Illinois Administrative Code
Title 86 - REVENUE
Part 100 - INCOME TAX
Subpart AA - DEFICIENCIES AND OVERPAYMENTS
Section 100.9320 - Limitations on Notices of Deficiency (IITA Section 905)
Current through Register Vol. 48, No. 38, September 20, 2024
a) In General
EXAMPLE:
Corporation A and its wholly-owned subsidiary Corporation B are members of a unitary business group, but filed separate returns for calendar years 2005 through 2009. Corporation A reported positive net income every year, and Corporation B reported net losses under IITA Section 207 for every year. For 2010, the corporations filed a combined return, and used losses incurred by Corporation B in 2010 and carryforwards of losses reported by Corporation B in prior years to reduce combined net income to zero. The corporations also filed refund claims for 2007, 2008 and 2009, computing their liability on a combined basis, and reporting net losses carried to 2010. The limitations periods for issuing notices of deficiency have expired for 2005 and 2006, but not for the later years.
The Department may examine the returns for 2005 and 2006 and may adjust the combined net income or loss of the corporations for those years and for each subsequent year in order to determine the correct amount of any combined net income or loss for each year, and the correct amount of any net loss deduction to be used in each year, so that the correct liabilities for 2007, 2008, 2009 and 2010 can be determined and any deficiency for the later years can be assessed and any excessive refund claim denied.
If the limitations period for issuing a notice of deficiency for 2007 expires before the Department begins its examination of the corporations' returns, but before any refund is paid, the Department may nevertheless make any adjustment to the net income or net loss of either corporation for 2007, as well as to any net loss carryforwards from 2005 and 2006, in order to reduce the allowable refund for that year or to reduce the net losses available to carry to subsequent years.
b) Omission of More than 25% of Base Income
c) No Return or Fraudulent Return
d) Failure to Report Federal Change
If a taxpayer fails to notify the Department of an alteration or change as required by IITA Section 506(b), a notice of deficiency may be issued at any time. The assessment proposed in any such notice of deficiency shall be limited to the amount of deficiency resulting under the IITA from recomputing the taxpayer's net income, net loss, or Article 2 credits for the taxable year by giving effect to the item or items subject to the notification requirements. (See IITA Section 905(d).) The statute of limitations for issuing a notice of deficiency under this subsection (d) applies to a federal change for a taxable year, even if the federal change is made after the statute of limitations has expired for assessing a federal income tax deficiency for that taxable year. (See Peoria and Pekin Union Railway Co. v. IDOR, 301 Ill.App.3d 736 (1999).)
e) Report of Federal Change
In any case in which a taxpayer has given notification to the Department of an alteration or change as required by IITA Section 506(b), the Department, not later than 2 years after the date the notification is received, may issue a notice of deficiency proposing assessment limited to the amount of deficiency resulting under the IITA from recomputing the taxpayer's net income, net loss, or Article 2 credits for the taxable year for which the notification is required or for any year for which the amount of net loss or credit carryovers is affected by the recomputations for that year. The deficiency that may be assessed under this provision is limited to the changes in liability that result from giving effect to the item or items subject to the notification requirements. (See IITA Section 905(e).) The statute of limitations for issuing a notice of deficiency under this subsection (e) applies to a federal change for a taxable year, even if the federal change is made after the statute of limitations has expired for assessing a federal income tax deficiency for that taxable year. (See Peoria and Pekin Union Railway Co. v. IDOR, 301 Ill.App.3d 736 (1999).)
f) Extension by Agreement
g) Erroneous Refunds
In any case in which tax payable under the IITA has been erroneously refunded, a notice of deficiency not to exceed the amount so refunded may be issued within 2 years from the date of the refund, or within 5 years therefrom if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact. Beginning July 1, 1993, in any case in which there has been a refund of tax payable under the IITA attributable to a net loss carryback as provided for in Section 207, and that refund is subsequently determined to be an erroneous refund due to a reduction in the amount of the net loss which was reported for the loss year, a notice of deficiency for the erroneous refund amount may be issued at any time during the same period in which a notice of deficiency can be issued for the loss year under this subsection (g). The amount of any proposed assessment set forth in the notice shall be limited to the amount of such erroneous refund. (IITA Section 905(g))
h) Time Return Deemed Filed
For purposes of this Section, a return filed before the last day prescribed by law (including any extensions of time for filing) shall be deemed to have been filed on such last day. (IITA Section 905(h)) The last day prescribed for filing returns shall include any automatic extensions of time for filing, regardless of whether the taxpayer filed the return prior to the unextended due date.
