Bill Text: IL SB1881 | 2019-2020 | 101st General Assembly | Chaptered


Bill Title: Creates the Local Government Revenue Recapture Act. Provides that a municipality or county that receives a disbursement of tax proceeds from the Department of Revenue may contract with a third party for the purpose of ensuring that the municipality or county receives the amount to which it is entitled. Provides that no person may engage in business as a third party pursuant without first having registered with the Department of Revenue. Provides that the Department of Revenue is authorized to initiate a 5-year certified audit pilot project for audits in cases in which the Department has notified the taxpayer that it has received a tax compliance referral. Amends the Retailers' Occupation Tax Act to make conforming changes. Amends the Illinois False Claims Act to provide that certain provisions do not apply to taxes imposed, collected, or administered by the State (currently, claims, records, or statements made under the Illinois Income Tax Act). Effective immediately.

Spectrum: Partisan Bill (Democrat 3-0)

Status: (Passed) 2020-01-24 - Public Act . . . . . . . . . 101-0628 [SB1881 Detail]

Download: Illinois-2019-SB1881-Chaptered.html



Public Act 101-0628
SB1881 EnrolledLRB101 10946 AWJ 56120 b
AN ACT concerning local government.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Article 1. Short Title.
Section 1-1. Short title. This Act may be cited as the
Local Government Revenue Recapture Act.
Article 5. Local Government Revenue Recapture.
Section 5-5. Definitions. As used in this Article:
"Department" means the Department of Revenue.
"Family member" means the following, whether by whole
blood, half-blood, or adoption:
(1) a parent or step-parent;
(2) a child or step-child;
(3) a grandparent or step-grandparent;
(4) an aunt, uncle, great-aunt, or great-uncle;
(5) a sibling;
(6) a spouse or domestic partner; and
(7) the spouse or domestic partner of any person
referenced in items (1) through (5).
"Financial information" means the information provided to
the municipality or county by the Department under Section 11
of the Retailers' Occupation Tax Act that is reported to the
Department by a business located in a given municipality or
county.
"Person" means an individual, sole proprietorship,
corporation, registered limited liability partnership, limited
liability company, partnership, professional service
corporation, or any other form of organization.
"Misallocation" means tax paid by the taxpayer and
allocated to one unit of local government that should have been
allocated to a different unit of local government.
"Misallocation" does not include amounts overpaid by the
taxpayer and therefore not owed to any unit of local
government, nor amounts underpaid by the taxpayer and therefore
not previously allocated to any unit of local government.
"Monitoring disbursements" means keeping track of payments
from the Department by a municipality, county, or third party
for the limited purpose of tracking previous misallocations.
"Third party" means a person, partnership, corporation, or
other entity or individual registered to do business in
Illinois who contracts with a municipality or county to review
financial information related to the disbursement of local
taxes by the Department to the municipality or county.
Section 5-10. Contracts with third parties. A municipality
or county that receives a disbursement of tax proceeds from the
Department may contract with a third party for the purpose of
ensuring that the municipality or county receives the correct
disbursement from the Department and monitoring disbursements.
The third party may not contact the Department on behalf of the
municipality or county, but instead must work directly with the
municipality or county to acquire financial information. To be
eligible to receive financial information from the
municipality or county, the third party must:
(1) enter into a confidentiality agreement with the
municipality or county in the form and manner required by
the Department prior to receiving the financial
information;
(2) have an existing contract with the municipality or
county at the time the third party enters into the
confidentiality agreement with the municipality or county;
a copy of that existing contract must be on file with the
Department;
(3) abide by the same conditions as the municipality or
county with respect to the furnishing of financial
information under Section 11 of the Retailers' Occupation
Tax Act; and
(4) be registered with the Department as required by
Section 5-35 of this Act.
Section 5-15. Financial information. The third party may
use the financial information it receives from the contracting
municipality or county only for the purpose of providing
services to the municipality or county as specified in this Act
and may not use the information for any other purpose.
Electronic data submitted to third parties or by the
contracting municipality or county must be accessible only to
third parties who have entered into a confidentiality agreement
with the municipality or county or who have an existing
contract with the municipality or county.
Section 5-20. Retention, collection, disclosure, and
destruction of financial information.
(a) A third party in possession of a taxpayer's financial
information must permanently destroy that financial
information pursuant to this Act. The financial information
shall be destroyed upon the soonest of the following to occur:
(1) if the taxpayer is not referred to the Department,
within 30 days after receipt of the taxpayer's financial
information from either the municipality or county, unless
the third party is monitoring disbursements from the
Department on an ongoing basis for a municipality or
county; or
(2) within 30 days after the Department receives a
taxpayer audit referral from a third party referring the
taxpayer to the Department for additional review.
(b) No third party in possession of financial information
may sell, lease, trade, market, or otherwise utilize or profit
from a taxpayer's financial information, except for a fee as
negotiated by the municipality or county. The fee may be in the
form of a contingency fee for a percentage of the amount of
additional distributions the municipality or county receives
for no more than 3 years following the first disbursement to
the municipality or county as a result of the services of the
third party under this Act.
(c) No third party may permanently or temporarily collect,
capture, purchase, use, receive through trade, or otherwise
retain a taxpayer's financial information beyond the scope of
subsection (a) of this Section.
(d) No third party in possession of confidential
information may disclose, redisclose, share, or otherwise
disseminate a taxpayer's financial information.
