Illinois’ Statute of Limitations ordinarily extends for three years from the later of the due date of the return, with or without extension, or the date the return was filed. An additional two-year statute applies from the due date for a claim that notifies the state of a finalized federal RAR. The statute can also be extended by mutual agreement with the signing of a waiver. From a tax recovery standpoint, however, additional ways remain available to extend the statute or correct a return — and ultimately widen your tax recovery opportunities.
The first method arises because the Illinois Department of Revenue gives you the opportunity to recover tax for up to one year after a payment is made. Practically speaking, this means that after you make an audit payment, amended return payment, or payment of a notice, you can recover any such payment for that tax year for any reason. For example, you might have filed an Illinois amended return for an RAR that included a payment, only to discover an apportionment error. Filing an additional amended return would allow you to recover the refund up to the amount of the payment sent for that year, provided you do so within one year of filing the RAR.
A disputed audit and corresponding request for the Informal Conference Board (ICB) on an audit assessment may also open the door to a viable tax refund scenario. A signed ICB petition gives you an additional six months of statute from the date the ICB Action Decision is provided. During this period, you may file an amended return relating to issues handled by the ICB. But you may also file an amended return relating to issues not handled by the ICB, if the issue relates to a tax year covered by the ICB petition. Moreover, the refund amount requested is not limited and can exceed the amount paid or due because of the ICB Action Decision. For instance, you could have a $100,000 nonbusiness assessment at ICB and lose your argument. Later, you identify a $250,000 enterprise zone credit for a new building that neither you nor the auditor had originally computed and included in the return. You can successfully file a $250,000 claim if you file the amended return within six months of the ICB Action Decision.
Correcting a return may also generate a refund opportunity. This opportunity applies to Illinois Net Loss Deduction (NLD) returns — but can even be utilized on returns with tax payments or income, or both. As Illinois NLD and credits can be carried forward, changing out of statute returns can create or increase an Illinois NLD or an Illinois credit carryforward into years open under the statute of limitations. The corrected return might create an expired refund, but the changes from the corrected return may also generate the carryforward into one or more returns that then generate a recoverable refund. The changes can also simply increase the amounts you can carry forward in the open years. The changes to correct a return can be made for any adjustment issue.
Ashland has successfully employed these three tax recovery scenarios to generate substantial refunds for clients. Many clients had not even considered recovering tax using these methods, so that when we identified these applicable tax adjustments their refund was made even more significant, by adjusting periods that initially appeared to be closed by Illinois Statute of Limitations.
Authored By: Terry Ahlers, Illinois – 24 years of Illinois state tax experience, 23 of which was with the IL Department of Revenue as a large case auditor.