Section 700.100  Scope of the UPIA and this Part (UPIA Section 3-1A)

 

The Uniform Penalty and Interest Act [35 ILCS 735] (UPIA) and this Part apply to all taxes administered by the Illinois Department of Revenue with the exception of the Racing  Privilege Tax Act [230 ILCS 5], the Revenue Act of 1939 [35 ILCS  205], the Real Estate Transfer Tax Act [35 ILCS 305] and the Coin-Operated Amusement Device Tax [35 ILCS 510].  A specific provision of a particular act contrary to the requirements of the UPIA will control, as will a specific provision that may impose a penalty in addition to the penalties provided for in the UPIA.  (See UPIA Section 3-1A.)

 

EXAMPLE:  Section 3 of the Cigarette Tax Act [35 ILCS 130/3] requires distributors of cigarettes to purchase cigarette tax stamps and affix those stamps to packages of cigarettes before delivering the cigarettes in this State to a purchaser.  Section 3 of the Cigarette Tax Act allows distributors to purchase the tax stamps from the Department with post-dated drafts.  Section 3 provides that a distributor's failure to pay any post-dated draft when due, shall also make such distributor automatically liable to the Department for a penalty equal to 25% of the amount of such draft.  The 25% penalty is a penalty otherwise provided for in a tax Act that is in addition to the penalties imposed under the UPIA. (See UPIA Section 3-1A)

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.105  General Provisions

 

a)         Definitions of Specific Terms.  Except as otherwise expressly provided in the UPIA or in this Part, or as clearly appearing from the context, for purposes of this Part:

 

"Accelerated Tax Payment" means any deposit or payment of tax that is due prior to the unextended due date for filing of the return on which the tax liability is reported, and includes, without limitation:

 

payments of occupation, use and excise taxes due on the 7^th, 15 ^h, 22^nd and last day of each month under Section 3 of the Retailers' Occupation Tax Act [35 ILCS 120] (ROTA) or any similar provision;

 

payments of estimated tax under IITA Section 803; and

 

monthly and semi-weekly deposits of income tax withholding under IITA Section 704 or IITA Section 704A.

 

"Admitted Liability" means a tax liability reported by the taxpayer on an original or amended return.

 

"Claim for Refund" includes an original or amended return on which an overpayment of tax is reported and a refund or credit of the overpayment is requested.

 

"Date of Overpayment" means the date on which the total amounts paid by or collected from the taxpayer with respect to a tax liability exceed the liability, net of allowable credits, provided that:

 

in the case of an overpayment attributable to the carryback of an Illinois net loss under IITA Section 207, the date of overpayment is the date on which the total payments and collections exceed the tax liability or the last day of the taxable year in which the loss was incurred, whichever is later (see UPIA Section 3-2(d));

 

in the case of an overpayment attributable to the carryback of a federal net operating loss or capital loss, the date of overpayment is the date on which the total payments and collections exceed the tax liability or the due date (without regard to extensions) for filing the federal income tax return for the taxable year in which the loss was incurred, whichever is later (see IRC section 6621(f)); and

 

in the case of an overpayment of Retailers' Occupation Tax attributable to a bad debt, the date of overpayment is the date on which the taxpayer files the original or amended federal income tax return on which the deduction for the bad debt is reported.  (See 86 Ill. Adm. Code 130.1960(d)(2)(C) and (d)(5)(C).)

 

"Date of Underpayment" means the date on which a liability becomes both due and unpaid.  (See Avon Products, Inc. v. United States, 588 F.2d 342 (2d Cir. 1978).)  The due date for payment of a tax is determined without regard to any extensions of time for filing of a return.  (See IITA Section 601(a).)

 

"Federal Change" means a change to a federal income tax item that is subject to the reporting provisions of IITA Section 506(b).

 

"Final Assessment" means a liability that has become final under ROTA Section 4 or any similar provision, after the conclusion of a hearing granted to a taxpayer who has protested a notice of tax liability or after the period for protesting a notice of tax liability has expired without a protest being filed. (See UPIA Section 3-3 (2).)

 

"Information Return" means any return required by a tax Act to be filed with the Department that does not, by law, require the payment of a tax liability.  (UPIA Section 3-4(c))

 

"Notice and Demand" means a bill or other request for payment issued by the Department for an assessed amount of tax, penalty or interest.

 

"Notice of Arithmetic Error" means a notice of mathematical error issued under IITA Section 903(a)(1), ROTA Section 4, or any similar provision.

 

"Notice of Tax Liability" means:

 

a protestable notice issued by the Department that asserts an unpaid liability for tax, penalty, or interest that will become a final assessment if not protested or, if protested, after hearing, as provided in ROTA Section 4 or any similar provision; or

 

a protestable notice of deficiency issued under the IITA.

 

"Return" or "Tax Return" means a return required to be filed with the Department, other than an information return.  The terms "return" and "tax return" refer only to an original return, and not an amended return. (See Badaracco v. Commissioner, 464 US 386 (1984) and Hillsboro National Bank v. Commissioner, 460 US 370 (1983).)

 

"Unprocessable Return" means any filing that purports to be a return, but is not on a form prescribed or approved by the Department for the tax liability being reported, is not signed by the person authorized by law, or does not contain all information, schedules, and support documents necessary to determine the tax due and to make allocations of tax as prescribed by law.  (UPIA Section 3-2(d))

 

b)         Other Terms.  Except as provided in subsection (a) or as clearly appearing from the context, any term used in this Part has the same meaning as when used in the act imposing the tax to which the this Part is being applied.

 

c)         Assessment, Protest, Collections and Refunds of Penalty and Interest.  Except as otherwise expressly provided in the UPIA or in this Part, the procedures for assessments, protests, collections and refunds of any item of penalty or interest under the UPIA are the procedures for assessments, protests, collections and refunds of the tax to which the item of penalty or interest relates.

 

(Source:  Added at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.110  Application of the Provisions of the UPIA and this Part (UPIA Section 3-9)

 

a)         The UPIA and this Part are effective January 1, 1994 and the provisions of the UPIA and this Part apply to the rates of interest for periods on and after the effective date of the UPIA and this Part.  (UPIA Section 3-9(a))

 

b)         Interest Charged

 

1)         For periods subsequent to the effective date of the UPIA, the initial rate charged taxpayers by the Department for failure to remit taxes when due is the interest rate in effect at the time the liability to the Department accrued, subject to semiannual adjustment pursuant to UPIA Section 3-2(b).  (See UPIA Section 3-9(6).)

 

EXAMPLE 1: A taxpayer is required to file a monthly return with the Department pursuant to the Automobile Renting Occupation and Use Tax Act [35 ILCS 155] on March 20, 1994 for rental receipts from rentals that were received in February 1994. The taxpayer did not remit the tax to the Department when due on March 20, 1994. The interest rate to be charged the taxpayer is the interest rate in effect on March 20, 1994.

 

EXAMPLE 2: A taxpayer is required to file an income tax withholding return for the fourth quarter of 1993 with remittance. The return is filed before the due date of January 30, 1994 but tax is not fully paid until March 15, 1994. The interest rate will be the rate in effect on January 30, 1994 and will accrue through March 15, 1994, when the tax is paid.

 

EXAMPLE 3: A taxpayer is required to file a first quarter of 1994 quarterly withholding return on or before April 30, 1994. The taxpayer had withholding during this period but did not remit the withholding payment to the Department until June 15, 1994. The interest rate to be charged the Taxpayer is the interest rate in effect on April 30, 1994. This same rate is charged through June 15, 1994, the date the tax was paid.

 

EXAMPLE 4: Assume the same fact situation as in Example 3, but payment is not received until August 15, 1994. The interest rate in effect on April 30, 1994 is charged through June 30, 1994. A new rate is charged from July 1, 1994 through August 15, 1994, the date the tax was paid.

 

EXAMPLE 5: Corporation filed its calendar 1993 corporate income tax return on October 15, 1994 (the extended due date of the return under Section 100.5020(b)) with a payment for the total tax liability shown on the return attached. No estimated payments had been made. The taxpayer is charged interest on the underpayment of tax from March 15, 1994 (the unextended due date of the return) through June 30, 1994 at the rate in effect for the first semiannual period of 1994 and from July 1, 1994 through October 15, 1994 at the rate in effect for the second semiannual period of 1994.

 

2)         Interest for periods prior to the effective date of the Act shall be computed at the rates in effect prior to that date. (UPIA Section 3-9(a))

 

EXAMPLE 1: A taxpayer's Retailers' Occupation Tax return for the July 1981 month liability period was due August 31, 1981. The taxpayer was audited and an additional liability was assessed. The interest rate charged the taxpayer on this liability was 1% per month prior to September 17, 1981, and at the rate of 2% per month on and after September 17, 1981 and prior to January 1, 1987; and at the rate of 1.25% per month on and after January 1, 1987 and prior to January 1, 1994 (see ROTA Section 5, prior to amendment by P.A. 87-205); and at the semiannually adjusted daily interest rate imposed pursuant to the Act and this Part from January 1, 1994 through the date the tax is paid.

 

EXAMPLE 2: A taxpayer's Retailers' Occupation Tax return for the October 1993 liability period was due November 20, 1993. The return was filed and tax was paid on January 15, 1994. The interest rate charged on the liability was 1.25% per month for November 21, 1993 through December 20, 1993 and 1.25% for December 21, 1993 through December 31, 1993 (see ROTA Section 5, prior to amendment by P.A. 87-205); and at the semiannually adjusted daily interest rate imposed pursuant to the Act and this Part from January 1, 1994 through January 15, 1994, the date the tax was paid.

 

EXAMPLE 3: A withholding tax agent has income tax withholding liability for the first quarter of 1986 that was due by April 30, 1986, but was not paid until August 15, 1994. The interest rate charged the taxpayer was 10% per annum for the period May 1, 1986 through June 30, 1986, 9% per annum for the period July 1, 1986 through December 31, 1993 (see IITA Section 1003, prior to amendment by P.A. 87-205), and at the semiannually adjusted interest rate imposed pursuant to the UPIA and this Part from January 1, 1994 through August 15, 1994, the date the tax was paid.

 

EXAMPLE 4: Corporation filed its calendar 1992 corporate income tax return on October 15, 1993 (the extended due date of the return under Section 100.5020(b)). No estimated payments had been made and no payment accompanied the return. The taxpayer would be charged interest at a rate of 9% per annum from March 15, 1993 (the unextended due date of the return) through December 31, 1993 (see IITA Section 1003, prior to amendment by P.A. 87-205) and at the semiannual adjusted rate imposed pursuant to the UPIA and this Part from January 1, 1994 through the date paid.

 

c)         Penalties shall be imposed at the rate and in the manner in effect at the time the tax liability became due. (UPIA Section 3-9(b))

 

EXAMPLE 1: A taxpayer's Retailers' Occupation Tax return for sales made during the month of December 1993 was due on January 20, 1994. Penalties for late payment or non-payment of the tax due are imposed at the rate in effect on January 20, 1994, the time the tax liability became due.

 

EXAMPLE 2: A taxpayer's Retailers' Occupation Tax return for sales made during the month of November 1993 was due on December 20, 1993. However, the taxpayer does not file a return or pay tax for this period until January 15, 1994. Penalties for failure to file the tax return when due and failure to pay tax when due are imposed at the rates in effect on December 20, 1993, the time the tax liability became due.

 

EXAMPLE 3: A corporate taxpayer has a federal tax year based on its fiscal year. Its federal income tax return, and by virtue of IITA Section 505(a)(1), its Illinois income tax return, are both due on November 15. In 1993, the taxpayer is granted a 7 month extension of time in which to file its Illinois return. As a result, taxpayer's Illinois return is due June 15, 1994. Taxpayer does not comply with IITA Section 602 and make payment of the amount of its properly estimated tax for the taxable year on November 15, 1993, nor does taxpayer file its Illinois income tax return by June 15, 1994. Penalties for failure to file the tax return when due and for failure to pay tax when due are imposed at the rates in effect on November 15, 1993, the unextended due date for filing the return and the date on which the tax liability became due.

 

d)         Interest shall not be paid on claims for refund filed after the effective date of the UPIA and this Part except interest which is paid in accordance with the UPIA. (UPIA Section 3-9(c))

 

EXAMPLE 1: A taxpayer files a claim for credit with the Department on January 15, 1994 for an overpayment of Use Tax. The overpayment occurred in October 1992 when the taxpayer self-assessed tax on a purchase of manufacturing machinery and equipment from an unregistered out-of-state retailer and then remitted the tax directly to the Department. The credit is issued on February 15, 1994. Interest shall be paid at the rate of 1% per month for the period from October 1992 through December 31, 1993 (see Use Tax Act Section 19, prior to amendment by P.A. 87-205); and at the semiannually adjusted interest rate imposed pursuant to the Act and these rules from January 1, 1994 through February 15, 1994, the date on which the claim was issued by the Department.

 

EXAMPLE 2: An individual taxpayer files his IL-1040 return on April 10, 1993. On May 1, 1994 the taxpayer files a claim for refund. If the claim for refund is approved, the taxpayer is entitled to interest from April 16, 1993 through December 31, 1993, at an annual rate of 9% (see IITA Section 1003, prior to amendment by P.A. 87-205), and from January 1, 1994 through the date the refund was issued at the semiannually adjusted interest rate under the UPIA.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.200  Interest Paid and Interest Charged (UPIA Section 3-2)

 

UPIA Section 3-2 and this Subpart govern interest paid taxpayers and interest charged taxpayers by the Department.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.210  Interest Rate Calculation (UPIA Section 3-2)

 

a)         For periods prior to January 1, 2004, and periods after December 31, 2013, the rate of interest to be paid to taxpayers and to be charged taxpayers is the underpayment rate established under IRC section 6621. For periods after December 31, 2003, and prior to January 1, 2014, the rate of interest to be paid to taxpayers and to be charged taxpayers is, for the one-year period beginning with the date of underpayment or overpayment, the federal short-term rate established under IRC section 6621, and, for the period beginning the day after that one-year period, the underpayment rate established under IRC section 6621. (UPIA Section 3-2(a))

 

b)         This Section may be illustrated by the following examples:

 

EXAMPLE 1: Taxpayer is an individual whose taxable year is the calendar year. On April 15, 2003, Taxpayer timely filed her 2002 Illinois income tax return, but did not pay the tax shown due on the return. Under this subsection, interest on Taxpayer's underpayment for the period April 16, 2003 through December 31, 2003 is charged at the underpayment rate established under IRC section 6621. With respect to any portion of the underpayment that remains unpaid as of January 1, 2004, interest is charged at the federal short-term rate established under IRC section 6621 through April 15, 2004, one year after the April 15, 2003 date of underpayment. With respect to any portion of the underpayment that remains unpaid as of April 16, 2004, interest is charged at the underpayment rate established under IRC section 6621.