(e) A third party must dispose of the materials containing
financial information in a manner that renders the financial
information unreadable, unusable, and undecipherable. Proper
disposal methods include, but are not limited to, the
following:
(1) in the case of paper documents, burning,
pulverizing, or shredding so that the information cannot
practicably be read or reconstructed; and
(2) in the case of electronic media and other non-paper
media containing information, destroying or erasing so
that information cannot practicably be read,
reconstructed, or otherwise utilized by the third party or
others.
Section 5-25. Notice of intent to contract; award of
contracts. A municipality or county that chooses to contract
with a third party pursuant to this Act shall follow all rules
set forth in the Illinois Municipal Code or the Counties Code,
as applicable, concerning those contracts.
Section 5-30. Posting results. Annually, the third party
shall provide the municipality or county with a final summary
of the review for publication. It is the responsibility of the
third party to ensure that this summary includes no personal or
identifying information of taxpayers and that all such taxpayer
information is kept confidential. If the summary includes any
discussion of tax revenue, it shall include only aggregate
amounts by tax type, and shall in no way include information
about an individual return or an individual taxpayer, even with
identifying information redacted. In addition, due to the
preliminary nature of such a summary based only on unaudited
financial information, no claim of specific tax savings or
revenue generation may be made in the summary.
Section 5-35. Third party registration.
(a) Beginning on January 1, 2021, no person shall engage in
business as a third party pursuant to this Act in this State
without first having registered with the Department.
Application for registration or renewal of registration shall
be made to the Department, by electronic means, in a form and
at the time prescribed by the Department. Each applicant for
registration or renewal of registration under this Section
shall furnish to the Department, in an electronic format
established by the Department, the following information:
(1) the name and address of the applicant;
(2) the address of the location at which the applicant
proposes to engage in business as a third party in this
State;
(3) valid and updated contact information;
(4) attestation of good standing to do business in
Illinois;
(5) a copy of each contract it has entered into with a
municipality or county; if an applicant has a contract with
a municipality or county prior to the effective date of
this Act, a copy of all existing contracts must be
provided;
(6) an annual certification of process letter that:
(A) is signed by an attorney or certified public
accountant licensed and authorized to practice in the
State of Illinois;
(B) contains findings that, after due diligence,
the author is of the opinion that:
(i) the third party's confidentiality
standards for storing encrypted data at rest,
using a cryptographic algorithm, conform to the
Federal Information Processing Standard (FIPS)
Publication 140-2;
(ii) the third party uses multi-factor
authentication;
(iii) the third party uses HTTPS with at least
TLS 1.2 or its successor to protect the data files
while in transit between a browser and server;
(iv) the third party adheres to best practices
as recommended by the Open Web Application
Security Project (OWASP);
(v) the third party has a firewall which
protects against unauthorized use of the data; and
(vi) the third party shall maintain a physical
location in this State at all times; if, at any
time, the third party fails to have a physical
location in this State, the third party's
registration shall be revoked; and
(7) such other additional information as the
Department may require by rule.
The annual registration fee payable to the Department for
each third party shall be $15,000. The fee shall be deposited
into the Tax Compliance and Administration Fund and shall be
used for the cost of administering the certified audit pilot
project under Article 10.
Each applicant shall pay the fee to the Department at the
time of submitting its application or renewal to the
Department. The Department may require an applicant under this
Section to electronically file and pay the fee.
(b) The following are ineligible to register as a third
party under this Act:
(1) a person who has been convicted of a felony related
to financial crimes under any federal or State law, if the
Department, after investigation and a hearing if requested
by the applicant, determines that the person has not been
sufficiently rehabilitated to warrant the public trust,
including an individual or any employee, officer, manager,
member, partner, or director of an entity that has been
convicted as provided in this paragraph (1);
(2) a person, if any employee, contractual employee,
officer, manager, or director thereof, or any person or
persons owning in the aggregate more than 5% thereof, is
employed by or appointed or elected to the corporate
authorities of any municipality or county in this State;
(3) a person, if any employee, contractual employee,
officer, manager, or director thereof, or any person or
persons owning in the aggregate more than 5% thereof, is
not or would not be eligible to receive a certificate of
registration under this Act or a license under the Illinois
Public Accounting Act for any reason;
(4) a person who is a family member of any person who
is employed by or appointed or elected to the corporate
authorities of any municipality or county in the State;
(5) a person who is a qualified practitioner, as
defined by Section 10-15 of this Act;
(6) a third party owned, in whole or in part, by any
entity that competes directly or indirectly with any
taxpayer whose financial information they are seeking or
receiving; and
(7) a third party owning in whole or in part, directly
or indirectly, any entity that competes, directly or
indirectly, with any taxpayer whose financial information
they are seeking or receiving.
(c) The Department shall begin accepting applications no
later than January 1, 2021. Upon receipt of an application and
registration fee in proper form from a person who is eligible
to register as a third party under this Act, the Department
shall issue, within 60 days after receipt of an application, a
certificate of registration to such applicant in such form as
prescribed by the Department. That certificate of registration
shall permit the applicant to whom it is issued to engage in
business as a third party under this Act. All certificates of
registration issued by the Department under this Section shall
be valid for a period not to exceed one year after issuance
unless sooner revoked or suspended as provided in this Act. No
certificate of registration issued under this Section is
transferable or assignable. A person who obtains a certificate
of registration as a third party who ceases to do business as
specified in the certificate of registration, or who never
commenced business, or whose certificate of registration is
suspended or revoked, shall immediately surrender the
certificate of registration to the Department.
