Colorado's Voluntary Disclosure Program

Minimize Penalties, Catch Up on Unfiled Returns

Forgetting to file your tax returns can seem harmless at first, but as you become increasingly delinquent, the penalties, fees, and collection efforts you could face will become worse and worse. A lot of people with unfiled personal or business returns, get extremely worried about what might happen if the government catches them. Voluntary Disclosure programs are designed to help people in that situation. 

The IRS has a voluntary disclosure program for people who believe they may have committed certain tax crimes. Similarly, many states including Colorado offer a Voluntary Disclosure Program to help people with unfiled returns get back on track.
 

If you’re concerned about unfiled Colorado taxes, then a local tax professional can help you forge a path forward that considers both your best interests and your ability to pay, and a voluntary disclosure might be the best option. Below, we’ll go over exactly what the Voluntary Disclosure Program (VDP) is and how to take advantage of this tax debt relief option.

What is Colorado’s Voluntary Disclosure Program?

Colorado’s Voluntary Disclosure Program (VDP) allows you to voluntarily opt to get back in good standing with the DOR if you have unfiled tax returns. You can use this program for unreported income tax as well as most business taxes including sales and use tax. 

Since you are coming to the DOR voluntarily, the tax agency is usually pretty forgiving. You’ll still be expected to pay your taxes due, but you generally will not have to pay as many penalties and fees as you would if the agency had to search you down to collect what you owe. The DOR also gives you a limited lookback period, meaning they look back only a certain number of years rather than an unlimited amount of time. 

When you make a disclosure, the agency will review your information and your tax situation to determine what type of agreement would work best. They will offer you an arrangement, and you have the option of either signing the agreement and accepting the terms or attempting to negotiate further.

The Importance of Tax Compliance

If you’ve already let your tax situation become overly delinquent, then your account has likely already accrued significant tax penalties, fees, and other fines. Unfortunately, this can make a minor tax debt balloon into a big problem.

Tax compliance is critical to your overall financial health, even if the debt is years old. If you don't pay your state taxes, the Department of Revenue in Colorado has the legal authority to file a lien against your assets, which puts them at risk of getting seized. They can also initiate other collection efforts against you. 

Tax issues can potentially cause problems for you if you attempt to take out credit or a loan, and they can prevent you from moving forward if you own your own business. The DOR can take away your sales license and effectively shut down your business if you don't file your tax returns. To prevent all these potential problems, it’s best to consider applying for Colorado’s VDP or exploring your other tax relief options.

Types of Taxes Covered Under Colorado’s VDP

You can make a voluntary disclosure about any of the following Colorado state taxes:

• Corporate income tax
• Partnership and individual income tax
• State sales tax
• Retailer’s use tax
• Consumer’s use tax
• Regional transportation district tax
• Cultural facilities football district tax
• State-collected city sales tax
• County sales tax
• Sales tax license fee
• Withholding tax
• RTA special district tax
• Severance tax
• Liquor tax

Eligibility Criteria for Colorado’s Voluntary Disclosure Program

Generally, to make a voluntary disclosure, you must come forward to the agency on your own. If the DOR contacts you about an audit or another issue, you may not be able to make a voluntary disclosure. 

In addition to disclosing taxes on the state level, you may also be able to make a voluntary disclosure for unpaid county/city sales tax. Typically, you are eligible to file for a voluntary disclosure agreement if you’re a taxpayer who has not filed sales or use tax returns in Colorado and you want to willingly pay what you owe.

Applying for Voluntary Disclosure in Colorado

Are you considering applying for the VDP? You should first read through all of the VDP documents. You’ll need to answer several questions and fill out your personal information. Next, you’ll need to submit your request, which will include your completed “Statement of Representations and Inducement.” You should also include all the facts that are relevant to your tax situation.

According to Colorado’s DOR, it’s crucial to be as specific as possible as you go through these forms. Being vague or failing to fully explain your situation will only cause your tax situation to take longer to resolve. Finally, you’ll need to include a statement of the amount of tax liabilities that you want to settle. Once you’ve collected everything and submitted your application to the DOR, it will analyze what you’ve submitted to come up with a potential settlement agreement. 

Required Documentation and Information

In your Statement of Representations and Inducements, you’ll need to state the amount of taxes you think you owe to the State of Colorado, a year-by-year estimate of the amount of taxes the company should’ve remitted over the past three years, a statement declaring whether your company collected the necessary tax, and disclose the amount of income tax that should’ve been given to the DOR over the past four years.

Next, you’ll want to explain to the agency why you were negligent in paying off your debt. If you have any documents that prove your claims, you can include those in your application.

What is a Lookback Period?

A lookback period is defined as the amount of time the state looks back in relation to unreported taxes. In Colorado, VDPs are available with a lookback period of a minimum of three years for sales tax and four years for income tax. 

