Do You Owe New York State Taxes? How to Avoid Penalties with NY’s Voluntary Disclosure Program

Have you failed to file a tax return or underpaid your taxes to New York State?

New York’s Voluntary Disclosure Program can help you. The Program is designed to entice taxpayers back into the system by allowing non-filers and under-filers to come forward and avoid criminal prosecution and steep late filing and late payment penalties.

Who is eligible?

The program is open to any eligible taxpayer, including individuals and businesses, for all types of tax administered by the New York State Department of Taxation and Finance (NYSDTF). The main catch is that you must beat the state to the punch and come forward before the State comes after you. If you are already under audit or investigation, you cannot participate. That includes if you are a party to a criminal investigation (even if you have not yet been notified); if NYSDTF has already identified the disclosed deficiency; or if you participated in a tax avoidance transaction that is a Federal or New York State reportable or “listed” transaction.

In addition, the following are not eligible for the Voluntary Disclosure Program:

• Liabilities less than 2 years old and less than $500;
• Partnership non-filed returns;
• Changes to a federal return unless the taxpayer completed the federal offshore Voluntary Disclosure with the IRS; and
• Taxpayers who are currently seeking advisory opinions.

If taxpayers meet the eligibility criteria, they can participate even if their non-filing and non-payment were the result of fraudulent or criminal conduct.

What do you need to do?

Taxpayers need to disclose the taxes they owe, enter an agreement to pay those taxes, and continue to pay their taxes in the future. Generally, taxpayers who have not filed or paid for 20 years or more must file and pay six years of taxes. Other eligible taxpayers may request a limited look-back period and will only have to file and pay taxes for the three most recent delinquent years.

New York State now allows a taxpayer to file one and only one voluntary disclosure for each tax type. So, you may file multiples Voluntary Disclosures but are only allowed one Voluntary Disclosure per tax type.

You have 45 days from the date of the agreement to submit the Voluntary Disclosure agreement with all original completed returns. However, you may be able to get one 30-day extension.

If you do not complete the Voluntary Disclosure agreement or otherwise default, you will be precluded from filing a subsequent Voluntary Disclosure for that tax type. In addition, if the terms of the agreement are violated, New York State can use any disclosed information against you and pursue civil and criminal penalties.

What if you can’t pay the taxes owed?

Taxpayers who can’t pay in full at the time of acceptance may qualify for an Installment Payment Agreement to pay overtime, with interest continuing to accrue. The taxpayer also must agree to remain in compliance with tax laws in the future.

Where do you apply?

The application for the Voluntary Disclosure program is on the NYSDTF website.

If you failed to file returns and owe back taxes to NYS, contact us about whether the NYS Voluntary Disclosure and Compliance Program is the right option for you.