Avoiding tax penalties through voluntary disclosure

It is not uncommon for a business to have debts related to underpayment of taxes in previous years. The underpayment could have been caused by a tax return that was prepared incorrectly. It also could have been caused by a temporary cash crisis that left the business unable to pay some basic bills. Whatever the cause, Illinois businesses that have underpaid often face growing fees and penalties, especially if the taxes are long overdue.

Fortunately, Chicago businesses that are delinquent on their taxes have some options for resolving the debt. One such option is the city's voluntary disclosure program. Under that program, delinquent businesses can voluntarily disclose their tax-related debts and avoid paying any associated fees or penalties. The business must either pay the debt at once or enter into a payment plan. This program can also be used to resolve delinquencies for certain business or licensing fees.

There are a few rules surrounding eligibility for the program. First, it only covers the four years immediately preceding the disclosure. A business can't avoid fees and penalties for delinquencies that are more than four years old. A business also isn't eligible if it is currently involved in an audit or if it has already received a delinquency notice for the tax. The key is to disclose the tax debt before the city is aware of it. Once a business has been contacted by the city about the tax, it is usually too late to make disclosure.

It is important to consult with a tax attorney so that the disclosure is accurate. If the city finds that a business actually owes more than it disclosed, the city could take action. If the variance is less than 10 percent, the business is usually fined or penalized for the variance. If the variance is more than 10 percent, the city could refuse to admit the business into the voluntary disclosure program and assess penalties on the entire amount.

Source: City of Chicago, "Apply for Voluntary Disclosure of Business Taxes", October 19, 2014

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