Illinois State Tax Solutions

Options and Consequences When You Owe Illinois Back Taxes

The Illinois Department of Revenue (IDOR) collects individual income tax and many business taxes. If you don’t file tax returns or pay taxes, you can face severe consequences, but the state also offers many options for people who can’t afford to pay in full. To help you out, this guide explains the consequences and relief options for Indiana back taxes. 

Want to get help right away? Then, contact us at the W Tax Group. We are committed to helping individuals and businesses deal with the IDOR and find the best resolution options for their situations. Illinois state tax debt can be overwhelming, but the sooner you deal with the issue, the easier it is to resolve. Don’t wait to get help — contact our tax attorneys today. 

What If You Can’t Afford to Pay Illinois Back Taxes

If you can’t afford to pay your Illinois taxes in full, you may want to consider using a credit card or taking out a loan. Alternatively, you can work with the state to set up a payment plan or apply for a relief program such as innocent spouse relief or an offer in compromise. Here is an overview of the options. 

Payment Plans for Illinois Tax Debts

The DOR lets both individuals and businesses set up monthly payment plans if they can’t afford to pay in full. The monthly payment and the time you have to pay off the tax debt vary based on your situation. You can put taxes from multiple time periods in the same payment plan, but to qualify, you must be current on all of your tax filing obligations. 

You can apply for an Illinois payment plan online or by filing Form CPP1 (Installment Payment Request). If you owe over $10,000 in state taxes, interest, and penalties, you must provide the state with detailed financial information using Form EG-13-I (Financial and Other Information Statement for Individuals) or Form EG-13-B (Financial and Other Information Statement for Businesses).

Offer in Compromise on Illinois Back Taxes

An offer in compromise is when the Illinois DOR agrees to settle your tax bill for less than you owe. You can apply if you can’t afford to pay or if you doubt the tax liability, but there’s a different application process for each option. 

If you can’t afford to pay the tax liability, you can file Form BOA-1 (Board of Appeals Petition) to request an offer in compromise from the Board of Appeals. You also need to complete BOA-4 (Financial Information for Individuals) and/or BOA-5 (Financial Information for Businesses). Then, include the following:

• Copies of your last three state and federal income tax returns.
• Six months of statements from all of your bank and brokerage accounts.
• Your last two paycheck stubs if you’re employed.
• Current financial statements if you’re a business owner.

To apply for an offer in compromise because you believe that you don’t owe the tax liability, you need to make an offer of disposition to the Informal Conference Board (ICB). The ICB will only consider the offer if there is a legitimate doubt that you owe the tax. To apply, file Form ICB-2 (Offer of Disposition of a Proposed Liability or Claim Denial). 

Illinois Innocent Spouse Relief

If you have a tax liability that is due solely to your spouse, you may qualify for innocent spouse relief. Through this program, the IDOR gives you relief from your spouse or former spouse’s tax liability, but typically, you are still responsible for any taxes related to your income. To qualify, you must have been unaware that your spouse didn’t report income, overclaimed deductions, or filed false information in another way.

To apply, file Form IL-8857 (Request for Innocent Spouse Relief), and as relevant, include supporting documents to make your case. You also need to include a copy of your IRS and Illinois tax returns. If you requested innocent spouse relief from the IRS, include a copy of that form and the determination letter if you have received it. 

Illinois Injured Spouse Relief

Not to be confused with innocent spouse relief, injured spouse relief comes into play when the state seizes your tax refund to cover your spouse’s debts. This may include back taxes, unpaid child support, or several other types of debts. There is no specific form to apply for injured spouse relief in Illinois. 

If the DOR keeps your refund to cover your spouse’s debt, you may be able to get the funds back by filing an amended tax return and selecting married filing separately instead of married filing jointly. Ideally, you should do this proactively if you believe that the state is going to seize your refund for your spouse’s debt. Alternatively, you can apply for a refund from the agency that seized the refund. 

