Illinois Department of Revenue
Illinois Tax Attorney for Department of Revenue Audits, Collections and Appeals
The Illinois Department of Revenue has its own audit bureau, its own notices, its own 60-day protest clock and its own tribunal. None of it works like the IRS.
Firm particulars
- Attorney
- Hani H. Khatib, Attorney at Law · CPA · LL.M. (Taxation)
- Office
- 6600 W College Dr, Ste 207, Palos Heights, IL 60463
- Hours
- Monday to Friday, 9:00 a.m. to 5:00 p.m.
- Telephone
- (708) 722-2222
- info@khatiblaw.com
- Accreditation
- BBB Accredited since April 2022 · A+
Start here
Is this you?
An Illinois tax attorney spends a surprising amount of time explaining that the Illinois Department of Revenue is not the IRS. It audits differently, collects faster, gives you 60 days to protest rather than 90, and sends large disputes to a tribunal most taxpayers have never heard of. Khatib Law LLC represents individuals and businesses before the Department from its office in Palos Heights: audits, collections, payment plans, protests and petitions to the Illinois Independent Tax Tribunal.
The attorney on the file is Hani H. Khatib, Attorney at Law · CPA · LL.M. (Taxation). Illinois sales and withholding tax audits are accounting exercises with legal consequences, and both halves are handled in one office.
An auditor from the Department's Audit Bureau has asked for your sales records, exemption certificates or bank statements.
A Notice of Deficiency or Notice of Tax Liability arrived with a 60-day deadline and a figure you do not agree with.
The Department has levied your wages or frozen your business account.
Your business owes sales tax or withholding and the Department has threatened the certificate of registration.
The IRS changed your federal return and you have not yet reported the change to Illinois.
The Department administers Illinois income tax (4.95 percent for individuals, 7 percent for corporations plus the replacement tax), the retailers' occupation and use taxes most people call sales tax, withholding tax and a long list of excise taxes. It does not administer property tax. Cook County assessments are appealed to the Assessor and Board of Review, and the firm's sister company handles those; see the Cook County property tax appeal page.
The Department selects audits by random selection, referral, type of business, audit history and specific tax issues. Sales tax audits of retailers, restaurants, contractors and auto dealers are the most common for small businesses; income tax audits, which typically follow a federal adjustment or a residency question, run through the same steps. The timings below are typical; the auditor's workload sets most of them.
Notice and records request
At the start · by letter · a dated list of records
The auditor asks for the records behind each line of the returns under audit. Failure to produce requested records can bring a penalty of up to $3,000 per filing period.
Fieldwork
A day to several months · at the business, our office or the Virtual Audit Room
The firm handles the auditor's questions and the records under Form IL-2848, the Illinois power of attorney, so the owner is not interviewed alone.
Proposed result
At the end of fieldwork · in writing
You receive a Notice of Proposed Deficiency or Proposed Liability. Do not sign the auditor's report or pay the disputed amount; either one waives the next step.
Informal Conference Board
Within 60 days of the proposed notice · optional, before a formal notice issues
You may ask the Informal Conference Board, a panel inside the Department, to review the auditor's findings. Some audited businesses may instead use Fast Track Resolution mediation while the file is still in the Audit Bureau.
Formal notice and protest
60 days from the date on the notice · the deadline that matters
If the matter is not resolved, the Department issues a Notice of Deficiency (income tax) or Notice of Tax Liability (sales and other taxes). From that date the 60-day protest clock runs.
Background on the Department's statutory authority to examine returns, use federal data and issue assessments is in our article on the Illinois Department of Revenue's audit powers.
Route one: administrative hearing. For disputes of $15,000 or less in tax, or taxes outside the Tribunal's jurisdiction, file a written protest with the Department: Form EAR-14 for income tax, Form AH-4 for sales and most other taxes. A Department administrative law judge hears the case, and the Director's decision can be reviewed in circuit court.
Route two: the Illinois Independent Tax Tribunal. When the tax in dispute for a year or audit period exceeds $15,000, excluding interest and penalties, the protest is a petition to the Tribunal, filed within the statutory deadline with a $500 fee. The Tribunal is independent of the Department and its procedure resembles a court's, with pleadings, discovery and a hearing on the record. You do not have to pay the tax first.
Route three: pay under protest. A taxpayer may pay the disputed amount under protest (Form RR-374 or a compliant letter), then file a complaint in circuit court and obtain and serve a preliminary injunction within 30 days of the payment. This skips the Department but requires the cash up front and is not available for claim denials.
The right route depends on the amount, the issue and whether a court record matters later.
