Tax Decoded | Spring 2020
Illinois Tax Potpourri: Three Issues of Interest to Taxpayers
From tax incentives to audit instructions, Illinois taxpayers and CPAs have a lot to watch as legislators and courts tackle more tax issues.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
Deciphering Today's State & Federal Tax Law
With all that has been happening in Illinois tax, it’s impossible to settle on a single topic for
this quarterly column. So, let’s decode three issues of interest to auditors, business owners,
CPAs, and taxpayers alike.
THE RELEASE OF IDOR’S AUDIT MANUAL
In late December, the Circuit Court of Sangamon County ruled in Tax Analysts v. Illinois
Department of Revenue
, No. 2018MR001018, that the Illinois Department of Revenue’s
(IDOR) audit manual is not exempt from disclosure under the Freedom of Information Act.
The audit manual is, as you’d expect, a multi-volume compilation of instructions to auditors.
Unlike in many other states, IDOR has resisted releasing the audit manual to the public,
arguing that it is exempt from disclosure under the Freedom of Information Act. Among
other things, IDOR contends the audit manual contains confidential information that, if
disclosed, would provide taxpayers with a road map to tax evasion.
In my roles on IDOR’s legal staff, I had access to the audit manual and reviewed many of its
proposed revisions. It is my estimation that during my nearly 10 years with IDOR, more than
95 percent of the material contained in the audit manual did not contain confidential
information. As I recall, the audit manual consisted of a detailed outline of the various tax
acts administered by IDOR, the rules under the various acts, the case law construing those
acts, and IDOR’s positions on issues with implementing and enforcing those acts. There
were instructions to auditors about “tolerances” and cost/benefit analysis instructions for
when an issue should be pressed in an audit. Those instructions could and should be edited
out of a public version of the audit manual. Absent those instructions, I see no credible
basis for failing to publish the rest of the audit manual.
I suspect we’ll see more on this topic and, ultimately, the public publication of the audit
manual at some point.
THE HOSPITAL CHARITABLE PROPERTY TAX EXEMPTION
The Circuit Court of Champaign County recently issued a 145-page decision and opinion
in The Carle Foundation v. Illinois Department of Revenue et al
., No. 2008-L-202, ruling
that the foundation is entitled to charitable property tax exemptions for four parcels for the
2005-2011 tax years.
This decision is the latest chapter in litigation concerning the parcels, which had been
granted charitable exemptions for many years until being denied in 2004. That exemption
denial was upheld by the local board of review and IDOR’s exemption division.
The litigation began in the Circuit Court of Cook County in 2007
and simultaneously in IDOR’s administrative hearing division. The
case was transferred to Champaign County in 2008 after one of
the defendants filed a motion for a change of venue. The case was
filed directly in the circuit court under Section 23-25(e) of the
Property Tax Code as a cause of action “to establish a tax
exemption for a specific assessment year for property determined
to have been exempt on comparable grounds for a prior or
The local taxing bodies attempted to dismiss the case on various
grounds, including that it was improper to go directly to court to
challenge the exemption denial. The circuit court judge allowed an
appeal to the appellate court on that issue prior to hearing the
substance of the case. The foundation prevailed in the appeals court
and the case was returned to the circuit court in The Carle Foundation
v. Illinois Department of Revenue
, 396 Ill. App. 3d 329 (2009).
While the legal jousting was occurring, Public Act 97-688 was
enacted, effective June 14, 2012, establishing a new charitable
hospital property tax exemption under Section 15-86 of the Property
Tax Code. This resulted in yet another interlocutory appeal to the
appellate court over whether the new exemption applied to the tax
years at issue prior to the effective date of the new law. The
appellate court ruled in The Carle Foundation v. Cunningham
, 2017 IL 120427, that the new law did apply to the tax
years at issue. However, the appellate court also ruled that Section
15-86 was facially unconstitutional.
Both sides appealed to the Illinois Supreme Court. In 2017, the
Illinois Supreme Court vacated the appellate court’s ruling that
Section 15-86 was facially unconstitutional and sent the case back
to the circuit court where the case remained on hold while the
Illinois Supreme Court considered the constitutionality of Section
15-86 in another case. In the 2018 case of Oswald v. Hamer, the
Illinois Supreme Court upheld the constitutionality of the hospital
property tax exemption.
Finally, after 12 years, the case went to trial on Jan. 2, 2019. After
20 days of trial and many witnesses, the court eventually ruled in
favor of The Carle Foundation on Feb. 5, 2020 and ordered a
refund of over $6 million.
The length for the decision and opinion is highly unusual for a case
in circuit court and, at this point, I don’t know whether the case will
be appealed again.
THE PROPOSAL TO STOP TAX INCENTIVES
The House Revenue Committee held a subject matter hearing in
February on HB 4138, or the Phase Out Corporate Giveaways
Compact. This ill-advised legislation would authorize Illinois to enter
into a multistate compact with any state and the District of
Columbia, in which each member state of the compact agrees not
to offer or provide any company-specific tax incentive or grant to
any entity located in any other member state as an inducement to
relocate to the offering member state.
The testimony in favor of the proposal was made during an hour of
mind-numbing academic theorizing by representatives of Americans
for Prosperity and the Mercatus Institute. Their contention is that all
tax incentives are bad, and the adoption of the compact will start
states down the road to eliminating all tax incentives.
In full disclosure, if you couldn’t tell from my tone, I testified in
opposition to HB 4138. I pointed out that among its other flaws, the
legislation would authorize a private right of action by any “taxpayer
resident” who wishes to challenge the granting of a companyspecific
tax incentive. I noted the Illinois False Claims Act’s track
record demonstrates problems endemic in granting a private right
of action that authorizes third parties to go to court to seek a
determination involving taxes of someone else. At best, the
language of the legislation would result in the attorney general
wasting resources by going to court to respond to specious claims.
At worst, the attorney general, acting on behalf of the party bringing
the case in court, would end up adverse to IDOR and/or the Illinois
Department of Commerce and Economic Opportunity, and the
courts could begin second guessing incentive awards.
Ultimately, the compact would outlaw state-level tax incentives. By
outlawing only state-level incentives and not local incentives, the
legislation would give an unfair advantage to affluent portions of
the state that could afford to offer incentives to businesses.
Finally, even though the compact would be an agreement between
member states, the restrictions would have broader implications.
Take for example a situation where a company proposes to
relocate its headquarters, manufacturing facility, or data center. Five
states, including Illinois, would like the company to relocate to their
state. Illinois and one of the other states are members of this
compact. In that situation, because of the restrictions of the
compact, Illinois would be precluded from offering any incentives
to attract the company to Illinois, but all of the other states, with the
exception of the other compact member state, would be free to
offer incentives. Thus, the non-compact states would have a
In short, there’s a lot to decode when it comes to tax in Illinois.