State & Local Tax Alert Breaking state and local tax developments from Grant Thornton LLP Illinois Enacts Legislation to Create Independent Tax Tribunal On August 28, Illinois Governor Pat Quinn approved the Illinois Tax Tribunal Act of 2012, which creates an independent tax tribunal to begin operating on July 1, 2013. 1 In late 2011, Illinois enacted legislation directing that an independent tax tribunal be established to replace the Illinois Department of Revenue s adjudication function in hearing protests of notices of tax liability or deficiencies, but the legislation did not contain specific provisions to implement the tribunal. 2 Establishment of Tax Tribunal The governor is directed to appoint, with the advice and consent of the Illinois Senate, a chief administrative law judge and up to three additional administrative law judges to serve on the Tax Tribunal. 3 The principal offices of the Tax Tribunal will be maintained in both Sangamon County and Cook County. 4 However, taxpayers whose residence or place of business is more than 100 miles from either of these offices may petition the Tax Tribunal for an alternate hearing location. 5 The Tax Tribunal is authorized to promulgate and adopt all reasonable rules and forms that are necessary to carry out the intent and purposes of the Tax Tribunal Act. 6 Transitional Provisions For administrative proceedings commenced during June 2013 that would otherwise be subject to the Tax Tribunal s jurisdiction, the taxpayer can make an irrevocable election to have the matter transferred to the Tax Tribunal. 7 However, this election must be made within 30 days after the taxpayer s protest was filed. 8 Release date August 30, 2012 States Illinois Issue/Topic Multiple Contact details Paul Bogdanski Chicago T 312.602.8269 E paul.bogdanski@us.gt.com Keith Staats Chicago T 312.602.8629 E keith.staats@us.gt.com Giles Sutton Dallas T 704.632.6885 E giles.sutton@us.gt.com Jamie C. Yesnowitz Washington, DC T 202.521.1504 E jamie.yesnowitz@us.gt.com Chuck Jones Chicago T 312.602.8517 E chuck.jones@us.gt.com www.grantthornton.com/salt 1 P.A. 97-1129 (H.B. 5192), Laws 2012. 2 P.A. 97-636 (S.B. 397), Laws 2011, Art. 5. 3 H.B. 5192, 1-25(a). The governor can appoint these judges prior to the date, July 1, 2013, when the Tax Tribunal will be granted jurisdiction to hear cases. 4 H.B. 5192, 1-35(a). 5 H.B. 5192, 1-35(b). 6 H.B. 5192, 1-95. 7 H.B. 5192, 1-15(d). 8 The taxpayer may make the election on or after July 1, 2013, but the election may only be made no later than 30 days after the date on which the taxpayer s protest was filed. Therefore, the election applies to taxpayers who are required to file their protests with the Administrative Hearings Division during the month of June 2013..
Grant Thornton LLP - 2 Jurisdiction The Tax Tribunal will have original jurisdiction over all determinations of the Department reflected on a notice of deficiency, notice of tax liability, notice of claim denial or notice of penalty liability issued for any Illinois tax other than property tax. 9 Jurisdiction will be limited to situations where the amount at issue in a notice, or the aggregate amount at issue in multiple notices issued for the same tax year or audit period, exceeds $15,000, excluding penalties and interest. In notices solely asserting either an interest or penalty assessment, or both, the Tax Tribunal will have jurisdiction over cases where the combined total of all penalties or interest assessed exceeds $15,000. In general, a taxpayer may not contest a matter within the Tax Tribunal s jurisdiction in any action, suit or proceeding in any other Illinois court. 