Summary
Effective October 4, 2011, a voluntary disclosure program is available to qualified taxpayers who failed to register or pay the Los Angeles business tax. Under the program, penalties, but not interest, will be waived for taxpayers who failed to register or pay if their failure was due to reasonable cause and was not a result of intentional disregard of the law or due to fraud or an intent to evade taxes. Additionally, a shorter statute of limitations for assessing tax delinquencies applies to taxpayers who enter into a voluntary disclosure agreement (VDA).
A taxpayer is eligible to enter into a VDA if the taxpayer:
- Has not previously filed an application for a Los Angeles business tax registration certificate or business tax renewal form
- Is engaged in business in Los Angeles
- Voluntarily files an application for a business tax registration certificate and business tax renewal form(s) with the city of Los Angeles for all years for which the taxpayer was engaged in business in Los Angeles
- Has not been previously contacted by the city or by a city contractor regarding its Los Angeles business tax liabilities and is not currently under audit for or otherwise contesting such liabilities
- Cooperates with an investigation of the taxes at issue in the VDA, including providing all books and records to the Los Angeles Office of Finance
During the first year of the program, the statute of limitations period in which a deficiency determination may be assessed against a taxpayer entering into a VDA is decreased from the standard eight-year limitations period to a three-year period that commences after the date on which the tax was due. After the first year the program is in effect, the limitations period is increased to five years after the date on which the tax was due for taxpayers that enter into a VDA.
A taxpayer seeking relief from penalties must file a statement under penalty of perjury setting forth the facts upon which the taxpayer bases the claim for relief. According to the office, additional program details and information, including answers to frequently asked questions (FAQs) and a program application, will soon be made available on their website: http://finance.lacity.org/.
A VDA will be null and void if a taxpayer misrepresents a material fact to the city with respect to the VDA or defaults on an installment payment plan. Los Angeles City Ordinance 18159 is effective as of October 4, 2011.
Further Insight
Each business participating in the amnesty needs to pay close attention to the business classification it identifies as its activity, since that classification will determine the rate of tax. Also, it is common for businesses to be subject to multiple classifications. It is recommended that, prior to submitting the amnesty application, businesses should consult with a knowledgeable practitioner.