Benefits of California Voluntary Disclosure
One benefit of the voluntary disclosure program is that it limits the taxpayer’s exposure to liability for back taxes. In this program, only the prior three years of sales will be assessed. Without the program’s protections, the statutory period for assessing taxes against a seller may be extended up to eight years.
The state cannot later determine there were sales four years ago and assess the client for that prior year. The CDTFA is legally bound to not examine that year once the client is accepted into this program.
Furthermore, under this program, the seller will not have to pay the penalties owed. The CDTFA will waive late filing and late payment penalties. To apply for the relief of penalty, the seller will have to include a written request and set forth the facts regarding why the later filing occurred. Submit this request on the CDTFA 38 form.
If a seller wants to apply to the program, they may anonymously describe their circumstances to the CDTFA and obtain a written opinion as to whether the CDTFA will approve their voluntary disclosure request.
Therefore, taxpayers thinking of using this program can be more secure in the knowledge they will be admitted before disclosing any harmful information to the CDTFA.
The contact information for the Voluntary Disclosure Specialist who could give this opinion is as follows:
California Department of Tax and Fee Administration
Voluntary Disclosure Program
PO Box 942879 (MIC:44)
Sacramento, CA 94279-0044
The request should include a description of how the client meets the qualifications for admittance into the voluntary disclosure program. It should also include a description of business activities, how products are marketed and sold to California customers, and a description of the flow of goods to the customer from the time an order is placed.
Procedure for California Voluntary Disclosure
The first step to participate in the voluntary compliance program is to register with the CDTFA. The second step is to complete and submit a CDTFA-38, Application for Voluntary Disclosure, within 30 days of registration with the CDTFA. The application should be mailed to the following address:
You can print a form here and there is a list of mailing addresses for the different CDTFA offices within the state. You can also download a fillable form and submit it electronically.
The application will be approved or rejected in writing within approximately two weeks after the CDTFA’s receipt of the application. After approval, the seller will be required to electronically file their tax returns. The seller will then have to pay the tax and interest owed. The CDTFA agents running the Voluntary Disclosure Program will then assist the taxpayer in completing a Form 735, which will waive their penalties.
For more information and access to the relevant CDTFA application forms, please visit this link detailing the Out-of-State Voluntary Disclosure Program. Out-of-state businesses interested in this program may apply on an anonymous basis.
For out-of-state businesses that are interested in the voluntary disclosure program but do not qualify, another option is to apply for the Filing Compliance Agreement. Under this program, certain penalties may be waived but the state will not limit its investigation to a specific lookback period. More information about the program and instructions on how to apply can be found on the CDTFA’s Filing Compliance Agreement page.
Voluntary Disclosure and Amnesty Programs
California does not offer an amnesty program. However, if a seller has multistate issues, then it is beneficial to check if there are amnesty programs in other states where they owe liability. New York and Texas have both utilized amnesty programs in the past. For a complete list of the current jurisdictions that offer sales tax amnesty programs, please visit the Sales Tax Institute’s Sales Tax Amnesty Programs By State chart.
In the usual amnesty program, the state will tell sellers that they know the seller is out of compliance, but if the seller registers, then the state will not hold them liable for any back taxes. All the seller has to do is register and pay tax moving forward.
- Publication 178, Voluntary Disclosure Program
- CDTFA Publication 38, Application for Out-Of-State Voluntary Disclosure
- Publication 53, Managed Audit Program
- CDTFA Industry and Tax and Fee Guide
Qualifying for California's Voluntary Compliance Program
Nobody wants to be on the receiving end of any contact from the CDTFA. The CDTFA is very aggressive about collecting sales tax and if you are out of compliance, they will find you.
If you have failed to file and pay any California sales tax, well, you are the perfect target for an audit or worse. Fortunately, California has a Voluntary Disclosure Program for California and out-of-state retailers, which can help absolve their sales tax debt and associated penalties.
If you believe that you qualify for the voluntary compliance program, contact me. Brotman Law has helped many small businesses get accepted into the program. This is really a matter that you should not try to tackle yourself. Let our experience guide you through the process towards a successful outcome.