Voluntary Disclosure Program

What is New York’s Voluntary Disclosure and Compliance Program?

The New York State Voluntary Disclosure and Compliance Program allows taxpayers with unfiled returns or underreported taxes to receive relief from penalties and possible criminal charges if they come forward voluntarily and pay their taxes. The Department of Taxation and Finance offers this program for all of the taxes they administer, including income, corporate, and sales tax.

If the state of New York hasn’t yet discovered that you’ve fallen behind or that you may have engaged in criminal activity, you have the chance to come clean, get caught up, and limit your financial damages. But you must take action before they contact you—to get help now, contact us at McLaud Law P.C. today.

How Voluntary Disclosure Helps You Avoid Civil Penalties and Criminal Charges

The New York State Department of Taxation and Finance realizes how stressful it can be to fall behind on taxes and not see a way out. The Voluntary Disclosure and Compliance Program lets you catch up on missed tax returns and agree to stay compliant with future tax requirements.

In exchange for waiving penalties and not pursuing criminal charges, the Department of Taxation and Finance has specific requirements for taxpayers. Those who apply for this program must fully disclose which taxes they owe, pay those taxes, and agree to file and pay all future taxes on time and in full.

Eligibility Criteria

In order to qualify for the VDCP, you have to meet certain criteria:

• You cannot be under audit by the Department of Taxation and Finance for the years and types of taxes that you are attempting to disclose.
• You cannot have previously received a bill for the past due taxes you are attempting to disclose.
• You must not be under criminal investigation by any New York State agency.
• You cannot attempt to disclose your participation in a tax avoidance transaction (or tax shelter) that is a federal or state reportable transaction.

Situations Where the Voluntary Disclosure and Compliance Program Does Not Apply

The VDCP is not the right choice for you if you’ve filed your tax return but are unable to pay in full. In this situation, you may find it more helpful to sign up for an installment agreement with the DTF. This lets you pay your unpaid balance over time by making monthly payments.

You are also not eligible for this program if you are already being audited or investigated by the state of New York. In this situation, the time to disclose has passed, and you must move forward with speaking to a tax attorney and negotiating your potential options.

How to Apply

You can apply online for the Voluntary Disclosure Program. The state requests that you have your tax return forms and other documentation ready, but not that you file your taxes right away. During the application process, you will need to disclose all unpaid taxes, unfiled tax returns, and potential criminal tax activity. Anything you do not disclose that the department later discovers may still result in penalties or criminal charges. 

This is also your chance to request a limited look-back period. This is particularly helpful for those who have failed to pay taxes for an extended period of time. With a limited look-back period, you may only be on the hook for three to six years of tax payments. Note, though, that this is not an option for those who commit fraud or tax evasion to get out of paying taxes.

After you finish the application process, the Department of Taxation and Finance will process your application and determine whether or not you qualify for the program. Be on the lookout for letters from the Department of Taxation and Finance, as they may request additional information. Answer promptly to avoid unnecessary delays or rejections. If they accept your application, they will send you an acceptance letter and a VDCP Agreement. 

At that point, you must file your late tax returns and pay the taxes you owe. Depending on your financial circumstances, the Department of Taxation and Finance may expect you to pay in full or allow you to sign up for an installment agreement. If you request an installment agreement, they may ask for financial documentation to prove that you are unable to pay in full. As part of your participation in the program, you do not have to pay any penalties that would otherwise be assessed. You will still be responsible for paying interest, though.

The Benefits of the Voluntary Disclosure and Compliance Program

There are numerous benefits that come with the VDCP. First, you avoid penalties that come with unpaid or unfiled taxes. These can add up very quickly, especially if you owe a substantial amount. Simply having those penalties forgiven can significantly decrease your tax burden and put you in a better position to get caught up.

Second, if you have engaged in criminal tax activity, the VDCP essentially wipes the slate clean and gives you a fresh start. This is a huge relief for those who have seen the error of their ways and now want to handle their tax responsibilities appropriately. Although there is no limited look-back period for those who engage in tax fraud, the disclosure program may help you avoid criminal charges. Note the DTF will not report the criminal activity to any other tax agencies or law enforcement, but the DTF may share the returns you file with other agencies such as the IRS as usual. 

