Tax liabilities for unreported rental income:
“The State of Hawaii Department of Taxation has long considered non-filing rental property owners and vacation rental operators as a potential source of additional tax revenue.
At a recent workshop, the Department described its efforts to identify non-filing rental real property landlords and vacation rental operators. In addition to on-going data sorting, the Department is availing itself of third-party information generated (from the AOAO) by Act 326 of 2012 and is collaborating with Hawaii’s county governments.
Hawaii’s Department of Taxation is following a national trend of actively developing information to identify additional sources of tax revenue. Computer data sorting techniques applied to federal and state tax data should be readily able to identify potential non-compliant taxpayers for audit and investigation.
There is no statute of limitations for unfiled general excise and transient accommodations tax returns. This makes the identification of delinquent General Excise Tax (GET) and Transient Accommodations Tax (TAT) revenue particularly productive as an audit could look back a considerable period. Typical penalties for failure to file and failure to pay are 50% along with interest at 8%.
Persons with past or on-going rental activity in Hawaii and unfiled returns (or unreported income) should strongly consider seeking professional advice as soon as possible. The potential for criminal prosecution and/or the imposition of substantial civil penalties can be mitigated or reduced through appropriate and timely actions, potentially including a “voluntary disclosure.”