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Metropolitan Life Insurance Co. v. Hamer

Supreme Court of Illinois

June 20, 2013

METROPOLITAN LIFE INSURANCE COMPANY et al., Appellees,
v.
BRIAN HAMER, Director of the Illinois Department of Revenue, et al., Appellants.

JUSTICE GARMAN delivered the judgment of the court, with opinion. Justices Freeman, Thomas, and Theis concurred in the judgment and opinion.

OPINION

GARMAN JUSTICE

¶ 1 In 2003, the Illinois General Assembly enacted the Tax Delinquency Amnesty Act (2003 Amnesty Act) (35 ILCS 745/10 (West 2004)), which established an amnesty program for all taxpayers owing any tax imposed by Illinois law. It further provided that, upon payment by a taxpayer of "all taxes due" for any taxable period between June 30, 1983, and July 1, 2002, the Department of Revenue (Department) would abate and not seek to collect any interest or penalties and would not seek civil or criminal prosecution of that taxpayer. The amnesty period extended from October 1, 2003, through November 17, 2003. Those taxpayers who failed to pay their unpaid tax liabilities within that period would be charged 200% interest. The Department promulgated regulations implementing an amnesty program, providing that a taxpayer participating in the amnesty program must pay its entire tax liability regardless of whether the liability was known to the Department or to the taxpayer. The regulations further provided that taxpayers who were unsure of their tax liability were to make a good-faith estimate of the liability and pay it during the amnesty period.

¶ 2 The Internal Revenue Service (IRS) audited the 1997, 1998, and 1999 federal income tax returns of plaintiffs, Metropolitan Life Insurance Company and Unitary Subsidiaries (collectively, MetLife). Following completion of the audit, MetLife filed its amended Illinois tax returns showing additional tax due. Because MetLife paid the additional taxes after the amnesty period expired, the Department assessed 200% interest. MetLife paid the taxes due under protest and filed an action disputing that it owed more than 100% interest and seeking an injunction to order defendant State Treasurer to refund the double interest charged. The circuit court of Cook County granted MetLife's motion for summary judgment. The appellate court affirmed, with one justice dissenting. 2012 IL App (1st) 110400. This court granted defendants' petition for leave to appeal. Ill. S.Ct. R. 315 (eff. Feb. 26, 2010).

¶ 3 BACKGROUND

¶ 4 MetLife timely filed its Illinois corporate income tax returns for the years 1998 and 1999 and paid the tax liability stated therein. On December 12, 2000, the IRS began a routine audit of MetLife's federal income tax returns. The audit was completed in July 2004, eight months after the expiration of the amnesty period. In May 2002, the Department commenced an audit of MetLife's 1998 and 1999 Illinois income tax returns. MetLife provided the auditor with the changes to its federal returns as a result of the federal audit (referred to as the federal change tax liability). Based upon MetLife's submissions, the Department determined that MetLife owed additional Illinois income tax. On May 8, 2008, the Department assessed a 200% interest penalty against MetLife with respect to the additional tax determined to be due. MetLife paid the penalty under protest.

¶ 5 In July 2008, MetLife filed its complaint for an injunction and for declaratory judgment under the State Officers and Employees Money Disposition Act (30 ILCS 230/1 et seq. (West 2010)). It sought a declaration that the Department was not entitled to assess double interest. MetLife conceded that it owed a 100% interest penalty. It sought a finding that application of the double interest penalty to its federal change tax liability violated its due process rights under the United States and Illinois constitutions. It further sought a preliminary injunction to prohibit the Department from transferring the double interest assessment money from the protest fund to the general revenue fund until the court entered a final judgment. The trial court granted the injunction. The Department filed a motion to dismiss the action and to dissolve the preliminary injunction. The trial court denied the motion.

¶ 6 MetLife filed a motion for summary judgment. The motion contained stipulated facts as follows. MetLife timely filed its Illinois corporate income tax returns for the tax years 1998 and 1999, and paid the tax liabilities reported in the returns. In December 2000, the IRS commenced an audit of MetLife's 1997, 1998, and 1999 federal income tax returns, which took more than 3½ years to complete. In May 2002, the Department began an audit of MetLife's 1998 and 1999 Illinois corporate income tax returns. On June 20, 2003, the Illinois legislature enacted the 2003 Amnesty Act. The amnesty period began October 1, 2003, and concluded on November 17, 2003. Under the 2003 Amnesty Act, a taxpayer who did not satisfy a tax liability that was eligible for amnesty by the conclusion of the amnesty period was subject to double interest on that unpaid tax liability. The federal audit of MetLife's returns was completed in July 2004. In or after August 2004, MetLife provided the final adjustments of the IRS to the Department's auditor in lieu of filing amended Illinois returns for the years in question. In December 2004, the auditor determined that MetLife owed additional Illinois income taxes for 1998 and 1999 as a result of the changes to its federal returns. MetLife paid the federal change tax liability during the course of the Department's audit. MetLife made its final payment in May 2007 at the conclusion of the audit. The Department's auditor informed MetLife that it would receive a separate bill for double interest on the back taxes pursuant to the provisions of the 2003 Amnesty Act. In July 2008, MetLife paid the double interest under protest and commenced this action.

