A voluntary disclosure agreement (VDA) is an agreement between an entity with undisclosed tax liabilities for income, franchise, gross receipts, sales and use, property, or other taxes and state and/or local jurisdictions.  This agreement limits lookback periods and generally waives penalties in exchange for voluntarily disclosing and remitting taxes and interest for a certain period.  The VDA process involves complex issues that require an in-depth knowledge of procedures to ensure compliance.

VDA Pros

• Limited Exposure – a VDA may limit the period of the tax exposure to either 3 or 4 years, instead of the typical 10-year period
• Penalties Limitation/Waiver – states generally provide for a waiver of penalties as part of a VDA
• Anonymous VDA Negotiation – most states allow the terms to be negotiated anonymously
• Avoids Tax Reserves – ASC 450 requires reserves for tax exposures

VDA Cons

• Varying VDA Requirements – a business may need to prepare sales tax returns or sales tax calculation spreadsheet
• Limitations – any missing details may void the VDA or result in ineligibility
• Tax and Interest Liability – a business may owe the original tax along with interest
• Audit – states may audit a business that may uncover additional tax liabilities