Voluntarily Disclose for Unreported and Underreported Illinois Sales Tax
The Sales Tax Problem Many Business Owners Face
Most business owners are honest, hardworking people who fully intend to make the money back in a few weeks or possibly catch up with next month’s sales tax return. Before long, a taxpayer can find themselves several months or even years behind in making tax payments.
Other business owners in certain industries intentionally skim sales taxes by using money collected to allow for lower, more competitive prices. Eventually, business picks back up, and the business no longer feels the need to truthfully file sales tax returns or remit the correct amount of Illinois sales tax to the Illinois Department of Revenue (“IDOR”).
In other circumstances, the business would like to faithfully remit the appropriate amount of sales tax to the state, but it does not want to significantly increase its sales reported on the sales tax return for fear of raising the dreaded audit flag. Stuck between the proverbial rock and a hard place, the business usually chooses the route of not doing anything and continues its practice of not reporting sales tax accurately.
Eventually, the business is audited, which turns into a large civil assessment with penalties and interest, or in the extreme case, criminal liability, which can equate to jail time.
What Can You Do if This Sounds Like Your Business?
Option 1: Fix the Problem Going Forward
One obvious alternative is to fix the problem going forward. Of course, there is the risk of raising an audit flag. However, correctly reporting and remitting sales tax starting today:
- Eliminates the problem going forward
- Mitigates the ticking time bomb of a large or even criminal tax exposure
While there is a running three-year statute of limitations and the problem is solved prospectively, it does not eliminate past issues.
Option 2: Illinois’s Voluntary Disclosure Program
Another alternative, which can be used alone or along with the first option, is Illinois’s Voluntary Disclosure Program. This program gives the taxpayer the chance to voluntarily step forward and admit to past misbehavior, usually without being penalized by the state.
If you have not been previously contacted by the IDOR, then there is a way to disclose unpaid tax liabilities and even remit sales tax previously collected but not remitted.
Covered taxes include:
- Communication services tax
- Corporate income tax
- Documentary stamp tax
- Estate tax
- Fuel tax
- Gross receipts tax
- Tourist development tax
- Sales and use tax
- Unemployment tax
Further, as long as sales tax collected and not remitted is not the issue, the IDOR only looks back three years, which cuts off any potential infinite liability for an unregistered taxpayer. For taxes collected but not remitted, it has been our experience that the IDOR will usually only look back three years in these situations as well.
How the Voluntary Disclosure Process Works
The Voluntary Disclosure process is completed by providing the IDOR with a detailed explanation that your company made a mistake, with specifics about each month’s sales and collections (if any) over the previous three years.
Even if the business is unsure as to the exact amount of tax owed, we can file a Voluntary Disclosure and ask for additional time to calculate the exact amount.
It is worth noting that unregistered companies are also required to register as a condition to the voluntary disclosure of tax liability.
Why Clients Choose Voluntary Disclosure
- Many clients file because they realize a manager or prior partner was not handling the sales tax collection and remittance process correctly
- Other clients learn that their competitors are being audited by the IDOR and want to come clean now rather than suffer sleepless nights waiting for their audit notice
Whatever the reason, the Voluntary Disclosure Program is an excellent avenue to:
- Put a looming tax liability to bed
- Step forward, admit wrongdoing, and remove the threat of jail time
- Relieve stress from an imminent tax assessment hanging over their head
What Happens After Disclosure?
In exchange for voluntarily disclosing and paying past tax liabilities and interest:
- The IDOR agrees to waive all penalties, unless the taxpayer collected and did not remit tax
- If taxes were collected but not remitted, the IDOR generally imposes a 5% penalty, which is still a far more attractive alternative than:
- The fear of 50% penalties
- Jail time weighing on the business owner’s shoulders
Why Act Now?
Amidst the current state tax climate in Illinois, the Voluntary Disclosure Program is an exceptional way for a taxpayer who learns of wrongdoing to come forward, pay the tax, avoid penalties, and finally put unneeded stress to rest.
While it doesn’t happen for every client, we have more often than not seen the IDOR waive 100% of the penalties—even for collected-but-not-remitted cases.
The Growing Risk of Inaction
Now more than ever, the Department has detailed third-party information that makes it more difficult for a business to avoid its responsibility to accurately calculate, collect, and remit state tax.
Examples of IDOR’s third-party data sources:
- Alcohol or tobacco purchases → Targets: Convenience stores, liquor stores, bars, restaurants
- DMV reports → Targets: Car dealerships and similar businesses
As technology progresses and information flow becomes increasingly seamless, the odds of a business escaping its state tax obligations decrease steadily.
The question is no longer if a company will be audited—but when.
Final Recommendation
We highly recommend that if you have an outstanding tax obligation, the Voluntary Disclosure Program may be an extremely viable alternative.
Contact the Ansari Tax Law Firm at (888) 577-1482 to discuss your case
Frequently Asked Questions
What is Illinois’s Voluntary Disclosure Program for Sales Tax?
The Illinois Voluntary Disclosure Program allows businesses to self-report previously unpaid or underreported sales tax liabilities to the Illinois Department of Revenue (IDOR). By doing so before being contacted by IDOR, businesses can often reduce penalties and avoid potential criminal prosecution.
Can I disclose unpaid sales tax if I’ve already been contacted by the IDOR?
No, the Voluntary Disclosure Program is only available if the IDOR has not yet contacted you regarding the unpaid taxes. Once you are on their radar through audit or inquiry, this option is no longer available.
How many years back does the IDOR typically look when disclosing unpaid taxes?
In most cases, the IDOR looks back three years for unpaid taxes when a business voluntarily comes forward. This limited lookback period is a significant benefit compared to the potential exposure of an audit.
What are the benefits of voluntary disclosure over waiting for an audit?
Voluntary disclosure often results in waived penalties (except for a 5% penalty if taxes were collected but not remitted), avoids the harsher 50% penalties, reduces interest liability, and eliminates the risk of criminal charges or jail time.
What types of taxes are covered under Illinois’s Voluntary Disclosure Program?
The program covers a wide range of taxes, including sales and use tax, communication services tax, corporate income tax, fuel tax, and unemployment tax, among others. This allows businesses to resolve multiple tax issues simultaneously.