Finally, the New York State program is considerably more lenient than programs offered in other states. Most states do have some sort of voluntary disclosure program for those who have fallen behind, but they tend to have fairly strict limitations. New York’s program covers all taxes administered by the state, including income tax, sales tax, and corporate tax. Furthermore, while many states’ programs explicitly disallow those whose non-payment is due to fraud, New York State specifically allows those who have engaged in fraudulent or criminal conduct to participate.

Are There Risks That Come With Disclosure?

The idea of disclosing your criminal or fraudulent activity to the government can seem incredibly stressful, and for good reason—you’re essentially giving them the information they need to charge and convict you. However, New York tax law includes specific provisions that protect taxpayers in this situation. The Department of Taxation and Finance cannot use information provided in your application against you. They also cannot provide that information to federal, state, and local agencies. However, they can provide returns and reports with the IRS and other relevant agencies.

It’s also important to note that this secrecy is not guaranteed. If a taxpayer violates the terms of their Voluntary Disclosure Agreement, they lose the protection granted to them under state law. The Department of Taxation and Finance is then able to use their disclosed information against them.

So while the risks may be minimal for those who act in good faith, it’s still worth discussing the potential risks and outcomes with a tax attorney. Disclosing unpaid taxes or criminal tax activity is a significant responsibility, and you want to ensure that you are protecting your own best interests.

For taxpayers who did not commit a crime, there are virtually no risks to this program. By coming forward voluntarily, you avoid penalties, and in most cases, you will only have to file returns for a limited number of years.

Best Practices for Compliance Moving Forward

It is crucial that you have a plan for your taxes as you go forward. Not only does compliance help you avoid penalties and criminal charges, but it is also required for those who are accepted into the VDCP. Some key tips for staying compliant with your tax obligations include:

• Figuring out why you fell behind: There are many reasons you may have fallen behind on your New York State taxes. Perhaps your withholdings were off, and as a result, you ended up with a massive tax bill. Maybe you won a sweepstakes or forgot about earnings from cryptocurrency. Regardless of what landed you in this situation, being aware of it can help you in the future.
• Adjusting your payment strategy: Take steps to protect yourself from issues in the future. This may mean adjusting your withholdings, reviewing your taxes and finances more frequently throughout the year, or improving your documentation.
• Working with a tax professional: If you have a complex tax situation—multiple streams of income, passive income, a fluctuating income, or multiple businesses—working with a CPA or other tax professional can help you avoid surprise tax bills at the end of the year. When you have your own tax professional handling your taxes each year, you can submit financial and tax records as you receive them. This allows you to adjust your tax strategy as needed.

What Happens If You Violate the Terms of Your Agreement

Compliance with state tax laws is part of your acceptance to the VDCP. There are several ways to violate your agreement:

• Provide false material information in your disclosure documents
• Omit information from your disclosure documents
• Fail to pay the back taxes and interest you agreed to pay as part of your enrollment in the program
• Violate tax law in the future, which includes failing to pay taxes

If you run afoul of state tax law and break the terms of your agreement, the Department of Taxation and Finance is no longer bound by the agreement either. They can use the information you disclosed against you, which may mean pursuing criminal charges or applying civil penalties to what you owe. This can result in a criminal conviction, thousands of dollars in penalties, or both.

Wondering how to get caught up with your New York State tax filing obligations and avoid penalties or criminal charges? This is a great time to learn more about the Voluntary Disclosure and Compliance Program. 

If you qualify, this program could save you thousands of dollars or help you avoid serious criminal charges. Before you apply and disclose your unpaid taxes or criminal behavior, you may wish to discuss your options with a tax lawyer. Call McLaud Law P.C. at 585-397-7785 or reach out online to set up a time to meet. We can represent you throughout the process, help get you the best possible treatment, and be ready to work out a payment plan for whatever taxes remain after completing the program.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.