When businesses discover they have unfiled Texas franchise tax obligations, they face a choice: enter the formal voluntary disclosure agreement program or simply start filing on their own. Each approach has advantages and disadvantages that affect your total liability and ongoing exposure.
Formal voluntary disclosure through the VDA program offers structured benefits. The lookback period is limited, typically to four years. Penalties are waived as part of the agreement. The process is negotiated through a representative, protecting your anonymity until terms are finalized.
Self-disclosure means registering with the Comptroller and filing returns without going through the VDA process. You simply start complying as if you were a new business. This approach is simpler and doesn’t require formal negotiations.
The key difference is protection. VDA participants receive written agreements specifying the limited lookback period and penalty treatment. Self-disclosing taxpayers receive no such protection. The Comptroller could theoretically audit you for periods beyond what you filed and assess penalties you haven’t paid.
In practice, the Comptroller doesn’t always pursue self-disclosing taxpayers aggressively. Many businesses have started filing without formal VDAs and haven’t been audited for prior periods. But there’s no guarantee, and the risk remains.
Dollar amounts affect the analysis. For small liabilities, self-disclosure may be simpler and the risk of aggressive follow-up is lower. For larger liabilities, the protections of a formal VDA become more valuable because more money is at stake.
Your compliance history matters too. If you’ve never had any Texas filings, the formal VDA provides clear documentation that you disclosed voluntarily. If you have some filing history but gaps, the analysis becomes more complex.
The choice between VDA and self-disclosure should be made with full understanding of the risks and benefits of each approach.
For help deciding the right approach for your situation, contact us to discuss your options.
