# Voluntary Disclosure Agreements Explained: Tax Implications

Canonical: https://trykintsugi.com/blog/an-in-depth-guide-to-voluntary-disclosure-agreements-vd-as
Published: 2023-11-17

Learn how VDAs can help businesses address past tax liabilities, reduce penalties, and establish a compliant process.

A Voluntary Disclosure Agreement (VDA) is a formal agreement with a tax
authority that allows a business to disclose previously unreported
obligations. In exchange, a state may offer a limited lookback period, reduced
penalties, or other favorable terms.

## Why consider a VDA?

VDAs can reduce historical exposure, clarify obligations, and demonstrate good
faith before an audit. They are particularly useful when a business discovers
economic nexus, use tax, or product taxability issues across multiple states.
Terms vary by state, and interest is not always waived.

## The VDA process

1. Gather sales data, registrations, and prior filings.
2. Determine where liabilities may exist.
3. Ask whether the state permits an anonymous inquiry.
4. Submit an application and negotiate the lookback and payment terms.
5. Sign the agreement and settle the disclosed liability.
6. Establish an ongoing process to stay compliant.

The agreement is only part of the solution. Businesses should fix the source
of the exposure by monitoring nexus, classifying products, registering where
required, and filing returns on time.

Kintsugi helps teams identify exposure, organize registrations, and automate
future calculations and filings. Work with a qualified tax professional on the
state-specific VDA process.