 

EXAMPLE 2: Corporation failed to pay its Illinois income tax liability for its calendar 2001 taxable year, due on March 15, 2002, before January 1, 2004. Under this subsection, for any portion of Corporation's underpayment that remains unpaid on and after January 1, 2004, interest is charged under this subsection at the underpayment rate established under IRC section 6621 because January 1, 2004 is more than one year after the March 15, 2002 date of underpayment.

 

EXAMPLE 3: Taxpayer is an individual who timely filed her calendar 2003 Illinois income tax return on the April 15, 2004 unextended due date, but did not pay the tax shown due on the return. Under this subsection, interest on the unpaid balance of Taxpayer's underpayment accrues for the period from April 16, 2004 through April 15, 2005 at the federal short-term rate established under IRC section 6621. With respect to any portion of the underpayment that remains unpaid on and after April 16, 2005, interest is charged at the underpayment rate established under IRC section 6621.

 

EXAMPLE 4. Taxpayer is an individual who timely filed his calendar 2004 Illinois income tax return on the April 15, 2005 unextended due date, showing an overpayment of $400. Taxpayer requested a refund of the overpayment, which was paid on May 2, 2005. As the result of an audit by the Internal Revenue Service that was completed in 2007, Taxpayer's adjusted gross income for 2004 was increased, causing Taxpayer's Illinois income tax liability to increase by $500. $100 of Taxpayer's deficiency was unpaid as of April 15, 2005 and accrues interest at the federal short-term rate established under IRC section 6621 for the period from the April 16, 2005 date of underpayment through April 15, 2006. The remaining $400 of the deficiency did not become unpaid until the refund was issued on May 2, 2005 and accrues interest at the federal short-term rate established under IRC section 6621 for the period from the May 3, 2005 date of underpayment through May 2, 2006.

 

EXAMPLE 5: Corporation failed to timely pay its Illinois income tax liability for its calendar 2012 taxable year, due on March 15, 2013. Under this subsection, the underpayment accrues interest at the federal short-term rate through December 31, 2013. For any portion of Corporation's underpayment that remains unpaid on and after January 1, 2014, interest is charged at the underpayment rate established under IRC section 6621 because interest is not computed using the federal short-term rate established under IRC section 6621 for any period after December 31, 2013.

 

c)         The underpayment rate is the sum of the federal short-term rate plus 3 percentage points.  The federal short-term rate is the rate determined by the Secretary of the Treasury based upon the average market yield (during any one month period selected by the Secretary of the Treasury and ending the calendar month in which the determination is made) on outstanding marketable obligations of the United States with remaining periods of maturity of 3 years or less.  (See IRC section 6621.)

 

d)         The interest rate shall be adjusted on a semiannual basis, on January 1 and July 1, based upon the underpayment rate or short-term federal rate going into effect on that January 1 or July 1 under IRC section 6621. (UPIA Section 3-2(b))

 

e)         The Department will announce the interest rate and the semiannual adjustments of the interest rate to the public by publication on the Department's web site (www.iltax.com).  Taxpayers may also contact the Department's Taxpayer Information Division for interest rate information.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.220  Interest Charged Taxpayers (UPIA Section 3-2)

 

a)         Interest charged to taxpayers applicable for returns due on or before December 31, 2000 (without regard to extensions). Interest shall be simple interest calculated on a daily basis.  Interest shall accrue upon tax and penalty due.  If notice and demand is made for the payment of any amount of tax due and if the amount due is paid within 30 days after the date of such notice and demand, interest under UPIA Section 3-2(c) on the amount so paid shall not be imposed for the period after the date of the notice and demand.  (UPIA Section 3-2(c))

 

b)         Interest charged to taxpayers applicable for returns due on and after January 1, 2001 (without regard to extensions). Interest shall be simple interest calculated on a daily basis.  Interest shall accrue upon tax due.  If notice and demand is made for the payment of any amount of tax due and if the amount due is paid within 30 days after the date of the notice and demand, interest under this UPIA Section 3-2(c) on the amount so paid shall not be imposed for the period after the date of the notice and demand. (UPIA Section 3-2(c)) Under this provision, interest shall not accrue on penalties.

 

EXAMPLE:  A taxpayer timely filed his individual income tax return on April 15, but because of an arithmetic error the taxpayer did not pay the entire amount of tax due.  If the return was due prior to January 1, 2001, interest accrues on the unpaid tax liability and on any late payment penalty. If the return was due on or after January 1, 2001, interest accrues on the unpaid tax liability, but not on any late payment penalty.

 

c)         Interest on tax shall accrue from the date of underpayment.

 

d)         For returns due on or before December 31, 2000 (without regard to extensions), interest on any penalty shall accrue from the date the penalty is imposed.

 

EXAMPLE 1:  Taxpayer's Retailers' Occupation Tax return for the January 1994 liability period was due February 20, 1994.  The return was filed and tax was paid on May 25, 1994.  Interest is charged on the tax due from February 21, 1994 through May 25, 1994, the date the tax was paid, and on any penalty assessed from February 21, 1994 through the date the penalty is paid.

 

EXAMPLE 2:  Taxpayer's Retailers' Occupation Tax return for the November 1993 liability period was due December 20, 1993.  The return was filed and tax was paid on May 25, 1994.  Interest is charged on the tax due at the 1.25% per month or fraction of month rate from December 21, 1993 to December 31, 1993 (see ROTA Section 5, prior to amendment by P.A. 87-205) and at the semiannually adjusted daily rate imposed pursuant to the UPIA and this Part from January 1, 1994 through May 25, 1994, the date the tax was paid.  No interest is charged on the penalty assessed since the due date of the tax was before the effective date of the UPIA.

 

EXAMPLE 3:  Taxpayer's accelerated payments of the Public Utilities Tax were due on the 7^th, 15^th, 22^nd and 31^st of January 1994.  Each payment should have been $3,000.  Taxpayer did not make the payment due on January 31, but paid the $3,000 with the monthly return that was filed, when due, on February 15, 1994.  The taxpayer will be charged a 15% late payment penalty under UPIA Section 3-3(b) because the last accelerated payment was not paid when due. Interest is charged on the $3,000 late payment from February 1, 1994 through February 15, 1994, when the payment was received, and on the penalty from February 1, 1994 through the date the penalty is paid.

 

EXAMPLE 4:  Corporation filed its calendar 1993 income tax return on March 15, 1994, the unextended due date.  The corporation was liable for, but did not make, any estimated payments for the taxable year. The tax liability reported on the return was paid in full when the return was filed.  Interest on the penalty for failure to make timely estimated tax payments accrues from March 15, 1994 through the date the penalty is paid.

 

EXAMPLE 5:  Corporation filed its calendar 1993 income tax return on March 15, 1994, the unextended due date.  The corporation properly made all estimated payments and paid the remainder of its tax liability when the return was filed.  In 1997 an audit was completed on the corporation's 1993 return and additional liability was proposed.  The corporation agreed to the audit results but did not pay the liability until 35 days after the Notice and Demand for payment was issued.  A late payment penalty was assessed on the audit liability under UPIA Section 3-3(b) and interest accrues on the penalty from March 15, 1994 through the date the penalty is paid.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.230  Interest Paid Taxpayers on Overpayments (UPIA Section 3-2)

 

a)         No interest shall be paid upon any overpayment of tax if the overpayment is refunded or a credit approved within 90 days after the last date prescribed for filing the original return, or within 90 days of the receipt of the processable return, or within 90 days after the date of overpayment, whichever is latest, as determined without regard to processing time by the Comptroller or without regard to the date on which the credit is applied to the taxpayer's account. (UPIA Section 3-2(d))

 

1)         The reference to "credit" in UPIA Section 3-2, and throughout this Section, is to claims for credit granted under the various tax Acts.

 

2)         Under ROTA Section 3, the Department has been granted the authority to issue verified credits. A verified credit is an amount of tax overpaid in a prior period that may be rolled over and applied to a tax liability. The verified credit mechanism authorizes this procedure without the necessity of the formalities involved in the claim for credit procedures. Interest is not paid on verified credits. They appear on the Statement of Account.

 

b)         For purposes of this Section, UPIA Section 3-2(d) provides that the date of overpayment shall mean the date tax was paid, the original due date of the return or the date a processable return was received, whichever is later.

 

1)         When a return is unprocessable, and the Department issues a notice of that fact to the taxpayer within 90 days after the filing of the unprocessable return or within 90 days after the due date (whichever is later), interest will be allowed on any overpayment from the date the return was made processable by the taxpayer, but only if the refund or claim for credit on the overpayment is not approved within 90 days after the date on which the return was made processable.

 

2)         When a return is unprocessable and notice of that fact is not given to the taxpayer by the Department within 90 days after the filing of the unprocessable return, interest will be allowed from the latter of the date the tax was paid, the original due date of the return or the date the unprocessable return was originally received until the date of notice to the taxpayer by the Department that the return is unprocessable. Additional interest will be allowed from the date the return was made processable until the date the refund or claim for credit on the overpayment is approved, but only if the refund or claim for credit is not approved within 90 days after the date the return was made processable by the taxpayer. (See subsection (f).)

 

c)         For purposes of calculating interest on overpayments of tax, a processable return is a return that;

 

1)         is in the form prescribed or approved by the Department;

 

2)         is signed by the person authorized by law; and

 

3)         contains all information, schedules, and support documents necessary to determine the tax due and to make allocations of tax as prescribed by law. (UPIA Section 3-2)

 

d)         Any unprocessable return that is not corrected and made processable within the time period identified on the Department's notice will be considered a nonfiled return, subject to any and all applicable penalties. Being considered a nonfiler for any given period will also result in an extended or open time period for issuance of a Notice of Deficiency or Notice of Tax Liability.

 

e)         For the purpose of computing interest, a return shall be deemed processable unless the Department notifies the taxpayer that the return is not processable within 90 days after the receipt of the return; however, interest shall not accumulate for the period following this date of notice. (UPIA Section 3-2) Notice by the Department must be in writing and is effective on the date mailed to the taxpayer at the last known address for the taxpayer according to Department records.

 

f)         Interest on amounts refunded or credited pursuant to the filing of an amended return or claim for refund shall be determined from the due date of the original return or the date of overpayment, whichever is later, to the date of the payment by the Department without regard to processing time by the Comptroller or the date of credit by the Department or without regard to the date on which the credit is applied to the taxpayer's account. (UPIA Section 3-2(d)) Interest on overpayments due pursuant to the filing of an amended return or claim for credit will be allowed as specified in this subsection (f) and subsection (b) except:

 

1)         that interest will be allowed whether or not the overpayment is approved within the 90 day period after the amended return was filed (except if the refund or credit is issued within 90 days after receipt of the original processable return or the date of overpayment (see subsection (a)); or

 

2)         If a claim for refund relates to an overpayment attributable to a net loss carryback as provided by IITA Section 207, the date of overpayment shall be the last day of the taxable year in which the loss was incurred. (UPIA Section 3-2) In this case interest accrues only from the last day of the taxable year in which the loss was incurred.

 

g)         If the Department notifies the taxpayer that a return is unprocessable later than 90 days from the date the return is received, the Department will be required to pay interest only from the due date of the original return to the date of the Department's notice to the taxpayer that the return is unprocessable.

 

EXAMPLE 1: A corporate income tax return reflecting a refund of $10,000 for the taxable year ending December 31, 1994 was filed on March 15, 1995. On June 1, 1995, notice was given that the return is not processable. The taxpayer responded on July 1, 1995 with information suitable to process the return. If a refund is approved by October 1, 1995, no interest will be allowed because notice was given within 90 days after the date the return was received and the refund was approved within 90 days after the date the return was made processable.

 

EXAMPLE 2: Same facts as in the preceding example except that notice was not given until June 16, 1995. In this case, interest will be allowed from March 15, 1995 through June 16, 1995.

 

EXAMPLE 3: Same facts as in Example 2 except that the refund is not approved until November 1, 1995. In addition to the interest provided in Example 2, interest will also be allowed from July 1, 1995 through November 1, 1995.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.300  Penalty for Late Filing or Failure to File (UPIA Section 3-3(a), (a-5), (a-10), and (a-15))

 

a)         Late Filing Penalty for Returns Due (without regard to extensions) On or After January 1, 1994, and Prior to January 1, 1996.  A penalty of 5% of the tax required to be shown due on a return shall be imposed for failure to file the tax return on or before the due date prescribed for filing determined with regard for any extension of time for filing (penalty for late filing or nonfiling). (UPIA Section 3-3(a))

 

1)         If any unprocessable return is corrected and filed within 21 days after notice by the Department, the late filing or nonfiling penalty shall not apply. (UPIA Section 3-3(a)) This exception to the penalty applies only if the unprocessable return was filed on or before the due date prescribed for filing of that return, with regard for any extension of filing.  In other words, a taxpayer does not avoid the 5% penalty under this exception by the late filing of an unprocessable return that is then corrected within 21 days after notice by the Department.

 

2)         For purposes of this subsection (a), the "tax required to be shown due on a return" means the tax as properly computed, net of credits properly allowable, but without regard to any payment of the tax or any accelerated tax payments.

