January 27, 2023 | Tax Debt
When taxpayers do not file their returns, the New York Voluntary Disclosure may help them.
If you fail to file, at some point the New York State’s Department of Taxation and Finance will realize that returns are unfiled and back taxes are due. For this reason, it is important for taxpayers to be proactive and contact a New York tax settlement attorney if they have unfiled returns and owe back taxes to examine whether a New York Voluntary Disclosure program may assist them. There are many options available, and the best choice is unique to each individual situation. An experienced tax attorney may be able to settle tax debts or negotiate an affordable payment plan.
New York Voluntary Disclosure Program
One tax settlement option for back taxes owed is the New York Voluntary Disclosure Program. Under this program, eligible taxpayers who have not filed returns and owe back taxes can avoid penalties and criminal charges. In order to do this, taxpayers must:
- Disclose to the Tax Department the amount of taxes owed and past returns not filed
- Pay the amount of tax owed (lump sum or payment plan)
- Enter into a payment agreement to pay all future taxes
The New York Voluntary Disclosure Program is not for all cases
The New York Voluntary Disclosure is not for taxpayers who filed timely but are unable to settle tax debt in full. It is also not available for taxpayers who have already been contacted by the department and a NYS tax assessment has been created. Taxpayers who filed returns but were not able to pay in full are not eligible for this program either. They must wait for a bill for the tax debt owed, and request a tax settlement though an installment agreement for the balance owed. Therefore, this program has strict eligibility requirements, and all applicants must meet the following criteria:
- 1. Not currently under an audit by the Tax Department for the tax type and tax years they are disclosing
- 2. Not currently under criminal investigation by New York State or a District Attorney
- 3. They have not received a bill for the taxes being disclosed
- 4. They are not seeking to disclose participation in a tax shelter
The Program is helpful with Many Tax Types
The program is not limited to solely income taxes. Taxpayers who meet the eligibility criteria can apply for income taxes, corporate taxes and sales taxes.
Overall, the New York Voluntary Disclosure Program encourages taxpayers who have unfiled returns and back taxes owed to voluntary come forward and pay outstanding balances. If a taxpayer choosing to participate in this program the Tax Department will not impose penalties or file criminal charges, which is a very significant benefit since even civil penalties are very high.
Information provided in a voluntary disclosure cannot be used against a taxpayer. The Tax Department is also prohibited from sharing the information disclosed with other government agencies at any level. However, actual returns and reports can be shared with the IRS and other agencies in which the Tax Department has established exchange agreements.
The New York Voluntary Disclosure Program is initiated when a taxpayer completes the online Voluntary Disclosure Program application. This application will ask for taxes owed, reasons why these taxes were not reported or paid, and if you are applying for a limited look-back clause, why you believe that you are eligible.
After the application is complete, the Tax Department will review the application and determine eligibility. Until you receive an acceptable letter with an agreement, you should not file the returns.
If your application is approved, the Tax Department will send you a Voluntary Disclosure Agreement. This tax settlement agreement is only for the taxes and tax years that were listed on the application. After you review the document, you will need to sign it and mail back the agreement to the Tax Department. Along with the agreement, you are required to send copies of the tax returns that show the amount of taxes owed for the period on the agreement. These documents must all be mailed together.
Along with sending in the New York Voluntary Disclosure Program Agreement and previously unfiled tax returns, the taxpayer is required to pay back taxes owed, and interest for the tax years disclosed. For some individuals, this amount can be large. The Tax Department allows installment payments to pay the taxes owed. Installment agreements are monthly payments made to the Tax Department to pay off a balance. They can be difficult to negotiate with and the taxpayer should seek the help of an experience New York tax attorney. Taxpayers will want to be able to make payment amounts that they can actually afford.
Taxpayers accepted into the program must follow the terms in the agreement or risk violating the agreement. Taxpayers can be found in violation of the agreement if they intentionally:
- 1. Provide false information in the disclosure
- 2. Omit information
- 3. Fail to pay back taxes and interest that was agreed to as part of the agreement
- 4. Violate the tax law in the future
If any of the above listed terms were violated, the Tax Department is no longer bound by the agreement. This means that they can use the information disclosed could be used against you or a civil and criminal penalties might apply.
The New York Voluntary Disclosure Program greatly benefits taxpayers who have unfiled tax returns with back taxes owed and reach a tax settlement. The Tax Department does not impose penalties on participants in the program, nor do they prosecute participants whose failure to pay taxes was a criminal offense. Applicants need to understand that these benefits only apply to taxes and tax years that were disclosed in the application. Other taxes owed that were not disclosed can still be collected and the taxpayer may face penalties and criminal tax prosecution.
As stated before, New York’s Voluntary Disclosure Program is designed to encourage taxpayers who have not filed and paid their taxes to voluntarily file their back tax returns and pay what taxes they owe. This program applies to all taxes administered by the NY State Tax Department including income tax, corporate tax, and sales taxes. It also applies to taxes handled by the NYC Finance Department. The significant advantage to this program include no penalties or criminal charges. Please note that this program does not apply to taxpayers who have filed their tax returns but did not pay in full, and a tax representative uses a NYS POA form to represent you.
As mentioned above, the benefits of the program include no penalties or criminal prosecution. However, it is important to note that this only applies to the taxes and tax period that the taxpayer disclosed in their application. For other taxes and tax years not disclosed, NYS may still impose penalties and prosecute criminally. It is important to remember that if the taxpayer violates any terms of the agreement, NYS does not need to honor these benefits and may use the information disclosed against you as well as possible civil or criminal penalties.
Compliance is essential to maintaining the benefits of this agreement. If the taxpayer intentionally provides false material information or omits material information in their application or other disclosure documents, they will be in violation of the agreement. If the taxpayer intentionally discontinues making payments as part of the agreement they will be in violation. Finally, the taxpayer will be in violation of the agreement if they intentionally fail to pay any taxes in the future or violate any of the tax laws.
In conclusion, this is a great program, especially for those taxpayers who simply failed to file for several years and may be facing significant penalties or those taxpayers who would ordinarily be facing criminal charges. Just remember, if you are going to participate and receive such benefits, you must be compliant otherwise the agreement will backfire and work against you.