The Illinois Department of Revenue (IDOR) requires all businesses that sell taxable goods and services to register and pay their sales tax obligations. Yet, when businesses fail to comply with their Illinois sales tax payments, sometimes because of gross negligence or fraud, the IDOR could look to hold the people behind the business liable for sales tax debt. Illinois’ sales tax laws specifically allow for the IDOR to collect a company’s sales tax liability from those considered “responsible corporate officers.”
Owners, executives, managers, and others with control over the company finances and tax payments could all potentially qualify for status as a responsible corporate officer and have personal liability for its Illinois sales tax. Under qualifying circumstances, some corporate officers can avoid or, at the very least, reduce their personal liability in these cases. This article provides in-depth insights into who Illinois sales tax law considers a responsible officer, how to appeal your Notice of Liability (NOL), and other critical appeal procedures in these cases.
Who is a Responsible Corporate Officer under Illinois Law?
A responsible corporate officer is a president, vice president, secretary, or treasurer of a company who oversees a company's core business function or any other key employee who is in full capacity to execute the policy or decision-making for the corporation. In a partnership or sole proprietor, the responsible officer is usually the general partner and the sole business owner, respectively.
Although the law clearly defines the limits of the "responsible person" status, its IDOR's practice to generally assess any company leader or employee who potentially qualifies for the designation, regardless of their actual qualification for the status.
The Risks of Responsible Officer Status
The responsible officer status means that any alleged corporate officer whose business is subject to the provisions of Illinois sales tax administered by the IDOR could be held personally liable for a penalty equal to the total amount of unpaid sales taxes. The law doesn't consider the willful failure of accountants to file, evade, or attempt to defeat sales taxes, but rather for their (responsible officer’s) failure to prevent the circumstances that led to the tax evasion charges against their company.
How to Appeal a Notice of Liability because of Your Responsible Officer Status
As aforementioned, any officer or employee of a company who controls and supervises the filing of sales taxes and who willfully fails to make the payment or intentionally tries to defeat or evade the tax shall be held personally liable for a penalty equal to the total amount of unpaid taxes, including any accrued interests and penalties. See 35 ILCS 735, Sec. 3-7.
During tax assessment, the IDOR determines the due penalty according to its judgment, and that determination acts as evidence of a penalty. Usually, the Department presents the responsible officer's burden of proof in the form of reproduced copies or computer print-outs of the Department's records under the certificate of the Director of Revenue.
Following an assessment, the IDOR issues a notice of liability for all unpaid sales taxes. The personal liability imposed due to the RCOD shall survive the dissolution of a business, whether a corporation, partnership, or limited liability company. However, the Department cannot issue a notice of liability after the timeline of the appeal expires or the expiration 3 years following the last date of final legal proceedings.
Fortunately, Illinois tax laws allow corporate officers to challenge their responsible officer status by filing a petition with the Illinois Independent Tax Tribunal to review incorrect sales tax assessments.
Even so, they must appeal responsible officer status within a specific timeline. Typically, plaintiffs have 30 days to file an appeal after receiving their notice of tax liability. The final date to file the appeal for that year is typically printed on the notice.
The responsible officer appealing the final assessments must do the following within 20 days:
- File a bond with sufficient sureties of residing in the state of Illinois or licensed to conduct business within the state; or
- Obtain a lien against the plaintiff's real estate located in the county in which the bond is filed
The amount of bond is fixed and approved by the court and shall not fall short of the total amount of unpaid Illinois sales taxes claimed to be due by the IDOR, plus the amount of interest due from the plaintiff at the time the Department issued its final sales tax assessment.
Failure to comply with this bonding requirement may compel the IDOR to file a "motion to dismiss." The court will dismiss the case unless the plaintiff complies with the bonding requirement within 30 days after the Department files the motion to dismiss.
Other Procedural Considerations
Besides the appeals timeline, other procedural considerations must be followed to ensure the desired outcomes. These considerations are as follows:
- In addition to any other resolution provided by Illinois law, and provided there's no other pending hearing, the Department will collect the penalty imposed on the responsible officer according to the Tax Act. The Department does not have the legal right to bring a suit to recover the penalty or interest during:
- Any period when any court order has the power to enjoin or restrain the Department from filing such as claim
- Any period in which the alleged responsible officer is out of state or if they were not an Illinois resident at the time the Department brought the tax lawsuit against them
- The personal liability imposed on a responsible officer is in addition to the liability incurred by a partner in a partnership or limited liability partnership because of the issuance of NOL issued to the business partnership or limited liability partnership.
- Any person or entity that withholds or collects a tax from any other person in the form of trust tax for the Department's benefit is liable to the Department for the withheld amount plus any accrued interests or penalties on the taxes.
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