Driven by the need for additional revenues, state and local tax officials are aggressively using technology to identify and audit noncomplying or undercomplying businesses. Because the risk of audit is increasing every day, businesses may want to consider voluntarily coming forward and take advantage of the voluntary disclosure programs offered by most state and local governments. Whether your business has identified a potential liability or you would like us to determine if a liability exists (through our SALT Nexus Study, Due Diligence Analysis, Refund Checkup or CAT Exam), our professionals have extensive experience in working with state and local governments to mitigate historical tax obligations for clients that have failed to file for various taxes.
Why would any business want to voluntarily disclose unpaid liability? The clients that have completed voluntary disclosures recognize that the liability (tax, penalty and interest) that will be paid under an audit is substantially greater than through a voluntary disclosure. In most states, the look-back period for unregistered businesses is substantially longer than the terms that can be obtained through a voluntary disclosure. In most situations, there is no statute of limitations for unfiled returns. As a result, state and local governments can assess tax liability, interest and penalties for all open years. While voluntary disclosure terms vary from government to government, most limit the look-back period to three or four years.
In general, benefits of a voluntary disclosure include:
· limited look-back periods (depending on the tax and the state, we have even been successful in obtaining prospective treatment); and
· penalty waiver or penalty reduction.
Our Voluntary Disclosure service applies to the following tax types: sales, use, gross receipts, income, franchise, real property, personal property, net profit and unclaimed property.
The voluntary disclosure process typically works in the following manner:
1.A ZHF professional discusses and evaluates our client’s facts and circumstances. We then assess, at a very high level, whether an exposure exists and a voluntary disclosure agreement is warranted.
2.If a voluntary disclosure is warranted, a ZHF professional contacts the state and local government(s) on an anonymous basis to secure a voluntary disclosure number. This step is critical in protecting the client from being audited by the government before the following steps are completed. If contacted for audit after we receive the voluntary disclosure number, the audit will not commence as the client has entered the voluntary disclosure process. Further, the anonymous approach does not commit the client to filing if for some reason the client does not wish to proceed.
3.We work with the client to quantify the amount of tax that is owed for the limited look-back period and prepare any documentation that is necessary to support the calculations;
4.Assist the client with completing the terms of the voluntary disclosure;
5.Disclose the client, returns and liability to finalize the voluntary disclosure; and
6. Assist the client with understanding the requirements for filing prospectively