District expects to generate $20 million through tax amnesty program

By Mike DeBonis
Wednesday, August 4, 2010

Attention, D.C. tax scofflaws: Because the city needs help paying its bills, you have some help paying yours.

City finance officials expect to generate $20 million in the coming two months by forgiving penalties for tax debtors in return for the full payment of their debts. About 42,000 individual and business taxpayers owe the city an aggregate debt of $130 million.

There is a catch or two: Scofflaw taxpayers won't get a break on interest, and they must pay their bills in full by Sept. 30, the last day of the city's fiscal year.

The city has held two such "tax amnesty" periods in the past: one in 1987, which generated $24.3 million, and a 2001 effort that collected $19.5 million.

Along with the carrot comes a stick.

The legislation that authorized the amnesty allows the city to order employers to increase withholding for employees with city tax debts -- a move expected to generate more than $4 million in the next fiscal year.

"Successful tax amnesties offer incentives, and they offer consequences," said Stephen M. Cordi, director of the District's Office of Tax and Revenue. "The consequences are, if you don't pay, we'll come get it."

The 42,000 delinquent taxpayers already known to the city will be mailed tax bills, along with letters explaining the program, which started Monday. Cordi says about 70 percent of the collections are expected to come from those known debtors.

Tax amnesty programs have become a popular way for state and local governments to give themselves a "fiscal shot in the arm" in a period of financial distress, said Jim Eads, executive director of the Federation of Tax Administrators.

"They want that rapid infusion of tax revenue," Eads said.

Since 2008, 16 states have held tax amnesties, according to federation data; those, Eads says, have largely met or exceeded expectations. A seven-week Pennsylvania amnesty ending in June generated $261 million, more than $70 million above projections.

The amnesty was part of the fiscal 2010 budget proposal first submitted by Mayor Adrian M. Fenty (D) in March 2009. The D.C. Council approved the plan later that year.

About half of the outstanding debts subject to the amnesty are individual income taxes; the remainder comprise various business taxes. The offer does not apply to those delinquent on property taxes or on the "ballpark fee" levied on some businesses since 2005.

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