Description of Program

The North Carolina Voluntary Disclosure Program is designed to promote compliance and to benefit taxpayers who discover a past filing obligation and liability that have not been discharged. This program is not available to corporate and individual income taxpayers who have engaged in income shifting tax strategies or other tax shelter activities that minimize or eliminate North Carolina state taxes. It applies to taxpayers that have failed to file returns and pay any taxes due to the Department. It applies to any tax administered by the Department and to any type of domestic or foreign taxpayer that is subject to tax in this State. Voluntary disclosure does not apply to a taxpayer that is registered for payment of a tax but fails to file a return. It does not apply to a taxpayer that files a return but underreports the tax due on the return. This program is also not available to taxpayers that have been suspended by the Secretary of State per G.S. 105-230 and subject to reinstatement under G.S. 105-232.

Voluntary disclosure arises when a taxpayer contacts the Department without any prior initial contact by the Department concerning the filing of a return and the payment of a tax. Voluntary disclosure includes requests by taxpayers under the Multistate Tax Commission National Nexus Program. A major component of the Voluntary Disclosure Program is to resolve sales and use, and corporate income and franchise tax liabilities when nexus is the central issue.

1. Qualifying for Voluntary Disclosure

   For a disclosure by a taxpayer to be voluntary, it must meet all of the following criteria:

   1. The Department of Revenue has not contacted the taxpayer with respect to any tax for which the taxpayer is requesting voluntary disclosure.

   2. The taxpayer does not have outstanding liabilities for other taxes.

   3. The taxpayer is not under audit for any tax.

   4. The taxpayer was never previously registered for the tax schedule being disclosed.

   5. The taxpayer has never filed a return with the Department for the tax schedule being disclosed.

   6. The taxpayer pays the tax due plus accrued interest. Upon request, the Department will calculate the interest due and notify the taxpayer.

   7. Upon request, the taxpayer makes records available for audit to verify the amount of the taxpayer’s liability and the accuracy of the representations made by the taxpayer.

   8. Subsequent to the disclosure, the taxpayer will remain in compliance for all tax schedules.

2. Benefits of Voluntary Disclosure

   A taxpayer whose application for a voluntary disclosure is approved will receive:

   1. Waiver of civil penalties and an agreement by the Department to not pursue criminal prosecution unless the taxpayer collected a trust tax but did not pay it to the Department. If trust taxes were collected, the Department will waive all civil penalties except the 10% civil penalty for failure to pay the tax when due. In the absence of fraud, the Department will not pursue criminal prosecution. Please note that effective July 1, 2005, G.S. 105-163.15 and G.S. 105-163.41 were amended to define the Underpayment of Estimated Tax Penalty as interest, and the statutes have no provision for the waiver of interest.

   2. When applicable, the ability to file the liability in a spreadsheet format versus filing a return for each period involved. The spreadsheets must reflect liability in chronological order.

   3. Sixty (60) days to determine the liability and prepare the returns or spreadsheets.

   4. A requirement to pay all tax due for the look-back period. The look-back period is four delinquent years for annual filers or forty-eight months for taxes that do not have an annual filing frequency. If the applicant has collected taxes and not reported them for periods beyond the look-back period, the look-back period will be extended to cover those periods.

      The look-back period for voluntary disclosure is shorter than the look-back period that applies when the Department discovers through examination that a taxpayer has failed to file returns and pay taxes due. The look-back period for taxpayers discovered through examination is six years for annual filers or seventy-two months for taxes that do not have an annual filing frequency.

3. How to Apply

   A request for a voluntary disclosure must be in writing and addressed to the following:

   Voluntary Disclosure Program
   North Carolina Department of Revenue
   P. O. Box 871
   Raleigh, North Carolina 27602-0871

4. Information to Be Submitted with Request
   1. Business Taxes

      The taxpayer or a representative of the taxpayer initiates contact with the Department of Revenue by writing a letter describing all of the following:

      1. The taxpayer’s business.

      2. The nature and extent of the taxpayer’s activities in North Carolina, including whether the taxpayer does any of the following:
         
         

         a.	Owns or leases property in the State
         b.	Has employees or independent sales representatives soliciting sales in the State.
         c.	Has inventory located in the State.
         d.	Makes deliveries into the State and, if so, the means of transportation used.
         e.	Engages third parties to install or repair property sold to North Carolina customers.
         f.	Engages in other activities described in 17 NCAC 5C .0102 or in G.S. 105-164.3(5) or 105-164.8(b).

      3. The length of time the taxpayer has been in business and the period of time it conducted activities in North Carolina.

      4. The taxpayer’s previous filing or payment history with the Department.

      5. Whether the taxpayer has been contacted by the North Carolina Department of Revenue or the Multistate Tax Commission regarding its liability.

      6. Whether the taxpayer has any outstanding liabilities for any tax administered by the Department.

      7. An explanation of why returns were not filed and taxes paid.

   2. Personal Taxes

      A representative of the taxpayer or the taxpayer initiates contact with the Department of Revenue by writing a letter explaining why returns were not filed and taxes paid. Personal taxes do not include withholding taxes.

5. Review and Approval of Voluntary Disclosure Requests

   An application will not be considered until a full written disclosure has been submitted to the Department. Based on the information submitted, the application will be approved, rejected, or a counter proposal made. Once the application has been approved, unless a letter is more appropriate, the Department will sign a Voluntary Disclosure Agreement and send it to the taxpayer or representative of the taxpayer for proper signatures.

   Upon receipt of the properly signed Voluntary Disclosure Agreement, the Department will determine whether the taxpayer has an outstanding liability for any tax, a prior filing history, or previous contact with the Department. Any returns and payments received will be processed and an account will be established.

   If the Department determines that the taxpayer or its representative misrepresented the information upon which the Agreement is based, the Agreement can be voided and the Department can take action as if the Agreement does not exist.

6. Audits for Voluntary Disclosure Period

   The Department reserves its right to audit a taxpayer’s books and records, subject to the time limits set out in G.S. 105-241.1. The audit may include all or part of a voluntary disclosure period. The Department will assess any tax determined to be due that was not discharged under the Voluntary Disclosure Agreement. All applicable penalties and interest will apply to additional taxes discovered to be due that have not been paid.

7. Confidentiality

   The Department will not release the identity of a taxpayer that enters into a Voluntary Disclosure Agreement or the terms of the Agreement unless the information must be released upon request under the provisions of G.S. 105-259 or existing information exchange agreements.

8. Any Questions?

   Please contact Discovery & Special Projects toll-free at 1-877-919-1819 ext. 10215, or email Sanda.Hartigan@dornc.com

Last modified on: 10/31/07 03:37:42 PM .