What are the long-term implications of electing the GILTI high tax exception?
Voluntary Disclosure Agreements (VDAs) and tax amnesty programs both serve a similar purpose: helping taxpayers come clean on prior noncompliance. But the way they work and the protections they offer couldn’t be more different.
A VDA is a taxpayer-initiated process. If a business realizes it has outstanding VDA income tax, sales, or use tax obligations in a state, it can approach the taxing authority (usually through a representative) to voluntarily disclose those liabilities. The key benefit? The taxpayer comes forward before the state finds them.
VDAs are often anonymous at the start. Confidentiality can be critical, especially for businesses with multi-state operations. Once accepted, the state typically limits the lookback period (usually three or four years), waives penalties, and agrees not to audit beyond the disclosed years, provided there is no fraud or misrepresentation.
Now compare that to an amnesty tax program. These are state-driven, public offers, usually tied to budget shortfalls or legislative campaigns. They’re only available for a short time and apply to a broader set of taxpayers, even those already under audit. The state sets fixed terms, including reduced penalties, possibly a break on interest, and limited room for negotiation. Once the window closes, the opportunity ends, and enforcement typically becomes stricter.
Another significant difference is timing and flexibility. VDAs are always available (in states that offer them). Amnesty programs are temporary and far less tailored. VDAs also offer more strategic control: a business can decide where to file, when to file, and how to present its case, all while preserving confidentiality until an agreement is near.
Eligibility matters, too. VDAs typically exclude taxpayers who have already received a nexus questionnaire or audit notice. That door closes fast. Amnesty programs often keep the door open wider but without the same level of relief or privacy.
In terms of VDA taxation, the negotiated lookback limit and penalty waivers make VDAs especially valuable for long-overlooked liabilities. They’re also helpful when expanding into new states, acquiring businesses with exposure, or responding to economic nexus laws that create multi-state filing obligations.
Let’s not forget the psychological angle. VDAs are part of a proactive strategy to clean up the past and protect the future. Amnesty is more reactive, a last-chance opportunity for taxpayers who waited too long.
Both tools can resolve VDA income tax or sales tax exposure, but if you want to minimize disruption, preserve anonymity, and reduce your long-term risk, the VDA is almost always the better path, if you get there before the state gets to you.
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