Once a liability is final, the Department's collection tools are broad and move more quickly than the IRS's.
| Action | What the Department publishes |
|---|---|
| Wage levy | employer deducts up to 15 percent of gross wages; at least ten days' notice before it starts |
| Bank levy | account frozen for 20 days, then funds sent to the Department; also reaches CDs, insurance dividends and rents |
| Tax lien | filed in the State Tax Lien Registry (searchable on MyTax Illinois); enforceable for 20 years (35 ILCS 750/1-25); filing and release fees added |
| Refund offset | state refunds and other state payments intercepted; the IRS asked to intercept federal refunds |
| License action | business certificates of registration, professional licenses, sales tax certificates and liquor licenses revoked or not renewed |
| Collection agencies | debt placed with one of the Department's contracted collection agencies, which add their fee to the balance |
| Attorney General | judgment entered against the taxpayer |
An installment payment plan requires that every return through the current date be filed. Apply on Form CPP-1 or through MyTax Illinois, where a pre-approved plan may be offered on the spot. Above $15,000 including penalty and interest, a financial statement on Form EG-13-I (individuals) or EG-13-B (businesses) is required. All outstanding liabilities go into one plan, ACH debit is encouraged, and penalties and interest keep running until the balance is paid.
The Board of Appeals is the Department's offer-in-compromise and penalty-abatement function, used once the liability is final. On Form BOA-1 a taxpayer may ask the Board to compromise a liability for financial hardship or to abate penalties and interest for reasonable cause. The petition attaches three years of federal and Illinois returns, six months of bank and brokerage statements and a current financial statement. The Board does not redetermine the tax.
For taxpayers who have never been contacted, the Voluntary Disclosure Program (Form BOA-2) limits the look-back to four years and eliminates penalties once tax and interest are paid within 60 days of billing; see unfiled tax returns.
Two Illinois rules catch business owners by surprise. First, the Department may, after notice and a hearing, revoke the certificate of registration of a retailer who violates the Retailers' Occupation Tax Act (35 ILCS 120/2b). It may also deny a new certificate to an applicant whose owner, partner, officer or LLC member held the same role at another retailer that is in default to the Department or has unfiled returns, and a certificate revoked in the prior five years counts against the applicant when the Department decides whether to require a bond (35 ILCS 120/2a). Without a certificate the business cannot lawfully sell at retail.
Second, a responsible officer or employee who willfully fails to file returns and pay a trust tax is personally liable for the entire unpaid tax, plus interest and penalties (Uniform Penalty and Interest Act, 35 ILCS 735/3-7). Trust taxes are the ones collected from someone else: sales tax collected from customers and income tax withheld from employees. The federal counterpart, the trust fund recovery penalty, is on the business tax attorney page.
When the IRS changes your federal return, Illinois must be notified within 120 days of the federal finalization (35 ILCS 5/506). If the change increases Illinois tax, file Form IL-1040-X and pay within the 120 days or a late-payment penalty applies; if it decreases Illinois tax, the refund claim must be filed within two years plus 120 days (35 ILCS 5/911). The Department receives federal return information under 26 U.S.C. 6103(d), so unreported adjustments are found. The federal side is on the IRS audit representation page.
The difference
Why an Illinois tax attorney who is also a CPA
Sales tax audits are rebutted from the books
The auditor's sample projection, the exemption-certificate shortfall and the bank-deposit analysis are accounting arguments, answered with the taxpayer's own records.
The Tribunal is a court in all but name
Pleadings, discovery and a hearing on the record are lawyer's work, and a petition drafted by someone who can also read the audit workpapers is stronger. The advice behind it is privileged as legal advice; the bookkeeping it rests on is not.
Illinois and federal liabilities are linked
A federal audit becomes an Illinois deficiency; one office tracks both. The tax debt relief page covers the IRS side, and the tax attorney and CPA page the rest of the firm's tax work.
Once you sign Form IL-2848, the firm takes over communication with the Department, and the protest, petition, payment plan or audit response is prepared with your review before filing. Illinois matters are taken from anywhere in the state.
Request a consultation
Talk it through with the attorney.
Tell us what you are facing in a sentence or two. We will tell you what the first meeting involves, and whether there is a charge for it, before you commit to anything.
Related
Related services
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An audit letter is a request for proof, with a deadline attached. How you answer it decides whether the audit ends in a no-change letter or a bill.
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What happens if my business falls behind on payroll taxes?
A business tax problem is rarely only the business's problem. Unpaid payroll taxes become personal liability, a sales tax audit threatens the certificate that lets you sell, and the entity choice you made years ago sets the bill every April.
Payroll, sales tax and the S election
Questions
Questions we are asked
What happens if I owe the Illinois Department of Revenue?
You receive a bill that itemizes tax, penalty and interest, with a statement of your rights. If it is not paid or disputed, the Department can levy up to 15 percent of your wages after ten days' notice, hold a bank account for 20 days and take the funds, and file a lien that is enforceable for 20 years. It can also intercept your state and federal refunds, refuse to renew business and professional licenses, send the debt to a private collection agency, and refer it to the Attorney General for judgment. Most of these can be headed off with a payment plan or a successful protest, though a lien may still be filed while a plan is in force.
How does an Illinois sales tax audit work?
