If you are behind on state tax filings or filed taxes incorrectly, but the state of Maryland hasn't contacted you yet, you may have an opportunity to fix it. You may be able to participate in Maryland’s Voluntary Disclosure Agreement (VDA) Programs. The VDA program allows taxpayers who might face criminal liability to come forward and right a wrong like:
- failing to pay taxes,
- paying taxes incorrectly, or
- failing to report and pay property taxes.
In doing so, taxpayers can avoid criminal prosecution and mitigate liability for civil penalties. In return, Maryland receives lost tax revenue through a more accessible, low-conflict process.
1. Past Due Income Tax Liabilities
When you make a voluntary disclosure, you can remain anonymous through the negotiation and agreement process by using a third party like a tax attorney or other tax professional. The process is confidential. Your third-party will provide the state with a letter on your behalf explaining your Maryland tax liability.
For businesses, the letter will also explain your business activity in the state. Business activity will include sales, personnel, inventory, property, etc. The letter must state that the government has not yet contacted the taxpayer about the outstanding liability, and include an estimate of the current tax period liability along with the appropriate lookback period. The lookback period for individual and corporate income tax, sales and use tax, and admissions and amusement tax is four years.
After the parties execute the VDA, you will have 60 days to report and pay the taxes due, although the Comptroller will reserve the right to audit the amounts during negotiations. If the Comptroller finds that you made any misrepresentations, it will void the agreement. Once you have paid the taxes and interest in full, voluntary disclosure procedures allow the Comptroller to adjust any penalties.
2. Unclaimed Property
Similarly, if you have either failed to report or underreported abandoned property to Maryland, you may be able to enter into an Unclaimed Property Voluntary Disclosure Agreement. The Unclaimed Property VDA allows taxpayers to voluntarily comply with the Maryland Abandoned Property Act, catching up on property taxes and avoiding an audit from the Comptroller. The state benefits by receiving back property taxes without having to go through time-consuming audits.
As with income tax VDAs, the program only applies if Maryland has not yet contacted you about your abandoned property obligations. You can meet your past abandoned property tax obligations, avoid the hassle of an audit, and avoid penalties for delinquent payments. By negotiating a VDA, you are indicating that you wish to voluntarily meet your tax obligations and remain compliant with Maryland law in the future.
If you have unpaid income or abandoned property tax obligations and are interested in entering a Voluntary Disclosure Agreement with the Maryland Comptroller or the IRS, we can help. Gabaie & Associates, LLC, represents clients in tax matters nationwide before the IRS and state tax agencies. Call us at 443-345-8291 or contact us online for a free consultation.