Section 1031 - Voluntary Disclosure Program
Conducted by the Montana Department of Revenue
The Program:
Nonresidents who did not report to Montana the gain they recognized for federal income tax purposes on transfers of Montana property in like-kind exchanges may qualify for penalty and partial interest waiver under a voluntary disclosure program the Montana Department of Revenue will conduct between May 1 and August 31, 2006.
The program applies to exchanges that occurred and gains that were recognized for federal income tax purposes in 2002, 2003, 2004, and 2005.
Nonresidents are required to file Montana tax returns and pay Montana tax when they have "Montana source income." As recently clarified by administrative rule, Montana source income includes gain realized on the transfer of Montana real or tangible personal property in a section 1031 like-kind exchange after 2001, and the gain must be reported to Montana if and when it is recognized for federal income tax purposes.
The voluntary disclosure program applies only to nonresidents because residents each year report all of their federal income, including recognized 1031 gain, to Montana.
In order to participate, eligible nonresidents must file the appropriate tax returns and pay the tax due during the May 1 - August 31, 2006 program period. The Montana Department of Revenue and participants will enter into a final settlement agreement that, absent misrepresentation or other extenuating circumstances, will determine the participant's tax liability for the recognized 1031 gain, penalty, and interest.
There are administrative rules that describe the voluntary disclosure program and provide guidance in calculating the amount of realized and recognized source income in section 1031 exchanges ARM 42.2.304, 42.2.308, 42.2.309).For further information about this program, please contact our individual income tax specialists:
Brian Olsen - (406)444-2994, bolsen@mt.gov
Jim McKeon - (406)444-1940, jmckeon@mt.gov
Forms
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Power of Attorney (to be posted)
