Illinois Supreme Court sticks it to taxpayer

In 2003, the Illinois General Assembly enacted the Tax Delinquency Amnesty Act establishing an amnesty program for all taxpayers owing any Illinois tax between June 30, 1983 and July 1, 2002. Under the program, the Legislature extended a “carrot” so that the Illinois Department of Revenue would not seek to collect any interest or penalties for the taxpayer who paid “all taxes due” during the amnesty period which ran from October 1, 2003 through November 17, 2003. However, the Legislature also included a “stick” – 200% interest for those taxpayers that did not pay “all taxes due” during the amnesty period.

On December 12, 2000, the IRS began an audit of the 1997, 1998 and 1999 income tax returns of Metropolitan Life Insurance Company (“MetLife”). Additionally, in May 2002, the Illinois Department of Revenue began an audit of MetLife’s 1998 and 1999 Illinois income tax returns. The IRS completed its audit in July 2004 and the Illinois Department of Revenue completed its audit in December 2004 – both audits were completed after the expiration of the amnesty period. Nevertheless, Illinois assessed MetLife double interest on the tax liabilities for 1998 and 1999 which totaled over $2.2 million. MetLife paid the double interest under protest and then sued for a refund.

Both the circuit court and the appellate court agreed with MetLife that the double interest “stick” shouldn’t apply because during the amnesty period MetLife was still under audit and did not know that it had any tax due and owing. These courts reasoned that it was illogical to require a taxpayer to pay a tax liability of which neither the taxpayer nor the Department of Revenue was aware. 

On appeal by the Department of Revenue in Metropolitan Life Insurance Company v. Hamer, 2013 IL 114234 (June 20, 2013), the Illinois Supreme Court reversed and ruled that the 200% interest applied. The Supreme Court analogized from a section of the Income Tax Act. In the Income Tax Act, taxes are considered due and owing upon the deadline for filing a tax return, and interest accrues on a tax liability from the date of the filing deadline. Similarly the Supreme Court reasoned under the Tax Delinquency Amnesty Act that MetLife’s tax is also considered due and owing as of the date of its filing deadline even if the amount of tax is unknown until a later time. Thus, for purposes of the amnesty, MetLife’s tax liability is deemed to be known as of its filing deadline even if the actual amount of tax is unknown until after completion of the audit. The Court gave MetLife the “stick” denying the refund claim and ignoring the fact that MetLife could never take advantage of the “carrot” because its tax liability had not been established until after the amnesty period already expired.

The Supreme Court also disregarded the action of the Illinois legislature when it enacted the 2010 Amnesty Act. For 2010, the statute added an exception to the imposition of double interest for tax liabilities that were not final during the amnesty period. The Court stated that the modification to the 2010 law didn’t mean the Legislature intended to change the 2003 law. 

While the Illinois legislature enacted the amnesty program to raise tax payments by offering a “carrot” by waiving interest and penalties for voluntary payments or threating the “stick” of double interest for delinquents, MetLife only received the stick. 

Article authored by: David Shiner