(d) Any person aggrieved by any decision of the Department
under this Section may, within 60 days after notice of the
decision, protest and request a hearing. Upon receiving a
request for a hearing, the Department shall give written notice
to the person requesting the hearing of the time and place
fixed for the hearing and shall hold a hearing and then issue
its final administrative decision in the matter to that person
within 60 days after the date of the hearing. In the absence of
a protest and request for a hearing within 60 days, the
Department's decision shall become final without any further
determination being made or notice given.
(e) All final decisions by the Department under this
Section are subject to judicial review under the provisions of
the Administrative Review Law.
Section 5-37. Insurance policy requirement. A third party
is required to file and maintain in force an insurance policy
issued by an insurance company authorized to transact fidelity
and surety business in the State of Illinois. The insurance
policy shall be for coverage of potential legal claims,
including, by not limited to, penalties set forth under Section
5-60, embezzlement, dishonesty, fraud, omissions or errors, or
other financial wrongdoing in the course of providing services.
The policy shall be in the form prescribed by the Department in
the sum of $500,000. The policy shall be continuous in form and
run concurrently with the original and each renewal
certification period unless terminated by the insurance
company. An insurance company may terminate a policy and avoid
further liability by filing a 60-day notice of termination with
the Department and at the same time sending the same notice to
the licensee. A license shall be canceled on the termination
date of the policy unless a new policy is filed with the
Department and becomes effective at the termination date of the
prior policy. If a policy has been canceled under this Section,
the third party must file a new application and will be
considered a new applicant if it obtains a new policy.
Section 5-40. Revocation or suspension of certification.
(a) A contracting municipality or county shall refuse to
provide any information, including financial information, to
any third party who violates this Act or rules adopted pursuant
to this Act or the Retailers' Occupation Tax Act or rules
adopted pursuant to the Retailers' Occupation Tax Act.
(b) The Department may, after notice and a hearing, revoke
or suspend the certificate of registration of any third party
for a violation of any provision of this Act, for noncompliance
with any provision contained in this Act, or because the
Department determines that the third party is ineligible for a
certificate of registration for any one or more of the reasons
provided for in Section 5-35 of this Act. The decision whether
to suspend or revoke and, if a suspension is in order, the
duration of the suspension shall be made by taking into account
factors that include but are not limited to, the registrant's
previous history of compliance with the Act as of its creation,
the number, seriousness, and duration of the violations, and
the registrant's cooperation in discontinuing and correcting
violations.
Section 5-50. Audit referrals; restrictions.
(a) Upon entering into a contract with a municipality or
county, a third party shall be prohibited from communicating
directly or indirectly in any manner with a taxpayer known or
believed to be operating within that municipality or county
about any matters directly or indirectly related to, or covered
by, the contract.
(b) If, based on a review of the financial information
provided by the Department to a municipality or a county, or
provided by a municipality or county to a registered third
party, a municipality, county, or third party discovers that
local retailers' or service occupation tax may have been
underpaid, then it may refer the matter to the Department for a
limited-scope audit in accordance with Article 10 of this Act.
(c) With respect to taxes administered by the Department,
units of local government and third parties are not authorized
to (i) access, review, or compel the production of taxpayers'
actual tax returns or (ii) access, review, or compel the
production of taxpayers' books and records.
(d) With respect to taxes administered by the Department,
units of local government and third parties are prohibited from
(i) engaging in an audit of any taxpayer, (ii) assessing tax
against any taxpayer, (iii) engaging in collection actions
against any taxpayer for the tax, or (iv) engaging in any other
action related to such taxes that is assigned by law to the
Department.
(e) A local government shall not share any financial
information received with another local government or another
third party. Further, a local government may not share the
findings of a third party with another local government or
another third party.
Section 5-60. Penalties.
(a) Any third party who violates any provision of this Act
shall be subject to the penalties set forth in Section 11 of
the Retailers' Occupation Tax Act.
(b) Any third party who violates Section 5-20 is subject to
a civil penalty of not more than $10,000 for each taxpayer with
respect to whom financial information is improperly disclosed,
profited from, or disposed of in violation of that Section. The
Attorney General may impose a civil penalty not to exceed
$50,000 for each instance of improper disposal of materials
containing financial information. The Attorney General may
impose a civil penalty after notice to the person accused of
violating Section 5-20 and an opportunity for that person to be
heard in the matter. The Attorney General may file a civil
action in the circuit court to recover any penalty imposed for
a violation of Section 5-20. In addition to the authority to
impose a civil penalty under this Section, the Attorney General
may bring an action in the circuit court to remedy a violation
of this Section, seeking any appropriate relief.
(c) Neither the State nor any municipality or county shall
be held liable for the mishandling of information by a third
party, including information from the Department or any other
financial information of taxpayers.
(d) Any taxpayer aggrieved by a violation of this Act shall
have a right of action in a State circuit court or as a
supplemental claim in federal district court against a third
party. A taxpayer may recover for each violation:
(1) against a third party that, by gross negligence,
violates a provision of this Act, liquidated damages of
$5,000 or actual damages, whichever is greater;
(2) against a third party that intentionally or
recklessly violates a provision of this Act, liquidated
damages of $10,000 or actual damages, whichever is greater;
(3) reasonable attorney's fees and costs, including
expert witness fees and other litigation expenses; and
(4) other relief, including an injunction, as the State
or federal court may deem appropriate.
