How the NYS Voluntary Disclosure Saved Our Client $13,000

The NYS Voluntary Disclosure Program can give an eligible business owner a way to correct past tax problems before the Tax Department contacts them. In one recent case, we used the program to help a New York City business address 21 unfiled sales tax returns, avoid nearly $13,000 in penalties, and create a manageable plan for paying what was still owed.

Just as importantly, the process gave the owner peace of mind. Instead of continuing to wonder when a letter might arrive from New York State, the client finally knew what had happened, how much was owed, and what needed to be done next.

The Client Knew Something Was Wrong

The business owner was already skeptical about the work being performed by the company’s existing accountant and with good reason. The business and personal income tax returns were approximately two years behind. Earlier tax returns also contained significant errors.

But the most urgent problem involved sales tax.

The business had been charging its customers sales tax because of the services it provided in New York City. However, no sales tax returns were being filed, and none of the tax collected from customers was being sent to New York State.

Even more confusingly, the prior accountant had told the owner that the services were not taxable. The client could see that the business was collecting sales tax but was not reporting or paying it. Understandably, that did not feel right.

If you want to learn more about NYC sales tax compliance for services in NYC here is a link to a blog post we wrote on the subject.

Why Unfiled Sales Tax Returns Can Become Expensive

Businesses that are registered to collect New York sales tax generally must continue filing returns for every assigned reporting period, even when no tax is due. Returns are generally due within 20 days after the end of the reporting period.

When a business fails to file or pay on time, New York may assess late-filing penalties, late-payment penalties, and interest. Interest continues to accrue on unpaid tax and is compounded daily. Additional civil or criminal consequences may also apply depending on the circumstances.

There is also an important practical point here: sales tax collected from a customer is not ordinary business revenue. The business is collecting that money on behalf of the state. Spending it on payroll, rent, supplies, or other expenses can create a serious cash-flow problem when the returns are eventually filed.

Reconstructing the Missing Sales Tax Information Was the First Step to Apply to the NYS Voluntary Disclosure Program.

Our first step was to determine exactly what had happened.

Fortunately, the client used a payment processor that maintained detailed transaction reports. That allowed us to reconstruct sales by quarter and identify the sales tax collected during each reporting period.

This was critical because the prior accountant had prepared the books primarily from bank and credit card statements. That approach can be especially unreliable for a business collecting sales tax. Payment processors commonly deduct their processing fees before depositing money into the business’s bank account. As a result, the net bank deposit may not show:

The business’s total gross sales
The sales tax charged to customers
The payment-processing fees deducted
Refunds or other transaction adjustments

The payment-processor reports gave us the gross transaction detail needed to calculate the correct amounts.

What Our Review Found

After reviewing the available records, we determined that the business had approximately:

$45,000 in unremitted sales tax
$23,000 in accumulated interest
Nearly $13,000 in late-filing and late-payment penalties

In total, the potential obligation was approximately $81,000 before considering any available penalty relief. The underlying sales tax still had to be paid. Interest also generally remains due under the voluntary disclosure process. The nearly $13,000 of penalties, however, presented an opportunity.

How the NYS Voluntary Disclosure Program Helped

The NYS Voluntary Disclosure Program encourages eligible taxpayers to come forward voluntarily when they have not filed required returns or paid the related tax.

When an application is accepted and the taxpayer fulfills the agreement, New York generally agrees not to impose penalties for the disclosed periods and not to pursue criminal charges related to the disclosed conduct. The taxpayer must accurately disclose the liability, file the required returns, arrange to pay the tax and interest, and remain compliant going forward.

Timing matters. Generally, a business must apply before New York State has contacted it about the specific tax problem. A taxpayer who has already filed the returns but simply has an unpaid balance generally does not qualify for voluntary disclosure for that liability.

For this client, we prepared application to New York State explaining:

How long the business had been operating
The nature of the services it provided
The periods for which returns had not been filed
The sales identified during our review
The approximate sales tax liability
How the error had occurred
The client’s intention to correct the past filings and remain compliant

New York State reviewed the application and approved the client for participation in the program. That approval meant the client could move forward with correcting the returns without nearly $13,000 of late-filing and late-payment penalties.

Correcting 21 Quarterly Sales Tax Returns

Approval was only the beginning. The client still had 21 quarterly sales tax returns that needed to be prepared and filed. We could have prepared every return ourselves, but doing so would have added approximately $4,000 to the client’s professional fees. Instead, we completed the first reporting period and recorded a video showing the client exactly how we:

Downloaded the information from the payment processor
Identified gross taxable sales
Reconciled the sales tax collected
Entered the information into the New York sales tax return
Reviewed the return before filing

The client was then able to follow the same process for the remaining reporting periods. This approach saved the client another approximately $4,000. It also gave the owner a much better understanding of how the business’s sales tax reporting actually worked.

