Overview of the Sales Tax Voluntary Disclosure Program
With rules surrounding the sales tax voluntary disclosure program, our firm sent an email to the Illinois Department of Revenue (IDOR) to get clarity on the requirements, as seen below.
The golden rule is that the agency must not have contacted the taxpayer or their business for an audit. Again, the main goal with any voluntary disclosure is to avoid penalties and the associated interest, which could easily amount to 50% of the tax liability.
Common Client Question
Here is a very specific question that most of our clients ask, which we emailed to the IDOR:
Dear IDOR,
I have a client that would like to file for a voluntary disclosure (sales tax). My question to you is whether the company can file a VD if they have engaged in any of the acts below:
- Filed sales tax returns in the past under the business that wishes to file a VD.
- Have a sales tax exemption certificate for their business.
- Registered their business in the state of IL.
Please let me know if any of the factors above would disqualify the business from a VD.
Please note: They have not been contacted by the IDOR.
Response from the Illinois Department of Revenue
That is correct. If they did file, then they would not qualify because they would need to file amended returns for those periods.
Registration and having a sales tax certificate do not automatically disqualify them for the VDA.
Key Note on Changes to the Program
This is a very different procedure than what was the case many years ago. Prior to the broadening of the program requirements, if a taxpayer did as much as create a legal entity in the State, then that would have negated them from entering the program.
Summary of Requirements
Actions That May Disqualify a Business:
- Filing sales tax returns in the past for the periods in question
Actions That Do Not Automatically Disqualify a Business:
- Merely registering a business in Illinois
- Having a sales tax exemption certificate
Frequently Asked Questions
What is the primary benefit of participating in the Illinois Sales Tax Voluntary Disclosure Program?
The main advantage is the potential to avoid penalties and interest, which can reach up to 50% of the unpaid tax liability, provided the taxpayer hasn’t been contacted by the Illinois Department of Revenue.
Does prior registration in Illinois disqualify a business from the voluntary disclosure program?
No. Simply registering a business in Illinois or having a sales tax exemption certificate does not automatically disqualify a company from participating in the program.
Can a business that has filed sales tax returns in the past still qualify for the program?
No. Filing past sales tax returns for the periods in question disqualifies the business. They would instead need to file amended returns for those periods.
How have the voluntary disclosure rules changed over the years?
Previously, even creating a legal entity in Illinois could disqualify a business. However, the program has since broadened to allow businesses with certain activities, such as registration or holding an exemption certificate, to still qualify.
What should a business do if it hasn’t been contacted by IDOR but is unsure about its eligibility?
They should consult a tax professional and can seek clarification directly from the Illinois Department of Revenue to determine if their specific circumstances meet the current criteria for voluntary disclosure.