Voluntary Disclosure—What’s That?

What is a Voluntary Disclosure Agreement?

Voluntary disclosure agreements (VDAs) are legally binding contracts with taxing jurisdictions that are designed to mitigate and settle liabilities.

Benefits of Participating in Voluntary Disclosure Agreement Programs

  • Compliance with tax laws.
    • Client is allowed to honorably bring their company into compliance.
  • Cost savings on back taxes.
    • Most jurisdictions have limited look-back periods and forego penalties. (Some jurisdictions might even waive interest!)
  • Limited look-back period.
    • Generally, if a VDA is submitted and accepted, the taxing jurisdiction will not audit or require filings from the business prior to the look-back period.
  • Peace of mind.
  • Excellent for due diligence

Characteristics of Voluntary Disclosure Agreement Programs

  • Third party anonymously negotiates a settlement with the state.
  • Taxpayer responsible for outstanding tax and usually interest.
  • Penalties usually waived.
  • Limited look-back period (in most states).
  • Strict eligibility requirements.
  • Taxpayer agrees to file going forward.
  • Typically taxpayers do not waive their rights to an appeal or refund.

Voluntary Disclosure Information

  • General description of the taxpayer’s business.
  • Description of how products or services are marketed in the state and detail on other possible nexus-creating activities in the state.
  • Original date nexus or potential nexus occurred.
  • Report if sales tax was collected from customers but not remitted.
  • General description of purchases made that should have been subject to use tax.
  • Description of all previous contacts with the state, either initiated by the taxpayer or the state.

Recommendations

If you have a client who has revenue earned in states where it is not filing a return (either income/franchise or sales/use), consider whether a voluntary disclosure agreement is the best option to bring your client current and save money on penalties and back taxes.

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