Sometimes the Best Help Is Teaching the Client

There are certain accounting and tax tasks that clients have no interest in handling themselves. There are others that require professional judgment and should not be treated as do-it-yourself projects.

But there are also repetitive tasks that a business owner or internal bookkeeper may be able to manage once the process has been properly designed and explained. We often take this approach with bookkeeping clients who are working within a limited budget.

We identify the five or six transactions they are likely to see repeatedly. We show them how those transactions should be handled. Then we ask them to stop and contact us whenever something unusual appears.

The goal is not to turn every client into an accountant. The goal is to help them handle the predictable work while making sure they know when professional help is needed.

The NYS Voluntary Disclosure Program Did More Than Save Money

The most obvious result was the nearly $13,000 in penalties the client avoided.

But that was not necessarily the most valuable result.

Before coming to us, the client knew something was wrong but did not know how large the problem was or how to fix it. Every missed deadline added more stress. The possibility of receiving a notice from the state remained in the background.

After completing the voluntary disclosure process, the client had:

A confirmed amount of sales tax due
A calculation of the related interest
Penalty relief for the disclosed periods
Protection from criminal prosecution for the conduct covered by the agreement
A process for completing the missing returns
A system for filing future returns on time
A cash-flow plan for addressing the balance

That is a much better position than simply hoping the problem goes unnoticed.

What Happens When the Business Cannot Pay Everything Immediately?

Participating in voluntary disclosure does not make the underlying tax disappear.

The business is generally expected to pay the tax and interest included in its disclosure agreement. However, New York states that installment payments may be available in some voluntary disclosure cases, depending on the taxpayer’s financial condition.

A payment agreement does not stop interest from accruing, and approval is not automatic. The state may review the taxpayer’s payment history, filing history, financial condition, and ongoing compliance.

That is why we do not treat the payment plan as a separate issue. We look at the client’s entire cash flow, including:

Current operating expenses
Upcoming payroll
Current taxes that must remain paid
Available business reserves
Personal contributions that may be necessary
A realistic monthly payment amount
Steps needed to prevent another unpaid balance

Catching up on old taxes only works when the business can also stay current.

Future Compliance Is Part of the NYS Voluntary Disclosure Program

The NYS Voluntary Disclosure Program is not simply a one-time penalty waiver.

The client agrees to correct the disclosed periods and comply with the tax law going forward. Intentionally providing false information, omitting material facts, failing to pay the agreed liability, or intentionally violating the tax law in the future can place the taxpayer in violation of the agreement.

For this client, we created an ongoing quarterly process to make sure:

Payment-processor reports are downloaded
Gross sales are reconciled
Taxable and nontaxable sales are properly identified
Sales tax collected is recorded as a liability
Returns are filed by the deadline
Payments are made on time
Sales tax money is not accidentally used for operating expenses

As we sometimes describe it, the client agreed to correct the past and then “go forth and sin no more.”

Missing One Deadline Should Not Turn Into Missing Ten

One pattern we see frequently is that a business owner misses a filing deadline and then freezes. The first missed return feels embarrassing or overwhelming. The owner tells themselves they will deal with it next month. Then another deadline passes.

Before long, one unfiled return becomes several years of missing returns. Avoiding the problem rarely makes it easier. It normally increases the interest, possible penalties, bookkeeping work, and emotional burden.

Our process for these situations usually includes:

Identifying the last return that was properly filed
Determining every return that should have been filed since then
Reviewing the accuracy of the last filings
Reconstructing the missing financial information
Determining whether voluntary disclosure or another relief program may be available
Preparing or coordinating the missing returns
Calculating the total tax, penalties, and interest
Developing a payment strategy based on actual cash flow
Creating a system that keeps future filings current

We use this approach for sales tax, payroll tax, business income tax, and personal income tax matters.

Do You Have Multiple Years of Unfiled Tax Returns?

When you have several years of missing filings, the hardest part is often not the forms themselves. It is not knowing where to start.

You may not know which returns are missing, whether earlier filings were correct, how much you owe, whether penalty relief is available, or how you could possibly pay the balance while continuing to run your business.

A comprehensive plan can replace that uncertainty with specific steps.

At My Fiscal Office, we help business owners determine what is missing, reconstruct the necessary information, evaluate available compliance programs, and develop a realistic plan for both the past-due balance and future tax obligations.

The goal is not just filing forms. The goal is understanding what happened before it becomes even more expensive and creating a system that prevents it from happening again.

If your business has unfiled sales tax, payroll tax, income tax, or other returns, contact My Fiscal Office to schedule a conversation. We can help you identify the gap, evaluate the available options, and build a plan that works with your cash flow.

How NYS Voluntary Disclosure Saved Our Client $13,000