10 If a taxpayer attempts to file a case in another court, the action, suit or proceeding will be dismissed without prejudice. Limits on Jurisdiction The Tax Tribunal will not have jurisdiction to review: Any property tax assessment; Any decisions relating to the issuance or denial of an exemption ruling for any entity claiming exemption from the property tax or any state tax administered by the Department; A notice of proposed tax liability, notice of proposed deficiency or any other notice of proposed assessment or notice of intent to take some action; Any action or determination of the Department regarding tax liabilities that have become finalized by law, including but not limited to the issuance of liens, levies and revocations, suspensions, or denials of licenses or certificates of registration or any other collection activities; Any proceedings of the Department s informal administrative appeals function; and Any challenges to an administrative subpoena issued by the Department. 11 Constitutional Challenges of Statutes and Rules The Tax Tribunal will decide questions concerning the constitutionality of statutes and rules adopted by the Department as applied to the taxpayer, but will not have the power to declare a statute or rule unconstitutional or otherwise invalid on its face. 12 However, a taxpayer challenging the constitutionality of a statute or rule on its face can present the challenge to the Tribunal to make a record for review by the Illinois Appellate Court. Failure to raise a constitutional issue regarding the application of a statute or rule to the taxpayer will not preclude the taxpayer or the Department from raising these issues at the appellate court level. 9 H.B. 5192, 1-45(a). Note that the State Officers and Employees Money Disposition Act (Protest Monies Act) is not changed. Under this Act, a taxpayer may pay taxes under protest and request a circuit court to decide the issue. See 30 ILL. COMP. STAT. 230/1 et seq. 10 H.B. 5192, 1-45(b). 11 H.B. 5192, 1-45(e). 12 H.B. 5192, 1-45(f).
Grant Thornton LLP - 3 Proceedings The Act includes many detailed provisions concerning proceedings before the Tax Tribunal. Petitions A taxpayer will be able to commence a proceeding in the Tax Tribunal by filing a petition protesting the Department s determination imposing a liability for tax, penalty, or interest, or denying a claim for refund or credit application. 13 The Department will be required to file its answer in the Tax Tribunal no later than 30 days after its receipt of the Tax Tribunal s notification that the taxpayer has filed a petition. 14 The Tax Tribunal will impose a fee of $500 for filing a petition, and may impose an additional fee for certain administrative functions 15 but taxpayers will not be required to pay the tax liability prior to bringing the action. 16 Representation Appearances at Tax Tribunal proceedings can be made by the taxpayer or by an attorney admitted to practice in Illinois. 17 Also, the Tax Tribunal may allow an attorney authorized to practice in another state to appear and represent the taxpayer. Confidentiality All information received by the Tax Tribunal as a result of a hearing or investigation will be public, except for tax returns and information received under seal or in relation to any mediation proceedings. 18 Mediation Prior to the hearing, the parties can jointly petition the Tax Tribunal for mediation. 19 The purpose of the mediation will be to attempt to settle any contested issues or the case in its entirety. 13 H.B. 5192, 1-50(a). The petition must be filed within the time permitted by statute for filing a protest. In general, protests must be filed within 60 days. 35 ILL. COMP. STAT. 5/908, 5/910, 105/20, 110/18, 115/18, 120/6b. 14 H.B. 5192, 1-50(b). 15 H.B. 5192, 1-55. 16 Note that the Tax Tribunal will be able to require the taxpayer to post a bond equal to 25 percent of the liability at issue upon a motion by the Department and a showing that (i) the taxpayer s action is frivolous or legally insufficient or (ii) the taxpayer is acting primarily for the purpose of delaying the collection of tax or prejudicing the ability to collect the tax. Also, a bond can be required if the Tax Tribunal determines that the taxpayer is not pursuing the resolution of the case with due diligence. H.B. 5192, 1-45(c). 17 H.B. 5192, 1-80. 18 H.B. 5192, 1-100. 19 H.B. 5192, 1-63. Note that an administrative law judge other than the one initially assigned to hear the case will serve as the mediator.