i) Request for Prompt Determination of Liability
In the case of a tax return required under the IITA in respect of a decedent, or by the decedent's estate during the period of administration or by a corporation meeting the conditions stated in subsection (i)(3), in lieu of the 3-year limitations period in IITA Section 905(a)(1) that ends 3 years after the date the return was filed, that period if earlier shall end 18 months after the filing with the Department of three executed copies of a written request for prompt determination of liability by the executor, administrator, or other fiduciary representing the decedent's estate or by an officer authorized to act for the corporation or by the fiduciary provided if required under IITA Section 502(b)(4).
The written request to be effective must be transmitted separately from and after the filing of the return and in a manner sufficient to put the Director of Revenue on notice of the request for prompt determination of liability. The shortened limitations period does not apply if more than 25% of base income is omitted from the return or in case of a false or fraudulent return or where no return has been filed (see subsections (b) and (c)). If not previously filed with the Department, there should be furnished with the written request in respect of a decedent copies of Letters Testamentary or of Administration, properly certified true and in full force and effect within 3 months of the day submitted. In the case of a corporation, consistent with the provisions of IITA Section 503(a) and (b), the signature (with title) of the president, vice-president, or treasurer shall be prima facie evidence of that person's authority.
For application of this subsection (i) in case of a corporation, the written request must notify the Department, as of the date of the request:
j) Withholding Tax
k) Transferee Liability
A notice of deficiency may be issued to a transferee relative to a liability asserted under IITA Section 1405 during the following time periods:
l) Net Losses
On and after August 23, 2002, no notice of deficiency shall be issued as the result of a decrease determined by the Department in the net loss incurred by a taxpayer in any taxable year ending prior to December 31, 2002 under IITA Section 207 unless the Department has notified the taxpayer of the proposed decrease within 3 years after the return reporting the loss was filed or within one year after an amended return reporting an increase in the loss was filed, provided that in the case of an amended return, a decrease proposed by the Department more than 3 years after the original return was filed may not exceed the increase claimed by the taxpayer on the amended return. (IITA Section 905(n))
m) Extension upon filing a claim for credit or refund
Beginning June 25, 2021, the effective date of Public Act 102-0040, for any taxable year included in a claim for credit or refund for which the statute of limitations for issuing a notice of deficiency under this Section will expire less than 6 months after the date a taxpayer files the claim for credit or refund, the statute of limitations is automatically extended for 6 months from the date it would have otherwise expired. (IITA Section 905(a-5))
The following examples help illustrate this provision:
EXAMPLE 1: The extended due date for filing Form IL-1120 corporate income and replacement tax return for tax year ending December 31, 2020, is October 15, 2021. The taxpayer files its Form IL-1120 on September 15, 2021. The statutory deadline for issuing a notice of deficiency is October 15, 2024. On October 14, 2024, the taxpayer files an IL-1120-X amended corporate income and replacement tax return reporting state-only changes. The refund claim was filed within six months of the expiration of the statute of limitations, thereby extending the deadline for issuing a notice of deficiency to April 15, 2025.
EXAMPLE 2: The extended due date for filing Form IL-1065 partnership replacement tax return for tax year ending December 31, 2016, is October 15, 2017. The taxpayer files its Form IL-1065 on September 16, 2017. An audit is initiated and a Form IL-872 waiver is executed extending the statute of limitations from October 15, 2020, to October 15, 2021. The taxpayer files a Form IL-1065-X amended partnership replacement tax return reporting state-only changes on September 1, 2021. The refund claim was filed within six months of the expiration of the statute of limitations, thereby extending the deadline for issuing a notice of deficiency to April 15, 2022, without the execution of an additional Form IL-872.
EXAMPLE 3: The extended due date for filing Form IL-1040 individual income tax return for tax year ending December 31, 2015, is October 15, 2016. The taxpayer files the Form IL-1040 on June 1, 2018. The deadline for issuing a notice of deficiency is June 1, 2021. The taxpayer files an IL-1040-X amended individual income tax return reporting state-only changes on May 25, 2021. The refund claim was filed within six months of the expiration of the statute of limitations, but the deadline for issuing a notice of deficiency was not extended because the statute of limitations expired before the effective date of Public Act 102-0040.