Through Public Act 97-1129, Illinois established the Independent Tax Tribunal (the “Tax Tribunal”) to largely replace the system of administrative hearings conducted by the Illinois Department of Revenue (the “Department”).
Illinois Independent Tax Tribunal Jurisdiction
Beginning January 1, 2014, protests of notices of deficiency, notices of tax liability and notices of claim denial for more than $15,000 in tax, exclusive of penalty and interest, are under the jurisdiction of the Tax Tribunal. The Tax Tribunal also has jurisdiction over any matters involving penalties and interest in excess of $15,000.
Deadline to Transfer to Tax Tribunal is February 1, 2014
Taxpayers with appeals that meet the above jurisdictional criteria that were filed with the Department on or after June 1, 2013 have the ability to elect to transfer jurisdiction over those appeals to the Tax Tribunal. The election must be made before February 1, 2014. An election is made by filing a motion with the Department to have the protest transferred to the Tax Tribunal pursuant to Public Act 98-0024. After receipt of the taxpayer’s motion requesting transfer of the appeal, the Department’s Office of Administrative Hearings will notify the taxpayer or its representative of the specific procedures that need to be followed. If a timely election is not made, the case will stay with the Department. The Tax Tribunal and the Department have no plans to proactively notify taxpayers who are eligible to transfer their matter to the Tax Tribunal of the impending deadline.
Several factors may weigh in favor of transferring pending appeals to the Tax Tribunal.The most important factor is that the administrative law judges who will write the Tax Tribunal decisions are independent from the Department, and it is therefore believed that they will be more impartial than Department administrative law judges. Although Department decisions are published with taxpayer names and identifying data redacted, they are not authority that can be cited, and taxpayers’ appeals of those decisions are to the lowest tier judicial forum, the circuit court. The opinions of the Tax Tribunal will be published, and decisions may be appealed by the Department or the taxpayer directly to the Illinois Appellate Court, which should result in a more consistent and transparent application of the tax law. These factors should ultimately create more cost-efficient settlement opportunities for taxpayers. However, taxpayers should keep in mind that if the matter cannot be resolved through a negotiated settlement, the Tax Tribunal is a public forum. Taxpayers seeking to keep their appeals confidential may prefer to leave their pending appeals with the Department, although a subsequent appeal from a Department decision will be a matter of public record.
Illinois Independent Tax Tribunal Procedure
Matters in the Tax Tribunal will be governed by the Illinois Supreme Court Rules, the Illinois Code of Civil Procedure and the Tax Tribunal Rules. Currently, proposed Rules for the Tax Tribunal are available on the Tax Tribunal’s website.1 Adam P. Beckerink and Michael J. Wynne, the authors of this article, both served on different committees that had a hand in drafting a package of suggested rules. These suggested rules were largely followed by the Tax Tribunal in drafting the proposed Rules.2 The governor’s office will file emergency Rules for the Tax Tribunal that will be published in the Illinois Register January 24, 2014. The emergency Rules for the Tax Tribunal will be virtually identical to the proposed Rules that are currently on the Tax Tribunal’s website. Here are some key highlights:
- The Department is required to file an answer to the taxpayer’s petition that corresponds to the petition and must contain a specific admission or denial of each material allegation of fact contained in the petition; affirmative defenses, if any; and the relief sought by the Department.
- A taxpayer, if not representing itself, is required to be represented by an attorney.
- In general, all discovery is governed by the Illinois Supreme Court Rules, the Illinois Code of Civil Procedure and the Tax Tribunal Rules.
Proceedings before the Tax Tribunal begin with a taxpayer filing a petition. Currently, in order to file a petition with the Tax Tribunal, a taxpayer must file the petition with the Tax Tribunal in Chicago.3 A taxpayer must file an original and two copies of the petition with the Tax Tribunal and must file a copy of the petition with the Department. Petitions must be filed within the time limits set by the particular tax statute at issue.
Petitions are more like a Circuit Court complaint than the informal protest, which was previously filed with the Department. Petitions are required to contain separately numbered paragraphs stating, in clear and concise terms, a summary of the errors of fact or law that the taxpayer alleges have been made by the Department, together with a statement of facts or law upon which the taxpayer relies to establish said errors. Therefore, a taxpayer that makes the election to transfer its protest to the Tax Tribunal will need to make a motion in the Tax Tribunal to revise its protest to conform to the Tax Tribunal’s petition requirements.The proposed Rules do not provide a specified time period within which a taxpayer must revise a transferred protest.
Once a petition is filed and the Department has filed its answer, we would anticipate that the parties would meet at the earliest opportunity to discuss the potential for narrowing the legal and factual issues, simplifying the process, and exploring the opportunity for settlement. This process also allows for the parties to agree how the case will move forward and set a time table for the litigation, and so it may accommodate settlement discussions.
It is currently anticipated and encouraged that communications between the parties, including service, will be accomplished through electronic mail. Additionally, the Tax Tribunal anticipates that pre-trial status conferences will be held by telephone. Further, it is important to note that unlike filing suit under the Protest Monies Act in circuit court, a taxpayer does not have to pay the assessed liability, penalties and interest to file a Tax Tribunal petition and challenge the assessment at the Tax Tribunal. However, a taxpayer is wise to remember that while it does not have to pay the assessment to challenge at theTax Tribunal, interest on the assessment continues to accrue while the matter is pending at the Tax Tribunal. Alas, counsel should be consulted on the strategic advantages and disadvantages of choosing the Tax Tribunal or the Protest Monies Act remedy.