ALJ Confirms Illinois Statute Of Limitations Period Is Three Years From Automatic Extension Of Time For Filing Return

An Illinois administrative law judge (ALJ) agreed with the Illinois Department of Revenue's interpretation of the Illinois statute of limitations, holding that the statute of limitations period includes any automatic extension for filing.1 Thus, because Illinois provides an automatic seven-month extension for corporations,2 the statute of limitations for the corporate taxpayer expired three years and seven months from the original (unextended) due date of the return.

Background

The taxpayer filed its corporate income tax return for the tax years ended December 31, 2006 and 2007 on March 13, 2007 and March 14, 2008, respectively. Upon audit, the Department issued Notices of Deficiency dated May 17, 2010 that assessed tax for each of the years at issue.

The taxpayer asserted that the Department's Notice of Deficiency for the 2006 tax year was time barred and not issued within the three-year statute of limitations prescribed by Illinois law.3 In addition, the taxpayer argued that the assessment for the 2007 tax year was barred by the statute of limitations, claiming that the assessment modified net income reported in 2004, a closed year under the same three-year statute of limitations.

Illinois Statute of Limitations

In order to resolve the issue of whether or not the statute of limitations had run, the ALJ had to determine the proper construction of the statute. The applicable section of the statute provides:

In general. Except as otherwise provided in this Act:

A notice of deficiency shall be issued no later than 3 years after the return was filed, and No deficiency shall be assessed or collected with respect to the year for which the return was filed unless such notice is issued within such period.4 Further, the statute provides:

Time return deemed filed. For purposes of this Section a tax return filed before the last day prescribed by law (including any extensions thereof) shall be deemed to have been filed on such last day.5

The Department has adopted a long-standing regulation that interprets the above statutory provisions. The regulation states in part:

In General. With respect to a taxable year for which a taxpayer filed a return, no deficiency shall be assessed or collected except as otherwise provided in this Act unless the Department issues a notice of deficiency not later than 3 years after the later of the last day prescribed for filing or the date the return was filed. See subsection (h) regarding when a return is deemed filed.6

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