Article 10. Local Government Revenue Recapture Certified Audit
Pilot Program.
Section 10-5. Findings. The General Assembly finds that:
(1) Voluntary compliance is the cornerstone of an
effective tax system.
(2) Despite attempts by the General Assembly, State
taxes are not simple.
(3) Even the most diligent taxpayers, through mistake
or inadvertence, may not pay all taxes due.
(4) The Department lacks the resources to audit the
compliance of all taxpayers.
(5) Illinois certified public accountants provide
valuable advice and assistance to Illinois taxpayers on
State tax issues.
(6) A pilot program establishing a partnership between
taxpayers, Illinois certified public accountants, and the
Department will provide guidance to taxpayers and enhance
voluntary compliance.
(7) A pilot project to establish a certified audit
program to address underpayment of local occupation and use
taxes would address concerns raised by units of local
government.
Section 10-10. Purpose. The purpose of this Article is to
create a certified audit program under a 5-year pilot project
that begins on January 1, 2021 and that is limited in scope to
specifically address concerns related to the proper reporting
and payment of local occupation and use taxes that are
collected and distributed to municipalities and counties by the
Department.
Section 10-15. Definitions. As used in this Article:
"Audit" means an agreed-upon procedures engagement in
accordance with Statements on Standards for the Attestation
Engagements (AICPA Professional Standards, AT-C Section 315
(Compliance Attest)).
"Certification program" means an instructional curriculum,
examination, and process for certification, recertification,
and revocation of certification of certified public
accountants that is administered by the Department with the
assistance of the Illinois CPA Society and that is officially
approved by the Department to ensure that a certified public
accountant possesses the necessary skills and abilities to
successfully perform an attestation engagement for a
limited-scope tax compliance review in a certified audit
project under this Act.
"Department" means the Department of Revenue.
"Family member" means the following, whether by whole
blood, half-blood, or adoption:
(1) a parent or step-parent;
(2) a child or step-child;
(3) a grandparent or step-grandparent;
(4) an aunt, uncle, great-aunt, or great-uncle;
(5) a sibling;
(6) a spouse or domestic partner; and
(7) the spouse or domestic partner of any person
referenced in items (1) through (5).
"Misallocation" means tax paid by the taxpayer and
allocated to one unit of local government that should have been
allocated to a different unit of local government.
"Misallocation" does not include amounts overpaid by the
taxpayer and therefore not owed to any unit of local
government, nor amounts underpaid by the taxpayer and therefore
not previously allocated to any unit of local government.
"Participating taxpayer" means any person subject to the
revenue laws administered by the Department who is the subject
of a tax compliance referral by a municipality, county, or
third party, who enters into an engagement with a qualified
practitioner for a limited-scope tax compliance review under
this Act, and who is approved by the Department under the local
government revenue recapture certified audit pilot project.
"Qualified practitioner" means a certified public
accountant who is licensed or registered to perform accountancy
activities in Illinois under Section 8.05 of the Illinois
Public Accounting Act and who has met all requirements for the
local government revenue recapture certified audit training
course, achieved the required score on the certification test
as approved by the Department, and been certified by the
Department. "Qualified practitioner" does not include a third
party, as defined by Section 5-5 of this Act, or any employee,
contractual employee, officer, manager, or director thereof,
any person or persons owning in the aggregate more than 5% of
such third party, or a person who is a family member of any
person who is employed by or is an appointed or elected member
of any corporate authorities, as defined in the Illinois
Municipal Code.
Section 10-20. Local government revenue recapture
certified audit project.
(a) The Department shall initiate a certified audit pilot
project to further enhance tax compliance reviews performed by
qualified practitioners and to encourage taxpayers to hire
qualified practitioners at their own expense to review and
report on certain aspects of their sales tax and use tax
compliance in cases where the Department has notified the
taxpayer that it has received a tax compliance referral from a
municipality, county, or third party under this Act. The nature
of the certified audit work performed by qualified
practitioners shall be agreed-upon procedures of a Compliance
Attestation in which the Department is the specified user of
the resulting report. Qualified practitioners are prohibited
from using information obtained from audit manuals, training
materials, or any other materials provided by the Department
under this Act for any purpose other than to perform the tax
compliance reviews under the certified audit pilot program
under this Act.
The tax compliance reviews shall be limited in scope and
may include only: (i) whether the taxpayer is reporting
receipts in the proper jurisdiction; (ii) whether asset
purchases by the taxpayer were taxed properly; (iii) an
evaluation of sales reported as exempt from tax; (iv) whether
the proper tax rate was charged; (v) whether the tax was
properly reported as retailers' occupation tax or use tax; and
(vi) any other factor that impacts the Department's allocation
of sales and use tax revenues to the jurisdiction in which the
taxpayer reports sales or use tax.
(b) As an incentive for taxpayers to incur the costs of a
certified audit, the Department shall abate penalties due on
any tax liabilities revealed by a certified audit, except that
this authority to abate penalties shall not apply to any
liability for taxes that were collected by the participating
taxpayer but not remitted to the Department, nor shall the
Department have the authority to abate fraud penalties.
