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The Truth Will Set You Free – But First It Will Make You Miserable

03.14.16 | SALT Chat

The title of this week’s post is frequently attributed or misattributed to the twentieth President of the United States, James Abraham Garfield. Regardless of who said it at first or at all, I find it very relevant as applied to the smorgasbord of voluntary disclosure programs offered by the various state and local taxing jurisdictions. For those of you old enough to remember smorgasbords (current translation is “the cocktail hour”), while many of the offerings seem identical, like the various voluntary disclosure programs, it is essential to be aware of the specifics of what is being offered.

Voluntary disclosure programs are a great way for taxpayers to get back on track and stop worrying about taxes and focus on running their business. As a business owner, it is important to understand what you are giving (to the tax jurisdiction) and what you are receiving in return. Again, I can’t stress the importance of knowing the nuances of the particular program to which you are applying.

Taking New York State as an example, voluntary disclosure will generally be granted if:

  • The taxpayer is not currently under audit (for any tax administered by the Department);
  • The Department hasn’t determined, researched or identified the tax seeking to be disclosed;
  • The taxpayer is not currently a party to any criminal investigation being conducted by any agency or political subdivision of New York State; and
  • The tax owed doesn’t relate to a tax shelter transaction.

What the taxpayer will typically get in return is:

  • Waiver of significant penalty amounts;
  • A limited look-back period, granting relief from tax for prior periods; and
  • Protection from criminal prosecution by New York State, for the conduct disclosed and the period covered by the agreement.

Fortunately, most of the taxpayers I have assisted with the process owed amounts subject to civil fines and penalties and did not rise to the level of criminal prosecution. Where criminal implications exist, we will work with qualified tax counsel as the criminal protection provided by the agreement is very limited and specific to the periods for which tax is being paid.

We have barely touched the surface of the New York State program, let alone other jurisdictions. The takeaway here is if you believe you may owe back taxes, contact me at WBerkowtiz@BerdonLLP.com or your Berdon Advisor. We are experienced in gathering the right team of professionals to minimize the misery of the process.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.