Negotiated Settlements - Remediating Tax Issues for Multistate Businesses that Can't Do VDAs
In cases where a business has already been contacted by a state tax authority or is otherwise ineligible for a structured Voluntary Disclosure Agreement (VDA), negotiated settlements offer a critical path forward. These agreements allow multistate businesses to proactively address outstanding tax liabilities, mitigate penalties, and establish a clear framework for future compliance through direct negotiation with state revenue departments. Our team provides the strategic oversight and technical expertise necessary to handle these complex discussions, working to secure the most favorable terms while remediating historic exposure and protecting your long-term operational interests.
Benefits of Negotiated Settlements
- 1. States will limit the lookback
2. States will generally waive penalties.
3. Eliminate the Need for Financial Reserves
Risks of Not Doing the Negotiated Settlement
1. Most states will assess tax for periods where the taxpayer did not file, often including 7 to 10 years, and some states may go back even further.
2. Penalties can range from 25% to 100% for failure to file tax returns and failure to pay the tax.
3. While interest varies by state, when a state goes back 7 to 10 years the interest can become material.
The Negotiated Settlement Process
Generally, states prohibit a company that has previously been contacted by the state from entering into a voluntary disclosure agreement. Additionally, states will generally prohibit a company that is already filing that tax in the state from entering into a voluntary disclosure agreement. Certain states will prohibit a company that files one tax from participating in a voluntary disclosure agreement for another tax. While the VDA processes are very formal, the negotiated settlement process tends to require more discussions with the state representatives.
01
Contact DOR and Request a Negotiated Settlement
We find the proper contact in either the VDA unit, Tax Policy, or Audit Unit to handle the approval of a negotiated settlement. We discuss terms of settlement including the period of lookback and the waiver of penalties.
02
Review and Sign Negotiated Settlement
We work with the state to confirm the terms of the agreement, the lookback, the applicable taxes, and any data issues.
03
Prepare and File Any Registrations
We prepare the sales tax registrations or applicable income tax registration.
04
Prepare the Applicable Returns.
We can prepare the sales and use tax returns or worksheets in lieu of returns as well as the state income tax or nonresident withholding tax returns.
05
Submit the Applicable Returns.
We submit the sales tax, income tax, or nonresident withholding tax returns either online or to the state representative.
06
Submit Payment for the Taxes
The Company will pay the applicable taxes based upon the amounts reflected in the applicable returns.
07
The State Calculates the Interest
The calculation of the interest is very complex and, as a result, the state calculates the interest and sends a notice.
08
Submit Payment for Interest
The Company pays the interest and the Negotiated Settlement closes.
What Do Negotiated Settlements Cost?
We charge by the hour for negotiated settlements as the process is less structured and the time needed varies by the state. We will also charge for the registration process if needed. We will charge separately for the preparation of sales and use tax returns or worksheets in lieu of returns. The timeline for Negotiated Settlements tends to be longer since normally the settlement has to be approved by numerous officials.