How to Get Rid of Tax Penalties in Illinois

The Illinois DOR assesses penalties if you file late, pay late, or underreport tax due to negligence or fraud. If you don’t agree with a penalty on your account, you can request a penalty waiver due to reasonable cause by filing a petition with the Board of Appeals. 

Generally, to qualify for reasonable cause penalty abatement, you must prove that you paid or filed your tax return late due to an event out of your control. These waivers typically apply in situations such as deaths, severe illnesses, or natural disasters. 

However, tax penalties can be costly. So, even if you don’t think you qualify for reasonable cause, talk with a tax lawyer about trying to get the penalties waived. 

What If You Don’t Agree With Illinois Tax Assessment?

If you don’t agree with an Illinois tax assessment, contact a tax attorney as soon as you can. They can explain your options and help you appeal. Appeals and protests are very time sensitive, and the process can be complicated. Here are some of the protest procedures:

Protesting a Proposed Tax or Claim

If you disagree with a proposed deficiency, liability, or claim denial, you can request a review from the Informal Conference Board (ICB). You must make your request in writing within 60 days of the date on the notice. If you don’t request a review, the proposed amount will become final, and you will receive a notice from the IDOR.

Protesting a Notice of Deficiency, Tax Liability, or Claim Denial

Once you receive a notice of deficiency, tax liability, or claim denial, you can protest it in three different ways including the following:

• Request an administrative hearing with the Independent Tax Tribunal within 60 days.
• Pay the tax under protest, waive the administrative hearing, and go to the circuit court.
• File a petition with the Board of Appeals to request a penalty waiver due to reasonable cause or an offer in compromise due to inability to pay. Note that the Board of Appeals will not redetermine your tax assessment for any other reason.

Protesting Business Taxes

The DOR has the right to assess business taxes, interest, and penalties against officers and other people who are responsible for filing and paying business taxes. This includes sales and withholding taxes. If the state assesses business taxes against you, you have 60 days to protest.

This post does not describe the full tax appeals process in Illinois. Appealing taxes can be complicated. For best results, reach out to a tax attorney who is experienced in dealing with Illinois DOR appeals.

Illinois Voluntary Disclosure Program

If you have unfiled tax returns, you may be able to minimize the effects through the Illinois Voluntary Disclosure Program. To qualify, you must not have received an audit or investigation notice from the Illinois DOR. You can apply by filing Form BOA-2 (Application for Voluntary Disclosure).

If you qualify, the state will not assess penalties on your account and regardless of how many returns you missed, you only have to file taxes going back four years. In contrast, if the state discovers that you have unfiled returns, there is an unlimited lookback period and significant penalties. 

You must file and pay your back taxes within 30 days of being approved for this program or you will be disqualified. However, you can request a 60-day extension. You also must pay interest and any extra tax within 60 days of receiving a bill from the DOR.

What Happens If You Don’t Pay Taxes in Illinois?

If you have unpaid taxes, the Illinois DOR has the right to forcibly collect the tax debt from you. The DOR can use tax liens, asset seizures, levies, and wage garnishments to collect unpaid taxes. Additionally, penalties and interest will accrue on your debt, and the state may take other actions such as suspending your business licenses.  

Tax Liens in Illinois

An Illinois tax lien attaches to your real and personal property, and it can prevent you from selling or transferring your property. It stays in place for 20 years, and to get it removed, you need to pay your tax debt, interest, and penalties plus the lien filing and release fees.  

Asset Seizures for Illinois Back Taxes

The DOR can also take your personal or real property. The DOR will give you at least a 10-day notice before the seizure, and then, it will hold the property for at least 20 days before auctioning it off. If you pay the tax debt plus any required fees in this time frame, you should be able to get your assets back. However, the IDOR can sell perishable items (for example, food seized from a restaurant) within 24 hours.

Illinois Tax Levies

The DOR can levy your wages through a garnishment. The DOR will notify you at least 10 days before sending a garnishment order to your employer. Once the garnishment starts, your employer will withhold up to 15% of your gross wages and send them to the DOR until your balance is paid in full or the DOR releases the levy. 

