Rogers v. Illinois Department of Revenue
75 N.E.3d 374
| Ill. App. Ct. | 2017Background
- John and Frances Rogers reported a $495,000 loss on their 2002 federal and Illinois returns that flowed from Wacker-Madison, LLC through Abingdon Trading, LLC (Abingdon), an LLC taxed as a partnership, of which John held an indirect interest.
- The IRS audited Wacker-Madison and concluded the loss was overstated; John signed IRS Form 870-LT on June 17, 2008, a settlement agreement executed on Abingdon’s behalf that adjusted partnership items for 2002.
- The IRS thereafter assessed and sought collection; John received collection notices and sought a CDP hearing. Petitioners also filed in Tax Court; the Tax Court later dismissed for lack of jurisdiction (but recognized that John was bound by the Form 870-LT).
- The Illinois Department of Revenue issued a state notice of deficiency for tax year 2002, asserting petitioners failed to file an amended Illinois return within 120 days after the federal change was "agreed to or finally determined" under 35 ILCS 5/506(b).
- Petitioners argued before the Illinois Independent Tax Tribunal (Tribunal) that (1) John’s signing did not constitute agreement to the change because he was only an indirect/remote partner and did not receive cash distributions, and (2) the IRS adjustments were not final while CDP/Tax Court processes were pending.
- The Tribunal granted summary judgment for the Department, finding John’s Form 870-LT bound him as an indirect partner and constituted agreement/finality; the appellate court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioners "agreed to" federal change under 35 ILCS 5/506(b) when John signed Form 870-LT on behalf of Abingdon | Rogers: John’s signature on Abingdon’s Form 870-LT did not bind petitioners because he was a remote indirect partner and received no cash distributions | Department: Form 870-LT expressly agrees to partnership item determinations; under I.R.C. §6224(c) a pass-thru partner’s agreement binds indirect partners | Held: John’s execution of Form 870-LT on behalf of pass-thru partner Abingdon constituted agreement to the adjustment; petitioners were bound as indirect partners |
| Whether the settlement was "finally determined" for purposes of §506(b) while CDP/Tax Court matters pending | Rogers: The adjustment was not final because collection due process and Tax Court review were ongoing | Department: The settlement and subsequent assessment produced finality; existence of CDP proceedings indicates an assessment of a final liability | Held: Court did not need to decide finality after finding agreement; Tribunal’s alternative finding of finality was not required to be reached but was supported by record |
| Whether factual disputes (Abingdon’s partnership status / John’s partner status / distributions) precluded summary judgment | Rogers: Genuine issues of fact exist about Abingdon’s structure and John’s distributive share (no evidence produced) | Department: Petitioners conceded LLCs were taxed as partnerships and John held an indirect interest; partner taxability does not depend on actual cash distributions | Held: No genuine issue of material fact—petitioners produced no evidence to rebut that Abingdon was a partnership or that John was an indirect partner; summary judgment appropriate |
Key Cases Cited
- United States v. Basye, 410 U.S. 441 (establishes that partnership items pass through and partners are taxed on distributive shares regardless of distributions)
- Bruns v. City of Centralia, 2014 IL 116998 (summary judgment standard under Illinois law)
- Cole v. Commissioner, 637 F.3d 767 (partners taxed on distributive shares irrespective of distributions)
- Randolph Products Co. v. Manning, 176 F.2d 190 (partnerships as tax computing units, not taxpayers)
- Peoria & Pekin Union Ry. Co. v. Department of Revenue, 301 Ill. App. 3d 736 (requirement to report federal increases in taxable income to State)