At a Glance…
In its continued effort to resolve matters before the point of formal protest, the Illinois Department of Revenue (the “Department”) has proposed the creation of an entirely new, independent Settlement Bureau within the Department that would be dedicated to the settlement of audits that have reached the point of a proposed assessment, but are not yet finalized.1 Together with the Department’s recently proposed pilot Audit Fast Track Resolution Program, the proposed Settlement Bureau increases the opportunity for taxpayers to resolve disputed audit issues more promptly and at reduced cost.
The Proposed Settlement Bureau
The Settlement Bureau would be under the direction of an Administrator with “extensive experience in state and local law and procedure.” The Administrator would report directly to the Director of Revenue.
The procedure for requesting a settlement conference would not be complicated. After the Department’s auditor has conducted the audit, the Department would issue a proposed assessment and provide the taxpayer with a “certificate of eligibility” that would allow the taxpayer to proceed to the Settlement Bureau. In order to receive a certificate of eligibility, the taxpayer must have “substantially complied with all reasonable requests” for its books and records during the audit process.2 After receiving the proposed assessment and certificate of eligibility, the taxpayer would have 60 days to submit a request for settlement to the Bureau. The request for settlement must include certain basic information, such as the taxpayer’s name and identification number, the amount of the proposed assessment, and the audit period at issue, as well as the taxpayer’s good-faith settlement offer and the basis for the taxpayer’s factual and legal objections to the Department’s proposed adjustments.
Upon receipt of a request for settlement, the Bureau would assign the matter to a Settlement Officer who would review the audit record and issue a recommendation within 45 days of being assigned the case.3 However, the 45 day period can be extended to 60 days if technical assistance has been requested by the Settlement Officer, and up to 90 days if an in-person settlement conference is held. The Settlement Officer cannot request additional information from the taxpayer, and can only review issues that gave rise to the proposed assessment. Importantly, the Settlement Officer has no authority to open new matters or refer new issues to the Audit Bureau. Given that the Settlement Officer’s review is limited to the record established during audit, we recommend that taxpayers considering the Settlement Bureau as an option, raise all potential offset issues during the audit, otherwise the potential offsets may not be considered by the Settlement Officer. If potential offset issues are not raised during the audit, or only first discovered after the notice of proposed assessment has been issued, taxpayers may want to consider opting out of the Settlement Bureau and proceed to the ICB instead for potential pre-assessment relief.
When the recommended settlement adjustment is $500,000 or less, it can be approved by the Bureau’s Administrator. Approval or rejection of recommended adjustments of $500,000 or less shall be made within 10 days of receipt of the recommendation. If the recommended settlement adjustment exceeds $500,000, then the recommendation must be reviewed and approved or rejected by the Director (or his or her designee) within 30 days of receipt. If the Settlement Officer’s recommendation is accepted, the Bureau and the taxpayer would enter into a Closing Agreement setting forth the terms of the settlement.
One very important benefit of the proposed Settlement Bureau, is that it has the express authority to consider factors like “hazards of litigation” and “uncertainty as to the application of facts to the law,” which the Department has not historically considered (at least not formally) before an assessment is timely protested and assigned to Department legal counsel. The Bureau, however, does not have the authority to consider a taxpayer’s ability to pay. (Authority to grant a taxpayer relief based on its ability to pay remains within the discretion of the Department’s Board of Appeals.)
It is also notable that the proposed regulation would allow the Illinois Independent Tax Tribunal (“Tribunal”) to refer matters to the Settlement Bureau for settlement consideration, if requested by both parties. The Director of Revenue and General Counsel also have the authority to grant the Bureau special jurisdiction to consider a matter for settlement.
Proceeding to the Settlement Bureau is in lieu of requesting an informal conference from the Department’s Informal Conference Board (“ICB”). Accordingly, if a taxpayer requests a settlement conference for a proposed assessment, it loses the option to have the same proposed assessment considered by the ICB. However, a taxpayer that requests a settlement conference would not waive any of its rights to appeal an assessment in court, the Tribunal, or the Office of Administrative Hearings, as may be applicable.
The Pilot Audit Fast Track Resolution Program
The Settlement Bureau is another laudable effort by the Department to resolve cases earlier in the assessment process and reduce the number of cases that are formally protested. The Department’s pilot Audit Fast Track Resolution Program for certain “cash businesses” (e.g., restaurants, gas stations, convenience stores, etc.) is another recent effort in this direction. This program provides a forum for the prompt resolution of disputed audit issues while the matter is still under the jurisdiction of the Audit Bureau and before a notice of proposed liability is issued. More information on the Department’s Fast Track Resolution Program can be found here.