Voluntary Disclosure

A voluntary disclosure agreement (VDA) is a formal arrangement between a taxpayer and DOR that resolves past-due tax obligations. The core trade is straightforward: the taxpayer comes forward voluntarily, and for businesses that qualify, DOR says the lookback is generally limited to the prior four years plus the current year and penalties may be partially or fully waived. Full statutory interest still applies. DOR says a business discovered through its normal audit or investigation procedures may face a lookback of seven years plus the current year and penalties of 39% of the tax due, so coming forward can reduce the total cost; the result depends on the facts.

Washington operates several VDA tracks. The general program covers B&O, sales, and use tax obligations. The investment income program addresses businesses with Washington-sourced investment income that may not have been reported. The international remote seller program provides a pathway for foreign businesses that exceeded Washington's economic nexus thresholds. Each track has different eligibility requirements, lookback rules, and documentation expectations.

If you are unregistered and DOR has not contacted you, apply for the VDA before registering with DOR, then follow the examiner’s registration instructions. Full benefits generally require no active registration, tax reporting, or enforcement contact within the prior four years plus the current year, and no evasion or misrepresentation. Some registered businesses may still qualify for modified treatment for periods before registration or a separate assessment-penalty waiver; have DOR confirm the applicable path. Voluntary registration before DOR notifies you of the need to register avoids the 5% unregistered-business penalty under RCW 82.32.090(4). Under DOR's rule, if a business registers before any DOR contact, the late-payment-of-return penalty (up to 29%) generally does not apply to the periods when it was unregistered, but it still applies to collected-but-unremitted retail sales tax, to evasion or misrepresentation, and to activity after a previously open account was closed (WAC 458-20-228(5)(a)(iii)). The separate 5% substantial-underpayment assessment penalty may still apply. Because an active registration affects VDP eligibility, DOR asks VDP applicants to apply before registering; which order fits depends on the facts. Do not treat the program’s maximum 39% penalty relief as an automatic saving over voluntary registration. The disclosure itself must include a complete and accurate presentation of the facts, a calculation of the tax owed under the agreed lookback period, and a commitment to register and file going forward.