(c) The certified audit pilot project shall apply only to
taxpayers who have been notified that an audit referral has
been received by the Department under this Act and only to
occupation and use taxes administered and collected by the
Department.
(d) The certified audit pilot project shall begin with
audit referrals received on and after January 1, 2021. Upon
obtaining proper certification, qualified practitioners may
initiate certified audits beginning January 1, 2021.
Section 10-25. Practitioner responsibilities. Any
practitioner responsible for planning, directing, or
conducting a certified audit or reporting on a participating
taxpayer's tax compliance shall be a qualified practitioner.
For purposes of this Section, a qualified practitioner is
responsible for:
(1) planning a certified audit when performing work
that involves determining the objectives, scope, and
methodology of the certified audit, when establishing
criteria to evaluate matters subject to the review as part
of the certified audit, when gathering information used in
planning the certified audit, or when coordinating the
certified audit with the Department;
(2) directing a certified audit when the work involves
supervising the efforts or reviewing the work of others to
determine whether it is properly accomplished and
complete;
(3) conducting a certified audit when performing tests
and procedures or field audit work necessary to accomplish
the audit objectives in accordance with applicable
professional standards;
(4) reporting on a participating taxpayer's tax
compliance in a certified audit when determining report
contents and substance or reviewing reports for technical
content and substance prior to issuance; and
(5) answering questions by Department review staff,
answering questions raised by the Informal Conference
Board, and testifying in any administrative or court
proceeding regarding the audit or report.
Section 10-30. Local government revenue recapture audit
referral.
(a) A third party shall not refer a taxpayer to the
Department for audit consideration unless the third party is
registered with the Department pursuant to Section 5-35.
(b) If, based on a review of the financial information
provided by the Department to a municipality or county, or
provided by a municipality or county to a registered third
party, the municipality or county discovers that a taxpayer may
have underpaid local retailers' or service occupation taxes,
then it may refer the matter to the Department for audit
consideration. The tax compliance referral may be made only by
the municipality, county, or third party and shall be made in
the form and manner required by the Department, including any
requirement that the referral be submitted electronically. The
tax compliance referral shall, at a minimum, include proof of
registration as a third party, a copy of a contract between the
third party and the county or municipality, the taxpayer's
name, Department account identification number, mailing
address, and business location, and the specific reason for the
tax compliance referral, including as much detail as possible.
(c) The Department shall complete its evaluation of all
audit referrals under this Act within 60 days after receipt of
the referral and shall handle all audit referrals as follows:
(1) the Department shall evaluate the referral to
determine whether it is sufficient to warrant further
action based on the information provided in the referral,
any other information the Department possesses, and audit
selection procedures of the Department;
(2) if the Department determines that the referral is
not actionable, then the Department shall notify the local
government that it has evaluated the referral and has
determined that no action is deemed necessary and provide
the local government with an explanation for that decision;
(3) if the Department determines that the referral is
actionable, then it shall determine whether the taxpayer is
currently under audit or scheduled for audit;
(A) if the taxpayer is not currently under audit or
scheduled for audit, the Department shall determine
whether it will schedule the taxpayer for audit; and
(B) if the taxpayer is not under audit by the
Department or scheduled for audit by the Department and
the Department decides to schedule the taxpayer for
audit, then the Department shall notify the taxpayer
that the Department has received an actionable audit
referral on the taxpayer and issue a notice to the
taxpayer as provided under subsection (d) of this
Section.
(d) The notice to the taxpayer required by subparagraph (B)
of paragraph (3) of subsection (c) shall include, but not be
limited to, the following:
(1) that the taxpayer must either: (A) engage a
qualified practitioner, at the taxpayer's expense, to
complete a certified audit, limited in scope to the
taxpayer's Retailers' Occupation Tax, Use Tax, Service
Occupation Tax, or Service Use Tax liability, and the
taxpayer's liability for any local retailers' or service
occupation tax administered by the Department; or (B) be
subject to audit by the Department;
(2) that, as an incentive, for taxpayers who agree to
the limited-scope certified audit, the Department shall
abate penalties as provided in Section 10-20; and
(3) A statement that reads: "[INSERT THE NAME OF THE
ELECTED CHIEF EXECUTIVE OF THE CORPORATE AUTHORITY] has
contracted with [INSERT THIRD PARTY] to review your
Retailers' Occupation Tax, Use Tax, Service Occupation
Tax, Service Use Tax, and any local retailers' or service
occupation taxes reported to the Illinois Department of
Revenue ("Department"). [INSERT THE NAME OF THE ELECTED
CHIEF EXECUTIVE OF THE CORPORATE AUTHORITY] and [INSERT THE
THIRD PARTY] have selected and referred your business to
the Department for a certified audit of your Retailers'
Occupation Tax, Use Tax, Service Occupation Tax, Service
Use Tax, and any local retailers' or service occupation
taxes reported to the Department pursuant to the Local
Government Revenue Recapture Act. The purpose of the audit
is to verify that your business reported and submitted the
proper Retailers' Occupation Tax, Use Tax, Service
Occupation Tax, Service Use Tax, and any local retailers'
or service occupation taxes administered by the
Department. The Department is required to disclose your
confidential financial information to [INSERT THE NAME OF
THE ELECTED CHIEF EXECUTIVE OF THE CORPORATE AUTHORITY] and
[INSERT THE THIRD PARTY]. Additional information can be
accessed from the Department's website and publications
for a basic overview of your rights as a Taxpayer. If you
have questions regarding your business's referral to the
Department for audit, please contact [CORPORATE
AUTHORITY'S] mayor, village president, or any other person
serving as [CORPORATE AUTHORITY'S] chief executive officer
or chief financial officer. [INSERT THIRD PARTY] is
prohibited from discussing this matter with you directly or
indirectly in any manner regardless of who initiates the
contact. If [INSERT THIRD PARTY] contacts you, please
contact the Department.".