 

3)         If a penalty for late filing or nonfiling is imposed in addition to a penalty for late payment, the total penalty due shall be the sum of the late filing penalty and the applicable late payment penalty. (UPIA Section 3-3(a))

 

4)         In the case of any type of tax return for which filing is due more frequently than annually, when the failure to file the tax return on or before the date prescribed for filing (including any extensions) is shown to be nonfraudulent and no other failure to file has occurred in the two years immediately preceding the failure to file on the prescribed due date, the penalty imposed under this subsection (a) shall be abated. (UPIA Section 3-3(a))

 

b)         Late Filing Penalty for Returns Due (without regard to extensions) On or After January 1, 1996 and On or Before December 31, 2000

 

1)         Tier 1 Penalty. A penalty equal to 2% of the tax required to be shown due on a return, up to a maximum amount of $250, determined without regard to any part of the tax that is paid on time or by any credit that was properly allowable on the date the return was required to be filed, shall be imposed for failure to file the tax return on or before the due date prescribed for filing determined with regard for any extension of time for filing.  (UPIA Section 3-3(a-5))

 

EXAMPLE 1: Taxpayer's Retailers' Occupation Tax return was due by April 20, 1996, but Taxpayer filed it on May 17, 1996.  The tax required to be shown due on the return was $10,000.  Taxpayer timely paid the full $10,000 in accelerated tax payments.  A Tier 1 late filing penalty of $200 (2% x $10,000 = $200; $200 is less than the $250 maximum Tier 1 penalty, and so the penalty is $200) is imposed because the return was not filed by the April 20 due date.

 

EXAMPLE 2: Individual's Illinois income tax return was due by April 15, 1996, with an automatic extension of time to file until October 15 granted by 86 Ill. Adm. Code 100.5020(b), but Individual filed it on November 10, 1996.  The tax required to be shown due on the return was $2,000.  Individual's employer withheld $1,200 for Illinois income tax, and Individual timely paid $500 in estimated tax payments during the year. The remaining $300 was paid with the return. A Tier 1 late filing penalty of $40 (2% x $2,000, the tax required to be shown due on the return without regard to credits or timely payments = $40, which is less than the $250 maximum Tier 1 penalty) is imposed because the return was not filed by the October 15 due date.

 

EXAMPLE 3: Corporation's Illinois income tax return was due by March 15, 1996, with an automatic extension of time to file until October 15 granted by 86 Ill. Adm. Code 100.5020(b), but Corporation filed it on November 10, 1996. The tax shown due on the return was $1,500. On the return, Corporation failed to claim a research and development credit of $700. Corporation subsequently filed an amended return, claiming the $700 credit and showing a liability of $800. The Tier 1 late filing penalty is $30 (2% x $1,500, the amount of tax required to be shown due on the return without regard to credits or timely payments = $30, which is less than the $250 maximum Tier 1 penalty).

 

2)         Tier 2 Penalty. If any return is not filed within 30 days after notice of nonfiling mailed by the Department to the last known address of the taxpayer contained in Department records, an additional penalty amount shall be imposed equal to the greater of $250 or 2% of the tax shown on the return. The maximum amount of the additional penalty is $5,000. The amount of the additional penalty is determined without regard to any part of the tax that is paid on time or by any credit that was properly allowable on the date the return was required to be filed (penalty for late filing or nonfiling) (UPIA Section 3-3(a-5)).

 

EXAMPLE: Taxpayer's Retailers' Occupation Tax return was due by April 20, 1996, but Taxpayer did not file it. The Department issued a notice of nonfiling asking Taxpayer to file a return or to explain why no return was required. Taxpayer filed the return 45 days after the notice. The tax shown on the return was $18,000. Taxpayer timely paid the full $18,000 in accelerated tax payments. A Tier 1 penalty is imposed in the amount of $250 (2% of $18,000 in tax required to be shown due on the return without regard to timely payments = $360, which is greater than the $250 maximum Tier 1 penalty). A Tier 2 penalty is imposed in the amount of $360 (2% of $18,000 in tax due without regard to timely payments = $360, which is greater than the $250 minimum Tier 2 penalty and less than the $5,000 maximum) because Taxpayer did not file the return within 30 days after the notice of nonfiling.

 

3)         If any unprocessable return is corrected and filed within 30 days after notice by the Department, the late filing or nonfiling penalty shall not apply. (UPIA Section 3-3(a-5)) This exception to the penalty applies only if the unprocessable return was filed on or before the due date prescribed for filing of that return, with regard for any extension of filing.  In other words, a taxpayer does not avoid the penalty under this exception by the late filing of an unprocessable return which is then corrected within 30 days after notice by the Department.

 

4)         In the case of any type of tax return required to be filed more frequently than annually, when the failure to file the tax return on or before the date prescribed for filing (including any extensions) is shown to be nonfraudulent and no other failure to file has occurred in the two years immediately preceding the failure to file on the prescribed due date, the penalty imposed under this subsection (b) does not apply. (UPIA Section 3-3(a-5))

 

c)         Late Filing Penalty for Returns Due (without regard to extensions) On or After January 1, 2001

 

1)         Tier 1 Penalty. A penalty equal to 2% of the tax required to be shown due on a return, up to a maximum amount of $250, reduced by any tax that is paid on time or by any credit that was properly allowable on the date the return was required to be filed, shall be imposed for failure to file the tax return on or before the due date prescribed for filing determined with regard for any extension of time for filing.  (UPIA Section 3-3(a-10))

 

EXAMPLE 1: Taxpayer's Retailers' Occupation Tax return was due by April 20, 2001, but Taxpayer filed it on May 17, 2001.  The tax required to be shown due on the return was $10,000.  Taxpayer timely paid the full $10,000 in accelerated tax payments.  A penalty of 2% of the tax required to be shown due on the return is applicable for the late filing of the return but no penalty is assessed because, after taking into account the tax paid on time, the tax liability was zero.

 

EXAMPLE 2: Individual's Illinois income tax return was due by April 15, 2001, with an automatic extension of time to file until October 15 granted by 86 Ill. Adm. Code 100.5020(b), but Individual filed it on November 10, 2001.  The tax required to be shown due on the return was $2,000. Individual's employer withheld $1,200 for Illinois Income Tax, and Individual timely paid $500 in estimated tax payments during the year. The remaining $300 was paid with the return. A Tier 1 late filing penalty of $6 (2% x $300, the tax required to be shown due on the return reduced by credits and timely payments = $6, which is less than the $250 maximum Tier 1 penalty) is imposed because the return was not filed by the October 15 extended due date.

 

EXAMPLE 3: Corporation's Illinois income tax return was due by March 15, 2001, with an automatic extension of time to file until October 15 granted by 86 Ill. Adm. Code 100.5020(b), but Corporation filed it on November 10, 2001. The tax liability shown on the return was $1,500. On the return, Corporation failed to claim a research and development credit of $700. Corporation subsequently filed an amended return, claiming the $700 credit and showing a liability of $800. The Tier 1 late filing penalty is $16 (2% x $800, the amount of tax required to be shown due on the return reduced by credits and timely payments = $16, which is less than the $250 maximum Tier 1 penalty).

 

2)         Tier 2 Penalty. If any return is not filed within 30 days after notice of nonfiling mailed by the Department to the last known address of the taxpayer contained in Department records, an additional penalty amount shall be imposed equal to the greater of $250 or 2% of the tax shown on the return.  However, the additional penalty amount may not exceed $5,000 and the penalty is determined without regard to any part of the tax that is paid on time or by any credit that was properly allowable on the date the return was required to be filed (penalty for late filing or nonfiling).  (UPIA Section 3-3(a-10))

 

EXAMPLE: Taxpayer's Retailers' Occupation Tax return was due by April 20, 2001, but Taxpayer did not file it. The Department issued a notice of nonfiling asking Taxpayer to file a return or to explain why no return was due. Taxpayer filed the return 45 days after the notice.  The tax liability shown on the return was $18,000. Taxpayer timely paid the full $18,000 in accelerated tax payments. No Tier 1 late filing penalty is assessed because, after taking into account the tax paid on time, the tax liability was zero. A Tier 2 penalty is imposed in the amount of $360 (2% of $18,000 in tax due without regard to timely payments = $360, which is greater than the $250 minimum Tier 2 Penalty and less than the $5,000 maximum) because Taxpayer did not file the return within 30 days after the notice of nonfiling.

 

3)         If any unprocessable return is corrected and filed within 30 days after notice by the Department, the late filing or nonfiling penalty shall not apply. (UPIA Section 3-3(a-10)) This exception to the penalty applies only if the unprocessable return was filed on or before the due date prescribed for filing of that return, with regard for any extension for filing.  In other words, a taxpayer does not avoid the penalty under this exception by the late filing of an unprocessable return that is then corrected within 30 days after notice by the Department.

 

4)         In the case of any type of tax return required to be filed more frequently than annually, when the failure to file the tax return on or before the date prescribed for filing (including any extensions) is shown to be nonfraudulent and has not occurred in the 2 years immediately preceding the failure to file on the prescribed due date, the penalty imposed by this subsection (c) shall be abated. (UPIA Section 3-3(a-10))

 

d)         For returns due on or after August 16, 2013 (the effective date of P.A. 98-425) and prior to August 10, 2015 (the effective date of P.A. 99-335), in addition to any other penalties imposed by law for the failure to file a return, a penalty of $100 shall be imposed for failure to file a transaction reporting return required by Retailers’ Occupation Tax Act (ROTA) Section 3 and Use Tax Act (UTA) Section 9 on or before the date a return is required to be filed. This penalty shall be imposed regardless of whether the return when properly prepared and filed would result in the imposition of a tax. (UPIA Section 3-3(a-15))

 

e)         For returns due on or after August 10, 2015 (the effective date of P.A. 99-335), a penalty of $100 shall be imposed for failure to file a transaction reporting return required by ROTA Section 3 and UTA Section 9 on or before the date the return is required to be filed; provided, however, that this penalty shall be imposed only if the return, when properly prepared and filed, would not result in the imposition of a tax. If the transaction reporting return would result in the imposition of a tax when properly prepared and filed, then that return is subject to the provisions of subsection (c). (UPIA Section 3-3(a-15))

 

(Source:  Amended at 47 Ill. Reg. 6723, effective May 3, 2023)

 

Section 700.305  Penalty for Late Payment of Tax (UPIA Section 3-3(b), (b-5), (b-10), (b-15), and (b-20))

 

a)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 1994 and On or Before January 1, 1998. For returns due on or after January 1, 1994, and on or before January 1, 1998, a penalty of 15% of the tax shown on the return or the tax required to be shown due on the return shall be imposed:

 

1)         For failure to pay the tax shown due on the return on or before the due date prescribed for payment of that tax, an amount of underpayment of estimated tax, or an amount that is reported in an amended return other than an amended return timely filed as required by IITA Section 506(b) (penalty for late payment or nonpayment of admitted liability). (UPIA Section 3-3(b)(1))

 

EXAMPLE 1:  Individual's income tax return for calendar year 1994 was due (without regard to extensions) by April 15, 1995, and the liability after credits was $1,500. Individual owed 4 estimated tax installment payments of $337.50 each, which were due on April 15, June 15 and September 15 of 1994 and January 15 of 1995, but made only the first payment of $337.50 in a timely manner. Individual filed the return on April 15, and paid the remaining $1,162.50 liability with the return. Individual owes a penalty of $151.88 ($337.50 x 3 unpaid installments = $1,012.50 estimated tax that was due, and $1,012.50 x 15% penalty = $151.88 late payment penalty) because Individual failed to pay the amounts due for each estimated tax installment.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return was filed on October 1 and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed by virtue of the automatic extension until October 15 of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. Individual owes a late payment penalty of $174.38. The penalty for failure to timely pay the unpaid $1,012.50 in estimated tax installments is the $151.88 amount computed in Example 1. Failure to timely pay the remaining $150 that was shown due on the original return date is subject to penalty as prescribed by UPIA Section 3-3(b)(1) of $22.50 ($1,500 - $1,350 = $150 x 15% = $22.50) for failure to pay the total tax by April 15.

 

2)         For failure to pay the full amount of any tax required to be shown due on a return and that is not shown (penalty for late payment or nonpayment of additional liability), within 30 days after a Notice of Arithmetic Error, Notice and Demand, or Final Assessment is issued by the Department. In the case of Final Assessment arising following a protest and hearing, the 30-day period shall not begin until all proceedings in court for review of the final assessment have terminated or the period for obtaining a review has expired without proceedings for a review having been instituted. In the case of a notice of tax liability that becomes a final assessment without a protest and hearing, the penalty provided in this subsection (a)(2) shall be imposed at the expiration of the period provided for the filing of a protest. (UPIA Section 3-3(b)(2)) For purposes of this subsection (a)(2):

 

A)        An amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an original or amended return. (Compare UPIA Section 3-3(b)(2) with (b-20)(2).)

 

B)        The 30-day period for providing payment in response to Department notices and final assessments is effective for notices and assessments issued on or after January 1, 1996. Payments in response to notices and assessments issued prior to January 1, 1996 were due within 21 days (the effective date of P.A. 89-436).

 

EXAMPLE 1:  Corporation timely filed its income tax return for calendar year 1994 by the March 15, 1995 unextended due date for calendar year filers. Corporation properly made all estimated tax payments and paid the remainder of its tax liability with the return. In 1997, the Department completed an audit of Corporation's 1994 return and issued a notice of deficiency for an additional liability of $5,000. Corporation protested the notice of deficiency, which was ultimately upheld by the courts. Corporation is subject to the late payment penalty of $750 (15% of $5,000) only if it does not pay the additional liability within 30 days after the Department has issued a Notice and Demand for Payment.

 

EXAMPLE 2:  The facts are the same as in Example 1, except that the additional liability of $5,000 assessed in 1997 is the result of a federal change. If Corporation timely reported the federal change liability, it is not subject to late payment penalty under subsection (a)(1) and is subject to the late payment penalty under subsection (a)(2) only if it does not pay the additional liability before the Department has issued a Notice and Demand for Payment of the liability and 30 days have passed. If Corporation files its report of the federal change liability after the due date, it is immediately subject to late payment penalty under subsection (a)(1).

 

EXAMPLE 3:  Corporation timely filed its income tax return for calendar year 1993 by the March 15, 1994 unextended due date. Corporation properly made all estimated tax payments and paid the remainder of its tax liability with the return. In 1995, the Department completed an audit of Corporation's 1994 return and issued a Notice of Deficiency for an additional liability of $5,000. Corporation agreed to the additional liability and the Department issued a Notice and Demand for the additional liability. If the Notice and Demand was issued prior to January 1, 1996, Corporation is subject to the late payment penalty under subsection (a)(2) only if it does not pay the additional liability within 21 days. If the Notice and Demand was issued on or after January 1, 1996, Corporation is subject to the late payment penalty under subsection (a)(2) only if it does not pay the additional liability within 30 days.

