On April 23, 2008, the New York State Department of Taxation and Finance formally established a Voluntary Disclosure and Compliance (VDC) Program under N.Y. Tax Law § 1700 to encourage taxpayers to voluntarily correct overdue tax liabilities and comply with New York tax laws. The VDC Program replaces the State’s old procedures, allowing voluntary disclosure of past acts (e.g., failing to file returns or pay estimated taxes, underreporting tax liabilities) in exchange for abating the taxpayer’s penalties and not pursuing any criminal action.
Similarly to programs in many other states, New York’s VDC Program allows taxpayers to come forward voluntarily and disclose any returns which they failed to file and any type of taxes which they failed to pay (estimated or actual). Taxpayers who voluntarily come forward under the VDC Program will have penalties waived and will not face any criminal charges, but must pay all taxes and accrued interest due and agree to comply with all future state tax laws. Penalties will be waived for failure to pay any tax liability, failure to file a return or report with respect to a tax liability, and failure to pay estimated tax.
Generally, all types of business entities subject to taxation in New York are eligible under the VDC Program. However, taxpayers must meet the following criteria:
- The taxpayer must not be under audit.
- The taxpayer cannot have the tax determined, calculated, researched, or identified at the time of disclosure.
- The taxpayer must not be a party to an active criminal investigation conducted by New York or its political subdivisions.
- The taxpayer must not be seeking to disclose participation in a federal or New York reportable or listed transaction.
A disclosure statement, on a form prepared by the New York State Tax Commissioner (“Commissioner”), must be signed and submitted.
If the taxpayer is eligible under the VDC Program, the Commissioner will be authorized to enter into a voluntary disclosure and compliance agreement with the taxpayer. No application will be denied solely on the basis that the delinquency was a result of willful or fraudulent conduct.
The information submitted will remain confidential, unless the taxpayer fails to comply with the terms of the agreement, which includes complying with all future tax laws. Taxpayers who intentionally violate the terms of a voluntary disclosure and compliance agreement may have the disclosed information used against them.
Once the agreement is executed, the tax liability for each year of non-compliance will be calculated and subject to audit. The taxpayer must pay the tax and interest due when the agreement is executed or on a date agreed upon by the Commissioner and stated in the agreement. If the Commissioner determines the taxpayer cannot make a full and immediate payment, an installment payment agreement may be available. Taxpayers are also eligible for any refunds due after fully complying.
If a taxpayer owes back taxes to both New York State and New York City, the taxpayer may seek to participate in the Unified Voluntary Disclosure Procedure that allows both delinquencies to be addressed and resolved simultaneously.
Any of the actions below shall rescind the voluntary disclosure and compliance agreement, invalidate any waiver of penalty, and prompt criminal action and proceedings:
- Intentional provision of false information.
- Omission of material information.
- Failure to pay all the taxes and related interest due.
- Failure to comply with the voluntary disclosure and compliance agreement.
Ryan can assist clients who wish to take advantage of the VDC Program in New York State or New York City or who would like to diagnose and assess their facts first. Ryan will steward participating clients through the process and will monitor any changes or developments to the VDC Program and its policies.