2023 Illinois Compiled Statutes › Chapter 35 - REVENUE › 35 ILCS 5/ - Illinois Income Tax Act. › Article 10 - Penalties And Interest

(35 ILCS 5/Art. 10 heading)
ARTICLE 10.  
		PENALTIES AND INTEREST.
(35 ILCS 5/1001) (from Ch. 120, par. 10-1001)
Sec. 1001. Failure to File Tax Returns.
(a) Failure to file tax return. In case of failure to file any
tax return required under this Act on the date prescribed therefor,
(determined with regard to any extensions of time for filing) there shall
be added as a penalty the amount prescribed by Section 3-3 of the Uniform
Penalty and Interest Act.
(b) Failure to disclose reportable transaction.          Any taxpayer who fails to include on any return or statement any information with respect to a reportable transaction that is required under Section 501(b) of this Act to be included with such return or statement shall pay a penalty in the amount determined under this subsection. Such penalty shall be deemed assessed upon the date of filing of the return for the taxable year in which the taxpayer participates in the reportable transaction. A taxpayer shall not be considered to have complied with the requirements of Section 501(b) of this Act unless the disclosure statement filed with the Department includes all of the information required to be disclosed with respect to a reportable transaction pursuant to Section 6011 of the Internal Revenue Code, the regulations promulgated under that statute, and regulations promulgated by the Department under Section 501(b) of this Act.
(1) Amount of penalty.  Except as provided in     paragraph (2), the amount of the penalty under this subsection shall be $15,000 for each failure to comply with the requirements of Section 501(b).
(2) Increase in penalty for listed transactions. In     the case of a failure to comply with the requirements of Section 501(b) with respect to a "listed transaction", the penalty under this subsection shall be $30,000 for each failure.
(3) Authority to rescind penalty.           The     Department may rescind all or any portion of any penalty imposed by this subsection with respect to any violation, if:
(A) the violation is with respect to a reportable         transaction other than a listed transaction, and
(B) rescinding the penalty would promote         compliance with the requirements of this Act and effective tax administration.
A determination made under this subparagraph (3) may     be reviewed in any administrative or judicial proceeding.
(4) Coordination with other penalties.    The penalty     imposed by this subsection is in addition to any penalty imposed by this Act or the Uniform Penalty and Interest Act. The doubling of penalties and interest authorized by the Illinois Tax Delinquency Amnesty Act (P.A. 93-26) are not applicable to the reportable penalties under subsection (b).
(c) The total penalty imposed under subsection (b) of this Section with respect to any taxable year shall not exceed 10% of the increase in net income (or reduction in Illinois net loss under Section 207 of this Act) that would result had the taxpayer not participated in any reportable transaction affecting its net income for such taxable year.
(Source: P.A. 95-707, eff. 1-11-08.)
(35 ILCS 5/1002) (from Ch. 120, par. 10-1002)
Sec. 1002. Failure to Pay Tax.
(a) Negligence.  If any part of a deficiency is due to negligence or
intentional disregard of rules and regulations (but without intent to
defraud) there shall be added to the tax as a penalty the amount prescribed
by Section 3-5 of the Uniform Penalty and Interest Act.
(b) Fraud.  If any part of a deficiency is due to fraud, there
shall be added to the tax as a penalty the amount prescribed
by Section 3-6 of the Uniform Penalty and Interest Act.
(c) Nonwillful failure to pay withholding tax. If any employer, without
intent to evade or defeat any tax imposed by this Act or the payment
thereof, shall fail to make a return and pay a tax withheld by him at the
time required by or under the provisions of this Act, such employer shall
be liable for such taxes and shall pay the same together with the interest
and the penalty provided by Sections 3-2 and 3-3, respectively, of the
Uniform Penalty and Interest Act and such interest and penalty shall not be
charged to or collected from the employee by the employer.
(d) Willful failure to collect and pay over tax.  Any person
required to collect, truthfully account for, and pay over the tax
imposed by this Act who willfully fails to collect such tax or
truthfully account for and pay over such tax or willfully attempts in
any manner to evade or defeat the tax or the payment thereof, shall, in
addition to other penalties provided by law, be liable for the penalty
imposed by Section 3-7 of the Uniform Penalty and Interest Act.
(e) Penalties assessable.
(1) In general. Except as otherwise provided in this     Act or the Uniform Penalty and Interest Act,  the penalties provided by this Act or by the Uniform Penalty and Interest Act shall be paid upon notice and demand and shall be assessed, collected, and paid in the same manner as taxes and any reference in this Act to the tax imposed by this Act shall be deemed also to refer to penalties provided by this Act or by the Uniform Penalty and Interest Act.
