What is the Voluntary Disclosure Program?
The Voluntary Disclosure Agreement (VDA) program allows companies to proactively disclose prior period tax liabilities in accordance with a binding agreement. Most states encourage companies to comply with state laws and generate revenue for the state that it may not have had if the company did not disclose its liabilities.
What are the benefits of a VDA?
a) Limitations of the prior look back period: Usually the look back period is limited to between three and five years as opposed to having no statute of limitations if no return has ever been filed.
b) Reduction of penalties: Most states will waive penalties on any prior period taxes that are remitted in connection with a VDA agreement.
c) Full or partial interest: Many states apply a reduced interest rate to prior period taxes remitted in connection with the VDA agreement. A limited number of states will reduce interest in full.
d) Friendlier sales and use tax audit: Audits by state taxing authorities will typically be limited to the reduced look back period.
e) Brings closure to prior periods: The taxpayer will be comfortable knowing that prior period liabilities are closed and will be able to concentrate its compliance efforts on current and future periods.
What kind of companies canqualify for the program?
To qualify for full voluntary disclosure benefits, a business must typically have:
i. Never registered with or reported taxes to the taxing jurisdiction
ii. Never been contacted by the taxing jurisdiction for enforcement purposes (e.g. audit or compliance requirements)
iii. Not engaged in evasion or misrepresentation in reporting taxliabilities
What does the process involve and how does it work?
Taxpayers generally enlist the services of a third party service provider to assist in preparing Sales Tax liabilities, VDA documentation and applications. The third party communicates on behalf of the taxpayer in an anonymous situation in order to notify the state that acompany wishes to come forward to.