March / April 2013
|
|
It may be time to get acquainted with New York State’s Voluntary Disclosure and Compliance programBy Andrew Cohen, JD, LL.M, Tax Manager, NYCWhen it comes to unpaid taxes, there are not many opportunities to make amends without some sort of penalty. However, New York’s Voluntary Disclosure and Compliance program (“VDC”) allows you to do just that. This program encourages taxpayers who owe New York State taxes to voluntarily come forward and pay what they owe, without the concern of any civil or criminal penalty (or prosecution). Similar programs exist in New York City, New Jersey, Connecticut and Pennsylvania. The amount of taxes that would be owed and the period of time for filing back returns can be limited to a period of years when utilizing the VDC’s limited look-back period clause. The VDC applies to all types of taxpayers and taxes, including sales tax, Passive Foreign Investment Companies (PFIC), and foreign bank reporting. Moreover, the reason for the taxpayer’s non-compliance is not a concern to the State (although they do ask the taxpayer to disclose it in the application). In fact, the non-compliance can be due to fraud or criminal conduct. The one requirement is that the State cannot find you first. To be eligible to apply for New York State’s VDC, all the following criteria must be met:
An eligible taxpayer must complete an application, which can be done online. Full disclosure of the taxpayer’s information is required when applying for this program. When completing the application, the taxpayer will be required to disclose the taxes that are owed, the reason for the taxpayer’s failure to report and pay the outstanding tax, and why the taxpayer feels he or she is eligible for the limited look-back period (if applicable). The limited look-back period is advantageous when a taxpayer owes more than three years of back taxes (as the period can be limited to just three years). This period is determined by New York State on a case-by-case basis, and once the look-back period is set, the State cannot require that the taxpayer file back returns for dates beyond that period. For foreign bank reporting, the look-back period is 6 years, or the period of time in which the taxpayer owned the foreign bank account, if less. Taxpayers interested in requesting a limited look-back period must request it in his or her application. If the taxpayer’s application is accepted, the taxpayer will enter into a compliance agreement with the State. The taxpayer should wait to file the back tax returns until the compliance agreement is entered into. The compliance agreement will normally cover only the taxes and tax periods listed in the application and will require the taxpayer to remain in full compliance with the filing of tax returns and paying taxes thereafter. The compliance agreement will require the taxpayer to pay all required taxes, plus interest. Any interest that is required to be paid is statutory (as opposed to both statutory and penalty interest) so it will be calculated at a much lower rate. If required, the taxpayer can enter into an installment agreement to assist with the payment of the tax and interest. One caveat is that New York State is allowed to disclose any tax returns received in response to the VDC to the Internal Revenue Service and/or any other proper state of city taxing authority as permitted by the tax law. As a result, the taxpayer entering into the program should be prepared to make amends with the Internal Revenue Service and any other applicable state or city taxing authority. This is the only disclosure allowed by the State, however, as the disclosures made in the applications are confidential. Additionally, the taxpayer should be in compliance with the VDC agreement. A taxpayer can lose the benefits of the VDC agreement if the taxpayer is found to have: 1) intentionally provided false material information or omitted material information in his or her application; 2) intentionally attempted to defeat or evade the tax subject to the agreement; or 3) intentionally failed to comply with the compliance agreement, including intentionally not paying the amount of tax due. If the VDC agreement is rescinded, New York State is free to pursue any civil or criminal penalties that might apply as a result of the disclosure. There are many benefits to entering into New York State’s VDC. The program is very flexible in regards to the tax and taxpayer that it applies to, and it shields the taxpayer from any civil or criminal penalties or prosecution. Additionally, the taxpayer has the opportunity to limit the look-back period for disclosure, which can save a taxpayer a large amount of tax and interest when multiple years of taxes are outstanding. Finally, a third-party service provider, like an accounting firm, can navigate the VDC on behalf of the taxpayer. If you feel that you would like to enter into this program, please contact your Friedman LLP professional for more information and assistance. • If you have any questions about the content of this article, please contact Friedman LLP Tax Manager Andrew Cohen at (212) 842-7649 or acohen@friedmanllp.com, or contact your engagement partner. |