Current through Register Vol. 48, No. 38, September 20, 2024
a)
The penalties imposed under the
provisions of UPIA Sections 3-3, 3-4, 3-5 and 3-7.5 and Sections
700.300,
700.305,
700.310,
700.320
and
700.350 of this
Part shall not apply if the taxpayer shows that the failure to file a
return or pay tax at the required time was due to reasonable cause. Reasonable
cause is determined in each situation in accordance with this Section.
(UPIA Section 3-8)
b) The
determination of whether a taxpayer acted with reasonable cause shall be made
on a case by case basis taking into account all pertinent facts and
circumstances. The most important factor to be considered in making a
determination to abate a penalty will be the extent to which the taxpayer made
a good faith effort to determine the proper tax liability and to file returns
and pay the proper liability in a timely fashion.
c) A taxpayer will be considered to have made
a good faith effort to determine and file and pay the proper tax liability if
the taxpayer exercised ordinary business care and prudence in doing so. A
determination of whether a taxpayer exercised ordinary business care and
prudence is dependent upon the clarity of the law or its interpretation and the
taxpayer's experience, knowledge, and education. Accordingly, reliance on the
advice of a professional does not necessarily establish that a taxpayer
exercised ordinary business care and prudence, nor does reliance on incorrect
facts such as an erroneous information return.
d) A taxpayer's history of compliance is also
a factor to be considered in determining whether the taxpayer acted in good
faith in determining and paying the tax liability. Isolated computational or
transcriptional errors will not generally indicate a lack of good faith in the
preparation of a taxpayer's return.
e) Examples of Reasonable Cause. The
following is a non-exclusive list of situations in which a taxpayer had
reasonable cause for purposes of the abatement of penalties:
1) Reasonable cause for abatement of penalty
will exist if a liability results from amendments made by the Department to
regulations or formal administrative policies or positions after the return on
which the liability was computed was filed.
2) Reasonable cause for abatement may also be
based on the death, incapacity or serious illness of the taxpayer (or the
taxpayer's tax return preparer) or a death or serious illness in the taxpayer's
immediate family that causes a late filing or late payment of tax due. In the
case of a corporation, estate, trust, etc., the death, incapacity, or serious
illness of an individual having sole authority to file the return (not the
individual preparing the return) or to make the deposit/payment, or a member of
that individual's immediate family, may be reasonable cause for
abatement.
3) An unavoidable
absence of a taxpayer (or tax preparer) due to circumstances unforeseeable by a
reasonable person may also constitute reasonable cause for purposes of
abatement of the penalty. An unavoidable absence does not include a planned
absence such as a vacation. In the case of a corporation, estate, trust, etc.,
the absence of an individual having sole authority to file the return (not the
individual preparing the return) or make the deposit/payment may be reasonable
cause for purposes of abatement.
4)
Inability to timely obtain records necessary to determine the amount of tax due
to reasons beyond the taxpayer's control. For example, some taxpayers,
particularly those with income from banks, partnerships, trusts, estates or
Subchapter S corporations, must secure information from those entities in order
to properly compute the amount of tax due.
5) Factors beyond the taxpayer's control such
as destruction by fire, other casualty or civil disturbance, of the taxpayer
residence or place of business records.
6) Taxpayer mailed the return or payment to
the Department in time to reach the Department on or before the due date, given
the normal handling of the mail. However, through no fault of the taxpayer, the
return or payment was not delivered within the prescribed time period. This
fact situation would constitute reasonable cause for abatement of the
penalty.
7) Reasonable cause will
exist for purposes of abatement of the penalty if a taxpayer makes an honest
mistake, such as inadvertently mailing a Department of Revenue check to a local
government, another state's Department of Revenue, or to the Internal Revenue
Service.
8) An Illinois appellate
court decision, a U.S. appellate court decision, or an appellate court decision
from another state (provided that the appellate court case in the other state
is based upon substantially similar statutory or regulatory law) that supports
the taxpayer's position will ordinarily provide a basis for a reasonable cause
determination.
9) The Department
gave erroneous information, or delayed a process under its control. In making
the determination of whether the taxpayer had reasonable cause for purposes of
abatement, the following factors are relevant:
A) Did the taxpayer provide accurate
information upon which to base the tax?
B) Was the information requested by the
taxpayer easily available in instructions or bulletins?
C) Did the taxpayer rely on the
advice?
D) Did an employee who was
acting in an official capacity and was authorized to provide assistance provide
the advice?
E) Was the taxpayer's
reliance upon the advice reasonable?
10) Taxes withheld by an employer for the
wrong state. An employee might not realize that withholding taxes are being
withheld and remitted to the wrong state until the end of the taxable year when
the employee receives a W-2. If the employee can demonstrate that he or she had
a reasonable belief that taxes were being withheld for the proper state, the
penalty shall be abated.
11)
Embezzlement or employee fraud not reasonably within the knowledge of the
taxpayer.
12) The following
occurrences are situations involving reasonable cause with respect to the
imposition of the Tier 2 late filing penalty:
A) Taxpayer demonstrates that he or she did
not receive the penalty notice. If the taxpayer can show that he or she filed a
change of address card, tax return, payment or letter with the Department and
the Department still sent the notice to the wrong address, penalty abatement
may be warranted.
B) Taxpayer was
on active duty in the military. Taxpayers serving in the military may find
themselves in situations in which it takes an extraordinary length of time to
receive and respond to a notice.
13) Extensions of Time to File Returns or Pay
Tax Granted by the Internal Revenue Service. In cases in which the Internal
Revenue Service has granted the taxpayer an extension of time to file a return
or pay a tax (for example, because of a natural disaster), for any equivalent
Illinois return or payment that is due (including any extensions) from that
taxpayer under the IITA on or after the due date (without regard to extensions)
for the federal filing or payment, if the taxpayer files that Illinois return
or makes that payment on or before the extended due date granted by the
Internal Revenue Service, the taxpayer has reasonable cause for not timely
making that Illinois filing or payment.
f) Relevant Factors Used by the Department in
Determining the Existence of Reasonable Cause
1) Could the taxpayer's federal filing status
have caused confusion about his or her Illinois filing requirements? Under
Illinois law, many taxpayers that are not required to file with the Internal
Revenue Service are required to file with the Department.
2) Does the taxpayer's reason address the
penalty assessed? For example, if a taxpayer was assessed both a late filing
and late payment penalty for the same return, the taxpayer's explanation of the
failure to file and pay may apply to one penalty, but not the other.
3) Does the length of time between the reason
cited and the actual violation support abatement? If the taxpayer cites a
specific event or set of events (e.g., illness, unexpected absence, or natural
disaster) or set of events that led to the imposition of the penalty, are those
events directly related to failure to file the return or make the payment under
review?
4) Could the event cited
have been reasonably anticipated? Was the event one that should have been
anticipated (e.g., a vacation or scheduled absence) or was it unexpected,
unavoidable, or otherwise unplanned (e.g., an emergency or disaster)?
5) Were ordinary business care and prudence
exercised? In the absence of new or unusual circumstances, most filing and
payment requirements are common knowledge or are readily available to most
taxpayers. If the taxpayer did all that could be reasonably expected of him or
her and was still unable to file or pay on time, reasonable cause may be
present.