 

b)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 1998 and On or Before December 31, 2000. For returns due on and after January 1, 1998 and on or before December 31, 2000, a penalty of 20% of the tax shown on the return or the tax required to be shown due on the return shall be imposed:

 

1)         For failure to pay the tax shown due on the return on or before the due date prescribed for payment of that tax, an amount of the underpayment of estimated tax, or an amount that is reported in an amended return other than an amended return timely filed as a requirement of IITA Section 506(b) (penalty for late payment or nonpayment of admitted liability). (UPIA Section 3-3(b-5)(1))

 

EXAMPLE 1:  Individual's income tax return for calendar 1997 was due (without regard to extensions) by April 15, 1998, and the liability after credits was $1,500. Individual owed 4 estimated tax installment payments of $337.50 each, which were due on April 15, June 15 and September 15 of 1997 and January 15 of 1998, but made only the first payment of $337.50 in a timely manner. Individual filed the return on April 15 and paid the remaining $1,162.50 liability with the return. Individual owes a penalty of $202.50 ($337.50 x 3 unpaid installments = $1,012.50 estimated tax that was due, and $1,012.50 x 20% penalty = $202.50 late payment penalty) because Individual failed to pay the amounts due for each estimated tax installment.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return was filed on October 1 and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed by virtue of the automatic extension until October 15 of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. Individual owes a late payment penalty of $232.50. The penalty for failure to timely pay the unpaid $1,012.50 in estimated tax installments is the $202.50 amount computed in Example 1. Failure to timely pay the remaining $150 that was shown due on the original return date is subject to penalty as prescribed by UPIA Section 3-3(b)(1) of $30.00 ($1,500 - $1,350 = $150 x 20% = $30.00) for failure to pay the total tax by April 15.

 

2)         For failure to pay the full amount of the tax required to be shown due on a return and that is not shown (penalty for late payment or nonpayment of additional liability) within 30 days after a Notice of Arithmetic Error, Notice and Demand, or Final Assessment is issued by the Department. In the case of a Final Assessment arising following a protest and hearing, the 30-day period shall not begin until all proceedings in court for review of the final assessment have terminated or the period for obtaining a review has expired without a proceeding having been instituted. In the case of a Notice of Tax Liability that becomes a Final Assessment without a protest and hearing, the penalty provided in this subsection (b) shall be imposed at the expiration of the period provided for the filing of a protest. (UPIA Section 3-3(b-5)(2))

 

EXAMPLE 1:  Corporation timely filed its income tax return for calendar year 1997 by the March 15, 1998 unextended due date for calendar year filers. Corporation properly made all estimated tax payments and paid the remainder of its tax liability with the return. In 2000, the Department completed an audit of Corporation's 1997 return and issued a Notice of Deficiency for an additional liability of $5,000. Corporation protested the Notice of Deficiency, which was ultimately upheld by the courts. Corporation is subject to the late payment penalty of $1,000 (20% of $5,000) only if it does not pay the additional liability within 30 days after the Department has issued a Notice and Demand for Payment.

 

EXAMPLE 2:  The facts are the same as in Example 1, except that the additional liability of $5,000 assessed for 1997 was the result of a federal change. If Corporation timely reported the federal change liability, it is not subject to late payment penalty under subsection (b)(1) and is subject to the late payment penalty under subsection (b)(2) only if it does not pay the additional liability before the Department has issued a Notice and Demand for Payment of the liability and 30 days have passed. If Corporation filed its report of the federal change liability after the due date, it is immediately subject to late payment penalty under subsection (b)(1).

 

3)         For purposes of this subsection (b), an amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an original or amended return. (Compare UPIA Section 3-3(b-5)(2) with (b-20)(2).)

 

c)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 2001 and On or Before December 31, 2003. For returns due on and after January 1, 2001 and on or before December 31, 2003, a penalty is imposed:

 

1)         For failure to pay the tax shown due on a return on or before the due date prescribed for payment of that tax, an amount of underpayment of estimated tax, or an amount that is reported in an amended return other than an amended return timely filed as required by IITA Section 506(b) (penalty for late payment or nonpayment of admitted liability).

 

A)        The amount of the penalty imposed shall be:

 

i)          2% of any amount that is paid no later than 30 days after the due date;

 

ii)         5% of any amount that is paid later than 30 days after the due date and not later than 90 days after the due date;

 

iii)        10% of any amount that is paid later than 90 days after the due date and not later than 180 days after the due date; and

 

iv)        15% of any amount that is paid later than 180 days after the due date.

 

B)        Effective July 25, 2002, if Notice and Demand is made for the payment of any amount of tax due and if the amount due is paid within 30 days after the date of the Notice and Demand, then the penalty for late payment or nonpayment of admitted liability under subsection (c)(1)(A) on the amount so paid shall not accrue for the period after the date of the Notice and Demand (UPIA Section 3-3(b-10)(1)).

 

EXAMPLE 1:  Individual's income tax return for calendar year 2000 was due (without regard to extensions) by April 15, 2001, and the liability after credits was $1,500. Individual owed 4 estimated tax installment payments of $337.50 each, which were due on April 15, June 15 and September 15 of 2000 and January 15 of 2001, but made only the first payment of $337.50 in a timely manner. Individual filed the return on April 15, 2001 and paid the remaining $1,162.50 liability with the return. Individual owes a penalty for late payment of estimated tax of $118.14. Because all payments, other than the first estimated tax installment, were made on April 15, the second and third installment payments were made more than 180 days late, and the fourth installment payment was made 90 days late. The late payment of estimated tax penalty is calculated as follows: second installment penalty ($337.50 x 15% = $50.63) + third installment penalty ($337.50 x 15% = $50.63) + fourth installment penalty ($337.50 x 5% = $16.88) = $118.14 late payment penalty for failure to pay estimated taxes.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return was filed on October 1 and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed by virtue of the automatic extension, until October 15, 2001, of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. Individual owes penalties for late payment of estimated tax and late payment of tax due with the return totaling $166.89. Because all the estimated tax installments, other than the first, were made on October 1, the second, third and fourth installment payments were made more than 180 days late.  The remaining $150 was due on April 15 and was paid more than 90 but not more than 180 days late. The late payment of estimated tax penalty is calculated as follows for each of the 3 late estimated tax installments: $337.50 x 15% = $50.63, times 3 = $151.89 late payment penalty for failure to pay estimated taxes. The penalty for late payment of the tax due with the return is calculated as follows: $1,500 - $1,350 (the amount of estimated taxes due) = $150 tax due with the return and paid late. $150 x 10% = $15 late payment penalty for failure to pay tax due by April 15.

 

EXAMPLE 3:  Taxpayer's Form ST-1 for May 2001 was due on June 20, 2001. Taxpayer's quarter-monthly accelerated tax payments of the Retailers' Occupation Tax were due on May 7, 15, 22 and 31. The amount of each accelerated payment due was $4,500. Taxpayer did not make any accelerated payments and instead paid the total tax due with its timely filed return on June 20. Taxpayer is subject to penalty for failing to make timely accelerated tax payments. The May 7 and May 15 payments were more than 30 days but less than 90 days late, and are therefore subject to the 5% penalty. The May 22 and May 31 payments were no more than 30 days late, and are therefore subject to the 2% penalty. The late payment penalty is $630: the $4,500 due on May 7 x 5%, or $225; the $4,500 due on May 15 x 5%, or $225; the $4,500 due on May 22 x 2%, or $90; plus the $4,500 due on May 31 x 2%, or $90. If the amount of each accelerated payment due is subsequently increased or decreased as the result of an audit or amendment to the return, the penalty under this subsection (c)(1)(B) is computed using the corrected amount. 

 

EXAMPLE 4:  Taxpayer's Form ST-1 for July, 2002, due on August 20, 2002, was timely filed but no payment was made. The Department issued Taxpayer a Notice and Demand dated September 15, 2002. Taxpayer paid the tax due on October 9, 2002. The penalty is 2% of the tax shown due on the return. Although payment was made later than 30 days after the due date, a Notice and Demand was issued on September 15, and the penalty does not increase for the period after the date of a Notice and Demand when the tax is paid within 30 days after the Notice and Demand is issued.

 

2)         For failure to pay the full amount of any tax required to be shown due on a return and that is not shown (penalty for late payment or nonpayment of additional liability) within 30 days after a Notice of Arithmetic Error, Notice and Demand, or Final Assessment is issued by the Department. In the case of a Final Assessment arising following a protest and hearing, the 30-day period shall not begin until all proceedings in court for review of the Final Assessment have terminated or the period for obtaining a review has expired without proceedings for a review having been instituted. The amount of penalty imposed is 20% of any amount that is not paid within the 30-day period. In the case of a notice of tax liability that becomes a Final Assessment without a protest and hearing, the penalty imposed under UPIA Section 3-3(b-10)(2) shall be imposed at the expiration of the period provided for the filing of a protest. (UPIA Section 3-3(b-10)(2))

 

EXAMPLE 1:  Corporation timely filed its Form IL-1120 for calendar year 2000 by the March 15, 2001 unextended due date. Corporation properly made all estimated tax payments and paid the remainder of its reported tax liability with the return. In 2003, the Department completed an audit of Corporation's 2000 return and issued a notice of deficiency for an additional liability of $5,000. Corporation protested the Notice of Deficiency, which was ultimately upheld by the courts. Corporation is subject to the late payment penalty of $1,000 (20% of $5,000) only if it does not pay the additional liability within 30 days after the Department has issued a Notice and Demand for Payment.

 

EXAMPLE 2:  The facts are the same as in Example 1, except that the additional liability of $5,000 assessed for 2000 is the result of a federal change. If Corporation timely reported the federal change liability, it is not subject to late payment penalty under subsection (c)(1) and is subject to the late payment penalty under subsection (c)(2) only if it does not pay the additional liability before the Department has issued a Notice and Demand for Payment of the liability and 30 days have passed. If Corporation files its report of the federal change liability after the deadline, it is immediately subject to late payment penalty under subsection (c)(1).

 

3)         For purposes of this subsection (c), an amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an original or amended return. (Compare UPIA Section 3-3(b-10)(2) with (b-20)(2).)

 

d)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 2004 and On or Before December 31, 2004. For returns due on or after January 1, 2004, and on or before December 31, 2004, UPIA Section 3-3(b-15) imposes a penalty for failure to pay the tax shown due on a return, or the tax required to be shown due on a return, including tax shown on an amended return, on or before the due date prescribed for payment of the tax, or imposes a penalty for an amount of underpayment of estimated tax.

 

1)         The amount of the penalty imposed is determined according to the following schedule:

 

A)        2% of the amount paid not later than 30 days after the due date prescribed for payment of the tax;

 

B)        10% of the amount paid later than 30 days after the due date, but not later than 90 days after the due date prescribed for payment of the tax;

 

C)        15% of the amount paid later than 90 days after the due date, but not later than 180 days after the due date prescribed for payment of the tax; and

 

D)        20% of any amount that is paid later than 180 days after the due date prescribed for payment of the tax.

 

2)         Notwithstanding subsection (d)(1), if an amount of tax is paid no later than 30 days after the date of a Notice and Demand issued with respect to that tax, the penalty imposed under this subsection (d) with respect to the amount so paid shall not increase over the penalty applicable as of the date of the Notice and Demand. (UPIA Section 3-3(b-15))

 

3)         For purposes of this subsection (d), an amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an original or amended return. (Compare UPIA Section 3-3(b-15)(2) with (b-20)(2).)

 

4)         No penalty is imposed under this subsection (d) for failure to timely pay the tax shown due on an amended federal change return timely filed pursuant to IITA Section 506(b), but only to the extent the failure relates to the federal change reported under that Section.

 

5)         The provisions of this subsection (d) may be illustrated by the following examples:

 

EXAMPLE 1:  Individual's income tax return for calendar year 2003 was due (without regard to extensions) by April 15, 2004, and the liability after credits was $1,500. Individual owed 4 estimated tax installment payments of $337.50 each, which were due on April 15, June 15 and September 15 of 2003 and January 15 of 2004, but made only the first payment of $337.50 in a timely manner. Individual filed the return on April 15, 2004, and paid the remaining $1,162.50 liability with the return. Individual owes a penalty for late payment of estimated tax of $185.63. Because all payments other than the first estimated tax installment were made on April 15, the second and third installment payments were made more than 180 days late, and the fourth installment payment was made 91 days late. The late payment of estimated tax penalty is calculated as follows: second installment penalty ($337.50 x 20% = $67.50) + third installment penalty ($337.50 x 20% = $67.50) + fourth quarter penalty ($337.50 x 15% = $50.63) = $185.63 late payment penalty for failure to pay estimated taxes.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return was filed on October 1, 2004, and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed, by virtue of the automatic extension until October 15, 2001 of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. The penalty owed by Individual for late payment of estimated tax and late payment of tax due with the return is $225. Because all the estimated tax installments, other than the first, were made on October 1, the second, third and fourth installment payments were made more than 180 days late.  The remaining $150 was due on April 15 and was paid more than 90 but not more than 180 days late. The late payment of estimated tax penalty is calculated as follows for each of the 3 late estimated tax installments: $337.50 x 20% = $67.50, times 3 = $202.50 late payment penalty for failure to pay estimated taxes. The penalty for late payment of the tax due with the return is calculated as follows: $1,500 - $1,350 (the amount of estimated taxes due) = $150 tax due with the return and paid late. $150 x 15% = $22.50 late payment penalty for failure to pay tax due by April 15.

 

EXAMPLE 3:  Taxpayer's Form ST-1 for May 2004 was due June 20, 2004. Taxpayer's quarter-monthly accelerated tax payments of the Retailers' Occupation Tax were due on May 7, 15, 22 and 31. The amount of each accelerated payment due was $4,500. Taxpayer did not make any accelerated payments and instead paid the total tax due with its timely filed return on June 20. Taxpayer is subject to penalty for failing to make timely accelerated tax payments. The May 7 and May 15 payments were made later than 30 days after the due date, but not later than 90 days after the due date. The May 22 and May 31 payments were made not later than 30 days after the due date. The late payment penalty is $1,080: the $4,500 due on May 7 times 10%, or $450; the $4,500 due on May 15 times 10%, or $450; the $4,500 due on May 22 times 2%, or $90; plus the $4,500 due on May 31 times 2%, or $90. If the amount of each accelerated payment due is subsequently increased or decreased as the result of an audit or amendment to the return, the penalty under this subsection (d) is computed using the corrected amount.

