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| 1. | The Department has Form ITR-1 "Request for Tax Clearance," on its web site. What is that form used for? How does it differ from Form 542-A, the form used to report a bulk sale of assets? | |
| Response: | Form ITR-1 "Request for Tax Clearance" is used by taxpayers that wish to get a statement of the status of their account with the Department. It can only be used by the particular taxpayer to get a statement regarding any outstanding liability in his/her/its account. The taxpayer can then use the result however it wants, such as proof of no State tax liabilities for registration purposes with the Illinois Secretary of State, or to file in conjunction with the NUC-542-A when reporting a bulk sale. Form NUC-542-A differs from the ITR-1 because the NUC-542-A is used to report the sale or transfer of a major part of the assets, furniture or fixtures, machinery and equipment, or real estate of a business. Section 5j of the Retailers' Occupation Tax Act, 35 ILCS 120/5j, requires the filing of such notice by a taxpayer making such a sale or transfer outside the usual course of its business. See also 86 Ill. Adm. Code 130.1701. The form NUC-542-A is the only form that can be used to report these bulk sales transactions by a taxpayer to the Department's Chicago Bulk Sales Office. Pursuant to these statutory and regulatory provisions the purchaser or transferee must, no later than 10 days after the sale or transfer, file the NUC-542-A with the following required information: (1) the name and address of the purchaser or transferee; (2) the date of the sale or transfer; (3) a copy of the sales contract and financing agreements which shall include a description of the property sold; (4) the amount of the purchase price or a statement of other consideration for the sale or transfer; (5) the terms for payment of the purchase price; (6) and such other information as the Department may reasonably require. If the purchaser/transferee fails to file within the prescribed time, the purchaser/transferee shall be liable to the Department for the amount owed by the seller or transferor up to the amount of the reasonable value of the property acquired by the purchaser or transferee. |
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| 2. | It appears that the rules for administrative hearings, 86 Ill. Admin. Code Part 200, do not expressly incorporate by reference the Illinois Supreme Court Rules and the Illinois Code of Civil Procedure. Would the department consider amending the hearing rules to establish that these provisions apply? Is the Department considering any other amendments to the hearings rules? | |
| Response: | We do not feel it to be appropriate to incorporate by reference either the Supreme Court Rules or the Code of Civil Procedure in their totality. While the hearing rules are frequently patterned after them, many of the provisions of the hearing rules relating to practice before this agency differ from the laws that direct proceedings in court on the same or similar subject matter. Express adoption of the Supreme Court or Civil Procedure rules would therefore create immediate conflicts. Although we may use the Supreme Court Rules and/or the Code of Civil Procedure as a reference when there is no explicit regulation on point, they should not be the determining factor in the resolution of any procedural issue that may arise. There are presently no amendments to the hearing rules under consideration. | |
| 3. | What types of cases are set for a formal hearing without an initial status or pre-trial conference? Can the Department clarify its policy on this in the hearing rules? This approach seems unfair if the case presents substantial legal issues. For example, requiring the taxpayer to file a motion to continue the hearing date in order to obtain a conference creates additional work and affects the taxpayer's ability to obtain a "second" continuance of the hearing date under Section 200.160 of the hearing rules. | |
| Response: | Other than revocation proceedings and some clearly defined 1040 matters, cases are generally not set for hearing without at least an initial status conference being set. In fact, it is extremely rare when a case doesn't have several status conferences in addition to a final pre-trial conference before a hearing is scheduled. We feel that hearing rule 200.140(a) is quite explicit in directing this process. Occasionally, when the factual aspect of any particular case appears to present a simple issue, it will be set for hearing immediately. However, if it is subsequently determined that there is more to it, necessitating a status or a pre-trial, then one is scheduled, either on our own initiative or on the request of one of the litigants. This does not adversely affect any taxpayer's ability to obtain a "second"continuance of the hearing date should that become necessary. | |
| 4. | The Department's web site is a tremendous resource. Is the Department considering any changes or additions to it? | |