(e) Within 90 days after notice by the Department, the
taxpayer must respond by stating in writing whether it will or
will not arrange for the performance of a certified audit under
this Act. If the taxpayer states that it will arrange for the
performance of a certified audit, then it must do so within 60
days after responding to the Department or within 90 days after
notice by the Department, whichever comes first. If the
taxpayer states that it will not arrange for the performance of
a certified audit or if the taxpayer does not arrange for the
performance of a certified audit within 180 days after notice
by the Department, then the Department may schedule the
taxpayer for audit by the Department.
(f) The certified audit must not be a contingent-fee
engagement and must be completed in accordance with this
Article 10.
Section 10-35. Notification by qualified practitioner.
(a) A qualified practitioner hired by a taxpayer who elects
to perform a certified audit under Section 10-30 shall notify
the Department of an engagement to perform a certified audit
and shall provide the Department with the information the
Department deems necessary to identify the taxpayer, to confirm
that the taxpayer is not already under audit by the Department,
and to establish the basic nature of the taxpayer's business
and the taxpayer's potential exposure to Illinois occupation
and use tax laws. The information provided in the notification
shall be submitted in the form and manner required by the
Department and shall include the taxpayer's name, federal
employer identification number or social security number,
Department account identification number, mailing address, and
business location, and the specific occupation and use taxes
and period proposed to be covered by the engagement for the
certified audit. In addition, the notice shall include the
name, address, identification number, contact person, and
telephone number of the engaged firm. An engagement for a
qualified practitioner to perform a certified audit under this
Act shall not be authorized by the Department unless the
taxpayer received notice from the Department under
subparagraph (b) of paragraph (3) of subsection (c) of Section
10-30.
(b) If the taxpayer has received notice of an audit
referral from the Department and has not been issued a written
notice of intent to conduct an audit, the taxpayer shall be a
participating taxpayer and the Department shall so advise the
qualified practitioner in writing within 10 days after receipt
of the engagement notice. However, the Department may exclude a
taxpayer from a certified audit or may limit the taxes or
periods subject to the certified audit on the basis that: (i)
the Department has previously conducted an audit; (ii) the
Department is in the process of conducting an investigation or
other examination of the taxpayer's records; (iii) the taxpayer
has already been referred to the Department pursuant to Section
10-30 and the Department determined an audit referral is not
actionable; (iv) the Department or a qualified practitioner has
previously conducted an audit under Section 10-30 of this Act;
or (v) for just cause.
(c) Within 30 days after receipt of the notice of
qualification from the Department under subsection (b), the
qualified practitioner shall contact the Department and
submit, for review and agreement by the Department, a proposed
audit plan and procedures. The Department may extend the time
for submission of the plan and procedures for reasonable cause.
The qualified practitioner shall initiate action to advise the
Department that amendment or modification of the plan and
procedures is necessary if the qualified practitioner's
inspection reveals that the taxpayer's circumstances or
exposure to the revenue laws is substantially different from
those described in the engagement notice.
Section 10-40. Audit performance and review.
(a) Upon the Department's designation of the agreed-upon
procedures to be followed by a practitioner in a certified
audit, the qualified practitioner shall perform the engagement
and shall timely submit a completed report to the Department in
the form and manner required by the Department and professional
standards. The report shall affirm completion of the
agreed-upon procedures and shall provide any required
disclosures.
(b) The Department shall review the report of the certified
audit and shall accept it when it is determined to be complete
by the qualified practitioner. Once the report is accepted by
the Department, the Department shall issue a notice of proposed
assessment reflecting the determination of any additional
liability reflected in the report and shall provide the
taxpayer with all the normal payment, protest, and appeal
rights with respect to the liability, including the right to a
review by the Informal Conference Board. In cases in which the
report indicates an overpayment has been made, the taxpayer
shall submit a properly executed claim for credit or refund to
the Department. Otherwise, the certified audit report is a
final and conclusive determination with respect to the tax and
period covered. No additional assessment may be made by the
Department for the specific taxes and period referenced in the
report, except upon a showing of fraud or material
misrepresentation. This determination shall not prevent the
Department from collecting liabilities not covered by the
report or from conducting an audit or investigation and making
an assessment for additional tax, penalty, or interest for any
tax or period not covered by the report.
(c) A notice of proposed assessment issued by the
Department under this Act is subject to the statute of
limitations for assessments under the Retailers' Occupation
Tax Act, the Use Tax Act, the Service Occupation Tax Act, the
Service Use Tax Act, and any local retailers' or service
occupation tax, as appropriate, and local taxes collected on
assessments issued shall be allocated to units of local
government for the full period of the statute of limitations in
accordance with those Acts and any applicable local retailers'
or service occupation tax Act. The Department shall provide
notice in writing to the municipality or county and the third
party, if applicable, of any audit findings, determinations, or
collections once finalized.