 

EXAMPLE 4:  Taxpayer's Form ST-1 for July 2004, due on August 20, 2004, was timely filed. No accelerated payments were due and none was made, and no payment was made with the return. The Department issued Taxpayer a Notice and Demand dated September 15, 2004. Taxpayer paid the tax due on October 9, 2004. The penalty is 2% of the tax shown due on the return. Although payment was made later than 30 days after the due date, a Notice and Demand was issued on September 15, and the penalty does not increase for the period after the date of a Notice and Demand when the tax is paid within 30 days after the Notice and Demand is issued.

 

e)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 2005 and before January 1, 2024. For returns due on or after January 1, 2005 and before January 1, 2024, UPIA Section 3-3(b-20) imposes underpayment penalties as follows:

 

1)         Failure to Make Accelerated Tax Payments. UPIA Section 3-3(b-20)(1) imposes a penalty for failure to pay, prior to the due date for payment, any amount of tax the payment of which is required to be made prior to the filing of a return or without a return (penalty for late payment or nonpayment of estimated or accelerated tax). The penalty is imposed at the rate of:

 

A)        2% of any amount that is paid no later than 30 days after the due date; and

 

B)        10% of any amount that is paid later than 30 days after the due date. (UPIA Section 3-3(b-20)(1))

 

2)         Failure to Pay Tax. UPIA Section 3-3(b-20)(2) imposes a penalty for failure to pay the tax shown due or required to be shown due on a return on or before the due date prescribed for payment of that tax or an amount that is reported in an amended return (penalty for late payment or nonpayment of tax). The penalty is imposed at the rate of:

 

A)        2% of any amount that is paid no later than 30 days after the due date;

 

B)        10% of any amount that is paid later than 30 days after the due date and prior to the date the Department has initiated an audit or investigation of the taxpayer; and

 

C)        20% of any amount that is paid after the date the Department has initiated an audit or investigation of the taxpayer. (UPIA Section 3-3(b-20)(2))

 

i)          The rate imposed under this subsection (e)(2)(C) shall be reduced to 15% if the entire amount due on an amended return (following completion of an occupation, use or excise tax audit) or a form for waiver of restrictions on assessment (following completion of an income tax audit) is paid not later than 30 days after the Department has provided the taxpayer with the amended return or form for waiver of restrictions. (UPIA Section 3-3(b-20)(2)) For purposes of this subsection (e)(2)(C), the "entire amount due" on an amended return or waiver of restrictions on assessment means the tax, including any reduction in vendor's discount resulting from late payment of taxes, but does not include any interest, penalty or excess sales tax collected from customers and not refunded.

 

ii)         The reduction of the rate to 15% shall be rescinded if the taxpayer makes any claim for refund or credit of the tax liability, penalties or interest determined to be due upon audit, except in the case of a claim based on a carryover of a loss or credit, the availability of which was not determined in the audit. (UPIA Section 3-3(b-20)(2)) The rescission of the 15% rate applies only to the amount of the refund or credit that is claimed and that is finally disallowed.

 

3)         Special Provisions. For purposes of imposing the penalty under subsection (e)(2):

 

A)        Any overpayment reported on an original return that has been allowed as a refund or credit to the taxpayer shall be deemed to have not been paid on or before the due date for payment. (UPIA Section 3-3(b-20)(2)) However, an amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an amended return.

 

B)        Federal Change Returns Filed Under IITA Section 506(b)

 

i)          The penalty under subsection (e)(2) is not imposed on an amount shown due on an amended federal change return timely filed pursuant to IITA Section 506(b), but only to the extent that amount results from the federal change being timely reported.

 

ii)         The filing of a claim for refund pursuant to IITA Section 506(b) does not cause the reduction of the penalty rate to 15% to be rescinded pursuant to subsection (e)(2)(C)(ii).

 

C)        Protest Act Payments. Any amount paid under protest pursuant to the provisions of the State Officers and Employees Money Disposition Act (Protest Act) [30 ILCS 230] shall be deemed to have been paid after the Department has initiated an audit and more than 30 days after the Department has provided the taxpayer with an amended return (following completion of an occupation, use or excise tax audit) or a form for waiver of restrictions on assessment (following completion of an income tax audit). (UPIA Section 3-3(b-20)(2))  Subsection (e)(2)(C) applies only to payments that are not timely. A payment made under the Protest Act on or before the date the payment was due is not deemed to have been paid late.

 

D)        Initiation of an Audit or Investigation. For purposes of subsection (e)(2)(C):

 

i)          An "audit" refers to actions taken by the Audit Bureau of the Department.

 

ii)         An "investigation" refers to actions taken by the Bureau of Criminal Investigation of the Department.

 

iii)        An audit or investigation is initiated on the date a representative of the Department first contacts the taxpayer, whether by telephone, mail, email or otherwise, informing the taxpayer that the Department is reviewing the taxpayer's return, failure to file a return, or identified transactions for the period at issue.

 

iv)        An audit or investigation is not initiated by a communication regarding a mathematical error or suspected mathematical error on the taxpayer's original or amended return, or regarding the failure of the taxpayer to sign or include all necessary attachments to an original or amended return that has been filed.

 

v)         The Department has the burden of providing evidence that an audit or investigation of a tax period was initiated prior to the date a specific payment of tax for that period was made.

 

vi)        The initiation of an income tax audit or investigation of a partnership, Subchapter S corporation, trust or estate also serves as the initiation of an income tax audit or investigation of the partners, shareholders or beneficiaries, but only with respect to any income tax liability arising from those entities' interest in the partnership, Subchapter S corporation, trust or estate.

 

E)        Provision of a Waiver of Restrictions on Assessment or Amended Return After Completion of an Audit or Investigation. For purposes of subsection (e)(2)(C):

 

i)          A waiver of restrictions on assessment or an amended return is presented to the taxpayer when mailed or, if delivered by another means, when received by the taxpayer or by an authorized representative of the taxpayer.

 

ii)         If a taxpayer is entitled to request review of an audit by the Informal Conference Board, the audit is not completed until a waiver of restrictions on assessment or an amended return is presented to the taxpayer on a date that is after the date on which:

 

•           the Informal Conference Board issues its final Action Decision to the taxpayer: or

 

•           if the taxpayer fails to request review, the taxpayer's right to request review by the Informal Conference Board expires.

 

F)         IITA Section 704A(c)(1), (2) and (3) provide that payments of income taxes withheld by an employer from employee compensation are due before the return reporting the withholding is due.  However, IITA Section 704A(c)(4) provides that payment of any tax that was withheld or required to be withheld during the period for which the return is due, and that had not previously been paid to the Department, was due on the due date of the return. Accordingly, any amount of withholding that is not paid by the due date of the return is subject to penalty under subsection (e)(2).

 

4)         The penalty imposed under subsection (e)(2) shall be deemed assessed at the time the tax upon which the penalty is computed is assessed, except that, if the reduction of the penalty rate to 15% is rescinded under subsection (e)(2)(C)(ii) because a claim for refund or credit has been filed, the increase in penalty shall be deemed assessed at the time the claim for refund or credit is filed. (UPIA Section 3-3(b-20)(3))

 

5)         The provisions of this subsection (e) may be illustrated by the following additional examples.

 

EXAMPLE 1:  Individual's income tax return for calendar year 2004 was due (without regard to extensions) by April 15, 2005, and the liability after credits was $1,500. Individual owed 4 estimated tax installment payments of $337.50 each, which were due on April 15, June 15 and September 15 of 2004 and January 15 of 2005, but made only the first payment of $337.50 in a timely manner. Individual filed the return on April 15, 2005 and paid the remaining $1,162.50 liability with the return. Individual owes penalties for late payment of estimated tax and late payment of tax due with the return of $101.25. Because all payments, other than the first estimated tax installment, were made on April 15, the second, third and fourth installment payments were made more than 30 days late. The late payment of estimated tax penalty is calculated as follows: 3 late installments each incur a penalty of $337.50 x 10% = $33.75, times 3 = $101.25 late payment penalty for failure to pay estimated taxes.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return was filed on October 1, 2005, and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed, by virtue of the automatic extension, until October 15, 2005, of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. Individual owes the same $101.25 penalty for late payment of estimated tax, and the late payment of tax due with the return is $15. The penalty for late payment of the tax due with the return is calculated as follows: $1,500 - $1,350 (the amount of estimated taxes due) = $150 tax due with the return and paid late. The payment was made more than 30 days late, but before the Department had initiated an audit or investigation, so the penalty is $150 x 10% = $15 for failure to pay tax due by April 15.

 

EXAMPLE 3:  Taxpayer, a corporation, is a calendar year taxpayer. For its 2004 taxable year, Taxpayer made timely installment payments of estimated tax of $50,000 each quarter. On March 15, 2005, Taxpayer filed its calendar 2004 Illinois income tax return, showing total tax imposed of $180,000 (net of Article 2 credits). Taxpayer's return requested that the $20,000 overpayment be applied against its estimated tax payment obligation for 2005. After an audit by the Department in 2006, it was determined that the taxpayer owed additional tax of $120,000, or a total of $300,000. Taxpayer is not subject to penalty under this subsection (e) for failure to make timely payment of estimated taxes because each of its timely payments exceeded 25% of the $180,000 tax shown due on its return. Taxpayer is subject to penalty under this subsection (e) for failure to timely pay the tax required to be shown due on the return. The amount that was paid late was the $300,000 owed minus the $180,000 liability shown on the original return, or $120,000. The $20,000 overpayment shown on the original return was not timely paid because it was credited against the taxpayer's 2005 estimated tax payment obligation. Because the tax was paid after the initiation of an audit, the penalty is $24,000 ($120,000 times 20%).

 

EXAMPLE 4:  The facts are the same as in Example 3 except that the additional $120,000 in tax due was paid within 30 days after the Department issued to Taxpayer, after completion of the audit, a Form IL-870, Waiver of Restrictions, showing the $120,000 in additional tax due. The penalty is $18,000 ($120,000 times 15%).

 

EXAMPLE 5:  The facts are the same as in Example 3 except that the additional $120,000 in tax due was reported by Taxpayer on an amended return that was timely filed pursuant to IITA Section 506(b). Taxpayer is not subject to penalty for failure to timely pay the additional tax because the tax was reported on a timely-filed federal change return.

 

EXAMPLE 6:  Taxpayer's Form ST-1 for May 2005 is due June 20, 2005. Taxpayer's quarter-monthly accelerated tax payments of the Retailers' Occupation Tax were due on May 7, 15, 22 and 31. The amount of each accelerated payment due was $4,500. Taxpayer did not make any accelerated payments and instead paid the total tax due upon the timely filing of its return on June 20. Taxpayer is subject to penalty under subsection (e)(1) for failure to pay accelerated payments of the tax shown on the return on or before the due dates prescribed for payment. The May 7 and May 15 payments were made later than 30 days after the due date. The May 22 and May 31 payments were made not later than 30 days after the due date. Taxpayer's late payment penalty is therefore $1,080: the $4,500 due on May 7 times 10%, or $450; the $4,500 due on May 15 times 10%, or $450; the $4,500 due on May 22 times 2%, or $90; plus the $4,500 due on May 31 times 2%, or $90. If the amount of each accelerated payment due is subsequently increased or decreased as the result of an audit or amendment to the return, the penalty under this subsection (e)(5) is computed using the corrected amount.

 

EXAMPLE 7:  Taxpayer's Form ST-1 for July 2005, due on August 20, 2005, was timely filed. No accelerated payments were required or made, and no payment was made with the return. The Department issued Taxpayer a Notice and Demand dated September 16. 2005, Taxpayer paid the tax due on October 9, 2005. The penalty is 10% of the tax shown due on the return because the payment was made more than 30 days after the August 20, 2005 due date for payment. Unlike the penalty imposed under subsection (d), the penalty imposed under this subsection (e) may increase after a Notice and Demand has been issued, even if the taxpayer pays the entire amount due before the date for payment indicated in the Notice and Demand. The Notice and Demand is not the initiation of an audit or an investigation, so the penalty under subsection (e)(2)(C) does not apply.

 

EXAMPLE 8:  Upon completion of an audit, the Department determines that Taxpayer has underpaid its 2005 income tax liability by $10,000. At the request of Taxpayer, the Department presents Taxpayer with a Form IL-870, Waiver of Restrictions, showing an underpayment of $8,000 and a Notice of Deficiency for the remaining $2,000. Taxpayer immediately signs the Form IL-870 and pays the $8,000 in tax shown due on that form. Taxpayer files a protest of the Notice of Deficiency. After an administrative hearing, the Department determines that the $2,000 shown on the Notice of Deficiency was not due. The 15% penalty rate applies to the $8,000 deficiency conceded by Taxpayer, because it paid that entire deficiency within 30 days after receiving the Form IL-870.

 

EXAMPLE 9:  If, in Example 8, it is ultimately determined that Taxpayer owed $500 of the $2,000 deficiency it protested, the 20% rate will apply only to the $500 liability that was not paid within 30 days after the taxpayer received the Form IL-870.

 

EXAMPLE 10:  After the audit in Example 8, the Department presents Taxpayer with a Form IL-870 showing the entire underpayment of $10,000. Taxpayer immediately signs the Form IL-870 and pays the tax due. Taxpayer subsequently files a refund claim for $2,000, of which $1,500 is allowed. The 15% penalty rate will be rescinded only with respect to the $500 refund claim that is disallowed, and not to the $8,000 for which no refund was claimed or to the $1,500 for which the refund claim was allowed.

