Thursday, January 17, 2008

Avoiding Tax Penalties and Getting Back into the System through Voluntary Disclosure.

As people across the United States start to receive their Forms W-2, 1099 and 1098, they gear up for the income tax filing season. As tax season falls upon us, the federal and state revenue agencies look to encourage taxpayers to file their required tax returns and pay the tax. To do so, the tax authorities will take steps to, more or less, scare taxpayers into filing returns and paying tax.

In the coming months we will hear more on the news and read more in the newspapers about people and businesses that are being pursued by the taxing authorities. The stories will be about those that failed to file tax returns or have understated their taxable income. The common thread of these stories will be that the taxpayers have now been caught and must pay overwhelming taxes, interest and penalties. In a worst case scenario these taxpayers may face criminal penalties.

For those that have failed to file tax returns in accordance with the tax laws (known as “non-filers”) or those that have understated their income, there may be an opportunity to avoid any tax penalties if they come clean before getting caught. Consider it a reward for a mea culpa. Most states, if not all, will allow a taxpayer to fix the problems or to get back into the tax system without having to pay costly tax penalties. These procedures are known as Voluntary Disclosure Programs.

I have recorded a podcast discussing the aspects of Wisconsin’s Voluntary Disclosure Program (as applicable to non-filers). The program is similar to that found in many states as well as that of the Multistate Tax Commission. The podcast includes a more in-depth discussion of typical Voluntary Disclosure requirements and can be found here:

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