On June 5, 2019, the Illinois legislature enacted Public Act 101-0009 which includes comprehensive amnesty programs covering taxes administered by both the Illinois Department of Revenue (the “Department”) and the Office of the Secretary of State of Illinois (the “Secretary of State”). Taxes covered by these programs include the corporate and individual income taxes, the Retailers’ Occupation Tax, the Use Tax, and the Illinois franchise tax. The amnesty programs run for the period October 1, 2019 through November 15, 2019, and, under both programs, 100% of penalties and interest will be waived in exchange for payment of any outstanding tax liability due. Unlike previous amnesty programs, taxpayers will not be punished for not participating — that is, Illinois will not impose double penalties and double interest on tax assessments issued after the amnesty period closes.
Illinois taxpayers should carefully review their past filings and potential exposure and consider/quantify the benefits these amnesty programs may provide. Additional detail regarding each program is described below.
The Illinois Department of Revenue’s Tax Amnesty Program
The Department’s tax amnesty program covers “any taxable period ending…after June 30, 2011 and prior to July 1, 2018” and applies to “any tax imposed by…any law of the State of Illinois and collected by the Department.” In this regard, “[a]mnesty shall be granted only if all amnesty conditions are satisfied by the taxpayer.”
The Department has not yet promulgated regulations detailing the new amnesty program; however, regulations promulgated in connection with earlier amnesty programs may be instructive for taxpayers evaluating their options. In prior amnesty programs, the Department generally extended the amnesty terms to audit and protested liabilities.
It should be noted that from a practical standpoint, the Department’s amnesty program does not expressly include a limited lookback period for potential liabilities. Therefore, for those taxpayers with historical or longer-term compliance issues, the Department’s voluntary disclosure program may be an alternative option, which generally offers a four-year limited lookback period, along with the elimination of all penalties but not interest.
The Office of the Secretary of State of Illinois’s Tax Amnesty Program
The Secretary of State’s amnesty program “shall apply to franchise tax or license fee liabilities for any tax period ending after March 15, 2009 and on or before June 30, 2019.” Like the Department’s amnesty program, “[a]mnesty shall be granted only if all amnesty conditions are satisfied by the taxpayer” during the amnesty period, October 1 through November 15, 2019. Unlike most tax returns, a corporation’s filings with the Secretary of State (e.g., the Corporation Annual Report upon which the franchise tax is computed (Form BCA 14.05), the Report Following Merger or Consolidation (Form BCA 14.35), the Cumulative Report of Changes In Issued Shares and Paid-In Capital (Form BCA 14.30), etc.) are not considered timely “filed” until formally reviewed and accepted by the Secretary of State. From a practical standpoint, this means that any corporation seeking to participate in the Secretary of State’s amnesty program must have all documentation/filings related to all past liabilities reviewed, approved, and filed by the Secretary of State prior to the close of amnesty on November 15. Those with experience with the Secretary of State know that depending on the number of years and items reported the review/approval process can take months to complete. As such, taxpayers are well advised to prepare the necessary reports and start the review and approval process as soon as possible in order to ensure the availability of amnesty benefits. Those waiting for the start of the amnesty period to begin the process may find themselves unable to secure the approval necessary from the Secretary of State to participate.
While Public Act 101-0009 also phases out the franchise tax entirely by 2024, the law does not abate outstanding liabilities for past periods. See Illinois Enacts Major Tax Changes, for our prior coverage. Corporations seeking to clean up their compliance/liabilities with the Secretary of State should carefully evaluate the current amnesty program and consider its benefits. Given the phase out of the tax, there is no guarantee another one will be offered in the coming years. Furthermore, as the franchise tax phases out, the Secretary of State may shift its resources toward investigating corporations’ historic compliance practices and assessing liabilities, penalties, and interest for past periods before officially “closing the book” on this infamous tax.
If you have any questions about either of the upcoming Illinois amnesty programs, please reach out to Baker McKenzie’s state and local tax team.