ amnesties]

• FTA lists amnesty programs since 1982

[www.taxadmin.org]

Amnesty Programs

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• OH amnesty program (1/1/18 – 2/15/18)
• Major state taxes administered by DOT
• Taxes due and payable as of 5/1/17
• Does not include any tax for which assessment,

audit notice or billing issued

• Waive penalties + ½ interest due
• Immunity from criminal or civil liability

Amnesty Programs

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• CT amnesty program (10/31/17 – 11/30/18)
• Major state taxes administered by DRS
• Unreported liabilities due before 1/1/17
• 3‐yr. look‐back period (unless tax collected but not

remitted)

• Pay liability in full when apply online
• Keep confirmation page and source documents – no

notice from DRS if approved

• Waive most penalties + ½ interest
• No criminal liability

Amnesty Programs

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• RI amnesty program (12/1/17 – 2/15/18)
• All RI state taxes and fees
• For tax periods prior to 1/1/17
• Penalty waiver + 25% interest reduction (13.5%

in lieu of 18%)

• No criminal or civil prosecution

Amnesty Programs

• TX amnesty program (5/1/18 – 6/29/18)
• For sales and use tax, whether registered or not
• Taxes due for periods prior to 1/1/18
• Only previously unreported liabilities
• Excludes periods under audit, IFTA taxes, PUC

gross receipts taxes, motor vehicle taxes, unclaimed property

• No penalties or interest

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Amnesty Programs

Pros and Cons of Voluntary Disclosures and Amnesty Programs

VDAs

• Only unknown liabilities
• Available any time
• Open eligibility
• Only non‐filers?
• Risk is audit
• May allow additional

compromises

• Usually administrative

discretion Amnesties

• Known/unknown liabilities
• Limited time period
• Targeted eligibility
• Open to filers/non‐filers
• Carrot and stick
• Terms set for all

participants

• Usually statutorily

authorized

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VDAs

• May not waive all

penalties for taxes collected but not remitted

• May not include locally

administered taxes

• Negotiate prospective
• nly?

Amnesties

• Generally available

unless already in criminal system

• May include specified

locally administered taxes (e.g., AZ)

• Generally have to pay

past tax and interest for defined period

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Pros and Cons of Voluntary Disclosures and Amnesty Programs

Pros and Cons of Voluntary Disclosures and Amnesty Programs

VDAs

• May only need to file

spreadsheet of liabilities

• May negotiate terms

anonymously until agreement

• May request payment

plan

• Possibly allow for refunds

Amnesties

• Must file application plus

returns for all periods included

• Typically no negotiation
• f terms
• All tax and interest due

must be paid by end of amnesty program

• Generally refunds are

barred

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• Distinct pros and cons to each approach
• If eligible for both voluntary disclosure and amnesty,

calculate total cost (present and future) under each

• Length of look‐back
• Penalty reduction
• Interest reduction
• Compliance costs
• Typically, option to choose is mutually exclusive

Pros and Cons of Voluntary Disclosures and Amnesty Programs

• Getting started
• Offers in Compromise
• Settlements
• Partial lien releases or subordination agreements
• Payment arrangements

Resolution of Certified State Tax Liabilities

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Know Your Taxpayer Client

• Type of tax liability
• Nature of the business
• Dates of business operations
• Related business entities
• Availability of records
• Previous contacts with the Ohio Attorney General’s

Office (AGO) or the Ohio Department of Taxation regarding the liability at issue

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Know Your Taxpayer Client’s Goals or Objectives

• Avoiding liens
• Release of liens
• Credit report concerns
• Dispute liability
• Make payments

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What Can/Should You Do?

• Review correspondence from the Ohio Attorney

General’s Office and the Ohio Department of Taxation:

• What is the basis of the liability?
• What is the period of the liability?
• Have any payments been applied to the liability?
• Review your client’s filings.
• Ascertain the current status of your client’s

business.

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Offer In Compromise (OIC)

• Ohio Revised Code Section 5703.06
• An OIC is a formalized offer as payment in full for an amount which is

less than the full amount of tax owed for liabilities certified at the Ohio Attorney General’s Office for collection.

• Global in nature – All outstanding debts included (business and

individual).

• The decision is joint consideration between the Department of

Taxation and the Attorney General’s Office.

• The rejection of an OIC is not appealable.
• A compromise over time (payment plan) shall be voided if payment

are not received timely or if required returns are not filed and paid. Any amount compromised or accrued will be due.

• Any amount compromised based on misrepresentation or fraud will be

voided as well.

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Offer In Compromise (OIC)

• Administered by the Attorney General’s Office.
• The OIC application and other OIC information can be

found at the Attorney General’s website:

http://www.ohioattorneygeneral.gov/Business/Collections/Offer‐in‐Compromise

• Considerations for filing an OIC
• Amount offered has to be less than tax amount.
• The liability must be certified for one year.
• The balance due must be at least $500.00.
• It would be in the state’s interest to compromise on the

balance due to economic hardship or doubt as to liability.

• Innocent Spouse.

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• Economic Hardship
• There exists an economic hardship such that a compromise
• r agreement would facilitate effective tax administration.
• This request requires copies of bank accounts, income,

insurance, monthly profit or loss, etc.

• Innocent Spouse – ORC 5703.06(B)(4)
• This requires approval from the IRS.
• Taxpayers required to provide proof of the determination

letter or tax court appeal letter.

• Tax returns for the period in question required.
• If no IRS approval documentation, may apply through OIC

using “Doubt as to Liability.”

Types of Offer in Compromise

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5703.06 Claims ‐ compromise or installment payment agreement ‐ innocent spouse relief.

