Corporate taxpayers considering the Illinois franchise tax amnesty program should proceed with caution.
The Illinois Secretary of State is required to establish an amnesty program for corporate franchise taxes payable by Illinois corporations and corresponding license fees payable by foreign corporations, applicable to payments made from February 1, 2008, through March 15, 2008. No penalties or interest will be applied to franchise taxes paid and accepted during the amnesty period. The interest rate will double from 1 percent per month to 2 percent per month for any other late tax payments. The Illinois Secretary of State may not seek civil or criminal prosecution for delinquent taxes paid under amnesty. The amnesty program was enacted by Public Law 95-233 (signed August 16, 2007) and amended by Public Act 95-707 (certified January 11, 2008), which doubled the interest rate.
The Secretary of State’s Department of Business of Services is not expected to issue regulations or other guidance for the amnesty program apart from the statutory text. It is understood that the Secretary of State intends to interpret the amnesty law strictly, and very likely will reject payments made under amnesty unless the associated filings are accepted and agreed to by the Secretary of State in all respects. Corporate taxpayers that come forward under the amnesty program may be exposed to the double interest rate unless their filings and payments are accepted by the Secretary of State before March 15, 2008. Accordingly, taxpayers seeking to take advantage of the amnesty program should make their filings as soon as possible after February 1, 2008, in order to allow time to work out any filing issues with the Department of Business Services.
Public Act 95-233 shortened the general statute of limitations from seven years to four years in one limited circumstance. In the case of an unreported increase in paid-in capital occurring prior to the most recent seven years, a taxpayer may pay under amnesty only the tax increase for the most recent four years attributable to the unreported increase in paid-in capital. In other cases, the general seven-year statute of limitations applies (and there is no limitation applicable to nonfilers). Foreign corporations considering whether to file an application for authority to transact business in Illinois for the first time may face a difficult choice as to which year is the first year that qualification was required.
Amnesty will not be granted to a taxpayer that is a party to a criminal investigation or to any civil or criminal litigation pending in any Illinois court. Accordingly, taxpayers presumably will be required to dismiss pending litigation to make payments under the amnesty program.
The franchise tax amnesty program may require difficult judgments by corporate taxpayers. Whether a foreign corporation is required to qualify in Illinois, the proper amount of paid-in capital and the determination of apportionment factors are often difficult questions which may become the subject of disagreement with the Secretary of State if an amnesty filing is made. The procedural rules for resolving disagreements with the Secretary of State also are not straightforward. Accordingly, corporate taxpayers considering the Illinois franchise tax amnesty program should proceed with caution.