Hollinger Intern., Inc. v. Bower

• Citation: 841 N.E.2d 447
• Decision Date: 12 December 2005
• Docket Number: No. 1-04-0392.,1-04-0392.
• Parties: HOLLINGER INTERNATIONAL, INC., Plaintiff-Appellee, v. Glen L. BOWER, Director of The Illinois Department of Revenue, Defendant-Appellant.
• Court: Supreme Court of Illinois

841 N.E.2d 447

HOLLINGER INTERNATIONAL, INC., Plaintiff-Appellee, v. Glen L. BOWER, Director of The Illinois Department of Revenue, Defendant-Appellant.

No. 1-04-0392.

Appellate Court of Illinois, First District, First Division.

December 12, 2005.

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Fred O. Marcus and Brian L. Browdy of Horwood, Marcus & Berk Chtd., Chicago, for Plaintiff-Appellee.

Lisa Madigan, Attorney General, Gary Feinerman, Solicitor General, and Mary Patricia Kerns, Assistant Attorney General, for Defendant-Appellant.

Justice McBRIDE delivered the opinion of the court:

This appeal arises from an administrative review action filed by plaintiff-appellee, Hollinger International, Inc. (Hollinger), against the defendant-appellant, the Illinois Department of Revenue (Department). The Department assessed certain penalties against Hollinger under section 1005(a) of the Illinois Income Tax Act (35 ILCS 5/1005(a)(West 2000))(Income Tax Act) due to Hollinger's underpayment of estimated income tax for the first and second quarters of 1998. Hollinger paid the penalties assessed but sought a refund on the ground that its reliance upon the advice of its accountant constituted reasonable cause for abatement of the penalties. The Department finalized the prior assessment of penalties and Hollinger sought review in the trial court. On review, the trial court reversed the final administrative decision assessing the penalties and the Department has appealed.

On appeal we determine whether the Department's determination that penalties should be imposed upon Hollinger based on its underpayment of estimated tax installments for the first and second quarters of 1998 was against the manifest weight of the evidence. Although the trial court also reversed a penalty against Hollinger for failing to timely file its third quarter estimated taxes for 1998, the Department only appeals the trial court's reversal of the penalties imposed for the underpayment of estimated tax installments for the first and second quarters of 1998. Therefore, our review is limited to these penalties only. Before we analyze the question on appeal, we set forth our standard of review and the relevant tax law.

In an administrative review action, the appellate court reviews the agency's decision and not the determination of the trial court. Metropolitan Water Reclamation District of Greater Chicago v. Department of Revenue, 313 Ill.App.3d 469, 474, 246 Ill.Dec. 273, 729 N.E.2d 924 (2000). We note that "the findings and conclusions of an administrative agency are prima facie correct and will not be disturbed unless they are against the manifest weight of the evidence. [Citation.]" Soho Club, Inc. v. Department of Revenue, 269 Ill.App.3d 220, 228, 206 Ill.Dec. 808, 645 N.E.2d 1060 (1995). The reviewing court's function is not to "reweigh the evidence or make an independent determination of the facts." Abrahamson v. Illinois Department of Professional Regulation, 153 Ill.2d 76, 88, 180 Ill.Dec. 34, 606 N.E.2d 1111 (1992). The decision of an administrative agency is against the manifest weight of the evidence only if the opposite conclusion is clearly evident. Abrahamson, 153 Ill.2d at 88, 180 Ill.Dec. 34, 606 N.E.2d 1111.

Specifically, an agency's determination as to whether reasonable cause existed in justifying the abatement of a tax penalty will be reversed only if the agency's decision was against the manifest weight of the evidence and only if the opposite conclusion was clearly evident. PPG Industries, Inc. v. Department of Revenue, 328 Ill.App.3d 16, 21, 262 Ill.Dec. 208, 765 N.E.2d 34 (2002). The existence of reasonable cause justifying abatement of a tax penalty is a factual determination that is to be decided only on a case-by-case basis. PPG Industries, Inc., 328 Ill.App.3d at 21, 262 Ill.Dec. 208, 765 N.E.2d 34. The taxpayer has the burden of proving by competent evidence that the proposed assessment is not correct. Fillichio v. Department of Revenue, 15 Ill.2d 327, 333, 155 N.E.2d 3 (1958). With regard to questions relating to "a statute that an agency is charged with enforcing, the agency's interpretation is entitled to substantial weight and deference, but it does not bind the court and will be rejected when erroneous." Peoria & Pekin Union R.Co. v. Department of Revenue, 301 Ill.App.3d 736, 740, 235 Ill.Dec. 311, 704 N.E.2d 884 (1998).