(B) The tax commissioner and the attorney general shall consider the following standards when ascertaining with respect to a claim whether a compromise or payment‐over‐time agreement is in the best interests of the state under division (E) of section 131.02 of the Revised Code. (4) There exists a joint assessment of spouses, one of whom is an innocent spouse, provided that any relief under this standard shall only affect the claim as to the innocent

• spouse. A spouse granted relief under 6015 of the Internal Revenue Code with regard to

any income item is rebuttably presumed to be an innocent spouse with regard to that income item to the extent that income item is included in or otherwise affects the computation of the tax imposed under section 5747.02 of the Revised Code or any penalty

• r interest on that tax.

More on Innocent Spouse ORC 5703.06(B)(4)

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• Doubt as to liability
• Collectability.
• The individual is claiming that they are not the

responsible person.

• Certain tax position regarding certified tax debt

(missed the appeal period).

• Payment of the liability will result in a refund claim.

Types of Offers In Compromise (cont’d)

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• Can take as long as 6 to 9 months from inception.
• Providing required information with application will speed up

the process.

• AGO notifies applicant of result – acceptance, rejection, or

counter offer.

• An OIC agreement will be sent to applicant that outlines all the

terms.

• If accepted, payment of the OIC settlement sum is required

within 60 days via certified funds.

• If an OIC payment arrangement is accepted, then the OIC

agreement outlines payment arrangement details.

• Applicants must remain current on filing and paying taxes until

total OIC settlement sum paid and per the terms of the OIC agreement.

Offer in Compromise Process at a Glance

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• Currently in an active bankruptcy
• If outstanding debt is currently under appeal or at

the BTA

• Convicted of a financial crime that originated from

the debt that is considered for the OIC

What Does NOT Qualify For Offer in Compromise

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• An informal program that allows a person who
• wes the state money to negotiate a resolution of

less than the outstanding amount due.

• Amount offered is more than the tax amount
• Must be in writing signed by the taxpayer
• Must have documented reason
• Up front good faith payment
• Signed settlement agreement required
• Once payment received, account will be adjusted

Settlements

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• A written, recordable document excepting certain

real estate from the operation of a state lien to allow the property to pass with clean title.

• To request, contact the AGO and submit the required

documentation: (non‐exclusive, non‐exhaustive)

• Legal description
• (Proposed) HUD settlement statement
• Title report
• Appraisal
• Written offer of payment to the account documenting

why the request should be granted

Partial Lien Release

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• The property must be involved in a forthcoming

arm’s length transaction.

• PLRs must be filed with the County Clerk or
• Recorder. The AGO is not responsible for filing

fees.

• The lien remains in effect as to the taxpayer and

any other property taxpayer owns in the county.

• PLRs will not be issued until payment is received

and posted to the account.

Partial Lien Release (cont’d)

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• Allows a new mortgage or lien to “get in front of” the State’s lien(s).
• Requires the same documentation as a partial lien release for the

AGO to review.

• Additional considerations:
• There MUST be an active refinancing.
• Requires the signature of the mortgage holder, the AGO and the

debtor.

• The lien remains attached to the property.
• The subordination agreement will not be issued until payment is

received and posted to the account.

• Amounts not paid through the agreement must be dealt with through

a payment plan or the like.

Subordination Agreement

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• May be requested in writing to the Ohio Attorney

General’s Office.

• May be granted for up to one year. If more than a

year is requested, the Ohio Attorney General’s Office will require the taxpayer’s supporting financial information.

• Will not guarantee that a lien will not be filed.

Payment Plans

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Back Channel Efforts ‐ Defined

• A catch‐all term to move a resolution forward.
• One that does not fit squarely within existing

resolution‐type programs.

• Relationship focused and designed to get to the

same point as a VDA, Amnesty and OIC.

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Back Channel Efforts ‐ Strategy

• Know who has the authority to accomplish what you

want.

• Understand internal/external dynamics.
• Respect the chain of command.
• Accomplish goals at lowest possible level and earliest

possible time.

• Seek mutually beneficial resolution.

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Back Channel Efforts ‐ How

• Depends on particular agency and people involved.
• Remember the 3 Ps: personalities, policies and

practice.

• Capitalize on the mission of the agency: uniformity,

compliance, correct amount of tax revenue, etc.

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Back Channel Efforts – In Practice

• Example: Public company with a large issue

exposure; has timely filed but not eligible for amnesty, VDA or OIC.

• Taxpayer reaches out to agency through an

intermediary using privilege for confidentiality to explore resolution.

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Back Channel Efforts – In Practice

• Oftentimes takes the Director, Secretary or

Commissioner’s involvement.

• Why use a back‐channel path?
• VDA path won’t work as taxpayer was in compliance,

just took an aggressive position.

• OIC path won’t work under parameters involved, and

no amnesty option for years involved.

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Back Channel Efforts ‐ Result

• Back years resolved and closing agreement on “the

issue.”

• Penalties and fees abated by agreement.
• Perhaps a resolution on the issue going forward.

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Questions?

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Mark E. Holcomb, Esq. Of Counsel Dean Mead & Dunbar 215 S. Monroe Street Suite 815 Tallahassee, FL 32301 Telephone: 805.270.5519 Facsimile: 850.577.0095 Email: mholcomb@deanmead.com Nicole Randall, Esq. Attorney Appeals Management, Office of Chief Counsel Ohio Department of Taxation 30 East Broad Street, 21st Floor Columbus, OH 43215 Telephone: 614.387.2988 Facsimile: 614.466.8654 Email: Nicole.Randall@tax.state.oh.us Mark F. Sommer, Esq. Member Frost Brown Todd LLC 400 West Market Street Suite 3200 Louisville, KY 40202 Telephone: 502.779.8150 Facsimile: 502.581.1087 Email: msommer@fbtlaw.com