Claims for credit or refund filed by taxpayers under this
Act are subject to the statute of limitations under the
Retailers' Occupation Tax Act, the Use Tax Act, the Service
Occupation Tax Act, the Service Use Tax Act, and any local
retailers' or service occupation tax Act, as appropriate, and
any credit or refund of local taxes allowed to the taxpayer
shall be de-allocated from units of local government for the
full period of the statute of limitations in accordance with
those Acts and any applicable local retailers' or service
occupation tax Act.
With respect to misallocations discovered under this Act,
the Department shall increase or decrease the amount allocated
to a unit of local government by an amount necessary to offset
any misallocation of previous disbursements. The offset amount
shall be the amount erroneously disbursed within the previous 6
months from the time a misallocation is discovered.
(d) Under no circumstances may a person, including a
municipality or county or third party, other than the person
audited and his or her attorney, have any right to participate
in an appeal or other proceeding regarding the audit,
participate in settlement negotiations, challenge the validity
of any settlement between the Department and any person, or
review any materials, other than financial information as
otherwise provided in this Act, that are subject to the
confidentiality provisions of the underlying tax Act. In
addition, the Department's determination of whether to audit a
taxpayer or the result of the audit creates no justiciable
cause of action, and any adjudication related to this program
is limited to the taxpayer's rights in an administrative
hearing held by the Department, an administrative hearing held
by the Illinois Independent Tax Tribunal, or related to
payments made under protest as provided in Section 2a.1 of the
State Officers and Employees Money Disposition Act, as
appropriate.
Section 10-45. Rules. To implement the certified audit
project, the Department shall have authority to adopt rules,
including, but not limited to:
(1) rules concerning the availability of the
certification program required for participation in the
project;
(2) rules concerning the requirements and basis for
establishing just cause for approval or rejection of
participation by taxpayers;
(3) rules setting forth procedures for assessment,
collection, and payment of liabilities or refund of
overpayments and provisions for taxpayers to obtain
informal and formal review of certified audit results;
(4) rules concerning the nature, frequency, and basis
for the Department's review of certified audits conducted
by qualified practitioners, including the requirements for
documentation, work-paper retention and access, and
reporting; and
(5) rules setting forth requirements for conducting
certified audits and for review of agreed-upon procedures.
Article 900. Amendatory Provisions.
Section 900-5. The Retailers' Occupation Tax Act is amended
by changing Section 11 as follows:
(35 ILCS 120/11) (from Ch. 120, par. 450)
Sec. 11. All information received by the Department from
returns filed under this Act, or from any investigation
conducted under this Act, shall be confidential, except for
official purposes, and any person, including a third party as
defined in the Local Government Revenue Recapture Act, who
divulges any such information in any manner, except in
accordance with a proper judicial order or as otherwise
provided by law, including the Local Government Revenue
Recapture Act, shall be guilty of a Class B misdemeanor with a
fine not to exceed $7,500.
Nothing in this Act prevents the Director of Revenue from
publishing or making available to the public the names and
addresses of persons filing returns under this Act, or
reasonable statistics concerning the operation of the tax by
grouping the contents of returns so the information in any
individual return is not disclosed.
Nothing in this Act prevents the Director of Revenue from
divulging to the United States Government or the government of
any other state, or any officer or agency thereof, for
exclusively official purposes, information received by the
Department in administering this Act, provided that such other
governmental agency agrees to divulge requested tax
information to the Department.
The Department's furnishing of information derived from a
taxpayer's return or from an investigation conducted under this
Act to the surety on a taxpayer's bond that has been furnished
to the Department under this Act, either to provide notice to
such surety of its potential liability under the bond or, in
order to support the Department's demand for payment from such
surety under the bond, is an official purpose within the
meaning of this Section.
The furnishing upon request of information obtained by the
Department from returns filed under this Act or investigations
conducted under this Act to the Illinois Liquor Control
Commission for official use is deemed to be an official purpose
within the meaning of this Section.
Notice to a surety of potential liability shall not be
given unless the taxpayer has first been notified, not less
than 10 days prior thereto, of the Department's intent to so
notify the surety.
The furnishing upon request of the Auditor General, or his
authorized agents, for official use, of returns filed and
information related thereto under this Act is deemed to be an
official purpose within the meaning of this Section.
Where an appeal or a protest has been filed on behalf of a
taxpayer, the furnishing upon request of the attorney for the
taxpayer of returns filed by the taxpayer and information
related thereto under this Act is deemed to be an official
purpose within the meaning of this Section.
The furnishing of financial information to a municipality
or county, upon request of the chief executive officer thereof,
is an official purpose within the meaning of this Section,
provided the municipality or county agrees in writing to the
requirements of this Section. Information provided to
municipalities and counties under this paragraph shall be
limited to: (1) the business name; (2) the business address;
(3) the standard classification number assigned to the
business; (4) net revenue distributed to the requesting
municipality or county that is directly related to the
requesting municipality's or county's local share of the
proceeds under the Use Tax Act, the Service Use Tax Act, the
Service Occupation Tax Act, and the Retailers' Occupation Tax
Act distributed from the Local Government Tax Fund, and, if
applicable, any locally imposed retailers' occupation tax or
service occupation tax; and (5) a listing of all businesses
within the requesting municipality or county by account
identification number and address. On and after July 1, 2015,
the furnishing of financial information to municipalities and
counties under this paragraph may be by electronic means. If
the Department may furnish financial information to a
municipality or county under this paragraph, then the chief
executive officer of the municipality or county may, in turn,
provide that financial information to a third party pursuant to
the Local Government Revenue Recapture Act. However, the third
party shall agree in writing to the requirements of this
Section and meet the requirements of the Local Government
Revenue Recapture Act.