(2) Procedure for assessing certain penalties.  For     the purposes of Article 9 any penalty under Section 804(a) or Section 1001 shall be deemed assessed upon the filing of the return for the taxable year.
(3) Procedure for assessing the penalty for failure     to file withholding returns or annual transmittal forms for wage and tax statements.  The penalty imposed by Section 1004 will be asserted by the Department's issuance of a notice of deficiency.  If taxpayer files a timely protest, the procedures of Section 908 will be followed.  If taxpayer does not file a timely protest, the notice of deficiency will constitute an assessment pursuant to subsection (c) of Section 904.
(4) Assessment of penalty under Section 1005(a).       The penalty imposed under Section 1005(a) shall be deemed assessed upon the assessment of the tax to which such penalty relates and shall be collected and paid on notice and demand in the same manner as the tax.
(f) Determination of deficiency.   For purposes of subsections (a)
and (b), the amount shown as the tax by the taxpayer upon his return
shall be taken into account in determining the amount of the deficiency
only if such return was filed on or before the last day prescribed by
law for the filing of such return, including any extensions of the time
for such filing.
(Source: P.A. 97-507, eff. 8-23-11.)
(35 ILCS 5/1003) (from Ch. 120, par. 10-1003)
Sec. 1003. 
		Interest on Deficiencies.
(a) In general. If any amount of tax imposed by this Act, including tax
withheld by an employer, is not paid on or before the date prescribed for
payment of such tax (determined without regard to any extensions), interest
on such amount shall be paid in the manner and at the rate prescribed in
Section 3-2 of the Uniform Penalty and Interest Act for the period from
such date to the date of payment of such amount, except that if
a waiver of restrictions under Section 907 on the assessment and collection
of such amount has been filed, and if notice and demand by the Director for
the payment of such amount is not made within 30 days after the filing of
such waiver, interest shall not be imposed on such amount for the period
beginning immediately after such 30th day and ending with the date of
notice and demand.
(b) Interest treated as tax. Interest prescribed under this Section
on any tax, including tax withheld by an employer, or on any penalty, shall
be deemed assessed upon the assessment of the tax or penalties to which
such interest relates and shall be collected and paid on notice and demand
in the same manner as tax.  Any reference in this Act to the tax imposed by
this Act shall be deemed also to refer to interest imposed by this Section
on such tax.
(c) Exception as to estimated tax. This Section shall not apply to
any failure to pay estimated tax required by Section 803.
(Source: P.A. 87-205.)
(35 ILCS 5/1004) (from Ch. 120, par. 10-1004)
Sec. 1004. 
		
		Failure to file withholding returns or annual transmittal
forms for wage and tax statements.  In addition to any other penalties imposed
by this Act, a taxpayer failing to file a quarterly return or the annual
transmittal form for wage and tax statements required by Section 704 or
regulations promulgated thereunder shall incur a penalty for each such failure
as prescribed by Section 3-3 of the Uniform Penalty and Interest Act.
(Source: P.A. 87-205.)
(35 ILCS 5/1005) (from Ch. 120, par. 10-1005)
Sec. 1005. Penalty for Underpayment of Tax.
(a) In general.  If any amount of tax required to be shown on a return
prescribed by this Act is not paid on or before the date required for
filing such return (determined without regard to any extension of time to
file), a penalty shall be imposed in the manner and at the rate prescribed
by the Uniform Penalty and Interest Act.
(b) Reportable transaction penalty. If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20% of the amount of that understatement. This penalty shall be deemed assessed upon the assessment of the tax to which such penalty relates and shall be collected and paid on notice and demand in the same manner as the tax.
(1)        Reportable transaction understatement.               For purposes of this Section, the term "reportable transaction understatement" means the sum of subparagraphs (A) and (B):
(A) The product of (i) the amount of the increase         (if any) in Illinois net income, as determined by reference to the amount of post-apportioned income that results from a difference between the proper tax treatment of an item to which this subsection applies and the taxpayer's treatment of that item (as shown on the taxpayer's return of tax), including an amended return filed prior to the date the taxpayer is first contacted by the Department regarding the examination of the return, and (ii) the applicable tax rates under Section 201 of this Act.
(B)  Special rules in the case of carrybacks and         carryovers. The penalty for an understatement of income attributable to a reportable transaction applies to any portion of an understatement for a year to which a loss, deduction, or credit is carried that is attributable to a reportable transaction for that year in which the carryback or carryover of the loss, deduction, or credit arises (the "loss or credit year").
