Continuing its efforts to improve the process for resolving tax disputes in Massachusetts, the Massachusetts Department of Revenue has released final AP 637 Voluntary Disclosure Program for Settlement of Uncertain Tax Issues (Click Here) outlining a new pilot program for settling “uncertain tax issues” through its voluntary disclosure program.  (Click Here for a redline showing the modest changes from the draft guidance released in January).  The program contemplates permitting taxpayers to disclose and request settlement of uncertain tax, including those that would otherwise require a taxpayer to book a reserve under ASC 740. We applaud the Department for launching a cutting edge program that has the potential to dramatically improve the audit and appeal process in Massachusetts.  However, we are concerned that one aspect of the program will significantly reduce interest in the program and, therefore, its ultimate success—the lack of anonymity during settlement discussions. The current pilot program only applies to uncertain tax issues for which the tax liability, exclusive of interest and penalty, exceeds $100,000, and requires taxpayers to disclose their identity before settlement discussions can begin.  While the Department offers participants in the program the carrot of penalty waiver for any tax associated with uncertain tax issues disclosed under the program regardless of whether a settlement is reached (in most cases), many taxpayers will still be rightfully reluctant to identify themselves and highlight an uncertain position to the Department without knowing whether a settlement of the underlying tax can actually be reached.  For tax positions supported by a reasonable, good-faith interpretation of the law, taxpayers are already entitled to a penalty waiver under Massachusetts law.  As a consequence, for many taxpayers the prime attraction of the program won’t be the penalty waiver, but instead will be the ability to resolve uncertain tax positions quickly for financial accounting purposes. We expect that the risks of self-identification will outweigh this benefit for many taxpayers and suppress taxpayer involvement. While we understand that the Department is likely concerned about the need to verify facts and calculations before entering into a binding agreement regarding an uncertain tax position, these concerns could be met by allowing the parties to enter into an agreement in principle prior to the taxpayer revealing its identity. The Department would then have the option to audit the taxpayer after its identity was revealed to ensure that the taxpayer’s representations were accurate. Overall, when combined with the highly successful Early Mediation and Expedited Settlement Programs, this is yet another signal to taxpayers that the Department is willing to think outside-the-box to improve its audit and appeal process.    It is our hope that as the program goes forward, the Department recognizes that they could greatly increase taxpayer participation through the simple change of allowing taxpayer to reach tentative agreements under the program while remaining anonymous.