What does a 'voluntary disclosure' involve?

A voluntary disclosure involves a proactive approach where a taxpayer seeks to report their tax liabilities to the tax authority, particularly in situations where they have not previously disclosed income or other tax obligations. This typically happens when individuals or businesses recognize that there may be discrepancies in their tax filings or when they fail to fully report income. By voluntarily disclosing this information, the taxpayer aims to rectify any errors and ensure compliance with tax laws, often mitigating potential penalties or legal repercussions that may result from unreported income or tax liabilities.

This proactive stance is key to maintaining transparency and building trust with tax authorities. It can also serve as a means to address past mistakes before they are identified through audits or other enforcement actions. The focus on voluntary action distinguishes this approach from mere reporting of future earnings or requests for an audit, emphasizing the importance of honesty and accountability in the tax compliance process.