Voluntary Disclosure Programs – Ohio and Other States

Ohio offers voluntary disclosure programs for various taxes to allow taxpayers to come forward anonymously to comply with Ohio’s tax laws. Generally, a taxpayer is eligible for a voluntary disclosure program if the taxpayer enters into and executes the voluntary disclosure agreement (VDA) prior to any contact from the Department of Taxation through any audit, compliance, or criminal investigation programs. By voluntarily disclosing their liabilities, taxpayers may avoid penalties for failing to file returns and for failing to pay liabilities timely. The Ohio Department of Taxation currently offers voluntary disclosure programs for the following Ohio taxes:

1. Sales and Use TaxClick here for more information on this specific voluntary disclosure.

Am I Eligible? If you have a sales or use tax liability for past tax years and submit a voluntary disclosure request to the Sales and Use Tax Division of the Ohio Department of Taxation before the Department of Taxation contacts you about the tax liability, you are eligible to participate in the Sales and Use Tax Voluntary Disclosure Program.

Am I Required to Pay Tax for Past Periods? Yes. You must pay all sales and use tax that you collected from customers but did not remit to the Ohio Department of Taxation. The State will also assess a 10% penalty on the sales and use tax collected but not remitted. There is no limit on the lookback period for tax collected but not remitted. The lookback period for sales tax that was not collected is generally 48 months. If you should have collected sales tax but did not, you must pay all of the Ohio sales tax you should have collected plus interest for the past 48 months (the lookback period may vary depending on facts and circumstances).

What are the Advantages of Voluntary Disclosure? The Sales and Use Tax Division will waive all civil and criminal penalties (except for tax collected but not remitted) if you enter a voluntary disclosure agreement. The voluntary disclosure agreement will also limit your liability for sales and use tax to the voluntary disclosure period. Additionally, your company’s identity will not be disclosed to other parties and you can remain anonymous to the Ohio Department of Taxation until you enter the agreement.

How do I Request Voluntary Disclosure? With the help of a tax attorney, complete a Request for Sales and Use Tax Voluntary Disclosure and submit it to the Sales and Use Tax Division. The Division will send you a letter with instructions on how to complete the voluntary disclosure process.

2. Commercial Activity Tax (CAT)Click here for more information on this specific voluntary disclosure.

Am I Eligible? You are eligible if you enter into and execute the Commercial Activity Tax Voluntary Disclosure Agreement prior to any contact from the Ohio Department of Taxation through any audit, compliance, or criminal investigation programs.

Am I Required to Pay Tax for Past Periods? Yes. The lookback period for a commercial activity tax voluntary disclosure agreement is the preceding three years. You must pay all tax liabilities and interest for the current calendar year/quarter plus the preceding three years.

What are the Advantages of Voluntary Disclosure? The Tax Commissioner will waive penalties that may be associated with the failure to timely register and failure to timely file and pay taxes.

How do I Request Voluntary Disclosure? With the help of a tax attorney, send a letter that describes: (i) your activities in Ohio; (ii) how long you have performed the activities in Ohio; (iii) a brief description of the source of the taxable gross receipts and whether such amounts will be greater than $1 million; (iv) your type of business entity/organization; and (v) your organizational, structure including ownership percentages and common owner.

3. Personal Income Tax. Click here for more information on this specific voluntary disclosure.

Am I Eligible? You are eligible if you believe you have income tax liabilities for previous years and you enter into and execute a Personal Income Tax Voluntary Disclosure Agreement prior to any contact from the Income Tax Division.

Am I Required to Pay Tax for Past Periods? Yes. The lookback period for the Personal Income Tax Voluntary Disclosure Program is three years. You must file and pay taxes for the current calendar year and the preceding three years. You will have to pay interest on taxes due for the preceding three years.

What are the Advantages of Voluntary Disclosure? If you have not been previously contacted by the Income Tax Division about tax years before the lookback period for your Personal Income Tax Voluntary Disclosure Agreement, the Tax Commissioner cannot assess your income tax returns for those years.

