Audit Information for Business Taxpayers (PIO-60)

What is the purpose of an audit program?

The tax laws administered by the Illinois Department of Revenue require taxpayers to self-assess the tax amounts they owe. An audit program is essential in order to

promote voluntary compliance,
deter tax evasion,
educate taxpayers so they can complete and file required tax returns properly,
collect deficiencies and delinquencies, and
facilitate refunds.

How does the department select taxpayers for audit?

We select taxpayers for audit using several methods, including selection

at random
by referral
by nature of business
by past audit history, and
by tax issue.

If I am subject to an audit, how does the department contact me?

Usually the auditor whose office is closest to your business location will contact you

by phone,
by letter, or
by impromptu visit.

What are normal audit methods and procedures?

In an audit we verify

the procedures you used to figure your tax base,
any exemptions and deductions you claimed, and
the overall accuracy of tax returns you filed.

The methods and procedures used in an audit will vary because of the different tax types and business categories that exist. For example, the methods used in a sales tax audit for a flower shop would be different from the methods used in a sales tax audit of a manufacturer. Even though both businesses may be undergoing a sales tax audit, the way of doing business is different for both businesses, therefore, the methods of reviewing the records of the business will be different.

In general, sales tax auditing methods and procedures include testing and detailed reviews of source documents and general ledger accounts. Similarly, income tax auditing methods and procedures include detailed reviews of federal or consolidated returns and associated schedules, in comparison to the returns and schedules filed for Illinois purposes.

What records does the department need for an audit?

The records we need vary greatly based on the type of tax you are required to pay. In general, we need access to records that support the line-by-line items reported on your tax returns.

We may require your records only in samples or in detail. We may also require you to keep specific records that will help the department decide if you have a liability for a given tax type.

Additional requirements for record keeping, including electronic formats and record retention limitation agreements may be found in our regulations. For sales tax issues, see 86 Ill. Administrative Code 130.801, 130.805, 130.810, and 130.815. For income tax issues, see 86 Ill. Administrative Code 100.9530.

Does the auditor tell me how to keep records?

As a general rule, the auditors will not tell you how to keep your records. We may require you to keep certain records for future review, as provided by law. However, we will not tell you how to set up and maintain a record keeping system for your business beyond the requirements in our regulations.

How long does an audit take?

An audit may last from one day to many months. Some of the factors affecting the length of an audit are

the size and type of business you operate,
the availability and condition of your records,
your record-keeping procedures, and
the level of your cooperation with the auditor.

Where does an audit usually take place?

An audit usually takes place where you maintain most of your books and records; normally at your business location. However, if you designate an outside representative, an audit may be conducted at your representative’s office. In some instances, audits may also be conducted at an IDOR office.

Who may represent me during an audit?

You may be represented by

yourself,
your accountant,
your attorney, or
any other person whom you have authorized to represent you in matters before the department and who has knowledge of your record-keeping, tax reporting requirements, and day-to-day operations.

What are my rights during an audit?

You have the right to fair and equitable treatment during an audit. We will treat you courteously and professionally throughout the audit process. The audit function is to determine whether the correct amount of tax has been reported and paid. Therefore, we acknowledge tax overpayments and underpayments, as well as any errors on our part.

We may ask you to provide additional information to verify amounts shown on your returns. You have the right to know why we are asking for this information, how it will be used, and what will happen if you fail to furnish it.

What are my options to resolve issues after my audit?

Informal Conference Board (ICB)

The purpose of the ICB is to review adjustments proposed by the department before a Notice of Tax Liability, Notice of Deficiency, or Notice of Claim Denial is issued. The ICB process allows the taxpayer the opportunity to resolve disagreements after a liability has been proposed, but before the formal protest and administrative hearing process.

Administrative hearings

If the ICB denied your request or did not resolve the issues to your satisfaction, and we issued a Notice of Tax Liability, Notice of Deficiency, or Notice of Claim Denial, you have the right to protest and request an administrative hearing. An administrative hearing is a quasi-judicial proceeding, presided over by an administrative law judge and handled like matters in circuit court. After the hearing, a recommendation will be submitted to the director and you will receive final notice of the administrative decision.

Circuit court

The circuit court is a judicial body that serves as part of the protest process. If you do not agree with the outcome of the administrative hearing or you did not go through the administrative hearing process, you may elect to pay the full amount of the deficiency, accompanied by a notice of protest in the format specified by the Illinois Compiled Statutes, 30 ILCS 230/2a.1. Your notice must express your intention to file a complaint in circuit court and obtain an injunction within 30 days of the date of the protested payment to preserve your right to a refund.

Board of Appeals

The purpose of the Board of Appeals is to ensure that we have treated you fairly and provides relief when appropriate. The Board of Appeals has the authority to waive penalties and interest based on reasonable cause and to reduce a tax liability if it is likely the full debt cannot be collected.

In general, you may not go to the Board of Appeals until all other forms of protest have been exhausted (i.e., administrative hearings and circuit court) or the time allowed for taking such action has expired. The Board of Appeals may also review other departmental controversies that are currently pending in administrative hearings, the courts, or various other circumstances if you and the department have requested that the Board of Appeals take jurisdiction and review the matter.

Where can I get written answers for my specific tax issues?

If you have a question and you do not agree with the answer you are given, you may write to the department’s Office of Legal Services for an answer. The department provides two types of letters for written inquiries.

General Information Letter (GIL)

The GIL is issued to any person of interest and discusses general tax principles or applications. GILs do not require any specific format or initial amount of information. However, the department may request additional information in order to provide the most accurate answers. GILs are not legally binding on the department and may not be relied upon by the taxpayer in taking a position. For more information, see 2 Ill. Administrative Code 1200.120.

Private Letter Rulings (PLR)

The PLR must be made by the taxpayer (or the taxpayer’s representative, with proper power of attorney) regarding one specific issue within a single tax type. PLRs will not be provided if the issue is a concern related to a tax year that is under audit with the department or pending litigation. PLRs are legally binding on the department, unless there is a change in the law, case law, rules or material facts. A request for a PLR must include certain information and be presented in a particular format. See 2 Ill. Administrative Code 1200.110 for the details of requesting a PLR.

Requests for GILs and PLRs should be sent to:

ILLINOIS DEPARTMENT OF REVENUE
OFFICE OF LEGAL SERVICES 5-500
101 W JEFFERSON ST
SPRINGFIELD IL 62702