Amnesty and VDAs: A Less Painful Method of Removing Uncertain Tax Positions
Over the past few years, approximately 25 states have held amnesty programs or periods.
What is an Amnesty Program?
An amnesty program is generally a time period established by a state to allow taxpayers who are delinquent on their taxes to come forward, and pay those taxes without penalties being imposed. Usually interest is still imposed, but sometimes it may be waived as well. Each state amnesty program is different or unique; meaning, they each contain their own set of rules, guidelines and qualifications. Amnesty programs usually pertain to certain tax periods, specific tax types, and taxpayers who meet certain criteria. In other words, "look before you leap."
Taxpayers who are eligible for an amnesty program, but don’t take advantage of the program, are often faced with harsh penalties if caught after the program has ended.
Voluntary Disclosure Agreements
When amnesty programs are not in effect, most states still have what they call “Voluntary Disclosure Agreement” (VDA) programs which allow taxpayers to come forward on an anonymous basis, limit the number of prior years required to be filed (usually 4), and pay taxes and interest. Under most VDA programs, penalties are waived, but not interest.
Remember, a voluntary disclosure agreement is only able to be utilized if the state has not already contacted the taxpayer (in most cases). If the state contacts the taxpayer first, technically, the state can make the taxpayer file returns for all previous years in which the company had nexus in the state. However, generally, the state does not require returns to be filed for all previous years. The number of years a state will require depends on the facts of each case. In addition, unlike a voluntary disclosure, there is no relief for interest and penalties.
If you believe your company or your client may have had nexus in a state for several years and has not filed, please contact me to determine if a voluntary disclosure agreement makes sense.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.