While paying taxes might not be our favorite pastime, the overwhelming majority of taxpayers strive to file and pay all of their tax obligations. However, sometimes taxpayers' best efforts to comply with their tax obligations are not enough, especially in the state and local tax world. Although it may be an innocent mistake, such filing non-compliance may be very costly if it is first discovered by the state or local taxing jurisdiction, because the taxpayer will not only be subject to tax and interest but also harsh penalties (up to 25 percent or more). On the other hand, the taxpayer does have options to come forward and minimize its exposure if the taxpayer is the first to discover any non-compliance. Voluntary disclosure agreements, or "VDAs," are a popular and generally effective method for taxpayers to clean up their state tax compliance issues.
