CHICAGO - The State of Illinois collected $135 million from close to 700 taxpayers and businesses who participated in the Voluntary Compliance Program (VCP) initiated by Gov. Rod Blagojevich in last year’s legislative session. The Voluntary Compliance Program allowed taxpayers who underreported their taxable income because they were using tax shelters to come forward and pay the associated Illinois Income Tax liability without incurring any new penalties. The Illinois Department of Revenue anticipated a $100 million return on the program at its inception in October 2004. One hundred million dollars goes to the state and the remaining thirty-five million will be distributed among local municipalities.
“This program not only helped the state get money it was owed but sends a clear signal to tax payers that we take evasion seriously,” said the Governor. “We are not going to raise income taxes and we are not going to balance the budget on the backs of working families. But we’re also not going to sit back and let businesses and individuals use unfair accounting techniques to avoid paying their share for education, health care, public safety and other important services.”
Those who did not participate in the VCP will face a 30 percent penalty for failing to disclose, a new 30 percent penalty on deficiencies and a 100 percent interest penalty. The amnesty program lasted from October 15, 2004 through January 31, 2005. An abusive tax shelter is any plan or arrangement devised for the sole purpose of avoiding federal income tax.
“The Illinois Department of Revenue has created an aggressive tax shelter unit within the Audit Bureau that will focus solely on abusive tax shelters, identifying participants and working with field auditors to make certain this money is paid,” noted Revenue Director Brian Hamer.
“We are cooperating with the IRS and 46 other states in a concerted effort to track these errant taxpayers and force them to pay what they owe to all of us,” added Hamer.
The Illinois Department of Revenue recognized the emerging problem of abusive tax shelters and decided to attack it aggressively. It is initiating audits of those who did not come forward with payment before January 31. The department has a list of over 1,300 participants with Illinois addresses submitted by the marketers of these transactions, as required by the VCP statute. More names are being identified through the multi-state database. Finally, the department will review whether taxpayers have participated in abusive tax shelters as part of all ongoing and future income tax audits. New revenue will result from this cooperative effort and future tax compliance will improve as people realize tax cheating is expensive.
The IRS website at www.irs.gov has a complete listing of abusive tax shelters, which generate tax savings through numerous entities such as partnerships, limited liability companies, S corporations and regular corporations and trusts.