Voluntary Disclosure: Additional Taxes or Excessive Credits

  1. Background

    If a person (which includes individuals, partnerships, corporations, limited liability companies, and fiduciaries) has filed the required Wisconsin tax returns or credit claims, but later realizes additional taxes are due or excessive credits were claimed, what should that person do? If the person waits until errors are discovered in an audit by the Wisconsin Department of Revenue, costly civil and/or criminal penalties may be imposed.

    Example: If a sales/use tax audit results in additional taxes being due and there was negligence in filing the return, a penalty equal to 25% of the additional taxes due may be imposed. If there was intent to defeat or evade the taxes, a penalty equal to 50% of the taxes may be imposed.

    Don't wait for an audit by the Department of Revenue (department) and risk the possibility of costly penalties. There is a better alternative. Penalties can be avoided by voluntarily disclosing to the department the additional taxes owed or excessive credits claimed on previously filed returns or claims.

    The information below explains:

    • The conditions which must be met to obtain the benefits of voluntary disclosure (see Part II).
    • The benefits of voluntary disclosure (see Part III).
    • How to obtain the benefits (see Part IV).
    • How to contact the department with questions (see Part V).

    Unless otherwise indicated, the information applies to Wisconsin income, franchise, sales/use (including state, county, and stadium), withholding, motor vehicle fuel, alternate fuels, general aviation fuel, beer, intoxicating liquor and wine, cigarette (including use and inventory), tobacco products (including use), and local exposition taxes, motor vehicle fuel and intoxicating liquor floor taxes, recycling surcharge, homestead and farmland preservation credits, and petroleum inspection fees. The term "tax" includes "recycling surcharge" and "petroleum inspection fees" unless otherwise indicated.

  2. Conditions Which Must Be Met to Obtain Benefits of Voluntary Disclosure

    To qualify for the benefits described in Part III, a person must meet all of the following four conditions:

    1. Has previously filed a Wisconsin tax return or credit claim for the filing period and type of tax or credit being voluntarily disclosed.
    2. Has not been informed by the department that an audit or criminal investigation is being conducted or will be conducted, relating to the filing period and type of tax or credit being voluntarily disclosed.

      (Note: A person is not disqualified from receiving the benefits of voluntary disclosure if:

      • An audit was previously conducted, which resulted in a determination (for example, an assessment, a refund, or no change), or
      • They were contacted by the department regarding a filing period or type of tax or credit other than that being voluntarily disclosed, or
      • They received general information, tax forms, or publications from the department.)
    3. Has not received a federal audit report from the Internal Revenue Service (IRS) which is final, the changes or corrections on which are required to be reported to the department under sec. 71.76 or 77.96(4), Wis. Stats. (2007-08). (Note: This limitation applies only to the changes or corrections made on the federal audit report.)
    4. Does not misrepresent facts at the time the additional taxes or excessive credits are voluntarily disclosed to the department.
  3. Benefits of Voluntary Disclosure
    1. What Will Not Be Imposed

      If all four conditions listed in Part II are met, civil and criminal penalties will not be imposed on additional taxes or excessive credits voluntarily disclosed. (Note: See the exception in Part III.B.4, relating to retirement plan penalties.)

      Examples of penalties that will not be imposed include the following (this listing is not all inclusive):

      • The 25% to 50% negligence penalty for filing an incomplete or incorrect return, credit claim, withholding deposit, or withholding report.
      • The 50% to 100% "intent to defeat or evade" penalty.
      • Criminal penalties (for example, fines or imprisonment).

      Wisconsin statutes pertaining to these penalties include the following. The listing is by tax type and is not all inclusive.

      1. Income and franchise taxes, withholding, recycling surcharge, and homestead and farmland preservation credits: secs. 71.55(6), 71.61(4), 71.67(2), 71.74(8), 71.83(1)(a)2 and 3, 71.83(1)(b)1, 71.83(2), and 77.95, Wis. Stats. (2007-08).
      2. Sales, use, and local exposition taxes: secs. 66.0615(1m)(f)2, 77.60(3), (5), and (12), 77.76(1), 77.982(2), and 77.991(2), Wis. Stats. (2007-08).
      3. Fuel taxes (including motor vehicle fuel floor taxes) and petroleum inspection fees: secs. 78.22(3) and (6), 78.68(3) and (5), and 168.12(9), Wis. Stats. (2007-08).
      4. Beverage taxes (including intoxicating liquor floor taxes): secs. 139.03(2x)(c) and (f), and 139.25(3) and (5), Wis. Stats. (2007-08).
      5. Cigarette and tobacco products taxes (including cigarette and tobacco products use taxes and cigarette inventory taxes): secs. 139.315(3) and (6), 139.33, 139.44(12), 139.78, and 139.85(1), Wis. Stats. (2007-08).
    2. What Will Be Imposed

      If all four conditions listed in Part II are met, only the following mandatory charges will be added to the amount owed for additional taxes or the repayment of excessive credits claimed:

      1. Interest at 1% per month (see items 2 and 5 below for exceptions for withholding taxes, and for motor vehicle fuel and intoxicating liquor floor taxes). (for example, secs. 66.0615(1m)(f)2, 71.55(6m), 71.61(3m), 71.67(2), 71.82(1)(a) and (c), 77.60(1), 77.76(1), 77.95, 77.982(2), 77.991(2), 78.68(1), 139.25(1), 139.44(9), 139.85(1), and 168.12(9), Wis. Stats. (2007-08).)

        The interest of 1% per month is generally computed from the date the tax was originally due (for example, the unextended due date of the tax return) to the date the tax is paid, assuming the tax is paid before it becomes delinquent. If the department issues a notice of amount due because the additional taxes or excessive credits voluntarily disclosed are not paid at the time of the voluntary disclosure, interest of 1% per month is charged to the due date shown on the notice of amount due. For homestead and farmland preservation credits, interest is charged from the due date of the claim.

        Note: If the department issues a notice of amount due because the additional taxes or excessive credits voluntarily disclosed are not paid at the time of the voluntary disclosure, and the amount due is not paid by the due date shown on the notice of amount due, "delinquent" interest of 1.5% per month will be charged from the due date shown on the notice of amount due to the date the amount is paid. (for example, secs. 66.0615(1m)(f)2, 71.55(6m), 71.61(3m), 71.67(2), 71.74(8), 71.82(2), 77.60(2), 77.76(1), 77.95, 77.982(2), 77.991(2), 78.68(2), 139.25(2), 139.44(11), 139.85(1), and 168.12(9), Wis. Stats. (2007-08).) The 6.5% ($35 minimum) delinquent tax collection fee will also be charged. (Section 73.03(33m), Wis. Stats. (2007-08).)

      2. For withholding taxes, interest at 1.5% per month (18% per annum), unless reduced to 1% per month by the department. (Section 71.82(2)(d), Wis. Stats. (2007-08).)

      3. For income and franchise taxes and recycling surcharge, the interest for underpayment of estimated tax and estimated recycling surcharge. (Sections 71.84 and 77.947, Wis. Stats. (2007-08).)

        Interest for underpayment of estimated tax and re-cycling surcharge may be waived if certain conditions are met, as provided in sec. 71.09(11), Wis. Stats. (2007-08), with respect to individuals, fiduciaries, partnerships, and limited liability companies; and in sec. 71.29(7), Wis. Stats. (2007-08), with respect to corporations.

      4. For individual income taxes, retirement plan penalties (for example, the penalty for an early withdrawal from a retirement plan). The Wisconsin penalty is 33% of the federal penalty. (Section 71.83(1)(a)6, Wis. Stats. (2007-08).)

      5. For motor vehicle fuel floor taxes and intoxicating liquor floor taxes, interest at 1.5% per month (18% per annum). (Sections 78.22(5) and 139.03(2x)(e), Wis. Stats. (2007-08).)
  4. How to Obtain Benefits of Voluntary Disclosure

    To obtain the benefits of voluntarily disclosing additional taxes owed or excessive credits claimed relating to returns or claims previously filed, as discussed in Part III, a person should do the following:

    1. Determine that all four conditions in Part II are met.
    2. File an amended Wisconsin tax return. Attach a cover letter to the amended return and indicate that the benefits of voluntary disclosure are being requested. For example, the statement may read: "I am voluntarily disclosing additional 2008 Wisconsin income tax, which was not included on my original 2008 income tax return. I meet all of the conditions for obtaining the benefits of voluntary disclosure. Therefore I request that no civil or criminal penalties be imposed, based on this voluntary disclosure."

      Exceptions

      • To disclose additional fuel taxes, beer or intoxicating liquor and wine taxes, cigarette or tobacco products taxes, or petroleum inspection fees, submit a letter of explanation to the department or send it by electronic transmittal.
      • To disclose additional sales or use taxes relating to purchases where the initial tax was paid to another agency (for example, a vehicle was purchased from a person other than a licensed motor vehicle dealer and the tax was paid to the Department of Transportation), submit a letter of explanation.

      Where to mail:

      An amended return should be mailed to the address shown on the return or in its instructions.

      If no address is provided, or if a letter is submitted instead of an amended return, it should be mailed to the following address:

      Wisconsin Department of Revenue
      Nexus Unit
      Mail Stop 5-144
      PO Box 8906
      Madison, WI 53708-8906

  5. Any Questions?

    The department may be contacted by:

July 29, 2010