Grant Thornton LLP - 4 Hearings Proceedings before the Tax Tribunal will be tried de novo. 20 The Tax Tribunal will be authorized to take evidence, conduct hearings, rule on motions and issue final decisions. 21 Hearings will be open to the public, but taxpayers can petition the Tax Tribunal to close portions of the hearing for good cause. 22 Also, taxpayers may petition the Tax Tribunal to require that certain pleadings or evidence be filed or admitted under seal to prevent economic or other harm to the taxpayer. The public will not have access to tax return documents, schedules or other attachments. 23 In the case of an issue of fact, the taxpayer will be required to meet a preponderance of the evidence standard in order to meet its burden of proof. 24 Decisions The Tax Tribunal will render a written decision that includes a concise statement of the facts found and the conclusions of law reached. 25 The decision must be rendered within 90 days after the submission of the last brief filed subsequent to the hearing or, if briefs are not submitted, then no later than 90 days after completion of the hearing. 26 The Tax Tribunal can extend the 90-day period, for good cause, up to 30 additional days. The decision will become final 35 days after the issuance of a notice of decision. 27 Within 180 days of issuing a final decision, the Tax Tribunal will index and publish its decision in the print or electronic form that it deems is most convenient to the public. 28 Appeals The taxpayer and the Department will be entitled to judicial review of a final decision of the Tax Tribunal in the Illinois Appellate Court. 29 Informal Conference Board The legislation clarifies the Department s settlement authority in informal proceedings. 30 A new provision explains that offers of disposition of a proposed audit adjustment may be proposed during the informal assessment review process. 31 The Informal Conference Board should consider disposing of a matter if (i) it is uncertain whether the proposed audit adjustment is correct and (ii) it is not in the Department s best interest to issue an assessment or claim denial due to such factors as the potential hazards of litigation. 32 20 H.B. 5192, 1-65(a). 21 H.B. 5192, 1-65(b). 22 H.B. 5192, 1-65(c). 23 Id. 24 H.B. 5192, 1-65(j). 25 H.B. 5192, 1-70(a). 26 H.B. 5192, 1-70(b). 27 H.B. 5192, 1-70(e). 28 H.B. 5192, 1-85. 29 H.B. 5192, 1-75. 30 20 ILL. COMP. STAT. 2505/2505-510. 31 20 ILL. COMP. STAT. 2505/2505-510(c). 32 Id.
Grant Thornton LLP - 5 Commentary States have increasingly turned to independent tax tribunals as a method to provide a postassessment forum in which a taxpayer could obtain a hearing in front of an impartial arbiter. 33 The Illinois legislation provides that the Tax Tribunal will be created [t]o increase public confidence in the fairness of the [Illinois] tax system. 34 Specifically, the legislation creates an independent administrative tribunal with tax expertise to resolve tax disputes between the Department of Revenue and taxpayers prior to requiring the taxpayer to pay the amounts in issue. 35 The Tax Tribunal is intended to provide taxpayers with a means of resolving controversies that ensures both the appearance and reality of due process and fundamental fairness. 36 Several aspects of the legislation deserve special consideration. Taxpayers that file actions during June 2013 that otherwise have jurisdiction before the Tax Tribunal will be able to make an election to transfer their action to the Tax Tribunal. Also, the Tax Tribunal will only have jurisdiction to hear disputes of greater than $15,000. Further, attorneys will be authorized to represent taxpayers before the Tax Tribunal, but accountants will not be able to represent these taxpayers. 37 The combination of the establishment of the Tax Tribunal and the language in the legislation that enhances and clarifies the Department s settlement authority during the informal review process may both work to enhance the ability of taxpayers to obtain resolution of their audits during the Informal Conference Board process. The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. 33 For example, Georgia has enacted legislation that creates a new Georgia Tax Tribunal that will begin on January 1, 2013. Act 609 (H.B. 100), Laws 2012. The Alabama legislature recently passed legislation that would have created an independent Alabama Tax Appeals Commission, but the governor pocket vetoed this legislation, S.B. 549, due to a technical error. 34 H.B. 5192, 1-5. 35 Id. 36 Id. 37 Note that the American Bar Association s Model State Administrative Tax Tribunal Act, on which the Illinois legislation is largely based, allows licensed accountants to appear before a tax tribunal.
Grant Thornton LLP - 6 Tax professional standards statement This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed. To the extent this document may be considered written tax advice, in accordance with applicable professional regulations, unless expressly stated otherwise, any written advice contained in, forwarded with, or attached to this document is not intended or written by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code.