| Response: | The web site was re-designed this year to provide quicker access to information. A new area was recently added for the Circuit Breaker and Pharmaceutical programs and will be expanded in the future to provide more information. We will be adding additional information systems including Sales Tax Receipt by SIC, Local Government Tax Allocation, a public list of delinquent taxpayers and a refund status inquiry capability. Also, as a tie in to the department's business registration system, an interface will be built to assist business owners to initiate their registration process. | |
| 5. | ADMINISTRATION/ICU & INFORMAL REVIEW. Has the IDOR considered reforming the Informal Conference/Informal Review procedures to give taxpayers a more robust, pre-assessment opportunity to resolve cases on the basis of hazards of litigation? This would be a wonderful improvement and limit the number of cases that get embroiled in time-consuming and expensive litigation. | |
| Response: | We have been advised that the Governor's Accountability Council is taking a close look a the Informal Conference Unit and the Informal Review processes of the Department to determine whether there are ways in which the Informal Conference procedure could be reformed in order to enhance the opportunity of taxpayers to resolve audits prior to the issuance of assessments. We are awaiting their conclusions and suggestions and will give serious consideration to any suggestions for change that result from their study. | |
| 6. | ADMINISTRATION/PENALTIES. The Chicagoland Chamber of Commerce has suggested several changes to the UPIA, including abolishing the 2% failure to file penalty when no tax is due or a refund is due, and abolishing the 20% late payment penalty for underpayments of estimated tax. | |
| a. | Is the Department in favor of this proposal? | |
| Response: | We are committed to a thorough examination of the current Uniform Penalty and Interest Act. As noted in response to a previous question, we are holding a public hearing on November 19 in Chicago. At this point it would be premature to commit to any particular changes. We would like to wait and see what we receive in the way of public comments and before we make any particular commitments. | |
| 7. | The federal government and many states have established internal policies for processing refund claims quickly, particularly in areas such as net operating loss carrybacks and other non-controversial matters. Custom and practice in the State of Illinois has been to stop processing of refund claims until the claims are audited. The current practice has resulted in taxpayers ultimately receiving refunds from the State of Illinois, generally, after a long lapse of time, and the taxpayers are receiving substantial amounts of interest relating to these claims. | |
| a. | Do you see your administration changing the practices in this area to offer quicker refund processing in the net operating loss carryback and non-controversial claims area? | |
| Response: | We are evaluating ways in which to ensure that valid refund claims are paid in a timely fashion. From a fiscal standpoint, there is no advantage to the Department gained by not paying valid claims as quickly as possible. | |
| b. | Do you see your administration auditing all claims or establishing criteria for claims audits? | |
| Response: | The Department will always audit some claims. However, we are not averse to establishing some type of criteria for auditing claims, rather than auditing every claim we receive. In many instances involving Illinois net losses, the taxpayers making such claims are the large taxpayers that are generally always audited by the Department. In many such cases, it is easier from an administrative standpoint, both for the taxpayer and the Department to go ahead and fold the claim into the normal audit cycle of the taxpayer. | |
| c. | Do you envision the use of the Internet for tracking the status of claims by using proprietary codes? | |
| Response: | We do not have that capability yet. However, this is a suggestion that we are willing to explore. We are committed to make use of automation in any fashion we can, including the Internet, to provide greater taxpayer access to information from the Department. | |
| 8. | Has the Department of Revenue finished Y2K implementation for all of its systems? If not, when is anticipated completion date? | |
| Response: | We have completed all of our applications changes, testing and certification. There are a few small peripheral tasks that are still in the final stages. These include installation of the last group of PC's scheduled for completion by November 30th, upgrade of the building environmental control system scheduled for completion by the Secretary of State by November 15th, completion of Word Processing macro conversion by October 29th and a couple small interfaces that remain to test, one to the Comptroller and one to the Secretary of State and both should be completed in the next three weeks. The bottom line is we are very close to being 100% complete and will be in November. |
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| 9. | Has the Department of Revenue formed a project team to study and implement electronic transmission of various tax forms? How far has the project progressed for?
