Voluntary Disclosure Agreement[VDA] Law and Legal Definition

Voluntary disclosure agreement (VDA) is an agreement entered by the companies (taxpayers) to receive certain benefits for disclosing their prior period tax liabilities in accordance with a binding agreement. VDA is offered by many states in the U.S. because it encourages the companies to adhere state tax laws. Companies help the states to generate revenue by disclosing their liabilities. They also help the government by registering in their state to collect and pay the taxes.

VDA provides certain benefits that include :

1. Abatement of Penalties- Most states will waive penalties on any prior period taxes that are remitted in connection with a Voluntary Disclosure Agreement.

2. Protects potential buyers from prior ownership's liabilities.

3.Brings closure to prior periods - The taxpayer will be comfortable knowing that prior period liabilities are closed and will be able to concentrate its compliance efforts on current and future periods.

Disadvantages of VDA includes:

1. compliance cost of a taxpayer might outweigh the benefits;

2. compliance burden of a taxpayer will be high, because they are required to remit and report taxes.