SALT Strategies

Got Unpaid State and Local Tax Liabilities? Voluntary Disclosure May Be Your “Get out of Jail Free” Card

by: Richard L. Feldman, CPA, Senior Manager

MWE Headshots Thumbnail RichardFeldman - Got Unpaid State and Local Tax Liabilities? Voluntary Disclosure May Be Your “Get out of Jail Free” CardVoluntary disclosure is not exactly a “get out of jail free” card when it comes to unpaid taxes, but it may be the next best thing.

Voluntary disclosure programs allow taxpayers with unreported tax liabilities to come forward and settle their tax liabilities, usually under very favorable terms and frequently avoiding any type of penalty. Most states and many local jurisdictions have some form of voluntary disclosure program. Although they all have different details and procedures, they generally share several core terms.

  • The taxpayer must come forward prior to be being contacted by the taxing authority.
  • Full disclosure must be made of all prior unpaid taxes and unfiled returns including details of the amount owed, when the taxpayer became subject to the particular tax and the reason for not reporting it.
  • The taxpayer must not be under audit or criminal investigation.
  • An agreement must be made to pay prior taxes and remain current for future tax payments and filings.
  • The taxing authority will agree to limit the look back period (sometimes to only three or four years).
  • Penalties will be waived and the taxpayer will not be subject to criminal prosecution. Some jurisdictions will also reduce interest.

The taxing authorities are willing to give these favorable terms because it encourages taxpayers to comply and brings in needed revenue which may not have been brought in otherwise. For a taxpayer with an unreported tax liability these terms may sound too good to be true. However there is a cost involved; obviously the payment of the unpaid tax and also the cost of complying and providing all the prior tax information.

Nevertheless, taxpayers with any unreported tax liabilities should strongly consider reaching out via a voluntary disclosure agreement because with all the tools available to the state and local tax authorities it is probably only a matter of time before they find the delinquent taxpayer. At that point all bets are off. There is no waiver of penalties, no limited lookback period and potential criminal prosecution….without a “get out of jail free” card.

Please contact us for more information or if you think you may be eligible for a voluntary disclosure agreement.

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