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| Response: | The Department of Revenue is making electronic commerce a high priority. Much of our initial focus has been on the high-volume, paper-intensive individual income tax. We are, this month offering 150,000 taxpayers who have relatively simple returns the opportunity to file their sales and use tax returns via a toll-free telephone call. We have the system in place to accept in electronic format the some of the 1.5 million sales and use tax returns we receive annually. There are software developers who have packages for sale that a taxpayer can use to file with us. Contact our electronic filing office at 217/524-4767, if you have an interest. Nation's Tax has proposed to offer an on-line sales and use tax filing option next year. The taxpayer will pay a per transaction filing fee. Our staff has identified the ST-556, the vehicle tax return that we receive 1.95 million annually, as another opportunity to increase service to taxpayers. That will be one of our priorities. We have not identified the corporate income tax return as an initial high priority because of the relatively low volumes (130,000 vs. 5.5 million individual returns) and the need for attached support that does not lend itself to electronic filing. |
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| 10. | Has the Department of Revenue established any internal guidelines on emailing documents to representatives that have powers of attorney on file or emailing information to taxpayers? | |
| Response: | We haven't established any guidelines authorizing these types of email transmissions to date. However, we are certainly not averse to looking closely at the advantages of using email in this fashion. | |
| 11. | If you do not meet the required levels of payment for electronic funds transfers, are you allowed to voluntarily send tax payments to DOR via the electronic funds transfer process? | |
| Response: | We do authorize voluntary participation in the electronic funds transfer process. In order to be a voluntary participant in the program, a taxpayer must go through the normal registration for the program required of mandatory participants. A taxpayer may not remit an electronic fund transfer without prior approval of the Department as a voluntary registrant. Voluntary registrants are required to make all tax payments for the particular tax type for which they have registered by electronic funds transfer. | |
| 12. | Is there any discussion of establishing an Illinois tax court where a taxpayer would have the right to a trial de novo? | |
| Response: | A tax court or independent administrative hearing office is one of those concepts that sounds fine in the abstract, but is not necessarily always as good in practice. The legislative proposals that have surfaced on this subject in Illinois thus far, may not result in a system that is better for taxpayers and tax practitioners than the current system. The most recent proposal, introduced in last year's legislative session, would have established an independent administrative hearings body for administrative hearings of all state agencies. The problem with that type of a setup is that you would likely end up with administrative hearings on complicated tax issues being held by administrative law judges who have little or no background in taxation. Most people here would agree that such a result isn't going to be particularly helpful to the development of sound tax policy. |
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| 13. | In an effort to supplement the Department's resources, various groups would be willing to review and comment on proposed regulations using a predetermined response time. Would the Department be willing to establish a registration procedure for interest organizations and circulate the proposed regulations for review and comment? | |
| Response: | We have established a procedure for circulation of draft rules for review and comment. Prior Directors of Revenue have established tax practitioner advisory groups. Director Bower has expanded his advisory group to include not only tax practitioners, but also representatives of Illinois business and members of various trade and lobby groups whose memberships have an interest in Illinois taxes. The first meeting of this advisory group will be held early next month. One of the important roles that the Director's advisory group will play will be in respect to evaluation and comment on draft rules developed by the Department. The Department will no longer keep draft rules secret. We will share draft proposals with the advisory group and seek their input. We will be using a password-protected page on the Department's Web site to provide the advisory group members with copies of draft rules. This new portion of our Web site should be up and running in the next couple of weeks. |
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| 14. | Please comment on the Department's overview of the effectiveness of the Informal Conference Unit. Since ICU serves as the arena for airing disputed issues and interpretations, could the Department publish a quarterly summary on its website of the issues being brought to ICU? | |
