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You Missed the Tax Amnesty Express (Don’t worry - you’re probably better off with a VDA anyway!)
Posted By Michael Fleming On April 1, 2011 @ 3:14 pm In Uncategorized | No Comments
[Following is Part 2 of a 3-part series on Amnesty by Peisner Johnson's Michael Fleming]
Voluntary Disclosure Agreement (VDA) Programs
As mentioned earlier VDA programs are similar to amnesty programs. You can think of VDA programs as a sort of on-going amnesty. Both programs usually allow for at least the waiver of penalties and sometimes some or all of the interest. The differences between the two lie in the additional benefits and flexibility offered by VDAs. Let’s compare and contrast.
One of the great differences between the two programs is that most VDA programs offer a limited look back period. The look back period is usually 3-4 years. However there are a few states, with Hawaii being an example, with look back periods as long as 10 years. The importance of a limited look back period is paramount. If you have never registered in a state, then there is no statute of limitations on how far back a state can pursue you. If you have been doing business in a state for 20 years, then, at least theoretically, if not in actuality, a state has the right to pursue you for those 20 years. In actuality, states do routinely go back 7 years. Add up those back taxes interest and penalties and the numbers mount quickly. Additionally many states share this type of information when they find delinquent taxpayers in these situations; so you may soon find yourself being pursued by multiple states and your problems compounding.
This is usually an apocalyptic scenario for a company because, like amnesty programs, VDA’s are usually available only to participants who are not currently reporting or those with outstanding liabilities that have not been identified by the taxing agency. (If you find yourself in such a dire situation, it would be in your best interest to call us immediately.) In order to prevent this type of scenario from happening most states allow for VDA’s to be initiated by third parties on an anonymous basis. A taxpayer’s name is not disclosed until an agreement on the terms of the VDA is reached. A successful VDA strategy takes this into consideration and provides for a multi-state approach wherever a taxpayer has nexus but is not filing.
Another instance where the anonymous feature of a VDA comes in handy is in the potential avoidance of possible civil or criminal prosecution. In many instances the waiver of civil or criminal prosecution is addressed in the VDA agreement prior to the taxpayer’s identity being disclosed. Both programs are vehicles to bring a company into compliance.
Most states offer VDA programs covering a wide variety of taxes. Although not highly publicized, the programs are ongoing and can be taken advantage of at any time, unlike amnesty programs which have short windows of opportunity and are offered at long, irregular intervals. This is an added benefit when dealing with multi-state issues. VDA’s also do not usually require the waiving of rights to an appeal or refund and usually do not have provisions for harsh penalties.
The following is a brief listing of the pros and cons of VDA Programs.
1. Vehicle for compliance.
2. Avoidance of possible prosecution.
3. Usually offer a waiver of penalties.
4. Potential waiver of some or all interest.
5. Limitation of look-back period.
6. Anonymity feature.
7. Easy to coordinate multi-state efforts.
8. Available most of the time.
9. No harsh penalties.
10. Usually no waiver of rights.
1. Available only if not already identified by state.
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