Texas Voluntary Disclosure Agreement
Minimize Penalties and Consequences of Unfiled Texas Tax Returns
Much like the IRS, many states’ tax agencies offer voluntary disclosure programs that allow taxpayers to catch up on unpaid taxes. These programs may help filers avoid excess penalties or interest, as well as civil or criminal investigations. Through the Texas Comptroller of Public Accounts, businesses that have outstanding tax liabilities may disclose their past due taxes, catch up, and avoid future issues at the state level.
Learn more about the VPD and if it’s an option for you. When you’re ready for more personalized help, use our local tax pro listings to find help near you.
What is a Texas VDA?
The Texas VDA program is managed by the Texas Comptroller of Public Accounts. As part of its efforts to help taxpayers comply with state tax law, the Comptroller of Public Accounts allows certain taxpayers to report underpaid or unpaid taxes voluntarily. In exchange, qualifying businesses can receive relief from penalties and interest.
You can make a voluntary disclosure on nearly any type of business tax in Texas except for those collected under the International Fuel Tax Agreement. Generally, the most common voluntary disclosures are for sales and use tax, but you can also disclose franchise tax, hotel tax, oyster sales fee, mixed beverage tax, and many others. This program is typically not available for taxes collected by other entities, such as the unemployment tax collected by the Texas Workforce Commission.
Benefits of a Voluntary Disclosure
There are numerous benefits available for businesses that utilize the Voluntary Disclosure Agreement program. To start, the Comptroller limits its lookback period to four years from the date the business applies for a VDA. This can be particularly helpful to businesses that have a long history of unpaid or underpaid taxes.
Note, however, that the lookback period may be longer if you collected taxes from other people and didn't pay them to the state. For instance, say that you were collecting sales tax from customers in Texas for the last six years, but you didn't pay or file during that time. Then, the lookback period may be six years instead of four years.
By seeking a VDA, they can limit their losses and get a fresh start. In comparison, if they wait for state agencies to catch up to their delinquent taxes, they could be on the hook for far more. Additionally, relief from penalties and interest can be a significant financial benefit for companies, particularly those with significant tax bills. Fees and interest alone can add several thousand dollars to an already large tax bill.
If you don't qualify for automatic penalty relief through this program, you may want to apply for penalty relief. Texas offers penalty abatement in a few different situations.
Who Does and Does Not Qualify?
Businesses qualify for the VDA if they have any liability for Texas Comptroller fees or taxes. However, if they have taxes collected under the International Fuel Tax Agreement, they may not qualify for a Voluntary Disclosure Agreement. If a business has not been contacted by the comptroller regarding their tax liability, they can apply for the Voluntary Disclosure Agreement program.
A business does not qualify if it has been contacted verbally or in writing by the Comptroller regarding its past-due taxes. They also do not qualify if they have already been notified of an audit or examination.
How to Request a VDA
The process begins when a company representative gets in touch with the Business Activity Research Team (BART). Applicants are free to name or not name the company during the initial contact—many businesses choose to remain anonymous until they know whether or not they qualify for a VDA. The initial contact must include the following information:
- Entity type.
- Description of the company’s industry and its activities in Texas.
- The date that the company began operations in its initial home state and when it began conducting business in Texas.
- Tax types for which a VDA is requested.
- Taxes are already set up for the entity in Texas.
- Statement indicating whether or not the company has already been contacted by the Comptroller regarding the taxes in question.
- A statement indicating if the company has collected but not remitted any taxes.
- A request for a payment agreement (if necessary), along with a statement that the business would have trouble paying the full amount due.
- An estimate of the amount due.
- Additional information that may help the Comptroller make a decision.
This initial request must be sent by email or mail. Email requests can be sent to [email protected], and mail requests can be sent to:
Texas Comptroller of Public Accounts
Business Activity Research Team
P.O. Box 13003
Austin, TX 78711-3003
The Fast Track VDA Process
If a business needs their reports and payments processed quickly—for example, because they are selling the business and must clear all preexisting tax liabilities—they may apply for a Fast-Track VDA. This requires significantly more upfront work on the part of the preparer. They must have calculated the tax amount due upfront, and their submission must not include any refund claims. Additionally, they cannot ask for a letter ruling from tax policy. In addition to the VDA application described above, a Fast-Track applicant must include:
- Fast-Track application
- Spreadsheet calculating the amount of sales tax owed
- Sales and use tax application
- Payment owed
This documentation may be sent to the same email address or mailing address as those used for the standard VDA application.
What Happens Next?
If you pursue a standard VDA, an examiner with the BART will review the submission and reach back out to the company representative after they receive preliminary approval. They will send the VDA to the company representative, at which point the representative must sign the VDA, name the company requesting the VDA, and return the paperwork.
The BART will then finish their review of the documentation and get it signed by the Audit Division director. Once the VDA is signed by both parties, all relevant paperwork is sent to the business. Tax information and payment is due within 60 days.
If you request a Fast-Track VDA, the BART will process the reports. They will then send the signed agreement and account statement to the business.
Alternatives to a Voluntary Disclosure
There is no real alternative to the Voluntary Disclosure Program. However, if you haven't been filing returns and you decide not to come forward, you risk the state coming after you. If Texas discovers that you haven't been filing your business returns, the state can select you for an examination and file the returns for you.
Once the state assesses tax against you, it can use all kinds of collection methods to collect the tax, including tax liens and asset seizures. Texas can also involuntarily terminate your LLC, LLP, corporation, or non-profit.
Frequently Asked Questions
What is the Texas Voluntary Disclosure Program and who is eligible?
The Voluntary Disclosure Agreement program allows businesses that have fallen out of compliance with state taxes to get caught up and set themselves up for future compliance. It limits the financial losses that a business may otherwise suffer when caught by local tax authorities.
How do I apply for the Texas Voluntary Disclosure Program?
Applications for a VDA go through the Texas Comptroller. You must submit information regarding your business’s industry, estimated taxes due, your business’s work in Texas, and other relevant facts. The Comptroller will then evaluate the application and decide to move forward or not.
What types of taxes are eligible for disclosure under the Texas VDP?
The VDA Program allows you to get caught up on taxes other than those collected under the International Fuel Tax Agreement.
How does the Texas VDP compare to voluntary disclosure programs in other states?
The Voluntary Disclosure Agreement program in Texas is similar to voluntary disclosure programs in other states. Most other states also offer a limited lookback period and some sort of relief from penalties and interest.
What are the compliance requirements after you have a VDA in Texas?
Per the Comptroller, businesses that are granted a VDA must report and pay taxes correctly moving forward as of the end date of their VDA.
What if you can't afford the taxes due during a voluntary disclosure?
The state expects you to pay the taxes you owe when you make a voluntary disclosure. However, if you cannot afford to pay in full, you may be able to get a payment plan or make other arrangements with the Comptroller's Office.
Get Help With Voluntary Disclosure in Texas
Wondering if a Voluntary Disclosure Agreement could be the right choice for your business? It’s time to talk to a tax pro with experience in business tax concerns and Texas taxes in particular.
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