One of the perennial challenges faced by taxing authorities is identifying and contacting individuals and businesses who are unaware (or purposefully ignorant) of the tax filing obligations they may have. In an effort to encourage unregistered taxpayers with outstanding excise tax liabilities for prior periods to come forward and voluntarily register with the Washington Department of Revenue (DOR), the DOR offers a Voluntary Disclosure Agreement (VDA) Program that includes the following benefits:
- a limited “look back” period on previous liabilities of four years plus the current year (the period open under the traditional statute of limitations for taxpayers registered with the DOR); and
- waiver of late filing, substantial understatement, and assessment penalties that could otherwise be as high as 39 percent of the tax due (but interest is not eligible to be waived).
Historically, the VDA Program has been available only to individuals and businesses who have not previously been registered with the DOR and have never been contacted by the DOR regarding their potential Washington excise tax (such as B&O tax or sales/use tax) obligations. However, the DOR announced on June 1, 2020 that it is temporarily relaxing these restrictions with respect to certain taxpayers that did not qualify previously. The following categories of businesses will be eligible for the benefits of the VDA program between July 15, 2020 and November 30, 2020:
- Businesses that were previously registered with the DOR but closed their tax registration or were placed on Active Non-Reporting status prior to January 1, 2020. Under the normal rules, businesses that were previously registered with the Department for any period of time were not eligible for the VDA Program, even if their registration was voluntarily closed many years ago.
- Businesses who were contacted by the DOR for tax enforcement purposes prior to July 1, 2019. Under the normal rule, taxpayers that were contacted at any point by the DOR for tax enforcement purposes were not eligible for the VDA Program, but now those businesses may qualify as long as the most recent contact did not occur within the last year.
- Businesses who have not been named as an affiliate of another business through an enforcement contact. Under the normal rule, when a taxpayer receives a Washington business activities questionnaire from the DOR, all affiliates of that taxpayer become ineligible for the VDA Program. Under the expanded provisions, only the entities addressed specifically by name by the Department or the taxpayer as a part of an enforcement contact are ineligible.
The following businesses will remain ineligible (even if they would otherwise qualify for a VDA under the expanded criteria):
- businesses that have been contacted at any time by the DOR regarding Wayfair, Marketplace Fairness, or Remote Seller Relief; and
- businesses that have collected Washington retail sales tax from customers, but have not remitted that tax to the DOR. Note that such businesses may still be eligible for the expanded VDA Program with respect to their B&O tax liabilities.
Based on information from the DOR, it will revert to the historical (and more restrictive) VDA requirements for all applications received after November 30, 2020.
All requests for voluntary disclosure must be submitted through the DOR’s online application. You will receive a confirmation that your application has been received. In order to protect anonymity during the initial contacts with the DOR, many taxpayers choose to have a tax advisor or attorney submit the VDA application on their behalf and represent them through the VDA process. Members of Clark Nuber’s SALT practice have extensive experience working with the DOR on VDA agreements and ensuring our clients receive all the potential benefits available to them under this valuable program. We would be happy to talk to you about whether the expanded VDA Program makes sense for your business.
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