Illinois Administrative Code › Title 86 - REVENUE › Part 700 - UNIFORM PENALTY AND INTEREST ACT › Subpart D - REASONABLE CAUSE › Section 700.400 - Reasonable Cause (UPIA Section 3-8)

Current through Register Vol. 48, No. 28, July 12, 2024
a)
The penalties imposed under the
				provisions of UPIA Sections 3-3, 3-4,
3-5 and 3-7.5 and Sections
				700.300,
				700.305,
				700.310,
				700.320
				and
				700.350 of this
				Part
shall not apply if the taxpayer shows that the failure to file a
				return or pay tax at the required time was due to reasonable cause. Reasonable
				cause is determined in each situation in accordance with
this Section.
				(UPIA Section 3-8)
b) The
				determination of whether a taxpayer acted with reasonable cause shall be made
				on a case by case basis taking into account all pertinent facts and
				circumstances. The most important factor to be considered in making a
				determination to abate a penalty will be the extent to which the taxpayer made
				a good faith effort to determine the proper tax liability and to file returns
				and pay the proper liability in a timely fashion.
c) A taxpayer will be considered to have made
				a good faith effort to determine and file and pay the proper tax liability if
				the taxpayer exercised ordinary business care and prudence in doing so. A
				determination of whether a taxpayer exercised ordinary business care and
				prudence is dependent upon the clarity of the law or its interpretation and the
				taxpayer's experience, knowledge, and education. Accordingly, reliance on the
				advice of a professional does not necessarily establish that a taxpayer
				exercised ordinary business care and prudence, nor does reliance on incorrect
				facts such as an erroneous information return.
d) A taxpayer's history of compliance is also
				a factor to be considered in determining whether the taxpayer acted in good
				faith in determining and paying the tax liability. Isolated computational or
				transcriptional errors will not generally indicate a lack of good faith in the
				preparation of a taxpayer's return.
e) Examples of Reasonable Cause. The
				following is a non-exclusive list of situations in which a taxpayer had
				reasonable cause for purposes of the abatement of penalties:
1) Reasonable cause for abatement of penalty
				will exist if a liability results from amendments made by the Department to
				regulations or formal administrative policies or positions after the return on
				which the liability was computed was filed.
2) Reasonable cause for abatement may also be
				based on the death, incapacity or serious illness of the taxpayer (or the
				taxpayer's tax return preparer) or a death or serious illness in the taxpayer's
				immediate family that causes a late filing or late payment of tax due. In the
				case of a corporation, estate, trust, etc., the death, incapacity, or serious
				illness of an individual having sole authority to file the return (not the
				individual preparing the return) or to make the deposit/payment, or a member of
				that individual's immediate family, may be reasonable cause for
				abatement.
3) An unavoidable
				absence of a taxpayer (or tax preparer) due to circumstances unforeseeable by a
				reasonable person may also constitute reasonable cause for purposes of
				abatement of the penalty. An unavoidable absence does not include a planned
				absence such as a vacation. In the case of a corporation, estate, trust, etc.,
				the absence of an individual having sole authority to file the return (not the
				individual preparing the return) or make the deposit/payment may be reasonable
				cause for purposes of abatement.
4)
				Inability to timely obtain records necessary to determine the amount of tax due
				to reasons beyond the taxpayer's control. For example, some taxpayers,
				particularly those with income from banks, partnerships, trusts, estates or
				Subchapter S corporations, must secure information from those entities in order
				to properly compute the amount of tax due.
5) Factors beyond the taxpayer's control such
				as destruction by fire, other casualty or civil disturbance, of the taxpayer
				residence or place of business records.
6) Taxpayer mailed the return or payment to
				the Department in time to reach the Department on or before the due date, given
				the normal handling of the mail. However, through no fault of the taxpayer, the
				return or payment was not delivered within the prescribed time period. This
				fact situation would constitute reasonable cause for abatement of the
				penalty.
7) Reasonable cause will
				exist for purposes of abatement of the penalty if a taxpayer makes an honest
				mistake, such as inadvertently mailing a Department of Revenue check to a local
				government, another state's Department of Revenue, or to the Internal Revenue
				Service.
8) An Illinois appellate
				court decision, a U.S. appellate court decision, or an appellate court decision
				from another state (provided that the appellate court case in the other state
				is based upon substantially similar statutory or regulatory law) that supports
				the taxpayer's position will ordinarily provide a basis for a reasonable cause
				determination.
9) The Department
				gave erroneous information, or delayed a process under its control. In making
				the determination of whether the taxpayer had reasonable cause for purposes of
				abatement, the following factors are relevant:
A) Did the taxpayer provide accurate
				information upon which to base the tax?
B) Was the information requested by the
				taxpayer easily available in instructions or bulletins?
C) Did the taxpayer rely on the
				advice?
D) Did an employee who was
				acting in an official capacity and was authorized to provide assistance provide
				the advice?
E) Was the taxpayer's
				reliance upon the advice reasonable?
10) Taxes withheld by an employer for the
				wrong state. An employee might not realize that withholding taxes are being
				withheld and remitted to the wrong state until the end of the taxable year when
				the employee receives a W-2. If the employee can demonstrate that he or she had
				a reasonable belief that taxes were being withheld for the proper state, the
				penalty shall be abated.
11)
				Embezzlement or employee fraud not reasonably within the knowledge of the
				taxpayer.
12) The following
				occurrences are situations involving reasonable cause with respect to the
				imposition of the Tier 2 late filing penalty:
A) Taxpayer demonstrates that he or she did
				not receive the penalty notice. If the taxpayer can show that he or she filed a
				change of address card, tax return, payment or letter with the Department and
				the Department still sent the notice to the wrong address, penalty abatement
				may be warranted.
B) Taxpayer was
				on active duty in the military. Taxpayers serving in the military may find
				themselves in situations in which it takes an extraordinary length of time to
				receive and respond to a notice.
13) Extensions of Time to File Returns or Pay
				Tax Granted by the Internal Revenue Service. In cases in which the Internal
				Revenue Service has granted the taxpayer an extension of time to file a return
				or pay a tax (for example, because of a natural disaster), for any equivalent
				Illinois return or payment that is due (including any extensions) from that
				taxpayer under the IITA on or after the due date (without regard to extensions)
				for the federal filing or payment, if the taxpayer files that Illinois return
				or makes that payment on or before the extended due date granted by the
				Internal Revenue Service, the taxpayer has reasonable cause for not timely
				making that Illinois filing or payment.