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.
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.