 

f)         Late Payment Penalty for Returns Due (without regard to extensions) On or After January 1, 2024. For returns due on or after January 1, 2024, UPIA Section 3-3(b-25) imposes underpayment penalties as follows:

 

1)         Failure to Make Accelerated Tax Payments. UPIA Section 3-3(b-25)(1) imposes a penalty for failure to pay, prior to the due date for payment, any amount of tax the payment of which is required to be made prior to the filing of a return or without a return (penalty for late payment or nonpayment of estimated or accelerated tax). The penalty is imposed at the rate of:

 

A)        2% of any amount that is paid no later than 30 days after the due date; and

 

B)        10% of any amount that is paid later than 30 days after the due date. (UPIA Section 3-3(b-25)(1))

 

2)         Failure to Pay Tax. UPIA Section 3-3(b-25)(2) imposes a penalty for failure to pay the tax shown due or required to be shown due on a return on or before the due date prescribed for payment of that tax or an amount that is reported in an amended return (penalty for late payment or nonpayment of tax). The penalty is imposed at the rate of:

 

A)        2% of any amount that is paid no later than 30 days after the due date;

 

B)        10% of any amount that is paid later than 30 days after the due date and prior to the date the Department has initiated an audit or investigation of the taxpayer; and

 

C)        20% of any amount that is paid after the date the Department has initiated an audit or investigation of the taxpayer. (UPIA Section 3-3(b-25)(2))

 

i)          The rate imposed under this subsection (f)(2)(C) shall be reduced to 15% if the entire amount due on an amended return (following completion of an occupation, use or excise tax audit) or a form for waiver of restrictions on assessment (following completion of an income tax audit) is paid not later than 30 days after the Department has provided the taxpayer with the amended return or form for waiver of restrictions. (UPIA Section 3-3(b-25)(2)) For purposes of this subsection (f)(2)(C), the "entire amount due" on an amended return or waiver of restrictions on assessment means the tax, including any reduction in vendor's discount resulting from late payment of taxes, but does not include any interest, penalty or excess sales tax collected from customers and not refunded.

 

ii)         The reduction of the rate to 15% shall be rescinded if the taxpayer makes any claim for refund or credit of the tax liability, penalties or interest determined to be due upon audit, except in the case of a claim based on a carryover of a loss or credit, the availability of which was not determined in the audit. (UPIA Section 3-3(b-25)(2)) The rescission of the 15% rate applies only to the amount of the refund or credit that is claimed and that is finally disallowed.

 

3)         Special Provisions. For purposes of imposing the penalty under subsection (f)(2):

 

A)        Any overpayment reported on an original return that has been allowed as a refund or credit to the taxpayer shall be deemed to have not been paid on or before the due date for payment. (UPIA Section 3-3(b-25)(2)) However, an amount of tax that was paid prior to the due date for payment is a timely payment of tax, even if some or all of that amount was refunded or credited to the taxpayer as a result of an overpayment reported on an amended return.

 

B)        Federal Change Returns Filed Under IITA Section 506(b)

 

i)          The penalty under subsection (f)(2) is not imposed on an amount shown due on an amended federal change return timely filed and paid pursuant to IITA Section 506(b), but only to the extent that amount results from the federal change being timely reported.

 

ii)         The filing of a claim for refund pursuant to IITA Section 506(b) does not cause the reduction of the penalty rate to 15% to be rescinded pursuant to subsection (f)(2)(C)(ii).

 

C)        Protest Act Payments. Any amount paid under protest pursuant to the provisions of the State Officers and Employees Money Disposition Act (Protest Act) [30 ILCS 230] shall be deemed to have been paid after the Department has initiated an audit and more than 30 days after the Department has provided the taxpayer with an amended return (following completion of an occupation, use or excise tax audit) or a form for waiver of restrictions on assessment (following completion of an income tax audit). (UPIA Section 3-3(b-25)(2)) Subsection (f)(2)(C) applies only to payments that are not timely. A payment made under the Protest Act on or before the date the payment was due is not deemed to have been paid late.

 

D)        Initiation of an Audit or Investigation. For purposes of subsection (f)(2)(C):

 

i)          An "audit" refers to actions taken by the Audit Bureau of the Department.

 

ii)         An "investigation" refers to actions taken by the Bureau of Criminal Investigation of the Department.

 

iii)        An audit is initiated on the date an audit initiation letter is mailed to taxpayer, informing the taxpayer that the Department is reviewing the taxpayer's return, failure to file a return, or identified transactions for the period at issue.  A criminal investigation is initiated when a representative of the Department or law enforcement schedules an interview with the taxpayer, issues a subpoena or other demand for records, executes a search warrant, or otherwise notifies the taxpayer of an investigation by the Department.

 

iv)        An audit or investigation is not initiated by a communication regarding a mathematical error or suspected mathematical error on the taxpayer's original or amended return, or regarding the failure of the taxpayer to sign or include all necessary attachments to an original or amended return that has been filed.

 

v)         The Department has the burden of providing evidence that an audit or investigation of a tax period was initiated prior to the date a specific payment of tax for that period was made.

 

vi)        The initiation of an income tax audit or investigation of a partnership, Subchapter S corporation, trust or estate also serves as the initiation of an income tax audit or investigation of the partners, shareholders or beneficiaries, but only with respect to any income tax liability arising from those entities' interest in the partnership, Subchapter S corporation, trust or estate.

 

E)        Provision of a Waiver of Restrictions on Assessment or Amended Return After Completion of an Audit or Investigation. For purposes of subsection (f)(2)(C):

 

i)          A waiver of restrictions on assessment or an amended return is presented to the taxpayer when mailed or, if delivered by another means, when received by the taxpayer or by an authorized representative of the taxpayer.

 

ii)         If a taxpayer is entitled to request review of an audit by the Informal Conference Board, the audit is not completed until a waiver of restrictions on assessment or an amended return is presented to the taxpayer on a date that is after the date on which:

 

•           the Informal Conference Board issues its final Action Decision to the taxpayer: or

 

•           if the taxpayer fails to request review, the taxpayer's right to request review by the Informal Conference Board expires.

 

F)         IITA Section 704A(c)(1), (2) and (3) provide that payments of income taxes withheld by an employer from employee compensation are due before the return reporting the withholding is due.  However, IITA Section 704A(c)(4) provides that payment of any tax that was withheld or required to be withheld during the period for which the return is due, and that had not previously been paid to the Department, was due on the due date of the return. Accordingly, any amount of withholding that is not paid by the due date of the return is subject to penalty under subsection (f)(2).

 

4)         The penalty imposed under subsection (f)(2) shall be deemed assessed at the time the tax upon which the penalty is computed is assessed, except that, if the reduction of the penalty rate to 15% is rescinded under subsection (f)(2)(C)(ii) because a claim for refund or credit has been filed, the increase in penalty shall be deemed assessed at the time the claim for refund or credit is filed. (UPIA Section 3-3(b-25)(3))

 

5)         The provisions of this subsection (f) may be illustrated by the following additional examples.

 

EXAMPLE 1:  Individual's income tax return for calendar year 2023 is due (without regard to extensions) by April 15, 2024, and the liability after credits was $1,500. Individual owes 4 estimated tax installment payments of $337.50 each, which are due on April 15, June 15 and September 15 of 2023 and January 15 of 2024, but makes only the first payment of $337.50 in a timely manner. Individual files the return on April 15, 2024 and pays the remaining $1,162.50 liability with the return. Individual owes penalties for late payment of estimated tax and late payment of tax due with the return of $101.25. Because all payments, other than the first estimated tax installment, are made on April 15, the second, third and fourth installment payments are made more than 30 days late. The late payment of estimated tax penalty is calculated as follows: 3 late installments each incur a penalty of $337.50 x 10% = $33.75, times 3 = $101.25 late payment penalty for failure to pay estimated taxes.

 

EXAMPLE 2:  Same facts as in Example 1 except that the return is filed on October 1, 2025, and the remaining $1,162.50 tax owed by Individual was paid with the return. In this situation, the return was timely filed, by virtue of the automatic extension, until October 15, 2025, of the due date for filing the return granted by 86 Ill. Adm. Code 100.5020(b), but Individual owes a late payment penalty for failure to pay the unpaid $1,012.50 in estimated tax installments and the remaining $150 of the total liability because that amount of tax was not paid on or before the unextended due date of the return. Individual owes the same $101.25 penalty for late payment of estimated tax, and the late payment of tax due with the return is $15. The penalty for late payment of the tax due with the return is calculated as follows: $1,500 - $1,350 (the amount of estimated taxes due) = $150 tax due with the return and paid late. The payment was made more than 30 days late, but before the Department had initiated an audit or investigation, so the penalty is $150 x 10% = $15 for failure to pay tax due by April 15.

 

EXAMPLE 3:  Taxpayer, a corporation, is a calendar year taxpayer. For its 2023 taxable year, Taxpayer makes timely installment payments of estimated tax of $50,000 each quarter. On April 15, 2025, Taxpayer files its calendar 2023 Illinois income tax return, showing total tax imposed of $180,000 (net of credits allowed under Article 2 of the Illinois Income Tax Act). Taxpayer's return requests that the $20,000 overpayment be applied against its estimated tax payment obligation for 2024. After an audit, the Department determines that Taxpayer owes additional tax of $120,000, or a total of $300,000. Taxpayer is not subject to penalty under this subsection (f) for failure to make timely payment of estimated taxes because each of its timely payments exceeded 25% of the $180,000 tax shown due on its return. Taxpayer is subject to penalty under this subsection (f) for failure to timely pay the tax required to be shown due on the return. The amount that was paid late was the $300,000 owed minus the $180,000 liability shown on the original return, or $120,000. The $20,000 overpayment shown on the original return was not timely paid because it was credited against Taxpayer's 2024 estimated tax payment obligation. Because the tax was paid after the initiation of an audit, the penalty is $24,000 ($120,000 times 20%).

 

EXAMPLE 4:  The facts are the same as in Example 3 except that the additional $120,000 in tax due is paid within 30 days after the Department issues to Taxpayer, after completion of the audit, a Form IL-870, Waiver of Restrictions, showing the $120,000 in additional tax due. The penalty is $18,000 ($120,000 times 15%).

 

EXAMPLE 5:  The facts are the same as in Example 3 except that the additional $120,000 in tax due is reported by Taxpayer on an amended return that was timely filed and paid pursuant to IITA Section 506(b). Taxpayer is not subject to penalty for failure to timely pay the additional tax because the tax was reported on a timely-filed federal change return and paid on or before the due date.

 

EXAMPLE 6:  Taxpayer's Form ST-1 for May 2024 is due June 20, 2024. Taxpayer's quarter-monthly accelerated tax payments of the Retailers' Occupation Tax are due on May 7, 15, 22 and 31. The amount of each accelerated payment due is $4,500. Taxpayer does not make any accelerated payments and instead pays the total tax due upon the timely filing of its return on June 20. Taxpayer is subject to penalty under subsection (f)(1) for failure to pay accelerated payments of the tax shown on the return on or before the due dates prescribed for payment. The May 7 and May 15 payments are made later than 30 days after the due date. The May 22 and May 31 payments are made not later than 30 days after the due date. Taxpayer's late payment penalty is therefore $1,080: the $4,500 due on May 7 times 10%, or $450; the $4,500 due on May 15 times 10%, or $450; the $4,500 due on May 22 times 2%, or $90; plus the $4,500 due on May 31 times 2%, or $90. If the amount of each accelerated payment due is subsequently increased or decreased as the result of an audit or amendment to the return, the penalty under this subsection (f)(5) is computed using the corrected amount.

 

EXAMPLE 7:  Taxpayer's Form ST-1 for July 2024, due on August 20, 2024, is timely filed. No accelerated payments are required or made, and no payment is made with the return. The Department issues Taxpayer a Notice and Demand dated September 16. 2024, Taxpayer pays the tax due on October 9, 2024. The penalty is 10% of the tax shown due on the return because the payment is made more than 30 days after the August 20, 2024 due date for payment. Unlike the penalty imposed under subsection (d), the penalty imposed under this subsection (f) may increase after a Notice and Demand has been issued, even if the taxpayer pays the entire amount due before the date for payment indicated in the Notice and Demand. The Notice and Demand is not the initiation of an audit or an investigation, so the penalty under subsection (f)(2)(C) does not apply.

 

EXAMPLE 8:  Upon completion of an audit, the Department determines that Taxpayer has underpaid its 2023 income tax liability by $10,000. At the request of Taxpayer, the Department presents Taxpayer with a Form IL-870, Waiver of Restrictions, showing an underpayment of $8,000 and a Notice of Deficiency for the remaining $2,000. Taxpayer immediately signs the Form IL-870 and pays the $8,000 in tax shown due on that form. Taxpayer files a protest of the Notice of Deficiency. After an administrative hearing, the Department determines that the $2,000 shown on the Notice of Deficiency was not due. The 15% penalty rate applies to the $8,000 deficiency conceded by Taxpayer, because it paid that entire deficiency within 30 days after receiving the Form IL-870.

 

EXAMPLE 9:  If, in Example 8, it is ultimately determined that Taxpayer owed $500 of the $2,000 deficiency it protested, the 20% rate will apply only to the $500 liability that was not paid within 30 days after the taxpayer received the Form IL-870.

 

EXAMPLE 10:  After the audit in Example 8, the Department presents Taxpayer with a Form IL-870 showing the entire underpayment of $10,000. Taxpayer immediately signs the Form IL-870 and pays the tax due. Taxpayer subsequently files a refund claim for $2,000, of which $1,500 is allowed. The 15% penalty rate will be rescinded only with respect to the $500 refund claim that is disallowed, and not to the $8,000 for which no refund was claimed or to the $1,500 for which the refund claim was allowed.

 

g)         Unless a specific provision of the UPIA or a tax Act provides otherwise:

 

1)         For purposes of the late payment penalties imposed under this Section, the basis of the penalty shall be the tax shown or required to be shown on the return, whichever is applicable, reduced by any part of the tax that is paid on time and by any credit that was properly allowable on the date the return was due. (UPIA Section 3-3(c))

 

2)         For purposes of this Section, the maximum amount of Manufacturer's Purchase Credit that is allowable on the date a return is due for a tax period is the amount actually claimed on a timely-filed return for that tax period.

 

3)         If a penalty is imposed on the basis of the tax required to be shown on a return, the penalty shall be applied to the tax required to be shown even if that amount is less than the tax shown on the return. (UPIA Section 3-3(d))

 

EXAMPLE 1:  A renter of automobiles for periods of one year or less has tax due under the Automobile Renting Occupation and Use Tax for the rental receipts received during the month of June 1994 on July 20, 1994. The tax shown on the return filed on July 20, 1994 is $500, but the taxpayer remits no payment of the tax when the return is filed. On August 1, 1994 the taxpayer files an amended return reducing its tax liability to $400 and also remits $400. Assuming that the $400 amount shown on the amended return is correct, the taxpayer owes a late payment penalty on the $400 amount required to be shown on the original return, not the $500 amount that was shown on the original return.

