By Karen Tenenbaum
Tax season is always stressful and it’s worse when you owe back taxes. If you are behind in filing your tax returns and paying your taxes to New York State, the state’s Voluntary Disclosure and Compliance Program may help. The program is designed to encourage taxpayers to be honest by allowing those who owe back taxes to come forward and avoid criminal prosecution and steep late filing and late payment penalties. Note that if you’ve filed a timely tax return for the current tax year, but can’t pay in full, this program is not for you, although other remedies may be available.
The Voluntary Disclosure Program requirements are fairly straightforward. You must disclose the taxes you owe, enter an agreement to pay those taxes (including interest), and continue to pay your taxes in the future. The program is open to any eligible taxpayer, including individuals and businesses, for all types of tax administered by the New York State Department of Taxation and Finance (NYSDTF). However, the main catch is that you must beat the state to the punch and come forward before the state comes after you. If you are already under audit or investigation, you cannot participate. That includes if you are a party to a criminal investigation (even if you have not yet been notified); if NYSDTF has already identified the disclosed deficiency; or if you participated in a tax avoidance transaction that is a Federal or New York State reportable or “listed” transaction.
If you qualify, there are significant benefits to the program, including: no referral for criminal prosecution, no imposition of penalties, and a three-year or six-year limited look-back period where appropriate.
Voluntary disclosure is especially useful for taxpayers who have not filed New York tax returns in many years and would like to become compliant. It is a way to get back on track or rectify mistakes on returns without penalties or prosecution. If you can’t pay in full, you may qualify for an Installment Payment Agreement or Offer-in-Compromise in that situation.
The application for the Voluntary Disclosure program is on the NYSDTF website, but take care because there are time limits involved and you are only protected from prosecution or penalties for the tax liabilities you disclosed. If you owe additional funds, you are not protected. In many cases, it is best to consult a tax attorney to discuss all your options for resolving your tax matter.
Karen Tenenbaum, Esq., LL.M. (Tax), CPA of Tenenbaum Law, P.C. Tenenbaum Law, P.C. in Melville, focuses on the resolution of IRS and NYS tax controversies. Visit www.litaxattorney.com or contact info@litaxattorney.com or 631-465-5000.
