Current through Register Vol. 48, No. 38, September 20, 2024
a) In general
1) This Section relates to the exercise of
the election provided in IITA Section 603 with respect to overpayments and
liabilities that arise as the result of:
A)
the filing of an original return;
B) an assessment due to a mathematical
error;
C) the filing of an amended
return showing an increase in tax liability;
D) the filing of an amended return showing a
decrease in tax liability which is approved by the Department;
E) the submission by a taxpayer of a signed
Form IL-870 waiver of restrictions on assessment and collection under Section
907 of the Act; and
F) the
execution of a Form IL-870-AD pursuant to Section
100.9000(c)(5)
of this Part.
IITA Section 603 was repealed by Public Act 88-195, which
also amended IITA Section 502(e) to require combined returns for taxable years
ending on or after December 31, 1993. No election under that Section may be
made with respect to taxable years ending on or after December 31, 1993.
2) If the overpayment
arises from subsection (a)(1) (A) or (D) above, it may only be credited against
the liability for the same taxable year of one or more other taxpayers that are
members of the same unitary group for that taxable year. If the overpayment
arises from subsection (a)(1)(E) or (F) above, it may be credited against the
liability of one or more other members of the same unitary group for any
taxable year within the audit period of the electing company. The audit period
of the electing company is any taxable year for which the original return or an
amended return of the electing company has been examined under IITA Section
904(a) or 909(e) and the electing company has been notified that the correct
tax is less than, equal to, or more than the amount of tax already
assessed.
b) Elements of
the election. The election may only be made by a taxpayer that has an
overpayment and has filed its tax return. The election is only available for
taxable years ending before December 31, 1985. The election, including the
alternative election, is binding and cannot later be amended, revised, or
cancelled by the taxpayer. The election must be specific on the following
matters:
1) the identities of other members of
the unitary business group to which the overpayment is assigned,
2) the amount of the overpayment assigned to
each such member, and
3) the date
the overpayment was made.
c) Meaning of overpayment. A company's
overpayment for a taxable year is the amount by which its payment and credits
for that year exceed its assessed liability for the same year under IITA
Section 903, except for any penalties imposed under IITA Section 804 as a
result of making this election.
1) In
ascertaining whether a taxpayer has an overpayment for a particular taxable
year and in computing the amount of such overpayment, an amended return
constituting a claim for refund under IITA Section 909(d) shall not be treated
as reducing the taxpayer's assessed liability for the taxable year unless the
taxpayer has received a notice from the Department that the claim has been
approved and that a refund will be issued.
2) If an overpayment has been refunded or
credited forward to the taxpayer's next taxable year prior to an election being
made, that overpayment is no longer available to be used as an offset against
any other member's liability, and the refund or credit forward will not be
reversed or cancelled by the Department at the request of the taxpayer. An
overpayment elected to be credited forward to the taxpayer's next taxable year
will be considered made as of the first installment due date of the credit
carryforward year. Consequently, a credit carryforward will be binding once the
due date for the first estimated tax installment of the carryforward year has
passed without an election to offset having been made, and such overpayment
will not be available for offset after that date. For purposes of this section
the date on which a refund will be considered to be made will be the "process
date," meaning the date the Department processes an account by computer for the
issuance of a warrant, which is permanently recorded date maintained by the
Department.
d) Procedure
1) Manner and time for making an election.
The election must be made on forms prescribed by the Department, and it must be
filed before the Department has issued a refund for the overpayment or before
the overpayment has been credited forward to the taxpayer's next taxable year.
All the members of a unitary group who wish to file an election must do so at
the same time and on the same form. The election is only available to unitary
business group members that have overpayments. Nothing in this Section permits
a member of the unitary business group having a balance due on its liability to
claim unilaterally the overpayment made by another member for the same taxable
year. Both the overpaid and underpaid members are bound by the consequences of
the election. The election should be filed with the original or amended returns
which are related to the election if those returns have not been previously
filed.
2) The Department's response
to the election. As soon as practicable (but not later than 3 months) after the
election is filed, the Department shall inform the electing taxpayer and each
taxpayer that is to receive an assignment of payments pursuant to the election
that the election has been approved or disapproved. An election will be
disapproved if it violates any of the substantive or procedural requirements
set out in this Section. In addition, an election may be disapproved if the
Department has chosen to exercise its right under IITA Section 909(a) or
Section 39e of the Civil Administrative Code of Illinois to use the overpayment
to defray another Illinois tax liability of the electing taxpayer, thus causing
the overpayment to be less than the electing taxpayer had anticipated in filing
its election.