 

EXAMPLE 2:  The penalty for failure to make timely payments of estimated tax under IITA Section 804 is imposed on the required installment, which is defined in IITA Section 804(c)(1)(A) as 25% of the required annual payment, which is defined in IITA Section 804(c)(1)(B)(i) as 90% of the tax shown on the return for the taxable year, or if no return is filed, 90% of the tax for that year. Accordingly, if a return is filed for a taxable year, and the alternative computations of the required annual payment under IITA Section 804(c)(1)(B)(ii) and (iii) do not apply, any penalty for failure to make timely payments of estimated taxes will be computed on the basis of the tax shown on the original return, regardless of whether the tax required to be shown is greater or less than the tax shown.

 

h)         If both a penalty under subsection (a)(1) or (b)(1) and a penalty under subsection (a)(2) or (b)(2) are assessed against the same return, the penalty imposed under subsection (a)(2) or (b)(2) shall be assessed against only the additional tax found to be due. (UPIA Section 3-3(e)) If both a penalty under subsection (c)(1) and a penalty under subsection (c)(2) are assessed against the same return, the penalty under subsection (c)(2) shall be assessed against only the additional tax found to be due. (UPIA Section 3-3(e-5))

 

EXAMPLE 1:  An employer has withholding tax due for the third quarter of 1994. The return is filed timely, reporting tax withheld of $2,000, but timely payments total only $1,500, leaving a tax balance due of $500. The late payment penalty under subsection (a)(1) equal to $75 (15% of the $500 underpayment) is assessed. The employer does not pay the additional liability within 30 days after Notice and Demand for Payment. Although the total tax that was not paid on time was $1,200, the penalty under subsection (a)(2) is imposed only on the $700 additional tax due, and not the $500 underpayment on which the penalty under subsection (a)(1) was imposed.

 

EXAMPLE 2:  Corporation timely files its income tax return for calendar year 2000 on March 15, 2001 showing total tax due of $30,000. Corporation timely made $27,000 in estimated tax payments, but failed to pay the $3,000 tax balance due with the return. Corporation pays the $3,000 tax due on June 15, 2001, later than 90 days but not later than 180 days after the due date. The penalty for late payment of tax due under subsection (c)(1) is $300 ($3,000 x 10%). In 2003, the Department completes an audit of Corporation's 2000 return, increasing the tax due to $36,000. Corporation agrees to the audit finding but does not pay the additional liability until 45 days after Notice and Demand is issued. Corporation is assessed an additional late payment penalty under subsection (c)(2) of $1,200 (the $6,000 in additional tax due x 20%).

 

i)          If the taxpayer has failed to file a return, and the Department determines the correct amount of tax according to its best judgment and information, that amount shall be prima facie evidence of the correctness of the tax due. (UPIA Section 3-3(f))

 

j)          The time within which to file a return or pay an amount of tax due without imposition of a penalty does not extend the time within which to file a protest to a Notice of Tax Liability or a Notice of Deficiency. (UPIA Section 3-3(g))

 

(Source:  Amended at 48 Ill. Reg. 2676, effective January 31, 2024)

 

Section 700.310  Penalty for Failure to File Correct Information Returns (UPIA Section 3-4)

 

a)         An information return is any return required by a tax Act to be filed with the Department that does not, by law, require the payment of a tax liability. (UPIA Section 3-4(c)) Examples of information returns are the information returns that the Department may require of retailers pursuant to ROTA Section 3. An information return is not a tax return with a zero balance. For example, the filing of a Form ST-1 by a retailer who had no gross receipts for the period covered by the filing of the return is not an information return. Similarly, the filing of Form IL-941, IL-W-3 or RC-6 is not an information return as defined in UPIA Section 3-4(c).

 

b)         Unless otherwise provided in a tax Act, in the case of a failure, described in subsection (c), by any person with respect to an information return, that person shall pay a penalty of $5 for each return or statement with respect to which the failure occurs, but the total amount imposed on that person for all failures under this Section during any calendar year shall not exceed $25,000. (UPIA Section 3-4(a)(1))

 

c)         The following failures are subject to the $5 penalty:

 

1)         Any failure to file an information return with the Department on or before the due date for filing; or

 

2)         Any failure to include all of the information required to be shown on the return or the inclusion of incorrect information. (UPIA Section 3-4(a)(2))

 

d)         If any failure described in subsection (c) is corrected within 60 days after the due date for filing:

 

1)         The penalty imposed by the Act, and quoted in subsection (c), shall be reduced to $2.50 for each failure; and

 

2)         The maximum amount of penalty imposed on the person for all failures under this Section during any calendar year that are so corrected is $12,500. (UPIA Section 3-4(b))

 

e)         A corrected information return is a return that includes all information required to be included on the return, and on which all the information is correct.

 

f)         A corrected information return will be deemed to have been filed with and received by the Department within 60 days after the due date for filing if the date shown by the post office cancellation mark stamped upon the envelope or other appropriate wrapper containing the return is dated within 60 days after the due date of the return, or actual receipt by the Department if deliveries are made by means other than the U.S. Postal Service.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.315  Collection Penalty (UPIA Section 3-4.5)

 

a)         Penalty Imposed. The collection penalty is imposed under UPIA Section 3-4.5 when payment of any liability subject to the provisions of the UPIA is not received by the Department prior to the 31^st day after a Notice and Demand, Notice of Additional Tax Due, or Request for Payment of Final Liability is issued by the Department with respect to that liability. (UPIA Section 3-4.5(b)) The collection penalty only applies to liabilities with respect to returns due (without regard to extensions) on or after July 31, 2003. The collection penalty is deemed assessed upon imposition, and is considered additional tax assessed under the Act under which the tax liability giving rise to that penalty was assessed.

 

b)         Amount of Collection Penalty

 

1)         $30 Penalty. If the amount of liability (including penalties and interest) that is not timely paid in accordance with this Section is less than $1,000, the collection penalty is $30. (See UPIA Section 3-4.5(c)(1).)

 

2)         $100 Penalty. If the amount of liability (including penalties and interest) that is not timely paid in accordance with this Section is $1,000 or more, the collection penalty is $100. (See UPIA Section 3-4.5(c)(2).)

 

c)         The collection penalty imposed under this Section is not imposed more than once with respect to the liability for a particular tax (including any related penalties and interest) for a given tax period.

 

d)         UPIA Section 3-8 (abatement of penalties when the taxpayer has reasonable cause for its delinquency) does not apply to the collection penalty.

 

e)         The provisions of this Section may be illustrated by the following examples.

 

EXAMPLE 1:  On August 15, 2004, the Department issues Taxpayer a Notice and Demand for Payment of $2,000 (including tax, interest and penalty) with respect to Taxpayer's 2003 Illinois income tax liability. On September 16, 2004, Taxpayer mails a check for the amount of $2,000 in satisfaction of the Department's Notice and Demand. Taxpayer is subject to a collection penalty of $100 because payment of the liability shown on the Notice and Demand was not received by the Department prior to the 31^st day after the Notice and Demand was issued. The penalty applies even if Taxpayer had reasonable cause for the failure.

 

EXAMPLE 2:  The facts are the same as in Example 1 except that, on September 15, 2004, Taxpayer mails a check for $1,500 with respect to the Notice and Demand. No additional payment is made. Taxpayer is subject to a collection penalty of $30 because the amount of the liability shown on the Notice and Demand that was not paid prior to the 31^st day after the Notice and Demand was issued is only $500.

 

EXAMPLE 3:  If, in either Example 1 or Example 2, Taxpayer receives a subsequent Notice and Demand for the amount of penalty imposed in those examples, or for any liability for the same tax for the same taxable period, or any interest or penalty related to that liability, no additional penalty is imposed under this Section.

 

EXAMPLE 4:  The facts are the same as in Example 1 except that, on April 15, 2006, the Department receives Taxpayer's amended return for its 2003 taxable year. That amended return indicates that the tax actually due on Taxpayer's 2003 return was $0, as the result of taking into account subtraction modifications Taxpayer had failed to claim on its original return. The Department accepts Taxpayer's amended return. Taxpayer is not subject to a collection penalty with respect to the Notice and Demand issued August 15, 2004 because no liability remained unpaid by the 31^st day after issuance of the Notice and Demand. If Taxpayer had paid the collection penalty prior to filing the amended return, the amended return is a claim for refund of the collection penalty previously assessed. Because the penalty did not apply, failure of the Taxpayer to timely pay an amount shown due on a subsequent Notice and Demand may be subject to penalty under this Section.

 

EXAMPLE 5: The facts are the same as in Example 4 except that Taxpayer's amended return relates to the carryback of a federal net operating loss incurred in the taxable year ending December 31, 2005. Taxpayer remains subject to a collection penalty of $100 because payment of the liability shown on the Notice and Demand was not received by the Department prior to the 31^st day after the Notice and Demand was issued. If a liability is reduced by a carryback, that reduction does not affect the computation of interest or penalties for any period before the carryback arises. (See Manning v. Seeley Tube & Box Co. of New Jersey, 70 S.Ct. 386 (1949).)

 

(Source:  Added at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.320  Penalty for Negligence (UPIA Section 3-5)

 

a)         If any return or amended return is  prepared negligently, but without intent to defraud, and filed, in addition to any penalty imposed under UPIA Section 3-3, a penalty shall be imposed in an amount equal to 20% of any resulting deficiency. (UPIA Section 3-5(a))

 

b)         Negligence includes any failure to make a reasonable attempt to comply with the provisions  of any tax Act and includes careless, reckless, or intentional disregard of the law or rules. (UPIA Section 3-5(b))

 

c)         Penalty for negligence shall not apply where an assessment results from a reasonable difference of opinion as to taxability.  (UPIA Section 3-5) A reasonable difference as to taxability may be established by evidence that shows that the issue in dispute between the taxpayer and the Department is:

 

1)         not resolved by the plain language of the statute;

 

2)         an issue about which the Department has not adopted a rule of general applicability; and

 

3)         an issue about which the Illinois Supreme Court has not ruled and there are no opinions or inconsistent opinions of the Illinois Appellate Courts.

 

d)         In computing the penalty under this Section for income tax purposes, the amount shown as the tax by the taxpayer upon the return is taken into account in determining the amount of the deficiency only if the return was filed on or before the last day prescribed by law for the filing of the return, including any extensions of the time for the filing. (IITA Section 1002(f))

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.330  Penalty for Fraud (UPIA Section 3-6)

 

a)         If any return or amended return is filed with intent to defraud, in addition to any penalty imposed under UPIA Section 3-3, a penalty is imposed in an amount equal to 50% of any resulting deficiency. (UPIA Section 3-6(a))

 

b)         If any claim is filed with intent to defraud, a penalty is imposed in an amount equal to 50% of the amount fraudulently claimed for credit or refund. (UPIA Section 3-6)

 

c)         By way of illustration and not by way of limitation, intent to defraud may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices of documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid compiling the records usual in transactions of the like kind, or any other conduct, the likely effect of which would be to mislead or conceal.

 

d)         In computing the penalty under this Section for income tax purposes, the amount shown as the tax by the taxpayer upon the return shall be taken into account in determining the amount of the deficiency only if the return was filed on or before the last day prescribed by law for the filing of the return, including any extensions of the time for the filing. (IITA Section 1002(f))

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.340  Personal Liability Penalty (UPIA Section 3-7)

 

a)         Any officer or employee of any taxpayer subject to the provisions of a tax Act administered by the Department who has control, supervision or responsibility  of filing returns and making payment of the amount of any trust tax imposed in accordance with that Act and who willfully fails to file the return or make the payment to the  Department or willfully attempts in any other manner to  evade or  defeat the tax shall be personally liable for  a penalty  equal to the total amount of tax unpaid by the taxpayer including interest and penalties thereon. (UPIA Section 3-7(a))

 

b)         The term willful "has generally been defined as involving intentional, knowing and voluntary acts or, alternatively, reckless disregard for obvious or known risks. [Relevant] cases specifically find that according other corporate creditors preferential treatment over governmental tax obligation constitutes wilful behavior. Further, they find that, in a civil action, wilful conduct does not require bad purpose or intent to defraud the government." (Department of Revenue v. Heartland Investments, Inc., 106 Ill. 2d 19 (1985))

 

c)         The Department shall issue a notice of penalty liability for the amount claimed by the Department pursuant to this Section. Procedures for protest and review of a Notice of Penalty Liability issued pursuant to this Section and assessment of the penalty shall be the same as those prescribed for protest and review of a Notice of Tax Liability or a Notice of Deficiency, as the case may be, and the assessment of tax liability under the Act imposing that liability. (UPIA Section 3-7(b))

 

d)         The personal liability imposed by UPIA Section 3-7 survive the dissolution of a partnership or corporation. (UPIA Section 3-7(c))

 

e)         In addition to any other remedy provided for by the laws of this State, and provided that no hearing or proceeding for review is pending, any Section of a tax Act that provides a means for collection of taxes shall in the same manner and to the same extent provide a means for the collection of the penalty imposed by this Section. (UPIA Section 3-7(d))

 

f)         Officer or employee of any taxpayer includes a partner of a partnership, a manager or member of a limited liability company, and a member of a registered limited liability partnership. (UPIA Section 3-7(e))

 

g)         A trust tax is any tax for which an amount is collected or withheld by a taxpayer from another person, and any tax for which an amount is required to be collected or withheld by a taxpayer from another person, regardless of whether it is in fact collected or withheld. (UPIA Section 3-7(f))

 

h)         The personal liability imposed by this Section is in addition to liability incurred by a partner of a partnership or limited liability partnership resulting from the issuance of a notice of tax liability issued to the partnership or limited liability partnership. (UPIA Section 3-7(g))

 

i)          In addition to any other basis for imposition of liability under the UPIA, including under subsection (a), any person who collects, withholds, or receives a tax, or any amount represented to be a tax, from another person holds the amount so collected or withheld in special trust for the benefit of the Department and is liable to the Department for the amount so withheld or collected plus accrued interest and penalty on that amount. For purposes of this subsection (i), "person" has the same definition as provided in ROTA Section 1. (UPIA Section 3-7(h)) Under ROTA Section 1, "person" means any natural individual, firm, partnership, association, joint stock company, joint adventure, public or private corporation, limited liability company, or a receiver, executor, trustee, guardian or other representative appointed by order of any court.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.350  Bad Check Penalty (UPIA Section 3-7.5)

 

In addition to any other penalty provided in the UPIA, a penalty of $25 is imposed on any person who issues a check or other draft to the Department that is not honored upon presentment.  The penalty imposed under this Section shall be deemed assessed at the time of presentment of the check or other draft and shall be treated for all purposes, including collection and allocation, as part of the tax or other liability for which the check or other draft represented payment. (UPIA Section 3-7.5) The failure of the bank or financial institution to pay to the Department the full face amount of the instrument (for example, because of the imposition of a processing fee) is a dishonor of the check subject to penalty under this Section. The bad check penalty is applicable to any payment received in the form of a check, money order, cashier's check or other written order to pay money and that is not honored for any reason by the bank or financial institution upon which it is drawn.  The bad check penalty is assessed on a per check basis, therefore, for every check or draft issued to the Department that is not honored when presented to the bank upon which it is drawn a separate $25 penalty will be assessed against the drawer of the check or draft.