Information so provided shall be subject to all
confidentiality provisions of this Section. The written
agreement shall provide for reciprocity, limitations on
access, disclosure, and procedures for requesting information.
For the purposes of furnishing financial information to a
municipality or county under this Section, "chief executive
officer" means the mayor of a city, the village board president
of a village, the mayor or president of an incorporated town,
the county executive of a county that has adopted the county
executive form of government, the president of the board of
commissioners of Cook County, or the chairperson of the county
board or board of county commissioners of any other county.
The Department may make available to the Board of Trustees
of any Metro East Mass Transit District information contained
on transaction reporting returns required to be filed under
Section 3 of this Act that report sales made within the
boundary of the taxing authority of that Metro East Mass
Transit District, as provided in Section 5.01 of the Local Mass
Transit District Act. The disclosure shall be made pursuant to
a written agreement between the Department and the Board of
Trustees of a Metro East Mass Transit District, which is an
official purpose within the meaning of this Section. The
written agreement between the Department and the Board of
Trustees of a Metro East Mass Transit District shall provide
for reciprocity, limitations on access, disclosure, and
procedures for requesting information. Information so provided
shall be subject to all confidentiality provisions of this
Section.
The Director may make available to any State agency,
including the Illinois Supreme Court, which licenses persons to
engage in any occupation, information that a person licensed by
such agency has failed to file returns under this Act or pay
the tax, penalty and interest shown therein, or has failed to
pay any final assessment of tax, penalty or interest due under
this Act. The Director may make available to any State agency,
including the Illinois Supreme Court, information regarding
whether a bidder, contractor, or an affiliate of a bidder or
contractor has failed to collect and remit Illinois Use tax on
sales into Illinois, or any tax under this Act or pay the tax,
penalty, and interest shown therein, or has failed to pay any
final assessment of tax, penalty, or interest due under this
Act, for the limited purpose of enforcing bidder and contractor
certifications. The Director may make available to units of
local government and school districts that require bidder and
contractor certifications, as set forth in Sections 50-11 and
50-12 of the Illinois Procurement Code, information regarding
whether a bidder, contractor, or an affiliate of a bidder or
contractor has failed to collect and remit Illinois Use tax on
sales into Illinois, file returns under this Act, or pay the
tax, penalty, and interest shown therein, or has failed to pay
any final assessment of tax, penalty, or interest due under
this Act, for the limited purpose of enforcing bidder and
contractor certifications. For purposes of this Section, the
term "affiliate" means any entity that (1) directly,
indirectly, or constructively controls another entity, (2) is
directly, indirectly, or constructively controlled by another
entity, or (3) is subject to the control of a common entity.
For purposes of this Section, an entity controls another entity
if it owns, directly or individually, more than 10% of the
voting securities of that entity. As used in this Section, the
term "voting security" means a security that (1) confers upon
the holder the right to vote for the election of members of the
board of directors or similar governing body of the business or
(2) is convertible into, or entitles the holder to receive upon
its exercise, a security that confers such a right to vote. A
general partnership interest is a voting security.
The Director may make available to any State agency,
including the Illinois Supreme Court, units of local
government, and school districts, information regarding
whether a bidder or contractor is an affiliate of a person who
is not collecting and remitting Illinois Use taxes for the
limited purpose of enforcing bidder and contractor
certifications.
The Director may also make available to the Secretary of
State information that a limited liability company, which has
filed articles of organization with the Secretary of State, or
corporation which has been issued a certificate of
incorporation by the Secretary of State has failed to file
returns under this Act or pay the tax, penalty and interest
shown therein, or has failed to pay any final assessment of
tax, penalty or interest due under this Act. An assessment is
final when all proceedings in court for review of such
assessment have terminated or the time for the taking thereof
has expired without such proceedings being instituted.
The Director shall make available for public inspection in
the Department's principal office and for publication, at cost,
administrative decisions issued on or after January 1, 1995.
These decisions are to be made available in a manner so that
the following taxpayer information is not disclosed:
(1) The names, addresses, and identification numbers
of the taxpayer, related entities, and employees.
(2) At the sole discretion of the Director, trade
secrets or other confidential information identified as
such by the taxpayer, no later than 30 days after receipt
of an administrative decision, by such means as the
Department shall provide by rule.
The Director shall determine the appropriate extent of the
deletions allowed in paragraph (2). In the event the taxpayer
does not submit deletions, the Director shall make only the
deletions specified in paragraph (1).
The Director shall make available for public inspection and
publication an administrative decision within 180 days after
the issuance of the administrative decision. The term
"administrative decision" has the same meaning as defined in
Section 3-101 of Article III of the Code of Civil Procedure.
Costs collected under this Section shall be paid into the Tax
Compliance and Administration Fund.
Nothing contained in this Act shall prevent the Director
from divulging information to any person pursuant to a request
or authorization made by the taxpayer or by an authorized
representative of the taxpayer.
(Source: P.A. 98-1058, eff. 1-1-15; 99-517, eff. 6-30-16.)
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