| Response: | The Informal Conference Unit (ICU) was established as a forum for taxpayers, who disagree with an audit adjustment, to come forth and discuss the controversial issue or issues that may have arose during the audit. It allows the taxpayer, prior to the issuance of an assessment, to meet with an impartial conferee who can recommend appropriate action. Since its inception in February 1995, the Informal Conference Unit has received 616 requests with 130 cases not granted a conference because they did not meet the criteria. Changes to the audits have been made to 50% of the cases before ICU. Subsequent to the Informal Conference, 68% of the cases are agreed to by the taxpayer. The average time it takes to close a case in ICU is 115 days. The Department is pleased with the results made by the Informal Conference Unit, especially in meeting its objective of reducing the overload of unagreed cases at the hearing level. The Department will discuss internally; the resources needed to publish a quarterly summary on its website. |
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| 15. | What is the Board of Appeals Process? | |
| Response: | The Board of Appeals is comprised of three members who are appointed by the director of the Illinois Department of Revenue (IDOR). The board's purpose is to make sure that we have treated taxpayers fairly and to provide relief to taxpayers when appropriate. The Board has the authority, in conjunction with the IDOR director, to waive penalties and interest based on reasonable cause and to reduce tax liability based on the likelihood of collection. The Board of Appeals is not an appeals court. It does not have the authority to redetermine your final liability or to review administrative hearings or court decisions. Taxpayers may petition the Board of Appeals for relief after a liability has become final. A liability is final when all administrative hearings and court proceedings to review the assessment have ended or the time for taking such action has expired. To seek relief from the board, taxpayers must complete Form BOA-1, Board of Appeals Petition, stating why the relief is warranted. As part of the petition, a taxpayer may request a hearing at the board. Hearings are held by a hearing officer or board member. The purpose of a hearing is to allow taxpayers an opportunity to provide additional information and reasons why the relief requested in the petition is appropriate. However, a hearing is not required. The board will rule on the written petition without a hearing should the taxpayer so choose. Once the petition is filed, the board requests from us information and a recommendation regarding the matter. When the board receives the petition and our information and a hearing has been provided (if you requested one), the board members review the case and determine whether relief is warranted. In order for relief to be granted, at least two of the three board members must agree that some form of relief is appropriate. The petition is denied if there is no agreement. When there is agreement, the board gives its recommendation to the IDOR director for approval. If the director approves the board's recommendation, the board issues an order granting the approved relief. Decisions by the Board of Appeals are final and cannot be appealed. The Board of Appeals may also review other departmental controversies. Such reviews may take place only after the board unanimously agrees that action by the board is the most efficient and expeditious manner of resolving the controversy or by order of the IDOR director. Departmental controversies include cases that are currently pending in our Office of Administrative Hearings or in the courts in which both the department and you, the taxpayer, have requested the board to take jurisdiction and review the matter. If you have any questions or need Board of Appeals forms, write to: BOARD OF APPEALS 7-500 or call 312 814-3004 |
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| 16. | It has been my experience in the past that the Board of Appeals rarely accepts Offers in Compromise to settle outstanding tax liabilities. In addition, it never explains why an offer is rejected. This seems inflexible and autocratic. The Internal Revenue Service has extensive guidelines (that are a public record) as to the factors taken into account in evaluating an offer in compromise. These factors can be discussed with a manager or taken up to the Appeals Office. It seems to me that the IDOR should develop similar procedures. Like the IRS, IDOR is a public agency and should have open and well-documented procedures subject to the scrutiny of the practitioners and the public in general. This is especially true of an agency that takes money out of the pockets of the taxpayers. Please comment. | |
