If you are non-filer who has not filed tax returns for years, chances are you are delinquent on your state filing obligations as well. While the IRS has a policy that taxpayers file six years of tax returns under Policy Statement 5-133 to be considered compliant, your state may have a reduced tax filing obligation to be considered compliant.
If you are delinquent with your state Income Tax return obligations with the state of Arizona, there is a lesser-known program called the “Arizona Voluntary Disclosure and Compliance Program”.
Benefits of the Voluntary Disclosure program:
Ø The biggest advantage is that you only need to file four-years of Arizona State Income Tax returns to be considered compliant. (This is the general look-back period; however, the State does reserve the right to expand it on a case-by-case basis).
Ø Late Filing penalties are abated for the (four-year) look-back period.
Ø Late Payment penalties are abated for the (four-year) look-back period.
Ø You generally work directly with an Arizona Department of Revenue auditor in filing these tax returns. This ensures that any questions are addressed quickly than waiting for a response via mail or endure longer processing times.
Ø If there is any criminal exposure, then you would need an attorney so that you are protected under the Attorney-Client privilege. An Enrolled Agent can work with an attorney through a Kovel letter.
How does this work?
If you feel your client would benefit with this program, the following steps are to be followed:
1) Prepare the four years of Arizona State Income Returns
2) Have a plan for managing the payments – be ready for full payment including penalties and interest, or discuss alternative arrangements such as Payment Plans with your client.
3) Review all client letters to make sure client has not already been contacted by AZDOR’s Audit District, or already under investigation by Criminal Investigation Unit.
4) Ensure that client has not already participated in the Voluntary Compliance and Disclosure program before.
5) Contact the Voluntary Disclosure Agreement Unit at VDA@azdor.gov about your interest in representing your client in this program. I would not disclose the client’s name or other details at this point.
6) They reply with a secure portal to exchange information. Once an AZDOR liaison is assigned, you present your Power of Attorney and the information, and the State Income Tax returns.
7) The penalties are abated after the liability and interest payments are satisfied.
General Practical Tips
1) This program is more advantageous for clients with larger tax balances, and seriously delinquent taxpayers and with high Schedule C self-employment tax balances. This is because you can abate high penalties and come to compliance with just four years of tax filings.
2) There are no refunds allowed through this program. So, it is advantageous for clients with a balance due.
3) Clients with a refund might find it beneficial to file an income tax return through normal channels.
4) The program is available for clients with delinquent TPT filings, and Corporate Income tax filings as well.
Get Help with Tax Problems in Arizona
Many people with delinquent tax filings often file six years of IRS and Arizona State Income returns. In some cases, you are better off going through the Voluntary Disclosure and Compliance program available in your state.
If you have unfiled returns in the state of Arizona, contact a tax professional such as Krish Perinkulam, at +1-480-442-7063. or Info@NorthPhoenixTaxRelief.com who has experience dealing with AZ DOR.