Tennessee Voluntary Disclosure Program

Like many other states, Tennessee has a voluntary disclosure program that allows taxpayers to take care of their prior tax liability and limit the penalties they owe. Generally, to qualify, you must reach out to the Tennessee Department of Revenue before they contact you. If you qualify, you’ll enjoy a limited lookback period and reduced penalties. 

This program looks at each application on a case-by-case basis, so it’s important to be prepared for any outcome when applying. By taking advantage of this program, taxpayers can reduce how much they pay in penalties, protect themselves from an audit, and get the peace of mind that comes with tax compliance. To get help, contact us at Damien’s Law today.

Key Takeaways

• Tennessee collects a variety of business taxes as a main source of revenue.
• Businesses that have not registered or paid taxes can become compliant with a Voluntary Disclosure Agreement.
• Voluntary Disclosure Agreements are only available to businesses that have not yet been contacted by the Department of Revenue.
• Benefits of a VDA include a shorter lookback period, protection from audits, and penalty relief.

What is a Voluntary Disclosure Agreement?

Many people fail to comply with state tax regulations because they don’t understand them, not because they don’t intend to comply. When this happens, business owners often feel caught between a rock and a hard place; if they just register their business and start paying taxes, they may catch the attention of the Tennessee Department of Revenue and get hit with a massive bill for back taxes. But if they continue to operate while unregistered and not paying taxes, they know they’ll eventually get caught.

Voluntary Disclosure Agreements aim to provide a way out of this problem. VDAs provide the state with the tax revenue it’s owed while offering benefits to businesses in exchange for getting caught up. This program requires businesses to register with the Department of Revenue, report income during a limited lookback period, and have a legitimate reason for failing to register.

Who Qualifies for a Tennessee VDA?

If a business should be registered with the Tennessee Department of Revenue and is not, it may qualify for a Voluntary Disclosure Agreement. When applying, you should be prepared to explain why you did not register earlier. 

For example, they may accept your application if you genuinely misunderstood your tax obligations as a Tennessee business owner or if you’re an out-of-state business owner with nexus in Tennessee and you did not know that you were supposed to pay taxes in Tennessee. Tennessee generally recognizes economic nexus for vendors with $100,000 or more in retail sales in the state in a one-year period.

Situations Where You Cannot Apply for a VDA

There are situations in which a Voluntary Disclosure Agreement is not available. 

• Already contacted – If you have already been contacted by the Department of Revenue regarding your unregistered status and your tax debt, you no longer qualify for a VDA. This includes any form of contact, including an inquiry letter or a phone call from an auditor. 
• Already registered – You also do not qualify for a VDA if you are registered for the tax type for the time period included in your agreement.

Lookback Period and Filing Requirements

One of the main benefits of a Voluntary Disclosure Agreement is a shorter lookback period. The lookback period is generally based on when the return was initially due. All returns due in the three years prior to January 1 of the current year need to be filed as part of the voluntary disclosure program. For businesses that collected sales tax but never remitted it, the lookback period starts when they first collected sales tax.

The Department of Revenue requires that each type of tax be reported in different ways. Sales and use tax, as well as business tax, can be documented in a spreadsheet that is broken down into months for the entirety of the lookback period. Franchise taxes, excise taxes, and any other type of tax must be filed via a standard tax return.

Penalty Relief and Interest

The Department of Revenue generally waives penalties during the lookback period as part of a Voluntary Disclosure Agreement. However, if a business collected sales tax but didn’t remit it to the state, the DOR will likely still assess a penalty. 

Interest cannot be waived. Interest rates for the TN DOR are set every fiscal year. The rate for the fiscal year ending June 30, 2025, is 12.5%.

How to Apply for the Voluntary Disclosure Program

When a business decides to apply for a Voluntary Disclosure Agreement, they can either email their request to voluntary.disclosure@tn.gov or mail their request to:

Tennessee Department of Revenue
Discovery Unit
P.O. Box 190644
Nashville, TN 37219 

Information to Include

Whether you decide to apply via mail or email, your request should include the following information:

• The activities the business has in Tennessee
• A statement of any taxes registered with the Department of Revenue
• Company’s fiscal year end or calendar year
• Details about any contact from the Department of Revenue

If a business should collect sales and use tax, they must also indicate:

• Whether or not they have previously collected sales tax
• If they are requesting the agreement to remit sales and use tax on personal property used in Tennessee

Timeline

The Department of Revenue reviews these requests as soon as they’re received. Assuming that the agreement is approved, the Department of Revenue generally sends it to the taxpayer or their representative within 20 days of receipt of the initial request. At that point, you are expected to make arrangements for any taxes or penalties due.

Using the Multistate Tax Commission

Tennessee is part of the Multistate Tax Commission’s National Nexus Program, which provides another way to request a Voluntary Disclosure Agreement. The main benefit of seeking a VDA through the Multistate Tax Commission is the ability to request VDAs with multiple participating states, which makes it ideal for businesses that have nexus in multiple states but have not registered or paid taxes in any of those states. 

By applying once through the MTC, businesses can limit their lookback period and their penalties. However, note that the MTC does not provide this service for non-member states, so applicants will still need to apply directly with non-member states.

Applying for VDAs with multiple states does extend the average turnaround time to about four months. The processing time increases as you add more states to your request.

Frequently Asked Questions

How long does the voluntary disclosure process take?

The length of the application process depends on how much data you have to disclose and how much time you need to file it. However, once your request is submitted, the DOR generally responds within 20 days.

Can I stay anonymous while requesting a VDA?

The application process generally requires taxpayer disclosure, but anonymous requests are possible via the Multistate Tax Commission.

The Department of Revenue has contacted me regarding a tax liability; can I still apply for a VDA?

No. As soon as the Department of Revenue has made contact regarding the taxes for which you are requesting a VDA, you can no longer request one.

Does a VDA waive penalties and interest?

VDAs generally waive penalties, but interest cannot be waived.

Why You Should Consider Working With a Tax Professional

Finding out that you’re non-compliant with state tax requirements is stressful—and potentially expensive. Working with a tax attorney can help you assess your potential risk, determine whether or not you qualify for a Voluntary Disclosure Agreement in Tennessee, and work through the application process as quickly as possible. 

If your business has nexus in multiple states, your tax attorney can help you apply for VDAs in multiple states simultaneously. As an added benefit, they can help prevent unintentional disqualification due to timing or contact history.

At Damiens Law, we know that tax issues cause significant issues for businesses like yours. A Voluntary Disclosure Agreement can limit your financial losses, protect you from an audit, and get you back on track. Schedule your confidential discovery call now by calling us at 601-476-1361 or reaching out online.