Local Government Revenue Recapture Act

1/24/2022

The Local Government Revenue Recapture Act was enacted as a means to ensure Illinois local governments (i.e., municipalities and counties) receive their correct tax disbursements from the Illinois Department of Revenue (IDOR). To meet this goal, the Act established a process for municipalities and counties to contract with registered third parties to determine whether the municipality or county received the correct disbursements from IDOR. The Act also directs IDOR to develop the Local Government Revenue Recapture Certified Audit Program to address concerns related to the proper reporting and payment of local occupation and use taxes.

Third Party Review

Under the provisions of the Local Government Revenue Recapture Act, a municipality and county may provide confidential taxpayer information to a registered third party for the sole purpose of verifying that the municipality or county received the correct tax proceeds from IDOR. To be eligible to receive financial information from the municipality or county, the third party must:

  • enter into a confidentiality agreement with the municipality or county in the form and manner required by IDOR prior to receiving the financial information;
  • have an existing contract with the municipality or county at the time the third party enters into the confidentiality agreement with the municipality or county;
  • abide by the same conditions as the municipality or county with respect to the furnishing of financial information under Section 11 of the Retailers' Occupation Tax Act; and
  • be registered with IDOR as required by the Local Government Revenue Recapture Act.

* A copy of that existing contract with the municipality or county must be on file with IDOR.

Local Government Revenue Recapture Certified Audit Program

If, based on a review of the financial information provided by IDOR to a local government (i.e., municipality or county) or provided by a local government to a third party registered under the Local Government Revenue Recapture Act, the local government or third party discovers that a taxpayer may have underpaid local retailers' or service occupation taxes, then the local government may refer the matter to IDOR for audit consideration.

Note: IDOR may exclude a taxpayer from a certified audit or may limit the taxes or periods subject to the certified audit on the following bases:

  • IDOR has previously conducted an audit.
  • IDOR is in the process of conducting an investigation or other examination of the taxpayer's records.
  • The taxpayer has already been referred to IDOR under the Local Government Revenue Recapture Act and IDOR determined that an audit referral is not actionable.
  • IDOR or a qualified practitioner has previously conducted an audit under the Local Government Revenue Recapture Act.
  • IDOR determines just cause exists for such exclusion.

If IDOR determines that a referral submitted by a local government or third party is actionable, it shall determine whether the taxpayer is currently under audit or scheduled for audit.  If the taxpayer is not currently under audit or scheduled for audit, IDOR shall notify the taxpayer that it has received an actionable audit referral, at which point the taxpayer must decide whether to:

  • engage a qualified practitioner, at the taxpayer's expense, to complete a certified audit, limited in scope to the taxpayer's Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax liability, and the taxpayer's liability for any local retailers' or service occupation tax administered by IDOR; or
  • be subject to audit by IDOR.

Within 90 days, the taxpayer must respond by stating in writing whether it will arrange for the performance of a certified audit under the Local Government Revenue Recapture Act. If the taxpayer decides to arrange for the performance of a certified audit, it must do so within 60 days after responding to IDOR or within 90 days after notice by IDOR, whichever comes first.

The certified audit must not be a contingent-fee engagement and must be completed in accordance with the Local Government Revenue Recapture Act.

If a taxpayer elects to hire a registered qualified practitioner to complete a certified audit, IDOR will abate penalties due on any tax liabilities revealed by the certified audit with the exception of fraud penalties, and any penalties due on amounts collected by the taxpayer but not remitted to IDOR.