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A recent court decision upheld an interest rate that was 200 percent of the statutory rate for Illinois taxpayers that failed to take advantage of tax amnesty when it was offered in 2010.

Illinois Supreme Court Ruling Has Wide Tax Implications

  • 7/9/2013

Illinois Supreme Court Ruling Has Wide Tax Implications

A June 20, 2013, Illinois Supreme Court decision broadened the definition of “taxes due” under the 2010 Illinois tax amnesty program. The case, Metropolitan Life Insurance Company (“Met Life”) et. al. v. Brian Hamer, Director of the Illinois Department of Revenue; Docket No. 114234 also upheld an interest rate that was 200 percent of the normal statutory rate for taxpayers that failed to take advantage of tax amnesty when it was offered three years ago.

“When Illinois offers tax amnesty, Illinois companies should take notice, calculate potential tax exposure, and consider participating in the program,ˮ says Tom Chrzanowski, a state and local tax senior manager with CliftonLarsonAllen. “Doing so may help you avoid interest and penalties if you are audited after amnesty has ended.ˮ

The Illinois Department of Revenue (IDR) offered its most recent tax amnesty in 2010 for taxes due from 2002 to 2009. As part of the program, Illinois imposed a 200 percent interest sanction on companies that were eligible for the program but did not participate.

“Many people felt this sanction was unconstitutional,ˮ says Chrzanowski. “Unfortunately for those taxpayers forced to pay the 200 percent sanction, the Illinois Supreme Court has found the sanctions to be constitutional.ˮ


In 2003, Illinois offered amnesty for all taxpayers owing any state tax. For any taxable period between June 30, 1983, and July 1, 2002, the IDR said it would waive penalties and interest. However, if you failed to take the offer and pay taxes due, a penalty of 200 percent of the statutory interest rate would be charged.

The Illinois Supreme Court’s decision determined that "all taxes due" under the 2003 Amnesty Act referred to all taxes that were properly reportable at the time the initial tax return should have been filed, rather than taxes known to be due. The court further held that imposing such a penalty did not violate the substantive due process rights of taxpayers, even though it imposed an interest rate that was 200 percent of the statutory rate on those who did not know what taxes they would have owed during the amnesty period.

In this case, Met Life amended its Illinois tax returns as a result of an IRS audit adjustment for the years 1997, 1998, and 1999. The IRS completed its audit and assessed additional income tax four months after the Illinois amnesty program ended. Met Life paid its amended income tax outside of the amnesty program dates, so the IDR assessed it with the 200 percent interest penalty. This caused the company to file suit and claim the additional interest was unconstitutional.

The Illinois Supreme Court dismissed Met Life’s contention that the imposition of 200 percent interest violated its right to substantive due process. The court agreed with the IDR that the 200 percent interest was rationally related to the state's legitimate interest in raising revenue. The court reasoned that taxpayers could have avoided the interest by making a good faith estimate of taxes owed and then filing for a refund if the estimate was high.

“This ruling will encourage Illinois and other states to continue to establish and vigorously enforce penalties against those taxpayers who do not participate in amnesty programs — even if they have no reason to believe at the time of the amnesty program that additional taxes may be due,” says Chrzanowski.

How we can help

Taxpayers should be aware that past due liabilities will be subject to this interest penalty, so you should examine your tax position to determine your exposure. Our tax professionals can help organizations understand the impact of the court's decision and comply with state and local tax laws.

Tom Chrzanowski, Senior Manager, State and Local Tax or 317-569-6338