¶ 7 In its motion for summary judgment, MetLife argued that its federal change tax liability was not eligible for amnesty because the 2003 Amnesty Act did not require a taxpayer to pay an unassessed, unagreed-upon tax liability subject to an ongoing federal audit. MetLife noted that the 2003 Amnesty Act applied to "all taxes due" from a taxpayer and it argued that phrase should refer to taxes assessed and due at the time of the amnesty application.

¶ 8 The circuit court granted MetLife's motion for summary judgment. The court concluded that the phrase "all taxes due" in the 2003 Amnesty Act referred to known tax liabilities. The 2003 Amnesty Act was intended by the legislature to provide a "carrot and stick" to encourage taxpayers to voluntarily pay their known tax liability. The court relied on dictionary definitions of "tax" and "due" in finding that "all taxes due" referred to a present obligation or a yet to be determined obligation. The court concluded that MetLife's obligation for taxes due for past years was not determined until August 2004, which was beyond the amnesty period.

¶ 9 The appellate court affirmed, with one justice dissenting. 2012 IL App (1st) 110400. The majority agreed with the circuit court that "all taxes due" meant those taxes that a taxpayer knew were due and owing during the amnesty period. Thus, because MetLife did not know it owed additional taxes until after the amnesty period had ended, it could not have participated in the amnesty program. Id. ¶ 16. The majority rejected the Department's reliance on section 601(a) of the Illinois Income Tax Act (Income Tax Act) (35 ILCS 5/601(a) (West 2010)), which provides that taxes for a taxable year become due when the tax return for that year is required to be filed. According to the majority, when MetLife filed its 1998 and 1999 income tax returns and paid the amount of the tax shown due on the returns, it paid the amount that was due. MetLife became liable for the additional taxes only after the expiration of the amnesty period. 2012 IL App (1st) 110400, ¶ 17. The majority similarly rejected the Department's reliance on its regulations promulgated in connection with the 2003 Amnesty Act, finding that it was illogical to require a taxpayer to pay a tax liability of which neither the taxpayer nor the Department was aware. The majority also found that the requirement in the regulations that taxpayers in MetLife's position make a good-faith estimate of their additional tax liability exceeded the legislative intent behind the 2003 Amnesty Act. Id. ¶¶ 23, 24.

¶ 10 Justice Hoffman dissented, concluding that the phrase "all taxes due" in the 2003 Amnesty Act means all taxes due on the date fixed for filing the taxpayer's return, without assessment, notice, or demand, and without regard to any extension of time for filing the return. Justice Hoffman found the statutory language to be clear and unambiguous and that a plain reading of section 601(a) of the Income Tax Act established that because MetLife did not pay all the taxes that were properly due when it filed its returns and it did not pay the additional amounts during the amnesty period, it was liable for double interest. Id. ¶ 37.

¶ 11 ANALYSIS

¶ 12 The 2003 Amnesty Act directed the Department to establish an amnesty program for all taxpayers owing any tax imposed by the laws of Illinois. The amnesty period ran from October 1, 2003, through November 17, 2003. The 2003 Amnesty Act provided:

"The amnesty program shall provide that, upon payment by a taxpayer of all taxes due from that taxpayer to the State of Illinois for any taxable period ending after June 30, 1983 and prior to July 1, 2002, the Department shall abate and not seek to collect any interest or penalties that may be applicable and the Department shall not seek civil or criminal prosecution for any taxpayer for the period of time for which amnesty has been granted to the taxpayer. Failure to pay all taxes due to the State for a taxable period shall invalidate any amnesty granted under this Act. Amnesty shall be granted only if all amnesty conditions are satisfied by the taxpayer." 35 ILCS 745/10 (West 2004).

¶ 13 Pursuant to the legislature's directive, the Department promulgated regulations (27 Ill. Reg. 15161 (emergency rule eff. Sept. 11, 2003)) establishing an amnesty program. It provided that to participate in the amnesty program, a taxpayer must pay the entire tax liability irrespective of whether that liability was known to the Department or to the taxpayer. 27 Ill. Reg. 15161, 15168. Taxpayers, including taxpayers under audit during the amnesty period, who were unsure of the exact amount of their tax liability were to make a good-faith estimate of the amount of the liability. 27 Ill. Reg. 15161, 15168-69.

¶ 14 In connection with enactment of the 2003 Amnesty Act, the legislature amended section 3-2 of the Uniform Penalty and Interest Act to provide that if a taxpayer had a tax liability that was eligible for amnesty under the 2003 Amnesty Act and failed to satisfy the tax liability during the amnesty period, the interest charged to the taxpayer would be imposed at a rate that was 200% of the rate that would otherwise be imposed. 35 ILCS 735/3-2(f) (West 2004).

ΒΆ 15 The Income Tax Act provides that a taxpayer who is subject to a change in its tax liability due to a change in its federal tax return must notify the Department of the change in the form of an amended return not later than 120 days after the federal change has become final. 35 ILCS 5/506(b) (West 2010). Section 903 of that Act provides that the amount of tax shown to be due on a tax return shall be deemed assessed on the date of the filing of the return, including any amended return showing an increase in the tax owed. Where an amended return is filed with the Department due to a change in a taxpayer's federal tax ...


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