3) Alternative
elections
A) If the election is disapproved
because it is premised on a mistake as to the size of the overpayment, the
notice of disapproval must provide the electing company with an explanation of
the correct calculation of the overpayment, if any. If the election is
disapproved because it violates one of the other requirements set out in this
Section, the notice of disapproval must state the nature of the violation. In
either event, the electing company shall have 45 days from the date that the
notice of disapproval is issued to file an alternative election, provided that
an election otherwise meeting the requirements of this Section is possible. A
notice of disapproval is considered issued on its postmark date. The
alternative election may include overpaid members of the unitary group which
were not included in the original election. The alternative election shall be
made on the form prescribed by the Department and should take into account
whatever mistakes or violations the Department has cited in its notice of
disapproval. If, by reason of the matters dealt with in the Department's notice
of disapproval, the electing company is shown not to have an overpayment for
the taxable year, then an alternative election may not be filed. In situations
in which an alternative election may be filed, if one is not filed within 45
days of the date that the notice of disapproval is issued, then all companies
involved will be treated as though no election had ever been
attempted.
B) The Department will
approve an election, if it is premised on a mistake in the size of the electing
company's overpayment and if precisely the same election could be made on the
basis of the reduced overpayment.
i) EXAMPLE:
Corporation A, Corporation B, and Corporation C are all members of the same
unitary business group for their taxable years ended November 30, 1984. Each
filed its Illinois income tax return on February 15, 1985 on a combined
apportionment basis with the other two. Corporation C showed a balance of tax
due on its return of $20,000; Corporation A showed an overpayment of $20,000;
and Corporation B showed an overpayment of $40,000 on its return. Corporation A
filed an election under this Section, assigning its entire overpayment to
Corporation C and specifying that $5,000 should be considered as having been
paid by Corporation C on each of the four dates that Corporation A had made
estimated tax installments. Corporation B indicated on its return that its
entire $40,000 overpayment should be refunded. In processing Corporation A's
return, the Department identified a mathematical error which caused an
additional $16,000 to be assessed on Corporation A's return with a consequent
reduction of Corporation A's overpayment by that same amount. In addition to
notifying Corporation A of the mathematical error assessment, the Department
notified both Corporation A and Corporation C that the election had been
disapproved. At the time the disapproval notices were issued, Corporation B
still had not received its $40,000 refund.
ii) QUESTION: The question is whether the tax
compliance personnel of the A-B-C unitary business group have any alternative
to simply having Corporation A file an alternative election assigning $4,000 to
Corporation C and having Corporation C pay whatever Section 804 penalty and
interest may accrue as a result of its $16,000 balance due.
iii) ANALYSIS AND CONCLUSION: Corporations A
and B may make an alternative election to assign $4,000 and $16,000,
respectively, to Corporation C or Corporation B may make an alternative
election to assign $20,000 of its unrefunded overpayment to Corporation
C.
e) Consequences of the election as between
the electing company and the company receiving the assignment of overpayments
1) Once an election is approved, the electing
company loses all entitlement to the overpayments assigned and all benefits
which would otherwise have accrued to it under the Act as the actual payor of
the overpayments assigned. Conversely, once an election is approved, companies
receiving assignments of overpayments shall be entitled to all of the benefits
that would have accrued to them under the Act had they themselves made the
payments assigned to them at the times specified in the election.
A) EXAMPLE: Corporation A and Corporation B
are part of the same unitary business group for calendar 1984. Corporation A's
total Illinois income tax liability for 1984 is $20,000 and its total payments,
$30,000. Corporation B's total Illinois income tax liability for 1984 is
$12,000 and its total payments, $2,000. Corporation A makes an election
assigning its entire $10,000 overpayment to Corporation B. The election is
approved by the Department, and the companies are so notified. At a later date,
Corporation B discovers that an item of its own nonbusiness (nonapportionable)
income, which it had allocated to Illinois on its original return really should
not have been allocated to Illinois under Section 303 of the Act. Corporation B
files an amended return, relating to this item, claiming that its liability for
1984 should have been $6,000 less than shown on its original return and that it
is consequently entitled to a refund of $6,000. The Department examines the
claim under Section 909(e), determines that it is meritorious, and issues a
notice of refund. Corporation A's legal officer, having heard of the claim
filed by Corporation B and wishing to collect whatever he can on a large debt
owed by Corporation B to Corporation A, petitions the Department to issue the
$6,000 refund to Corporation A.