| Response: | The Board of Appeals has granted relief to over 41% of the taxpayers filing offers in compromise in 1999 (to date). Last year, the Board accepted over 31% of the offers in compromise filed. The sole criteria the Board can consider in compromising tax liability is the uncertainty as to collectibility of the debt by the Department. In an offer in compromise case, the Board is therefore trying to maximize the collection of the debt for the state. The Board will therefore reject any offer in compromise where the Board determines that the taxpayer's offer does not maximize the collection of the debt for the state. The Board does not follow the IRS formula approach (project out taxpayer's 5 year earning stream and discount down to the present value). If a taxpayer is 30 years old and is making an offer in compromise, the Board will look at that taxpayer's total future earning potential (not just the next 5 years). When an offer in compromise is filed at the Board, the Board requests a recommendation from the Department's Collection Bureau. The Collection Bureau recommendation addresses: 1] what steps the Department has taken to date to collect the debt, 2] what other collection tools are still available to the Department to collect the debt, 3] the accuracy of the taxpayer's petition and financial statements and 4] the Collection Bureau's recommendation on whether taxpayers offer in compromise will maximize the collection of the debt for the state. In considering an offer in compromise, the Board looks at the following factors:
Finally, the Board is considering expanding the current Board of Appeals rules to give more guidance to taxpayers who are considering filing an offer in compromise with the Board. |
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| 17. | It seems to me that employees of the Collection Division of IDOR are often inflexible in dealing with specific situations. They usually ask for 1/3 of the money due immediately and the balance in monthly installments - regardless of the financial picture. They do not, for example, acknowledge the possibility that someone is so broke at the time they are dealing with the IDOR that they cannot pay anything at all. Also the aggressiveness of the collection actions seem to vary from case to case, depending on the individual employee or his/her manager. It would help to have better documentation and guidelines for the employees and they should be open to the public so that practitioners and individual taxpayers would know what to expect in any given situation. Your comments would be appreciated. | |
| Response: | Historically we had set a standard for installment contracts for the taxpayer to submit a 25% down payment and to pay the balance in monthly payments for usually one year. However, over the last few years, that "standard" has become more of a "guideline" that is used as a starting point. Installment contracts are extended to taxpayers when proven financial hardship exists. You must remember that many taxpayers confuse financial hardship with financial inconvenience. We believe we have become considerably more flexible regarding installment contracts as those requests that do not meet normal guidelines can be approved as the request moves up through various levels of bureau management. This also extends to approving monthly installment payments for a longer period then we have in the past. Financial statements of taxpayers requesting payment arrangements normally reflect them making numerous monthly payments for loans, car payments, etc. This is a normal business practice and we feel it is a fair way for a delinquent taxpayer to repay taxes that in many cases, were withheld from employees or collected from customers. While we concede that aggressiveness of our employees may vary from time to time, it is important to remember that we have over 325 employees in the Collection Bureau disbursed throughout the state. Situations vary and there are many gray areas that have to be considered. We do not believe it would be feasible for us, or even fair to taxpayers, to try to have a strict set of guidelines to cover every possible situation. We continue to stress to our employees the need for them to apply firm, but fair enforcement action when working with taxpayers and representatives. We believe there has been improvement in this area and it will continue to be emphasized. |
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| 18. | What is on the horizon of proposed regulations or future projects that will affect the Tax Practitioners? | |
| Response: | We recently finished drafting a number of changes to the sales and excise tax rules and the income tax rules. These proposed changes correct out-dated statutory references, eliminate obsolete provisions, and incorporate into the Department's rules statements of agency policy that have been set forth in letter rulings that do not currently appear in rules. There are also amendments to Department rules that have been necessitated by court decisions. The intent of this regulatory project is to do some "non-controversial" updating of our rules. We are working in both areas to develop rules to implement recent legislation. In the income tax area, we are working with the Illinois State Chamber of Commerce on rulemaking to define the term "sales finance company" as that term is used in the definition of "financial organization" under the Illinois Income Tax Act. Connie Beard, General Counsel of the Illinois Chamber, volunteered the assistance of her group to draft rules to implement recent legislation amending the statutory definition. In the sales tax area, we are working on an update of the Service Occupation Tax Act rules. |
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