Step Forward: Voluntary Disclosure Programs/Agreements.

AuthorKlasing, David W.
PositionCA Tax

Unlike taxpayers and tax professionals around the country that know the IRS policy and procedure for voluntary disclosures, California and its administrative tax boards have provided little guidance as to how most taxpayers should come into compliance with regard to most tax issues.

This article highlights the voluntary disclosure programs that the FTB and California Department of Taxes and Fees Administration (CDTFA) offer; provides a legislative update with regard to the types of entities allowed to participate in the FTB's Voluntary Disclosure Program (VDP); and highlights how most in-state taxpayers are left without a standardized procedure to become compliant while maintaining the protections against excessive penalties and the threat of criminal prosecution.

Changes to the FTB VDP

In September, Gov. Brown signed Senate Bill 813, which expands the FTB's VDP. Unlike the historic qualifications (see www.ftb.org), trusts with beneficiaries within California will be able to enter into a Voluntary Disclosure Agreement (VDA) with the FTB. Additionally, nonresident partners of out-of-state partnerships will be able to take advantage of the FTB's voluntary disclosure regime as well.

These changes benefit beneficiaries of trusts and partners of partnerships (particularly limited partners without a role in the partnership's management) that may be unaware of California's tax filing requirements. The new changes to the VDP took effect Jan. 1, 2018.

The CDTFA

The CDTFA, responsible for the administration and collection of California use tax, has two distinct VDPs that have been in effect since 2004: the In-State Voluntary VDP and the Out-of-State VDP. The In-State Voluntary VDP is available for in-state purchasers for the purpose of reporting use tax on purchases of tangible personal property from an out-of-state retailer. In contrast, the Out-of-State VDP is available for out-of-state business entities for the purpose of reporting use tax on sales to end-users (consumers) within California.

The applicable statutory period for the purposes of determining the proper payment of use tax may be extended to up to eight years. One of the benefits of both the In-State and Out-of-State VDPs is the CDTFA's three-year limitation for assessment.

Furthermore, the CDTFA is authorized to waive filing and late payment penalties (tax liabilities must be paid in full prior to the CDTFA considering whether to waive penalties). Lastly, both VDPs allow applicants to...

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