Voluntary Compliance Initiative 2 (VCI-2) is “an opportunity for taxpayers who underreported their California income tax liabilities, through the use of abusive tax avoidance transactions (ATAT) or offshore financial arrangements (OFA), to amend their returns for 2010 and prior tax years and obtain a waiver of most penalties.” The benefits of coming forward under this program are impressive: the Franchise Tax Board (FTB) waives penalties for most taxpayers and promises not to pursue them criminally. The complexities of VCI-2 are in the determination of what activities fall under the scope of “abusive tax avoidance transactions” and “offshore financial arrangements.” FTB does define each category, so this is certainly not a catch-all tax relief program.
In order to participate in this program, the applicable returns have to be amended and special forms 621/622 have to be filed by October 31, 2011. Also, the taxes and interest due on the amended returns must be paid by that same date. In some cases, the FTB will allow taxpayers to enter into an installment agreement, but only as long as the balances are paid in full by June 15, 2012. Finally, don’t think you’ll be able to walk away quietly. Under the terms of the program, the taxpayer or business agrees to cooperate in whatever investigation the FTB decides to conduct regarding the details of their illegal ATAT or OFA activities. The information collected from these inquiries will likely help FTB to track down future tax criminals.