B)
ANALYSIS AND CONCLUSION: The Department will not grant Corporation A's
petition, and it will refund the $6,000 to Corporation B. By making the
election, Corporation A lost all entitlement to the assigned amount.
2) A company may not elect to
assign an amount in excess of its overpayment. However, as a result of making
an election, a company may subject itself to penalties for underpayment of
estimated tax, and it must agree to be liable for any such penalties as a
condition of making the election.
A) EXAMPLE:
Corporation A and Corporation B are members of the same unitary business group
for 1984; neither has ever been an Illinois income taxpayer before. On
completing their Illinois income tax returns for 1984, Corporation A and
Corporation B arrive at the following conclusions:
i) Corporation A:
|
Total Illinois Income Tax Liability
|
$2,000,000
|
|
1st est. tax installment -
April 16, 1984
|
$400,000
|
|
2nd est. tax installment -
June 15, 1984
|
400,000
|
|
3rd est. tax installment -
September 17, 1984
|
800,000
|
|
4th est. tax installment -
December 17, 1984
|
800,000
|
|
$2,400,000
|
|
$ 400,000
|
ii)
Corporation B:
|
Total Illinois Income Tax Liability
|
$1,000,000
|
|
1st est. tax installment -
September 17, 1984
|
$200,000
|
|
2nd est. tax installment -
December 17, 1984
|
600,000
|
|
$ 800,000
|
|
$ 200,000
|
Balance of Tax Due. The companies recognize that Corporation
B has underpayments of estimated tax within the meaning of Section 804(b) of
the Act of $200,000 as of April 16 and in the accumulated amount of $400,000 as
of June 15 and September 17 and that these underpayments will generate a
penalty under Section 804(a) of $56,547.94. The companies further recognize
that, due to the seasonal nature of Corporation B's business, an estimated tax
payment of $100,000 on or before April 16 would have qualified Corporation B
for the exception of Section 804(d)(3) with respect to the underpayments
mentioned above, with the result that Corporation B would have incurred no
estimated tax penalty whatsoever for 1984. In view of these circumstances,
Corporation A filed a timely election to assign $200,000 of its overpayment to
Corporation B, specifying that the $100,000 should be considered as having been
paid by Corporation B on April 16, 1984, and $100,000 as of September 17, 1984.
Realizing that it has caused its first installment to be reduced below what is
necessary to meet its own estimated tax obligations, Corporation A expects to
incur an estimated tax penalty under Section 804(a) of the Act in the amount of
$10,191.78, that being the penalty generated by a $100,000 underpayment for the
155 day period from April 15, 1984 to September 17, 1984. The election will
have the effect of saving the A-B unitary business group $46,356.16 in
estimated tax penalty.
B) ANALYSIS AND CONCLUSION: This election
will be approved by the Department, and as a result, Corporation A will be
liable for the penalty for underpayment of estimated tax in the amount of
$10,191.78.
f) Additional provisions
1) The regulations are effective for all
elections made under Section 603 of the Illinois Income Tax Act as amended by
PA 93-1289. This provision provides coverage for elections made and processed
by the Department prior to the regulations being adopted.
2) Overpayments can be divided up and used to
offset more than one underpaid account.
3) Partnerships and Subchapter S corporations
are qualified to participate in elections made under this Section.
4) Overpayments can only be assigned to
accounts with liabilities. "Liability" includes penalties such as underpayment
of estimated tax, late filing penalty, and late payment penalty. Movement of
payments can cause penalties of underpaid accounts to be reduced or cancelled
altogether.
5) The purpose of the
reference to IITA Section 911 in IITA Section 603 is to preclude the creation
of a new claim period outside of Section 911 by reason of new Section
603.
6) A company will not be
considered a member of the same unitary business group as another company for
purposes of this election unless the assessment from which the overpayment is
derived is supported by a return, amended return, waiver of restrictions on
assessment and collection or executed Form IL-870-AD or IL-870 premised on the
electing company being a member of the same unitary business group as such
other company.