The state also has the right to levy other assets such as bank accounts, CDs, dividends from insurance policies, bond interest, rent payments from tenants, etc. If the DOR levies your bank account, the bank will hold the funds for 20 days before sending them to the state. The DOR will notify you of levies at least 10 days before they take place. 

Tax Penalties in Illinois

Here are the penalties you can face if you don’t file or pay your Illinois state taxes:

• Late filing penalty — If you don’t file your return on time, the penalty is the lesser of 2% of the tax due or $250.
• Additional late filing penalty — If the DOR sends you a notice that you have not filed and you don’t file within 30 days, you will incur an additional penalty equal to the greater of 2% of the tax due or $250. This penalty can be up to $5,000.
• Late payment penalty — 2% penalty if you pay your taxes one to 30 days late; 10% penalty if you pay your taxes 31 or more days late.
• Late payment penalty for amounts not paid until after the DOR starts an audit — 15% of the tax
• Late payment penalty for taxes not paid 30 days after the DOR issues an audit-prepared amended return or concludes an auditor investigation — 20% of the tax liability.
• Penalty for failure to file correct information returns — $5 per unfiled return or statement, up to $25,000 per year. The penalty can be cut in half if you file within 60 days of the deadline.
• Penalty for negligence — 20% of the tax that was underreported.
• Penalty for fraud — 50% of the tax that was underreported due to fraud.
• Penalty for frivolous return — $500

Note that if you request an extension on your state tax forms, that only extends your filing deadline. Your payment is still due on the original due date, and you will incur penalties and interest on the balance. 

The state uses Form IL 2210 (Computation of Penalties for Individuals) and Form 2220 (Computation of Penalties for Businesses) to calculate penalties for late tax payments and underpayments of estimated taxes. The IDOR urges taxpayers not to fill out this form, but to instead let the IDOR do the computations and wait for an assessment. 

Loss of Business Licenses and Certificates

Unpaid taxes can make it impossible to run your business. If you don’t pay your back taxes, the IDOR can revoke, suspend, or refuse to renew your business or professional licenses. You cannot legally operate a business without a license.  

The state can also take your sales tax license away if you don’t pay taxes or fail to file sales tax returns. The DOR can post a notice on your business premise stating that you don’t have a sales tax certificate and that you can’t operate legally. Similarly, the DOR can take away your liquor license for unpaid sales tax, and vendors can’t sell to you when you don’t have a liquor license. 

You can also lose lottery licenses, corporate charters, and dealer licenses. Additionally, the state can publish your name on a list of tax debtors, and a collector may come to your home or business.  

Collection Agencies and Illinois State Taxes

The DOR may turn over your account to a collection agency. At that point, collection costs will also be added to your account. As of 2022, the IDOR contracts tax debts to the following collection agencies:

• GC Services
• Harris & Harris
• Harvard Collection Services
• Transworld System, Inc.
• Linebarger Goggan Blair Sampson
• Alliance One

Statute of Limitations on Illinois Tax Debt Collection

In Illinois, there is a variable statute of limitations on tax debt collection. The Illinois DOR has the right to enforce collection actions from two to 20 years after an assessment, and in some cases, the state can even collect taxes for longer than that time frame. 

The exact timing depends on whether or not the following actions have occurred:

• The state filed a tax lien against you.
• The Attorney General entered a judgment against you.
• The DOR issued personal penalty assessments against responsible persons related to business tax debts.
• The DOR took other collection actions. 

To figure out if the statute of limitations is still active on your Illinois tax debt, you can contact the DOR, or reach out to a tax attorney. 

Get Help With Illinois Back Taxes

Dealing with back taxes in Illinois can be complicated, and if you don’t understand the DOR’s rules or processes, you may end up paying more than you should. To get help, contact us today. We can start with a free consultation, and then, we can help you find the optimal tax resolution option for your situation. 

We also help clients deal with the IRS as well as the Indiana DOR, the Michigan Department of Treasury, the New York Department of Taxation and Finance, and the taxing authorities in every other state.