The "starting point" for taxation of a corporation in Illinois is set forth in section 201(a) of the Income Tax Act, which states, "[a] tax measured by net income is hereby imposed on every * * * corporation * * * [for] the privilege of earning or receiving income in or as a resident of this State." 35 ILCS 5/201(a) (West 2000); Rockwood Holding Co. v. Department of Revenue, 312 Ill.App.3d 1120, 1123-24, 245 Ill.Dec. 437, 728 N.E.2d 519 (2000). The Income Tax Act defines "net income" in section 202 as "that portion of [the taxpayer's] base income * * * which is allocable to this State * * * less the standard exemption allowed by Section 204 and the deduction allowed by Section 207." 35 ILCS 5/202 (West 2000); Rockwood Holding Co., 312 Ill.App.3d at 1124, 245 Ill.Dec. 437, 728 N.E.2d 519. In general, the "base income" for a corporation means "an amount equal to the taxpayer's taxable income for the taxable year." 35 ILCS 5/203(b)(1) (West 2000); Rockwood Holding Co., 312 Ill.App.3d at 1124, 245 Ill.Dec. 437, 728 N.E.2d 519. "Taxable income" generally means "the amount of * * * taxable income properly reportable for federal income tax purposes for the taxable year under the provisions of the Internal Revenue Code." 35 ILCS 5/203(e)(1) (West 2000); Rockwood Holding Co., 312 Ill.App.3d at 1124, 245 Ill.Dec. 437, 728 N.E.2d 519. Thus, the Income Tax Act "`piggy-backs' onto the federal calculation of income and uses federal taxable income as the premise for tax liability. [Citations.]" Rockwood Holding Co., 312 Ill.App.3d at 1124, 245 Ill.Dec. 437, 728 N.E.2d 519. "[F]ederal taxable income is the starting point when determining a corporation's state income tax liability." Peoria & Pekin Union R. Co., 301 Ill.App.3d at 740, 235 Ill.Dec. 311, 704 N.E.2d 884.

Section 803 of the Income Tax Act provides, in relevant part:

"Payment of Estimated Tax.

(a) Every taxpayer other than an estate, trust, partnership, Subchapter S corporation or farmer is required to pay estimated tax for the taxable year, in such amount and with such forms as the Department shall prescribe, if the amount payable as estimated tax can reasonably be expected to be more than (i) $250 for taxable years ending before December 31, 2001 and $500 for taxable years ending on or after December 31, 2001 or (ii) $400 for corporations.

(b) Estimated tax defined. The term `estimated tax' means the excess of:

(1) The amount which the taxpayer estimates to be his tax under this Act for the taxable year, over

(2) The amount which he estimates to be the sum of any amounts to be withheld on account of or credited against such tax.

* * *

(d) There shall be paid 4 equal installments of estimated tax for each taxable year, payable as follows:

                         Required Installment:          Due Date
                               1st                      April 15
                               2nd                      June 15
                               3rd                      September 15
                               4th                      *** Corporations
                                                        December 15."
                

35 ILCS 5/803(a), (b),(d) (West 2000).

Section 804 of the Income Tax Act provides, in relevant part:

"Failure to Pay Estimated Tax.

(a) In general. In case of any underpayment of estimated tax by a taxpayer, except as provided in subsection (d) or (e), the taxpayer shall be liable to a penalty in an amount determined at the rate prescribed by Section 3-3 of the Uniform Penalty and Interest Act upon the amount of the underpayment (determined under subsection (b)) for each required installment.

(b) Amount of underpayment. For purposes of subsection (a) the amount of the underpayment shall be the excess of:

(1) the amount of the installment which would be required to be paid under subsection (c), over

(2) the amount, if any, of the installment paid on or before the last date prescribed for payment.

(c) Amount of Required Installments.

(1) Amount.

(A) In General. Except as provided in paragraph (2), the amount of any required installment shall be 25% of the required annual payment.

(B) Required Annual Payment. For purposes of subparagraph (A), the term `required annual payment' means the lesser of

(i) 90% of the tax shown on the return for the taxable year, or if no return is filed, 90% of the tax for such year, or

(ii) 100% of the tax shown on the return of the taxpayer for the preceding taxable year if a return showing a liability for tax was filed by the taxpayer for the preceding taxable year and such preceding year was a taxable year of 12 months.

* * *

(e) The penalty imposed for underpayment of estimated tax by subsection (a) of this Section shall not be imposed to the extent that the Department or his designate determines, pursuant to Section 3-8 of the Uniform and Penalty and Interest Act that the penalty should not be imposed." (Emphasis added.) 35 ILCS 5/804(a),(b),(c),(e) (West 2000).

Section 904(a) of the Income Tax Act provides that if the Department finds that the amount of tax shown on the return is less than the correct amount, it shall issue a notice of deficiency to the taxpayer which shall set forth the amount of tax and penalties proposed to be assessed. 35 ILCS 5/904(a)(West 2000).

Section 1005(a) of the Income Tax Act requires that if any amount of tax to be shown on a return is not paid on or before the date required for filing such return, a penalty shall be imposed in the manner and rate prescribed by the Uniform Penalty and Interest Act. 35 ILCS 5/1005(a)(West 2000).

Section 3-3(b-5)(1) of the Uniform Penalty and Interest Act states:

"This subsection is applicable to...