The Illinois Court of Appeals held that a taxpayer that did not participate in an amnesty program because it was under federal and state audits, and did not know its ultimate tax liability, was not liable for the special amnesty penalty. Met. Life Ins. Co. v. Illinois Dep’t of Revenue, 2012 IL App (1st) 110400, at *1 (Ill. App. Ct. Mar. 5, 2012).
A 2003 Illinois amnesty program provided amnesty to taxpayers who paid “all taxes due” for eligible tax years by November 2003. A double interest penalty applied for those taxpayers that had a tax liability eligible for amnesty but failed to pay it. In 2000, the Internal Revenue Service began an audit of MetLife for prior tax years and concluded in 2004 that MetLife owed additional federal tax. Additionally, in 2002, the Illinois Department of Revenue (Department) commenced an audit and, after 2004, concluded that MetLife owed additional state income tax for amnesty eligible tax years. Although MetLife had paid the additional tax, the Department notified MetLife in 2008 that the Department was assessing the amnesty double interest penalty.
In finding that the taxpayer did not owe the penalty, the Court of Appeals reasoned that “all taxes due” meant those taxes that a taxpayer knew were due and owed during the amnesty period. The court held that MetLife could not have participated in the protections afforded by the amnesty program to avoid the double interest penalty because MetLife did not know it owed additional taxes during the amnesty period, and the federal and state assessments were not made until after the end of such period. The court also found that the Department’s rules stating that a taxpayer under audit during the amnesty period must make a “good faith estimate” of its tax liability and pay it “irrespective of whether that liability is known to the Department or the taxpayer” exceeded the authority that the legislature conferred to the Department.