What are the new penalties?
- Failure to disclose participation in a reportable transaction - Illinois taxpayers that must disclose their participation in a reportable tax shelter to the Internal Revenue Service (IRS), are required to file a copy of that disclosure with the department.
In addition, Illinois taxpayers must also disclose their participation in a transaction entered into after February 28, 2000, that becomes a "listed transaction" at any time.
Disclosure is not required if the taxpayer files an amended Illinois return that reverses the tax benefits of the reportable transaction before disclosure would otherwise be due.
- Reportable transaction understatement penalty - This penalty applies to any deficiency of Illinois income tax that is caused by participating in any "listed transaction," or a reportable transaction if a significant purpose of the transaction is the avoidance or evasion of federal income tax.
This penalty applies to tax years ending on or after December 31, 2004. This penalty may also be applied to any reportable transactions entered into after February 28, 2000, that become "listed transactions" at any time.
What are the new penalties?
100 percent interest penalty - This penalty will be assessed if a taxpayer has been contacted by the IRS or the department regarding the use of a potential tax avoidance transaction.
What are the new penalty rates?
- Failure to disclose participation in a reportable transaction - A penalty in the amount of $15,000 will be assessed for each instance the taxpayer fails to disclose a reportable transaction. However, if a taxpayer fails to disclose a listed transaction, the penalty for each instance is $30,000.
The total of this penalty cannot exceed 10 percent of the increase in net income due to the reporting of any tax shelter activities.
- Reportable transactions understatement penalty - The amount of this penalty is 20 percent of the deficiency, but increases to 30 percent if the transaction was not disclosed as required.
- 100 percent interest penalty - This penalty is equal to 100 percent of the amount of interest assessed under UPIA from the payment due date that a notice of deficiency is issued.
Are there any changes to how interest is assessed?
Yes. In certain situations where you have not paid your tax liability related to abusive tax shelter activities, your interest rate may be assessed at 150 percent of the current interest imposed under UPIA.
What if the year I am filing qualified for the Illinois amnesty program that was held November 2003 through January 2004?
If you are filing a return that qualified for the Illinois amnesty program, interest assessed on any tax liability, including tax from abusive tax shelters, is assessed at 200% of the normal interest rate.
If you are filing an original return, and the extended due date for filing the return has passed, a late-filing penalty may be assessed at double the normal penalty rate.
If you are filing a return and it is unprocessable, you will have 30 days from the date of notification to make the return processable. If you do not respond timely, penalties may be assessed at double the normal rate.