(2)        Items to which subsection applies.             This subsection shall apply to any item which is attributable to either of the following: (i) any listed transaction as defined in Treasury Regulations Section 1.6011-4, and (ii) any reportable transaction as defined in Treasury Regulations Section 1.6011-4 (other than a listed transaction) if a significant purpose of the transaction is the avoidance or evasion of federal income tax.
(3)        Subsection (b) shall be applied by     substituting "30%" for "20%" with respect to the portion of any reportable transaction understatement with respect to which the requirements of (4)(B)(i) of this subsection are not met.
(4) Reasonable cause exception.
(A) In general.              No penalty shall be         imposed under this subsection with respect to any portion of a reportable transaction understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.
(B) Special rules.          Subparagraph (A) does         not apply to any reportable transaction (including listed transaction) unless all of the following requirements are met:
(i) The relevant facts affecting the tax             treatment of the item are adequately disclosed in accordance with Section 501(b) of this Act. A taxpayer failing to adequately disclose in accordance with Section 501(b) shall be treated as meeting the requirements of this subparagraph (i) if the penalty for that failure was rescinded under Section 1001(b)(3) of this Act;
(ii) There is or was substantial authority             for such treatment; and
(iii) The taxpayer reasonably believed that             such treatment was more likely than not the proper treatment.
(C) Rules relating to reasonable belief.   For         purposes of subparagraph (B), a taxpayer shall be treated as having a reasonable belief with respect to the tax treatment of an item only if such belief meets the requirements of this subparagraph (C):
(i) Such belief must be based on the facts             and law that exist at the time the return of tax that includes that tax treatment is filed;
(ii) Such belief must relate solely to the             taxpayer's chances of success on the merits of that treatment and does not take into account the possibility that the return will not be audited, that the treatment will not be raised on audit, or that the treatment will be resolved through settlement if it is raised; and
(iii) Such belief is not solely based on the             opinion of a disqualified tax advisor or on a disqualified opinion.
(5) Definitions.
(A) Disqualified tax advisor.      The term         "disqualified tax advisor" is a tax advisor that meets any of the following conditions:
(I) Is a material advisor who participates in             the organization, management, promotion, or sale of the transaction or who is related (within the meaning of Sections 267(b) or 707(b)(1) of the Internal Revenue Code) to any person who so participates;
(II) Is compensated directly or indirectly by             a material advisor with respect to the transaction;
(III) Has a fee arrangement with respect to             the transaction that is contingent on all or part of the intended tax benefits from the transaction being sustained; or
(IV) As determined under regulations             prescribed by either the Secretary of the Treasury for federal income tax purposes or the Department, has a continuing financial interest with respect to the transaction.
(B) Disqualified opinion.            The term         "disqualified opinion" means an opinion that meets any of the following conditions:
(I) Is based on unreasonable factual or legal             assumptions (including assumptions as to future events);
(II) Unreasonably relies on representations,             statements, findings, or agreements of the taxpayer or any other person;
(III) Does not identify and consider all             relevant facts; or
(IV) Fails to meet any other requirement as             either the Secretary of the Treasury for federal income tax purposes or the Department may prescribe.
(C) Material Advisor.   The term "material         advisor" shall have substantially the same meaning as the same term is defined under Treasury Regulations Section 301.6112-1, (26 CFR 301.6112-1) and shall include any person that is a material advisor for federal income tax purposes under such regulation.
(6)        Effective date.   This subsection shall     apply to taxable years ending on and after December 31, 2004, except that a reportable transaction understatement shall include an understatement (as determined under paragraph (1)) with respect to any taxable year for which the limitations period on assessment has not expired as of January 1, 2005 that is attributable to a transaction which the taxpayer has entered into after February 28, 2000 and before December 31, 2004 that becomes a listed transaction (as defined in Treasury Regulations Section 1.6011-4(b)(2) at any time.
