Alert

The Washington Department of Revenue (DOR) has introduced a temporary expanded Voluntary Disclosure Agreement (VDA) Program under ESSB 5167, offering significant benefits, including penalty and interest waivers, to encourage compliance with Washington tax laws.

The program, effective July 1, 2025, targets businesses with unreported investment income subject to Business and Occupation (B&O) tax.

Navigate this opportunity to address past tax obligations and mitigate risks.

Why Act Now?

The Antio, LLC v. Washington State Department of Revenue decision clarified that investment income is subject to B&O tax unless incidental—less than 5% of gross income, per HB 2081. This temporary VDA program offers a rare opportunity for businesses to address unreported investment income, limit tax exposure, and avoid costly penalties and interest.

With the first phase beginning July 1, 2025, now is the time to review your B&O tax filings and assess eligibility.

Program Details

The Investment Income VDA Program, prompted by the Antio decision, allows qualifying businesses to report unreported investment income without incurring penalties or interest.

Two Phases

Program administration will be broken into two phases.

• Phase 1: July 1, 2025–April 30, 2026
• Phase 2: July 1, 202–April 30, 2027

Eligibility

To qualify, businesses must meet these criteria:

• Registered or unregistered businesses with unreported investment income subject to B&O tax.
• Affiliates of entities under audit may qualify, provided they meet other criteria.

Businesses meeting these criteria will be excluded:

• Businesses engaged in banking, lending, or securities activities as defined in RCW 82.04.4281
• Taxpayers notified of an audit or enforcement action by the DOR as of July 1, 2025

Key Benefits

Limited Lookback Period

Tax liability is limited to the prior four years plus the current year.

Penalty Waivers

Up to 39% in penalties may be waived, including:

• 5% assessment penalty for substantially underpaid tax
• 5% unregistered penalty
• 29% late payment penalty

Interest Waiver

• No interest on unreported B&O tax liabilities.

Application Process

Applications must be submitted online via the DOR’s website starting July 1, 2025. A complete application includes:

• Business name, address, and contact information
• Spreadsheet of gross income in the specified format
• Washington Business Activities Questionnaire
• Confidential Tax/Email Authorization form
• Copies of reseller permits, exemption certificates, or similar documentation

Anonymity

Businesses may apply anonymously but must disclose their identity within 15 calendar days of application submission. Failure to do so will result in application denial.

Additional VDA Program Changes

Starting in fall 2025, the DOR will implement five permanent changes to the VDA Program:

Limited Lookback for Prior Registrants

Previously registered businesses that closed their accounts can qualify for a four-year lookback period, provided no enforcement contact occurred within the statutory period and no misrepresentation was involved.

Full VDA for Partial Modified Agreements

Taxpayers who registered within the statutory period but later discovered unreported revenue can now receive a full VDA, including waiver of the 5% tax assessment penalty.

Penalty Waiver for Non-Qualifying Applicants

Previously registered taxpayers voluntarily coming forward may have the 5% assessment penalty waived.

Statutory Lookback for Enforcement Contacts

Enforcement contacts outside the four-year statutory period will not disqualify applicants.

Affiliate Audit Cooperation

Affiliates not selected for audit can participate in the VDA Program if the taxpayer proactively discloses affiliate information during an audit.

Additionally, a Temporary Foreign Remote Seller VDA Program will launch in early 2026, offering a one-year lookback for uncollected retail sales taxes and a four-year lookback for B&O taxes, with full penalty waivers for qualifying foreign remote sellers.

Next Steps

Businesses can take advantage of the program by taking these steps:

• Evaluate eligibility for the Investment Income VDA Program.
• Prepare and submit complete VDA applications.
• Review B&O tax filing methodologies to identify exposures and opportunities.
• Navigate the DOR’s requirements to ensure compliance and maximize benefits.

We’re Here to Help

For help navigating this temporary VDA program in Washington, contact your firm professional.

Additional Resources

• State & Local Tax Services
• Tax Services