What Is a Voluntary Disclosure Program?

What Is a Voluntary Disclosure Program?

March 31, 2022

georgerendziperis

It’s Time to Get Compliant with State Tax Rules. 

Taxpayers can be proactive and achieve compliance with state tax laws and rules to avoid certain headaches (such as audits and assessments by states) for taxes due to the state. The process is called Voluntary Disclosure 

Voluntary disclosure is the process of reporting past tax liabilities for any tax administered by a State. Taxpayers can anonymously enter into agreements and voluntarily pay their taxes with a reduced penalty or no penalty. Under Voluntary Disclosure, the state offers a limited look-back period in which it will go back and assess tax. The program allows taxpayers to register for taxes and coordinates payment of amounts owed to the state. 



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ELIGIBILITY FOR A VOLUNTARY DISCLOSURE PROGRAM

A taxpayer is eligible under a Voluntary Disclosure program if they have a filing requirement for a tax administered by the state and are not registered with the state for such tax. Furthermore, the taxpayer must not have been previously contacted by the state (such as a notice or nexus questionnaire) regarding filing tax returns or having nexus with the state.  

A taxpayer is not eligible for the Voluntary Disclosure program if such taxpayer is registered with the state but failed to file returns, or if they submitted payment to the state. Furthermore, a taxpayer who has been contacted by the state, as stated above, regarding a tax liability or potential tax liability is not eligible under a Voluntary Disclosure program 

BENEFITS & PENALTIES 

The benefits under a Voluntary Disclosure program for a taxpayer include limited look-back periods and, generally, a waiver of penalties. The look-back period is the period for which the statute of limitations would not have run had returns been filed in a timely manner.  

Failure to use the Voluntary Disclosure program could result in the state assessing tax, interest, and penalties for all periods for which returns should have been filed, often going back 10 years.  

QUESTIONS? 

If you have any questions about achieving compliance in a Voluntary Disclosure process, or your eligibility, contact the trusted advisors of REDW’s State and Local Tax team.



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