Appeal from the Circuit Court of Cook County. Honorable ALEXANDER F. WHITE, Judge Presiding.
The Honorable Justice Buckley delivered the opinion of the court: O'connor, Jr. and Braden, JJ., concur.*
The opinion of the court was delivered by: Buckley
The Honorable Justice BUCKLEY delivered the opinion of the court:
Plaintiff, Musa Sweis, filed a complaint for a temporary restraining order, preliminary injunction, and permanent injunction against defendants, Roger Sweet, the Director of the Illinois Department of Revenue (Director), and the Illinois Department of Revenue (Department), to prevent the Department from collecting a tax penalty it alleged plaintiff owed. The trial court granted the Department's section 2-619 motion to dismiss (Ill. Rev. Stat. 1989, ch. 110, par. 2-619 (now 735 ILCS 5/2-619 (West 1992))). On appeal, plaintiff asserts: (1) that he should be excused from failing to exhaust his administrative remedies because the Department violated the mandatory requirements of section 12 of the Retailers' Occupation Tax Act (ROTA) (Ill. Rev. Stat. 1979, ch. 120, par. 451 (now 35 ILCS 120/12 (West 1992))) by sending the notice of penalty liability (NPL) to plaintiff instead of his attorney; (2) that the settlement in the criminal action against plaintiff and his corporation was in "full restitution" for all tax liability; (3) that the unamended version of section 13 1/2 (Ill. Rev. Stat. 1979, ch. 120, par. 452 1/2) applies and the Department must first attempt to collect any unpaid taxes from the corporation before pursuing plaintiff; (4) that the record fails to show that the Department has satisfied the necessary requirements for imposing a penalty against him under either the amended or unamended version of section 13 1/2; (5) that the Department cannot collect taxes from plaintiff because a corporate officer's penalty liability under amended section 13 1/2 is derivative from the corporate tax liability; and (6) that the three-year limitations period in section 13 1/2 precludes the issuance of any further penalty notices.
Plaintiff was the president of 55th Street Food and Liquors, Inc. (the corporate taxpayer) which operated a grocery store from March 1980 through April 1981, when it ceased doing business. During 1981, special agent John Novak and auditor Michael Jurisek of the Department conducted an investigation of the corporate taxpayer and, on December 30, 1981, the Department filed a criminal complaint against plaintiff and the corporate taxpayer alleging that the corporate taxpayer had failed to pay taxes owed under the ROTA and that plaintiff and the corporate taxpayer had filed fraudulent ROTA returns. On or about April 25, 1983, the Department issued a notice of tax liability (NTL) in the amount of $180,644.91 which was apparently sent to both plaintiff and the corporate taxpayer.
On November 5, 1987, in the trial judge's presence, the parties discussed both the civil and criminal liability of plaintiff and the corporate taxpayer. Both Novak and Jurisek from the Department were present. It was agreed that the civil liability of the corporate taxpayer was $22,133.77. Plaintiff then tendered this amount to the Department and the court entered an order on November 5, 1987, which stated: "It is ordered that the $22,133.77 tendered in open Court this date as full restitution stand as good and sufficient good faith deposit for any rehearing requested by the taxpayer before the Illinois Department of Revenue on the civil liability, if any, of the taxpayer."
On September 9, 1988, the Department determined that, under section 13 1/2 of the ROTA, plaintiff was personally liable for the deficient taxes of the corporate taxpayer plus penalties and interest in the amount of $336,428.10 and a NPL was served on plaintiff and also sent to the corporate taxpayer's last known address. That NPL was not sent to plaintiff's attorney even though counsel had filed a power of attorney with the Department on behalf of plaintiff and the corporate taxpayer for any civil or criminal liability for ROTA taxes for 1976-1981.
Under section 5 of ROTA (Ill. Rev. Stat. 1979, ch. 120, par. 444 (now 35 ILCS 120/5 (West 1992))), plaintiff had 20 days in which to protest the NPL and request a hearing. If plaintiff failed to protest within the limitations period, the NPL became a final assessment without further notice. The NPL informed plaintiff of the 20-day protest period and stated that failure to protest within this period "constitutes a waiver of your right to such hearing." Plaintiff took no action. On August 7, 1989, 11 months after sending out the NPL, the Department initiated collection proceedings against plaintiff. On August 31, 1989, plaintiff filed his complaint seeking to enjoin the Department from making any efforts to collect any penalty from him. Plaintiff subsequently filed an amended complaint, and the Department moved to dismiss the complaint pursuant to section 2-619 of the Code of Civil Procedure of 1963. (Ill. Rev. Stat. 1989, ch. 110, par. 2-619 (now 735 ILCS 5/2-619 (West 1992)).) On December 3, 1990, the trial court granted the Department's motion to dismiss.
Plaintiff filed a motion to reconsider and, on July 3, 1991, the trial judge issued a memorandum decision and judgment on reconsideration which reaffirmed his earlier order granting the Department's motion to dismiss. The trial judge held: (1) that even though plaintiff's attorney had filed a power of attorney with the Department, the service on plaintiff of the NPL was proper "as this was the initial contact with Plaintiff, by the [Department], in respect to the NPL"; (2) that amended section 13 1/2 which was in effect at the time the Department issued the NPL applied and not unamended section 13 1/2 which was in effect at the time of the tax liability; (3) that the amount paid on November 5, 1987, was in full restitution for the amounts due in the criminal proceedings and did not preclude the Department from initiating civil proceedings against plaintiff; (4) that the Department's ability to compel payment of taxes owed by a corporate taxpayer "must necessarily extend to a corporate officer who is deemed liable for the obligation of the taxpayer"; and (5) that plaintiff waived any argument that the Department is barred from pursuing him for the alleged liability because he did not protest the notice.
Plaintiff filed a timely appeal and the circuit court ordered the Department's collection proceedings stayed pending this appeal.
The first issue on appeal is whether the Department violated section 12 of ROTA by mailing the NPL to plaintiff and not his counsel. If the answer is in the affirmative, then the NPL did not become final and plaintiff has not waived his right to contest it. If the answer is in the negative, plaintiff has waived all rights to contest the NPL.
Plaintiff argues that the Department was required to mail the NPL to his attorney because this notice was not the Department's initial contact with him. He asserts that the initial contact occurred in 1981 when the Department instituted criminal proceedings against him and the corporate taxpayer at which time he was represented by counsel. He maintains that he had been continuously represented by counsel up to the time the NPL was issued and the Department knew this.
The Department, on the other hand, argues that the mailing of the NPL was the initial contact with plaintiff with regard to this civil proceeding which is separate from the criminal action because plaintiff's rights and liabilities are different. In addition, the Department contends that it could not rely on the fact that although plaintiff was previously represented by counsel, he would still be represented by counsel at the time it sent the NPL.
The trial court, after detailing the arguments of both parties, concluded as follows:
"The Court disagrees with Plaintiff. Service of the NPL on Plaintiff, the person concerned, was proper, as this was the initial contact with Plaintiff, by the DOR, in respect to the NPL."
NPLs are issued pursuant to section 13 1/2, which incorporates section 12. Section 13 1/2 ...