 

EXAMPLE:  Taxpayer's ST-1 is due on April 20.  Taxpayer does not file the return until May 1 and pays the tax due of $2,000 with a check submitted with the return.  Taxpayer's check is dishonored.  The Department assesses Taxpayer with penalties totaling $105.  The penalties assessed include the following: a late filing penalty of $40 ($2,000 x 2% = $40) for filing the return late, a late payment penalty of $40 ($2,000 x 2% = $40) for failing to pay the tax by the due date, and a bad check penalty of $25 for making payment to the Department with a bad check.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.400  Reasonable Cause (UPIA Section 3-8)

 

a)         The penalties imposed under the provisions of UPIA Sections 3-3, 3-4, 3-5 and 3-7.5 and Sections 700.300, 700.305, 700.310, 700.320 and 700.350 of this Part shall not apply if the taxpayer shows that the failure to file a return or pay tax at the required time was due to reasonable cause.  Reasonable cause is determined in each situation in accordance with this Section. (UPIA Section 3-8)

 

b)         The determination of whether a taxpayer acted with reasonable cause shall be made on a case by case basis taking into account all pertinent facts and circumstances.  The most important factor to be considered in making a determination to abate a penalty will be the extent to which the taxpayer made a good faith effort to determine the proper tax liability and to file returns and pay the proper liability in a timely fashion.

 

c)         A taxpayer will be considered to have made a good faith effort to determine and file and pay the proper tax liability if the taxpayer exercised ordinary business care and prudence in doing so.  A determination of whether a taxpayer exercised ordinary business care and prudence is dependent upon the clarity of the law or its interpretation and the taxpayer's experience, knowledge, and education.  Accordingly, reliance on the advice of a professional does not necessarily establish that a taxpayer exercised ordinary business care and prudence, nor does reliance on incorrect facts such as an erroneous information return.

 

d)         A taxpayer's history of compliance is also a factor to be considered in determining whether the taxpayer acted in good faith in determining and paying the tax liability.  Isolated computational or transcriptional errors will not generally indicate a lack of good faith in the preparation of a taxpayer's return.

 

e)         Examples of Reasonable Cause.  The following is a non-exclusive list of situations in which a taxpayer had reasonable cause for purposes of the abatement of penalties:

 

1)         Reasonable cause for abatement of penalty will exist if a liability results from amendments made by the Department to regulations or formal administrative policies or positions after the return on which the liability was computed was filed.

 

2)         Reasonable cause for abatement may also be based on the death, incapacity or serious illness of the taxpayer (or the taxpayer's tax return preparer) or a death or serious illness in the taxpayer's immediate family that causes a late filing or late payment of tax due.  In the case of a corporation, estate, trust, etc., the death, incapacity, or serious illness of an individual having sole authority to file the return (not the individual preparing the return) or to make the deposit/payment, or a member of that individual's immediate family, may be reasonable cause for abatement.

 

3)         An unavoidable absence of a taxpayer (or tax preparer) due to circumstances unforeseeable by a reasonable person may also constitute reasonable cause for purposes of abatement of the penalty.  An unavoidable absence does not include a planned absence such as a vacation.  In the case of a corporation, estate, trust, etc., the absence of an individual having sole authority to file the return (not the individual preparing the return) or make the deposit/payment may be reasonable cause for purposes of abatement.

 

4)         Inability to timely obtain records necessary to determine the amount of tax due to reasons beyond the taxpayer's control.  For example, some taxpayers, particularly those with income from banks, partnerships, trusts, estates or Subchapter S corporations, must secure information from those entities in order to properly compute the amount of tax due.

 

5)         Factors beyond the taxpayer's control such as destruction by fire, other casualty or civil disturbance, of the taxpayer residence or place of business records.

 

6)         Taxpayer mailed the return or payment to the Department in time to reach the Department on or before the due date, given the normal handling of the mail.  However, through no fault of the taxpayer, the return or payment was not delivered within the prescribed time period.  This fact situation would constitute reasonable cause for abatement of the penalty.

 

7)         Reasonable cause will exist for purposes of abatement of the penalty if a taxpayer makes an honest mistake, such as inadvertently mailing  a Department of Revenue check to a local government, another state's Department of Revenue, or to the Internal Revenue Service.

 

8)         An Illinois appellate court decision, a U.S. appellate court decision, or an appellate court decision from another state (provided  that the appellate court case in the other state is based upon substantially similar statutory or regulatory law) that supports the taxpayer's position will ordinarily provide a basis for a reasonable cause determination.

 

9)         The Department gave erroneous information, or delayed a process under its control.  In making the determination of whether the taxpayer had reasonable cause for purposes of abatement, the following factors are relevant:

 

A)        Did the taxpayer provide accurate information upon which to base the tax?

 

B)        Was the information requested by the taxpayer easily available in instructions or bulletins?

 

C)        Did the taxpayer rely on the advice?

 

D)        Did an employee who was acting in an official capacity and was authorized to provide assistance provide the advice?

 

E)        Was the taxpayer's reliance upon the advice reasonable?

 

10)          Taxes withheld by an employer for the wrong state.  An employee might not realize that withholding taxes are being withheld and remitted to the wrong state until the end of the taxable year when the employee receives a W-2.  If the employee can demonstrate that he or she had a reasonable belief that taxes were being withheld for the proper state, the penalty shall be abated.

 

11)          Embezzlement or employee fraud not reasonably within the knowledge of the taxpayer.

 

12)         The following occurrences are situations involving reasonable cause with respect to the imposition of the Tier 2 late filing penalty:

 

A)        Taxpayer demonstrates that he or she did not receive the penalty notice. If the taxpayer can show that he or she filed a change of address card, tax return, payment or letter with the Department and the Department still sent the notice to the wrong address, penalty abatement may be warranted.

 

B)        Taxpayer was on active duty in the military.  Taxpayers serving in the military may find themselves in situations in which it takes an extraordinary length of time to receive and respond to a notice.

 

13)        Extensions of Time to File Returns or Pay Tax Granted by the Internal Revenue Service. In cases in which the Internal Revenue Service has granted the taxpayer an extension of time to file a return or pay a tax (for example, because of a natural disaster), for any equivalent Illinois return or payment that is due (including any extensions) from that taxpayer under the IITA on or after the due date (without regard to extensions) for the federal filing or payment, if the taxpayer files that Illinois return or makes that payment on or before the extended due date granted by the Internal Revenue Service, the taxpayer has reasonable cause for not timely making that Illinois filing or payment.

 

f)         Relevant Factors Used by the Department in Determining the Existence of Reasonable Cause

 

1)         Could the taxpayer's federal filing status have caused confusion about his or her Illinois filing requirements? Under Illinois law, many taxpayers that are not required to file with the Internal Revenue Service are required to file with the Department.

 

2)         Does the taxpayer's reason address the penalty assessed?  For example, if a taxpayer was assessed both a late filing and late payment penalty for the same return, the taxpayer's explanation of the failure to file and pay may apply to one penalty, but not the other.

 

3)         Does the length of time between the reason cited and the actual violation support abatement?  If the taxpayer cites a specific event or set of events (e.g., illness, unexpected absence, or natural disaster) or set of events that led to the imposition of the penalty, are those events directly related to failure to file the return or make the payment under review?

 

4)         Could the event cited have been reasonably anticipated?  Was the event one that should have been anticipated (e.g., a vacation or scheduled absence) or was it unexpected, unavoidable, or otherwise unplanned (e.g., an emergency or disaster)?

 

5)         Were ordinary business care and prudence exercised?  In the absence of new or unusual circumstances, most filing and payment requirements are common knowledge or are readily available to most taxpayers.  If the taxpayer did all that could be reasonably expected of him or her and was still unable to file or pay on time, reasonable cause may be present.

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)

 

Section 700.500  Payment Application (UPIA Section 3-9)

 

a)         Payments received from a taxpayer shall be applied against the outstanding liability of the taxpayer, or to an agreed portion of the outstanding portion of the outstanding liability, in the following order:   the principal amount of the tax, then penalty, and then interest. (UPIA Section 3-9(d))

 

b)         A taxpayer may direct payment to a particular liability at the time payment is made to the Department by indicating the tax type and the tax period for which the payment is made, in writing on the check or other draft by which the payment is made, in a writing accompanying that check or other draft, or, in the case of an electronic payment, in the manner prescribed for identifying the specific method of payment.  If a taxpayer has multiple liabilities to the Department, either based upon multiple taxes or multiple reporting periods, the taxpayer should make separate payments of each liability and identify the liability to which payment is to be directed.  The excess of any payment over the amount of the liability to which the payment is directed shall be treated as a payment for which no direction was provided.

 

c)         In the  absence of  direction from  the taxpayer  as to which of  a taxpayer's outstanding liabilities a payment is to be applied, the payment shall be applied to the outstanding liability that became due and payable first, with payment applied first to the principal amount of the liability and any excess then applied to penalty and then to interest.  If there remain funds after application of the payment to the oldest outstanding liability, the remainder shall then be applied to the liability that next became due and payable, in the same manner.  For purposes of this subsection, the determination of when a liability is due and payable shall be made without regard to due dates for accelerated payments.

 

d)         Application of Overpayments of Tax

 

1)         Section 2505-275 of the Department of Revenue Law [20 ILCS 2505] provides that:

 

A)        In the case of overpayment of any tax liability arising from an Act administered by the Department, the Department may credit the amount of the overpayment and any interest thereon against any final tax liability arising under that or any other Act administered by the Department.

 

B)        The Department may enter into agreements with the Secretary of the Treasury of the United States (or his or her delegate) to offset all or part of an overpayment of such a tax liability against any liability arising from a tax imposed under Title 26 of the United States Code.

 

2)         Section 2505-650 of the Department of Revenue Law provides that, upon certification of past due child support amounts from the Department of Healthcare and Family Services, the Department of Revenue may collect the delinquency in any manner authorized for the collection of any tax administered by the Department of Revenue.

 

3)         Section 2505-655 of the Department of Revenue Law provides that, upon certification by the Clerk of the Circuit Court of the amounts of delinquent court fees, the Department of Revenue may collect the past due fees by intercepting the tax refund of any person owing the fees.

 

4)         Section 10 of the Illinois State Collection Act of 1986 [30 ILCS 210] provides that the Department's Debt Collection Bureau shall serve as the primary debt collecting entity for the State and in that role shall collect debts on behalf of agencies of the State, using all legal authority available to the Department to collect debt referred to it by other agencies of this State. 

 

5)         IITA Section 911.2 provides that a tax officer of another state of the United States may request that the Department withhold payment of a refund claimed by a taxpayer under the IITA for application against a delinquent income tax liability owed by the taxpayer to that state.

 

e)         Order of Application of Tax Overpayments.  IITA Section 911.3 provides standards for determining in which order an overpayment will be applied when more than one of the provisions in subsection (d) is applicable.  Pursuant to these provisions: 

 

1)         In the case of an overpayment for which the taxpayer has requested a refund or credit, the Department may credit the overpayment against any final tax liability arising under any Act administered by the Department.  The overpayment shall be applied first to the outstanding final liability arising under the same Act as the overpayment that first became due and payable, with payment applied first to the principal amount of the liability and any excess then applied to penalty and then to interest, and any remaining amount of the overpayment shall then be applied to the final liability arising under the same Act as the overpayment that next became due and payable, in the same manner, until all those liabilities are paid or the entire amount of the overpayment has been used. 

 

2)         Any amount of overpayment remaining after application of subsection (d)(1) shall then be applied first to the unpaid final tax liability arising under any other Act that first became due and payable, first to the liability, then to penalty, and then to interest, and then to the unpaid final tax liability that next became due and payable in the same manner, until all those liabilities are paid or the entire amount of the overpayment has been used. 

 

3)         For purposes of this subsection (e), the determination of when a liability is due and payable shall be made without regard to due dates for accelerated payments.

 

4)         Any amount of overpayment remaining after application of subsections (d)(1) and (2) is applied in the following order:

 

A)        against any existing, applicable request to withhold a refund to collect certified past due child support amounts under Section 2505-650 of the Department of Revenue Law;

 

B)        against any existing, applicable request to withhold a refund to collect any debt owed to the State;

 

C)        against any existing, applicable request made by the Secretary of the Treasury of the United States, or his or her delegate, to withhold a refund to collect any tax liability arising from Title 26 of the United States Code;

 

D)        against any refund withholding request made by the Secretary of the Treasury of the United States, or his or her delegate, to collect any nontax debt owed to the United States as authorized under Section 10(i-1) of the Illinois State Collection Act of 1986;

 

E)        against any existing, applicable refund withholding request made pursuant to IITA Section 911.2; and 

 

F)         against any existing, applicable request to withhold a refund to collect certified past due fees owed to the Clerk of the Circuit Court as authorized under Section 2505-655 of the Department of Revenue Law.  

 

(Source:  Amended at 43 Ill. Reg. 14342, effective November 26, 2019)