(35 ILCS 20/35-5)

Sec. 35-5. Tax Shelter Voluntary Compliance Program.

(a) In general. The Department of Revenue shall establish and administer a tax shelter voluntary compliance program as provided in this Section for eligible taxpayers subject to tax under the Illinois Income Tax Act. The tax shelter voluntary compliance program shall be conducted from October 15, 2004 to January 31, 2005 and shall apply to tax liabilities under Section 201 of the Illinois Income Tax Act attributable to the use of tax avoidance transactions for taxable years beginning before January 1, 2004. The Department shall adopt rules, issue forms and instructions, and take such other actions as it deems necessary to implement the provisions of this Law. Any correspondence mailed by the Department to a taxpayer at the taxpayer's last known address outlining the tax shelter voluntary compliance program constitutes a "contact" within the meaning of Sections 1005(b)(6) and 1005(c) of the Illinois Income Tax Act.

(b) Election. An eligible taxpayer that meets the requirements of subsection (c) of this Section with respect to any taxable year to which this Law applies may elect to participate in the tax shelter voluntary compliance program under either method for any particular tax avoidance transaction period. Such election shall be made separately for each taxable year and in the form and manner prescribed by the Department, and once made shall be irrevocable.

(1) Voluntary compliance without appeal. If an eligible taxpayer elects to participate under this paragraph, then: (i) the Department shall abate and not seek to collect any penalty that may be applicable to the underreporting or underpayment of Illinois income tax attributable to the use of tax avoidance transactions for such taxable year, (ii) except as otherwise provided in this Law, the Department shall not seek civil or criminal prosecution against the taxpayer for such taxable year with respect to tax avoidance transactions, and (iii) the taxpayer may not file a claim for credit or refund with respect to the tax avoidance transaction for such taxable year. Nothing in this subsection shall preclude a taxpayer from filing a claim for credit or refund for the same taxable year in which a tax avoidance transaction was reported if such credit or refund is not attributable to the tax avoidance transaction. No penalty may be waived or abated under this Law if the penalty imposed related to an amount of Illinois income tax assessed prior to October 15, 2004.

(2) Voluntary compliance with appeal. If an eligible taxpayer elects to participate under this paragraph, then: (i) the Department shall abate and not seek to collect the penalties imposed under Sections 1005(b) and 1005(c) of the Illinois Income Tax Act with respect to such taxable year, (ii) except as otherwise provided in this Act, the Department shall not seek civil or criminal prosecution against the taxpayer for such taxable year with respect to tax avoidance transactions, and (iii) the taxpayer may file a claim for credit or refund as provided in the Illinois Income Tax Act with respect to such taxable year. Notwithstanding Section 909(e) of the Illinois Income Tax Act, the taxpayer may not file a written protest until after either of the following: (i) the Department issues a notice of denial, or (ii) the earlier of (1) the date which is 180 days after the date of a final determination by the Internal Revenue Service with respect to the transactions at issue, or (2) the date that is 3 years after the date the claim for refund was filed or one year after full payment of all tax, including penalty and interest. No penalty may be waived or abated under this Act if the penalty imposed relates to an amount of Illinois income tax assessed prior to October 15, 2004.

(c) Eligible taxpayer. The tax shelter voluntary compliance program applies to any taxpayer who, during the period from October 15, 2004 to January 31, 2005, does both of the following:

(1) Files an amended return for the taxable year for which the taxpayer used a tax avoidance transaction to under report the taxpayer's Illinois income tax liability, reporting the total Illinois net income and tax for such taxable year computed without regard to any tax avoidance transactions;

(2) Makes full payment of the additional Illinois income tax and interest due for such taxable year that is attributable to the use of the tax avoidance transaction (not including a payment made under protest as provided in Section 2a.1 of the State Officers and Employees Money Disposition Act (30 ILCS 230/2a.1));

For purposes of this subsection (c), if the Department subsequently determines that the correct amount of Illinois income tax was not paid for the taxable year, then the penalty relief under this Section shall not apply to any portion of the underpayment attributable to a tax avoidance transaction not paid to the State.

(Source: P.A. 93-840, eff. 7-30-04.)