How do I Request Voluntary Disclosure? With the help of a tax attorney, send a letter explaining your activities in Ohio in detail, including how long you have carried out activities in Ohio. You do not have to reveal your name in the letter requesting voluntary disclosure.

4. Corporate Franchise Tax. Click here for more information on this specific voluntary disclosure.

Am I Eligible? A corporation is eligible for the program if they enter into and execute an Ohio Franchise Tax Agreement prior to any contact from the Ohio Department of Taxation.

Am I Required to Pay Tax for Past Periods? Yes. The lookback period for the Corporate Franchise Tax Voluntary Disclosure Program is three years. You must file and pay franchise tax for the current year and the preceding three years. You must pay interest on the franchise tax owed for the preceding three years.

What are the Advantages of Voluntary Disclosure? The Tax Commissioner will waive all penalties generally associated with the years covered by the voluntary disclosure agreement and for all tax years prior to the lookback period. After you enter an agreement, you cannot be required to file Ohio franchise tax reports for years prior to the lookback period.

How do I Request Voluntary Disclosure? With the help of a tax attorney, send a request for voluntary disclosure to the Ohio Department of Taxation that describes: (i) the corporation’s activities in Ohio; (ii) how long the corporation has performed these activities in Ohio; (iii) a brief history of the corporation; (iv) the type of corporation (i.e., C corporation or S corporation); and (v) the corporation’s fiscal year accounting period. Include any other pertinent information and note whether you believe your corporation is liable only for the net worth basis of the Ohio franchise tax and is not liable for the net income basis of the Ohio franchise tax, pursuant to Public Law 86­-272.

5. Employer Withholding. Click here for more information on this specific voluntary disclosure.

Am I Eligible? Any employer is eligible for the program if the employer enters into and executes an Employer Withholding Tax Agreement prior to being contacted by the Ohio Department of Taxation about withholding taxes, income taxes, pass-through entity taxes, or corporate franchise taxes.

Am I Required to Pay Tax for Past Periods? Yes. You must file and pay employer withholding tax returns for all periods and pay the tax due plus interest. Entering a voluntary disclosure agreement for employer withholding taxes does not protect you from liability for taxes withheld but not paid during the time period prior to the voluntary disclosure period. You must pay all employer withholding taxes due. If you fail to file and pay employer withholding taxes for any period outside of the agreement, the Tax Commissioner will pursue the filing of those withholding tax returns and the payment of all related tax due plus applicable interest and penalties.

What are the Advantages of Voluntary Disclosure? The Tax Commissioner will waive all penalties associated with the failure to remit employer withholding taxes after you pay the tax due plus interest.

How do I Request Voluntary Disclosure? With the help of a tax attorney, send a letter to the Department of Taxation that sets forth the amount of tax which should have been remitted for all periods for which taxes are due.

6. Pass-Through Entity Taxes. Click here for more information on this specific voluntary disclosure.

Am I Eligible? You are eligible if you have a pass-through entity (S corporation, partnership, or limited liability company treated as a partnership for federal income tax purposes) and believe you have Ohio income tax liabilities if you enter into a Pass-Through Entity Tax Agreement prior to any contact from the Ohio Department of Taxation.

Am I Required to Pay Tax for Past Periods? Yes. The lookback period for the Pass-Through Entity Voluntary Disclosure Program is three years. You must file the pass-through entity returns for the current taxable year and the three preceding taxable years and pay the tax due plus interest.

What are the Advantages of Voluntary Disclosure? The Tax Commissioner will not assess the pass-through entity or require it to file tax returns for taxable years prior to the years covered by the voluntary disclosure agreement and will waive all penalties associated with the years covered by the agreement.

How do I Request Voluntary Disclosure? With the help of a tax attorney, prepare a letter describing the pass-through entity’s activities in Ohio and how long the entity has performed these activities in Ohio.

See the links below for more information on voluntary disclosure programs in other states

Multi-State Tax Commission Voluntary Disclosure Program: Most states participate in this program, which allows taxpayers with potential tax liability in multiple states to resolve their liability through one uniform procedure. 

*Participating states: Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming