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VCI 2 – Just the Facts

California's Voluntary Compliance Initiative 2 (VCI 2) begins August 1. If you or your clients participated in Abusive Tax Avoidance Transactions (ATATs) or failed to report income from Offshore Financial Arrangements (OFAs),1 you have until October 31 to file amended returns to correctly report these items, pay the additional tax and interest, and avoid multiple penalties through VCI 2. If you are considering taking advantage of VCI 2, here are some things you should know.

You are eligible to participate in this initiative if you filed a tax return with California for a tax year beginning prior to January 1, 2011, which either:

  1. Included the benefit of an ATAT.
  2. Failed to report income from an OFA.

Eligibility extends to those who are currently under audit or who are in protest or appeals. It further extends to those who participated in the Internal Revenue Service's Offshore Voluntary Disclosure Initiative. You are not eligible to participate if, as of July 31, 2011, you are currently under criminal tax investigation in California.

Those who participate in this initiative will not be criminally prosecuted for amounts reported during VCI 2 and will not be assessed the:

  • Accuracy related penalties.
  • Non economic Substance Transaction Penalty.
  • Interest based penalty.
  • Fraud penalty.

Those who are eligible to participate, but do not, will not receive these benefits and penalties could nearly double your liability. Furthermore, the eight-year statute of limitations will be extended to 12 years for assessing additional tax and penalties.

  1. Complete and sign a participation agreement which will be available on our website on August 1.
  2. Complete and sign an amended return reversing the ATAT or including the income from the OFA.
  3. Pay all tax and interest.2
  4. Submit all of the above to the Franchise Tax Board by October 31.

Note: The items listed above must be submitted during the VCI 2 filing period of August 1, 2011, through October 31, 2011.

More on Penalties

We cannot waive these penalties under VCI 2:

  • Large Corporate Understatement Penalty (LCUP).
  • Amnesty Penalty.
  • Penalties paid prior to August 1, 2011.

Questions

1 Installment arrangements may be requested if you have a financial hardship. However, your final payment of tax and interest must be received no later than 6/15/2012.
2 Go to VCI 2 on our website for a complete definition of an Abusive Tax Avoidance Transaction (ATAT) and an Offshore Financial Arrangement (OFA).

Back to July 2011 Tax News