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Understanding the Voluntary Disclosure Agreement (VDA) and Its Benefits
Definition & Meaning
A voluntary disclosure agreement (VDA) is a formal arrangement that allows companies, or taxpayers, to disclose their past tax liabilities to state tax authorities in exchange for certain benefits. This agreement is designed to encourage compliance with state tax laws. By voluntarily admitting to prior tax obligations, companies can assist states in collecting revenue while also protecting themselves from potential penalties.
Table of content
Legal Use & context
VDAs are primarily used in tax law, particularly in the context of state tax compliance. They provide a structured way for businesses to address unpaid taxes from previous periods. This legal mechanism is often utilized in civil tax matters, where companies seek to rectify their tax status without incurring severe penalties. Users can manage the process themselves using legal templates available through platforms like US Legal Forms, which offer ready-to-use agreements drafted by qualified attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A small business discovers it has not filed sales tax returns for the past three years. By entering into a VDA, the business can disclose these liabilities to the state and potentially avoid penalties.
Example 2: A corporation is acquired by new owners who want to ensure they are not liable for the previous owner's unpaid taxes. The new owners can utilize a VDA to disclose any outstanding liabilities and protect themselves from future claims. (hypothetical example)
State-by-state differences
State
VDA Benefits
Additional Notes
California
Penalty abatement available for certain taxes.
Requires full disclosure of liabilities.
New York
Potential for reduced interest rates.
Must file within a specified time frame.
Texas
Waiver of penalties for voluntary disclosures.
Eligibility criteria may vary.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Common misunderstandings
What to do if this term applies to you
If you believe a VDA may apply to your situation, consider the following steps:
Review your past tax filings to identify any liabilities.
Consult with a tax professional to understand the implications of entering a VDA.
Explore US Legal Forms for templates that can help you draft a VDA.
If your situation is complex, seek advice from a qualified attorney to ensure compliance with all legal requirements.
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