50 ILCS 355/ Local Government Revenue Recapture Act.

(50 ILCS 355/Art. 10 heading) Article 10. Local Government Revenue Recapture Certified Audit Pilot Program. (Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/10-5)

Sec. 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.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/10-10)

Sec. 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.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/10-15)

Sec. 10-15. Definitions. As used in this Article:

"Audit" means an agreed-upon procedures engagement in accordance with Statements on Standards for Attestation Engagements (AICPA Professional Standards, AT-C Section 315 (Compliance Attestation)).

"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;

(4.1) a niece, nephew, great-niece, or great-nephew;

(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. This includes misallocations discovered by a unit of local government through the tax location verification process under Section 8-11-16 of the Illinois Municipal Code and misallocations discovered by the Department other than through an audit of the taxpayer. "Misallocation" does not, however, include any amount reported by a taxpayer in an amended return or any amount discovered in an audit of the taxpayer by the Department or discovered in an audit of the taxpayer by a qualified practitioner under Article 10 of this Act. "Misallocation" also 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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21; 102-558, eff. 8-20-21.)

(50 ILCS 355/10-20)

Sec. 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 tangible personal property purchases that were used or consumed 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.

(c-5) The Department shall charge a fee of $2,500 to each participant in the certification program under this Article.

(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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/10-25)

Sec. 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.

(Source: P.A. 101-628, eff. 6-1-20.)

(50 ILCS 355/10-30)

Sec. 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 90 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, including, but not limited to, an explanation 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 and the Department determined an audit referral is not actionable; (iv) the Department or a qualified practitioner has previously conducted an audit after referral under this Section 10-30; or (v) for just cause;

(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 by the Department;

(A) if the taxpayer is not currently under audit by the Department or scheduled for audit by the Department, the Department shall determine whether it will schedule the taxpayer for audit; and

(B) if the taxpayer is not under audit by the Department and the Department decides under subparagraph (A) not to schedule the taxpayer for audit by the Department, 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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21; 102-687, eff. 12-17-21.)

(50 ILCS 355/10-35)

Sec. 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 limit the taxes or periods subject to the certified audit.

(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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/10-40)

Sec. 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 provide the taxpayer with all the normal payment, protest, and appeal rights with respect to any liability reflected in the report, 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) Any 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, but limited to the amount of additional liability, if any, for distribution to the municipality or county as part of the municipality's or county's share of the State Retailers' Occupation Tax or Service Occupation Tax or under the municipality's or county's locally imposed retailer's or service occupation tax.

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.

If a reallocation of tax from one unit of local government to another occurs as a result of an amended return filed by a taxpayer or an audit of a taxpayer, the Department shall make the reallocation for the full period of 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 applicable local retailer's 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.

(Source: P.A. 101-628, eff. 6-1-20; 102-40, eff. 6-25-21.)

(50 ILCS 355/10-45)

Sec. 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.

(Source: P.A. 101-628, eff. 6-1-20.)