The Massachusetts Department of Revenue is offering taxpayers a little breather through Dec. 30: The tax amnesty program will waive penalties for certain eligible taxpayers as long as they pay the tax and interest owed before the end of the year. In order to enter the program, the taxpayer will have to submit an Amnesty Request, pay the total amount owed, and submit all required returns by December 31, 2024. Those who have received prior amnesty relief, are in active bankruptcy, or otherwise involved with tax-related criminal investigation or prosecution, are ineligible for this program.

Both the government and taxpayers benefit from such a program: the government will be able to increase its tax collections, the taxpayers to clear out owed taxes and accruing penalties and interest. Many Massachusetts residents already struggle with the state’s high living costs—in fact, many people name taxes, cost of housing, and cost of healthcare as the top reasons why they chose to leave Massachusetts. Tax amnesty will help relieve the financial burden that residents are under; in the long term, such policies may even slow the flow of people leaving the state and the fall of tax revenue.

“It is good for (the state government) to do this,” said Luz Arevalo, an attorney at the Greater Boston Legal Services, a firm that provides free legal assistance to low-income Boston residents. However, as someone who has seen many of her clients struggle with their taxes, Arevalo believes the state should do much more. She and her colleagues are pushing for a bill — an Act Providing for Settlement in Tax Liability — that they feel will bring more benefits to Massachusetts’ low-income taxpayers.

The bill proposes to implement reforms on Massachusetts’ existing Offer in Compromise (OIC) program, which Arevalo describes as a sort of “personalized amnesty.” Under this program, the DOR considers a taxpayer’s individual circumstances; when it believes it unlikely the taxpayer will be able to pay the full tax amount, the DOR settles for a lesser amount in the best interest of the state. Compared to tax amnesty, the OIC program forgives more than just penalties, is more flexible, and on the whole provides significantly more relief for the taxpayer. There is just one problem: Massachusetts rarely accepts OIC offers.

One client tried to help out with his girlfriend’s restaurant, Arevalo said, but didn’t know he was responsible for filing the trustee tax that accompanied each meal they sold. Over time, the tax amount he owed built up, eventually resulting in over $15,000 with steep penalties. Arevalo and her colleagues filed an offer on his behalf, but was refused without appeal.

Another client, an immigrant from Central America who couldn’t find other jobs because of the language barrier, sold hot dogs in Boston. The hot dog stand barely kept him afloat, but he didn’t know he had to file a sales tax and racked up steep penalties, as well. An offer for him was likewise refused, because the program doesn’t accept those who are self-employed.

A third client, a 73-year-old former boxer, was two years late in filing taxes because of a contentious divorce. He owed the DOR $30,000 dollars, with more than half being accrued interest and penalties. Similarly, his offer was rejected.

“The DOR only accepted six offers in 2023,” said Arevalo. “The DOR Program is not transparent. They discourage it. They fear people knocking on their door to forgive this and that.” But, Arevalo argued, there is much more opportunity for the state to benefit from a better regulated and implemented OIC program. The new bill looks at the federal OIC program, run by the Internal Revenue Service, as a model from which Massachusetts’ OIC program can learn.

There are a couple key points to the IRS Offer in Compromise’s success, Arevalo explained. First and arguably most important, the IRS program does not set a minimum payment amount. No offer from a taxpayer is rejected simply because the amount is too low. In contrast, the DOR program has a minimum of $5,000, and the offer must be at least 50% of the full tax amount owed. In Arevalo’s view, this is a monumental barrier for struggling taxpayers. Many are not able to pay the 5,000 minimum, and as a result, the DOR rejects their offer. The new bill amends this, modeling the DOR program after the IRS to implement no minimum.

A second key difference is the flexibility between the two programs. Arevalo believed the DOR’s program is too rigid, considering only likelihood of collectibility in making its offers. The bill proposes to add more adjustability by implementing two new types of offers based on liability and effective tax administration—like the IRS—thereby allowing greater accommodation for individual circumstances, public policy, and equity. For example, a taxpayer might be able to pay off the full amount owed only if they sell off equipment essential to their economic livelihood. Under effective tax administration, the amended DOR model would not require the taxpayer to do so, judging such an action as an obstacle to equity.
Other key aspects include amending the DOR model to adopt the national standards of the IRS in reviewing financial information (such as for food, housing, and other necessities) so that taxpayers won’t have to struggle through the complicated process of providing documentation, and in creating clearer and more interactive guidelines. Lastly, the bill proposes that the DOR program mandate a 3-year tax compliance as a requirement for all accepted offers—similar to the IRS’ 5-year compliance.
This would render Massachusetts’ OIC program more beneficial to all parties involved, Arevalo maintained. Such changes would help low-income taxpayers and mitigate some of the huge disadvantages immigrants face in the tax system—as many fall within the poverty bracket, encounter great difficulties in finding employment, and send most of their income back home to families outside of the U.S. As a previous editorial from the Sampan explores, the taxes immigrants pay comprise a good chunk of government tax revenue. Not to mention, their taxes are funneled into programs such as Medicare and Social Security that they themselves are not privy to.

The government would see increased tax revenues and be able to reduce the administrative costs of monitoring and reviewing the delinquent tax accounts. In the long run, as a result of the compliance requirement, there would also be less such accounts.

Such an outcome, however, remains uncertain as the bill stalls in the House Committee on Ways and Means, as it has since March of this year. They’re studying it, Arevalo explained, on whether the proposed changes would cost or bring money to the state. For Arevalo and her colleagues, it is obviously the latter, and they hope the state will come to that conclusion too.

“While we are glad for those taxpayers who will be able to sleep better after taking advantage of the upcoming amnesty,” wrote Arevalo and her colleague Angela Divaris in an editorial, “we would like to see more residents helped going forward by improving the Offer in Final Settlement program. That would be a long-term win-win for both taxpayers and the Commonwealth.”