Voluntary Disclosure Agreements
Miles Consulting Group offers expertise in negotiating Voluntary Disclosure Agreements (VDAs) with taxing authorities, helping businesses address past tax deficiencies and establish a proactive path to compliance. Our tailored approach guides clients through the VDA process, minimizing penalties, reducing lookback periods, fostering good relations with tax authorities, approaching retroactive exposure from more of an offensive (vs. defensive position) and setting the foundation for long-term tax compliance. VDAs are a great way to proactively come forward (and also generally remain anonymous for a limited amount of time while getting your house in order) to begin the process of full compliance. That said, VDAs are not a “one-size fits all”, so we always evaluate our clients’ fact patterns, specific situations, potential exposure, and risk profile before recommending this course of remediation.
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Voluntary Disclosure Agreements
Definition and Purpose
A Voluntary Disclosure Agreement (VDA) is a negotiated arrangement between a business and a taxing authority to voluntarily disclose any past tax liabilities and come into compliance with state tax laws. It is a proactive approach to rectify potential non-compliance issues.
Importance of Voluntary Disclosure
VDAs allow businesses to address past tax deficiencies, minimize penalties, limit lookback periods (to generally 3 or 4 years) and avoid legal repercussions by voluntarily disclosing and resolving tax obligations with tax authorities.
Benefits of VDA
By initiating a VDA, businesses demonstrate good faith efforts toward compliance, generally limiting lookback periods, reducing or eliminating penalties on unpaid taxes and limiting the amount of paperwork (compared to an audit) by being proactive. This can lead to cost savings and improved relations with taxing authorities. It’s almost always more beneficial and less painless to come forward voluntarily than to be audited. Audits come when you least expect them and leave you on the defense (and often come with significant penalties.. A VDA is a proactive way to rectify past non-compliance in a process driven manner.
Process of VDA
We guide businesses through the VDA process by helping to determine and document nexus start dates, determining the proper characterization and taxability of its products and services, assisting in compiling necessary documentation, negotiating terms with tax authorities, and ensuring timely and accurate disclosure of tax liabilities for a smooth resolution. Sometimes the full process of bringing a client into disclosure is a combination of VDAs and registration and back-filing is states where there may be less retroactive exposure. Each situation is unique and we approach each client situation with a fresh perspective to formulate the right path toward compliance.
Long-term Compliance Strategy
Engaging in VDAs not only resolves past tax issues but also serves as a foundation for improved future compliance practices, reducing the risk of future non-compliance and associated penalties. It demonstrates a commitment to ethical tax practices.
Blogs & Insights
We have written about this topic in the past. Please review any of these articles for further information.
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Frequently Asked Questions About Voluntary Disclosure Agreements
A VDA is a negotiated agreement with tax authorities to disclose and rectify past tax liabilities voluntarily. It can help your business resolve potential non-compliance issues and avoid penalties.
A VDA demonstrates proactive efforts toward compliance, potentially reducing penalties and interest on unpaid taxes. It sets the stage for improved tax practices and relationships with tax authorities. And you may be able to limit your lookback period (less tax exposure) and eliminate penalties.
Businesses with potential past tax liabilities, unfiled returns, or those looking to come into compliance with state tax laws can generally benefit from initiating a VDA.But each client situation is different, so we recommend a detailed conversation with a tax advisor before moving forward with, for instance, a software company that might recommend a VDA in X number of states.
VDAs typically apply to a variety of state taxes, including sales tax, income tax, employment tax, and other state-specific taxes.
We provide guidance on compiling required documentation, negotiating terms with tax authorities, and ensuring accurate disclosure of tax liabilities to facilitate a smooth VDA resolution.
Yes, by proactively addressing tax deficiencies through a VDA, businesses may receive leniency in terms of penalties. Interest is generally statutory and cannot be waived, but there are some exceptions to this. leading to potential cost savings.
Yes, VDAs typically involve confidential negotiations between the taxpayer and the relevant taxing authorities, ensuring privacy throughout the disclosure process.
The duration of a VDA varies based on the complexity of the tax issues involved and the responsiveness of the tax authorities, typically ranging from 3-4 months. .Oftentimes we are able to work with both clients and the states to get to the best answer for everyone involved. States can sometimes speed up the process if a client desires, or the process can be slowed down by asking for extensions. Every client situation is unique and we work with each one to get to their specific best answer.
While it’s possible to initiate VDAs in multiple states, we don’t necessarily recommend this approach for a variety of reasons. If you think you’re in this situation, let’s talk….it’s the exception rather than the rule to file in a VDA in all states.
If your business is currently under audit, the availability and terms of a VDA may be impacted. Contact us for guidance on navigating this situation.
VDAs are commonly viewed as a proactive step toward compliance, showing cooperation with tax authorities. They typically do not lead to negative repercussions or increased scrutiny.
While there are some risks, such as potential tax liabilities being uncovered, engaging in a VDA is generally a way to mitigate those risks and achieve compliance. We use the old adage “don’t ask a question that you don’t already know the answer to.” We prepare our clients fully for the implications of retroactive filings, tax liability and interest before we file the VDA.
Engaging in a VDA sets a foundation for improved future compliance practices, reducing the risk of non-compliance and demonstrating a commitment to ethical tax practices. Oftentimes, the VDA or other retroactive remediation plan is the first step in filing properly on a go-forward basis.
VDAs can be beneficial for businesses of all sizes and industries, especially those looking to rectify past tax deficiencies and establish compliance moving forward. However, it’s also important to look at the materiality of the exposure. Every client is different and the VDA is not a one-size fits all remedy. We can help navigate the best path forward, and that is likely VDAs in some states, but maybe not all.
Costs vary based on the complexity of the tax issues and the scope of services needed. We offer tailored solutions to meet each client’s specific needs and budget. We generally charge a flat rate per state for VDAs. Contact us for an initial discussion of your fact pattern and then we can talk about a plan for remediation, which may include VDAs and other forms of retroactive assistance. We think you’ll find our pricing to be comparable with the market!
Yes, we manage and facilitate communications with tax authorities on behalf of our clients to ensure a streamlined and professional VDA process.
Yes, a VDA can be a proactive approach for businesses uncertain about their tax liabilities, allowing for voluntary disclosure and resolution of any potential issues. When you work with MIles Consulting Group, we assist clients in doing the legwork up front to determine your exposure and ultimately report the correct amount owed.
Engaging in a VDA with us can help your business resolve past tax deficiencies, minimize penalties, establish a compliant tax framework, and pave the way for improved relations with tax authorities.
These FAQs aim to provide clarity on Voluntary Disclosure Agreements and how engaging with Miles Consulting Group can benefit businesses seeking to rectify past tax liabilities and ensure compliance with state tax laws.