For example, if you make a voluntary disclosure about unfiled sales tax returns, the state will require you to file the last three years of returns, but in some cases, the state may require you to go back further. The lookback period depends on the extent of income/activities that were unreported.

What to Expect After You Request a Voluntary Disclosure

After the DOR responds to your voluntary disclosure, you should review this agreement and return the offer within 60 days. If you need to register for a certain tax (for example, sales tax), you should do so as soon as possible when you make the disclosure. 

Note that the state typically expects you to pay all of the taxes due in a lump sum, but depending on the situation, you may be able to set up a payment plan or even settle through an offer in compromise. In order for the DOR to approve an offer in compromise, you must have an approved offer withe the IRS.

How to Get in Touch with the Colorado Department of Revenue

As of 2024, the CO DOR contact person for voluntary disclosures is Sammy Khakame. You can reach him via email at [email protected] or through the mail at:

Colorado Department of Revenue 
TAC – Discovery, Rm 128
Attn: Sammy Khakame 
PO Box 17087 
Denver CO 80217-0087

To contact Colorado’s Department of Revenue, the taxation division, call (303) 238-7378. Representatives will be available from 8 A.M. to 4:30 P.M. MT, except on state holidays. You can also e-mail the division about collections at [email protected]. For the compliance division, you can e-mail [email protected]. 

A full list of the various e-mails you can utilize to get in touch with the right agency can be found here. If you’d prefer to get in touch by mail, you can contact the division at:

Colorado Department of Revenue
Section or Employee Name and Room Number
P.O. Box 17087
Denver, CO 80217

The agency also has several service centers that you can visit in-person. A full list of the various centers in Colorado can be found here.

Penalties for Not Complying With Colorado’s Tax Law

When you don’t pay your sales tax debt on time, you will get charged 10% of the overall tax due plus 0.5% of the tax due every month. Any interest on the debt will also accumulate until you pay off what you owe in full. That said, a business can potentially save thousands of dollars using a VDP.

That isn’t the only penalty you could potentially face, though, depending on the extent of your delinquency. Colorado’s DOR can also levy your assets, which could put them at risk of getting seized. If the Department believes your delinquency is willful and intentional, they may pursue criminal charges against you.

Common Pitfalls to Avoid While Navigating a VDP

One huge mistake you could make while navigating a VDP is not fully understanding your tax or financial situation. You should talk to a tax professional before filing out all your forms if you aren’t clear on what you owe or how to assess your taxes, 

Errors lead to delays, and delays are time-consuming and costly for everyone involved.

Another mistake you could make is not including all the years you should in your lookback period. You’ll want to submit one document that includes all the years you’re filing for. You shouldn’t submit multiple VDPs forms.

A huge mistake you could also make is failing to respond to a potential agreement plan in time. If you don’t respond to the agreement request by the agency in enough time, then you could lose your chance to make a voluntary disclosure.

FAQs: Colorado’s Voluntary Disclosure Program

Do you have more questions about Colorado’s Voluntary Disclosure Program? In general, the best advice you could get would come directly from a tax professional who has listened to the specific facts and circumstances surrounding your situation. A tax expert will consider your circumstances and help you devise a solid strategy for handling your taxes and getting back in good standing with the DOR.

How Does the Colorado VDP Differ From Other States’ Voluntary Disclosure Programs?

Colorado’s VDP is very similar to other state’s programs, but every state’s program operates in different ways with different eligibility requirements. Colorado also has a multi-state VDP option available if you owe taxes in multiple states. For instance, this often happens with e-commerce businesses that sell in multiple states. 

Can Businesses with Existing Tax Permits Apply for the VDP?

You cannot apply for a VDP if you already have a sales tax permit in Colorado.

What are the Consequences of Not Participating in the VDP?

If you opt not to participate in a VDP, that could leave you and your business vulnerable to DOR enforcement actions. Even worse, without a VDP, you may not be eligible for any type of financial relief. Going through the VDP could help you save thousands of dollars.

What are my Options for Resolving Back Taxes in Colorado?

For every tax problem, there is a comparable tax solution. There are a few different solutions available to help you get back on your feet if you owe back taxes in Colorado. The VDP can help you avoid specific penalties, but you’ll still be obligated to pay back what you owe over time to the DOR. 

The tax agency rarely waives or forgives sales tax debt, so usually, your best option is to agree to a payment plan. It’s best to consult with a tax professional in your area to fully go over your options based on your circumstances.

Get Help From a Local Tax Pro

Forgetting to file and even neglecting your tax situation for years is more common than you think, and there are tax pros who can help you.

Qualified tax professionals in your area will have experience handling clients interested in applying for Colorado’s Voluntary Disclosure Program. The right tax expert can help you collect the necessary documents, communicate with the DOR, and advocate for your best interests. 

Get connected with a local tax pro now to get started on your tax resolution journey. Using TaxCure, you can search for tax pros who have experience with the Colorado DOR.