(c) 100% interest penalty.        If a taxpayer has been contacted by the Internal Revenue Service or the Department regarding the use of a potential tax avoidance transaction with respect to a taxable year and has a deficiency with respect to such taxable year or years, there shall be added to the tax attributable to the potential tax avoidance transaction (determined as described in subsection (b)(1) of Section 1005) an amount equal to 100% of the interest assessed under the Uniform Penalty and Interest Act (determined without regard to subsection (f) of Section 3-2 of such Act) for the period beginning on the last date prescribed by law for the payment of such tax and ending on the date of the notice of deficiency. Such penalty shall be deemed assessed upon the assessment of the interest to which such penalty relates and shall be collected and paid in the same manner as such interest. The penalty imposed by this subsection is in addition to any penalty imposed by this Act or the Uniform Penalty and Interest Act.  For purposes of this subsection and subsection (d) of this Section, the term "potential tax avoidance transaction" means any tax shelter as defined in Section 6111 of the Internal Revenue Code. This subsection shall apply to taxable years ending on and after December 31, 2004, except that the penalty may also be imposed with respect to any taxable year for which the limitations period on assessment has not expired as of January 1, 2005 that is attributable to a transaction in which the taxpayer has entered into after February 28, 2000 and before December 31, 2004, which transaction becomes a listed transaction (as defined in Treasury Regulations Section 1.6011-4(b)(2)) at any time.
(d) 150% interest rate.            For taxable years ending on and after July 1, 2002, for any notice of deficiency issued before the taxpayer is contacted by the Internal Revenue Service or the Department regarding a potential tax avoidance transaction, the taxpayer is subject to interest as provided under Section 3-2 of the Uniform Penalty and Interest Act, but with respect to any deficiency attributable to a potential tax avoidance transaction, the taxpayer is subject to interest at a rate of 150% of the otherwise applicable rate.
(e)        Coordination with other penalties.         Except as provided in regulations, the penalties imposed by this Section are in addition to any other penalty imposed by this Act or the Uniform Penalty and Interest Act. The doubling of penalties and interest authorized by the Illinois Tax Delinquency Amnesty Act (P.A. 93-26), are not applicable to the reportable transaction penalties and interest under subsections (b), (c), and (d).
(Source: P.A. 93-840, eff. 7-30-04.)
(35 ILCS 5/1006) (from Ch. 120, par. 10-1006)
Sec. 1006. 
		Frivolous Returns. 
		In addition to any other penalty
provided by this Act there is imposed a penalty of $500 upon any individual
who files a purported return that does not contain information from which
the substantial correctness of the stated tax liability can be determined
or contains information indicating that the stated tax liability is
substantially incorrect and such conduct is due to a desire to delay or
impede the administration of this Act or is due to a position that is
frivolous.  This Section is applicable to returns filed for taxable years
ending on or after December 31, 1987.
(Source: P.A. 85-299.)
(35 ILCS 5/1007)
Sec. 1007. Failure to register tax shelter or maintain list.
(a) Penalty Imposed.     Any person that fails to comply with the requirements of Section 1405.5 shall incur a penalty as provided in subsection (b). A person shall not be in compliance with the requirements of Section 1405.5 unless and until the required return has been filed and that return contains all of the information required to be included by the Secretary under federal law.
(b) Amount of Penalty. The following penalties apply:
(1) Except as provided in paragraph (2), the penalty     imposed under subsection (a) with respect to any failure is $15,000.
(2) If the failure is with respect to a listed     transaction under subsection (c) of Section 1405.5, the penalty shall be $100,000.
(3) In the case of each failure to comply with the     requirements of subsection (a) or subsection (b) of Section 1405.6, the penalty shall be $15,000.
(4) If the failure is with respect to a listed     transaction under subsection (c) of Section 1405.6, the penalty shall be $100,000.
(c) Authority to rescind penalty. The Department may rescind all or any portion of any penalty imposed by this subsection with respect to any violation, if
(1) the violation is with respect to a reportable     transaction other than a listed transaction, and
(2) rescinding the penalty would promote compliance     with the requirements of this Act and effective tax administration.
(d) Coordination with other penalties.    The penalty imposed by this Section is in addition to any penalty imposed by this Act or the Uniform Penalty and Interest Act.
(Source: P.A. 95-707, eff. 1-11-08.)
(35 ILCS 5/1008)
Sec. 1008. Promoting tax shelters.

Except as herein provided, the provisions of Section 6700 of the Internal Revenue Code shall apply for purposes of this Act as if such Section applied to an Illinois deduction, credit, exclusion from income, allocation or apportionment rule, or other Illinois tax benefit. Notwithstanding Section 6700(a) of the Internal Revenue Code, if an activity with respect to which a penalty imposed under Section 6700(a) of the Internal Revenue Code, as applied for purposes of this Act, involves a statement described in Section 6700(a)(2)(A) of the Internal Revenue Code, as applied for purposes of this Act, the amount of the penalty imposed under this Section shall be the greater of $10,000 or 50% of the gross income received (or to be received) from any person to whom such statement is furnished that is required to file a return under Section 502 of this Act.
(Source: P.A. 93-840, eff. 7-30-04.)