The Audit Bureau notifies you, asks for the records behind each line of your ST-1 returns (sales journals, exemption certificates, purchase invoices, bank statements, point-of-sale data), and conducts the audit at your business or through its Virtual Audit Room. Audits run from a day to several months. Failing to produce requested records can cost up to $3,000 per filing period. At the end you receive a proposed liability; signing the auditor's report or paying the disputed amount waives your right to an Informal Conference Board review, so do neither until the report has been reviewed.
Can I set up an Illinois Department of Revenue payment plan?
Yes, if every return through the current date has been filed. You apply on Form CPP-1 or through MyTax Illinois, where a pre-approved plan may be offered immediately. If the balance including penalty and interest is over $15,000 you must also file a financial statement, Form EG-13-I for individuals or EG-13-B for businesses. The Department prefers ACH debit and puts all outstanding liabilities into one plan. Penalties and interest continue during the plan.
What is the Illinois Independent Tax Tribunal?
A tribunal separate from the Department of Revenue. It decides disputes over a Notice of Deficiency, Notice of Tax Liability, Notice of Claim Denial or Notice of Penalty Liability when the tax in dispute for a year or audit period exceeds $15,000, excluding interest and penalties. The petition fee is $500 and the petition must be filed within the deadline on the notice, which for most taxes is 60 days. Its decisions can be reviewed by the Illinois courts. Smaller disputes go to the Department's own administrative hearings instead.
How do I protest an Illinois notice of deficiency, and what is the deadline?
Within 60 days of the date on the notice (30 days for IFTA). For income tax, file Form EAR-14, Format for Filing a Protest for Income Tax; for sales and other taxes, Form AH-4. If the disputed tax exceeds $15,000, file a petition with the Independent Tax Tribunal instead. A third route is to pay the amount under protest and sue in circuit court, which requires filing the complaint and obtaining a preliminary injunction within 30 days of the protest payment. Missing the 60 days makes the deficiency final, and only a Board of Appeals petition remains.
Does Illinois have an offer in compromise?
Through the Board of Appeals. A taxpayer whose liability is final can petition on Form BOA-1 for a compromise based on financial hardship, or for abatement of penalties and interest based on reasonable cause. The petition must attach the last three years of federal and Illinois returns, six months of bank and brokerage statements and a current financial statement. The Board cannot change the amount of tax that was assessed; it can only compromise what is collected or remove penalties and interest.
Can the Department revoke my business certificate?
Yes. Under the Retailers' Occupation Tax Act (35 ILCS 120/2b) the Department may, after notice and a hearing, revoke the certificate of a retailer who violates the Act, which makes it unlawful to keep selling at retail. It may also deny a new certificate to an applicant whose owner, partner, officer or LLC member held the same role at another retailer that is in default or has unfiled returns; a certificate revoked in the previous five years counts against the applicant when the Department weighs a bond (35 ILCS 120/2a). Officers and employees responsible for filing and paying trust taxes such as sales tax and withholding can be held personally liable for the full unpaid amount (35 ILCS 735/3-7).
How long can Illinois collect back taxes?
The Department states that the period for enforcement action varies from two years to twenty years or longer depending on what has happened. A filed tax lien is enforceable for 20 years, a judgment obtained by the Attorney General has its own life, and other actions extend the period further. On the assessment side, the Department generally must issue a notice of deficiency within three years after the return was filed, or six years if more than 25 percent of base income was omitted (35 ILCS 5/905).
Your attorney
Hani H. Khatib
Attorney at Law · CPA · LL.M. (Taxation)
Founder and managing attorney of Khatib Law LLC, established in Palos Heights in 2017. An attorney licensed in Illinois and a Certified Public Accountant, he concentrates his practice in estate planning, real estate, tax controversy and small-business matters. About Hani Khatib
Request a consultation
Tell us what you are facing.
A sentence or two is enough to start. We will tell you what the first meeting involves, and whether there is a charge for it, before you commit to anything.
(708) 722-2222
Monday to Friday, 9:00 a.m. to 5:00 p.m. · 6600 W College Dr, Ste 207, Palos Heights
What happens next
Your message goes to the firm’s office, not a call centre.
If you mention a deadline, it is read first.
We run a conflicts check and, if we can help, call or email you to set a time.
We confirm the kind of matter and what the first meeting involves, including whether there is a charge for it.
If we go forward, you receive a written engagement letter.
Scope and fee basis in writing before any work begins. Please do not email documents until we have confirmed an engagement in writing.
What to bring to the first meeting
- The Department's notice, every page, with its date: a Notice of Deficiency, Notice of Tax Liability, Notice of Claim Denial or a bill.
- If an audit is under way, the auditor's records request and any proposed liability or report you have been asked to sign.
- The returns for the periods involved: ST-1 sales tax, IL-941 withholding or IL-1040 and IL-1120 income tax.
- For a sales tax audit, the sales journals, exemption certificates and point-of-sale reports behind the returns.
- Any IRS audit report or federal adjustment, because Illinois must be told about it.