Illinois Tax Amnesty Program Begins October 1, 2010

30 September 2010 Publication
Author(s): John B. Palmer

Legal News Alert: Taxation

Illinois Tax Amnesty Program Begins October 1, 2010

From October 1 through November 8, 2010, the Illinois Department of Revenue (Department) will conduct a tax amnesty program 1 in which taxpayers may pay certain taxes to the Department without penalty or interest. Eligible liabilities include all taxes owed to or collected by the Department for time periods ending after June 30, 2002 and prior to July 1, 2009. The program applies to income, sales, and use taxes, among others, as well as municipal taxes paid to the Department.

There is a significant penalty for taxpayers who fail to participate in the program. With limited exception, any eligible tax subsequently found to be due that was not paid in the amnesty program period will be assessed double penalties and interest (the 200-percent sanction).

Although the Department has issued letters about the amnesty program to many taxpayers, the Department has no duty to advise taxpayers of liabilities that may qualify for the program, and taxpayers need not have received a letter from the Department to participate. Correspondingly, a taxpayer’s lack of notice is not a basis to abate the 200-percent sanction for failure to pay the liability during the amnesty program period.

A taxpayer may participate in the amnesty program selectively, provided that the taxpayer completely satisfies its liability for the tax type and tax period for which amnesty is sought. For example, a taxpayer may participate in the amnesty program with respect to income tax, but not sales or use tax, and particular tax periods but not others. The Department recommends that separate payments be made for each liability to avoid any confusion as to proper application.

Taxpayers who have been formally assessed by the Department or who are the subject of a collection action may participate in the amnesty program by paying the assessed liability during the amnesty program period. Taxpayers who have not been assessed by the Department may participate in the amnesty program by filing the appropriate return or amended return and making an estimated payment. If the estimated payment is subsequently determined to be overstated, the taxpayer may obtain a refund. If the estimated payment is determined to be insufficient, additional tax will be assessed. A 200-percent sanction will be applied to any additional assessment.

Many taxpayers have sizeable pending refund claims with the Department, which the Department has been unable to pay due to the state’s financial difficulties. Despite this fact, taxpayers may not offset their pending refund claims against their amnesty payments. A taxpayer with a refund claim who wishes to make an amnesty payment must file an amended return, reporting its corrected liability and taking into account all adjustments that must be made to its original return, including any adjustments reported on its unpaid refund claims, and pay the increase in tax reported on the amended return as if the taxpayer had already received a refund of the previously reported overpayment. The Department’s regulations set forth the language that the taxpayer must include on its amended return in order to preserve its right of refund.

Taxpayers who are involved in state court litigation regarding the tax in question may not participate in amnesty and are not subject to the 200-percent sanction. Payments of tax under protest are treated as the initiation of a civil suit in circuit court and will not be recognized by the Department as amnesty payments. Taxpayers involved in administrative review hearings or Informal Conference Board proceedings are eligible to participate in the amnesty program, and taxpayers in federal court bankruptcy proceedings also may be eligible.

From January 1 through October 15, 2011, Illinois will run another amnesty program for individuals with liabilities under the Use Tax Act2.

1 The information contained in this alert is based upon the Illinois Tax Delinquency Amnesty Act (P.A. 93-0026), effective June 20, 2003, as amended by P.A. 96-1435, effective August 16, 2010 as well as the emergency regulations recently issued by the Illinois Department of Revenue regarding the Amnesty Program, 86 Ill. Adm. Code 520.101, et seq. (to be adopted at 36 Ill. Reg. ____, effective _____, for a maximum of 150 days).

2 P.A. 96-1388.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:

Mary Kay Martire
Chicago, Illinois

John B. Palmer
Chicago, Illinois

Internal Revenue Service regulations generally require that, for purposes of avoiding United States federal tax penalties, a taxpayer may only rely on formal written opinions meeting specific requirements described in those regulations. This newsletter does not meet those requirements. To the extent this newsletter contains written information relating to United States federal tax issues, the written information is not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal tax penalties, and it was not written to support the promotion or marketing of any transaction or matter discussed in the newsletter.


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