Did dissolving a corporation and distributing all its assets make its assessed Illinois income-tax debt uncollectible?

Plain-English summary

Corporate dissolution did not make the assessed Illinois income-tax debt uncollectible. The corporation had stopped business, liquidated its assets, and said it had nothing left to pay the deficiency. IDOR explained that Illinois law could continue claims against a dissolved corporation during wind-up.

Section 1405 separately imposed transferee liability for a taxpayer's unpaid tax, penalty, and interest. Its transferee definition included donees, heirs, legatees, distributees, and specified bulk purchasers; the GIL described shareholders of a dissolved corporation as potentially liable.

The letter did not determine that any named shareholder or recipient was liable, and it did not answer the request to excuse expiration of the protest period.

What this means for you

Before distributing assets from a corporation with Illinois tax exposure, identify existing assessments and preserve funds for them. Recipients may face a separate transferee assessment.

Common questions

Q: Did having no corporate assets erase the tax?
A: No.

Q: Did the GIL establish a specific shareholder's liability?
A: No. It stated the potential statutory basis for transferee liability.

Citations and references

• 35 ILCS 5/1405
• 35 ILCS 5/905(m)
• 35 ILCS 5/902(d)

Subject

Transferees

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2012/it-12-0030.pdf

Original ruling text

IT 12-0030-GIL 10/18/2012 TRANSFEREES
General Information Letter Transferees of a dissolved corporation are potentially liable
for unpaid Illinois income tax obligations of the corporation.
October 18, 2012
Dear:
This is in response to your letter dated September 14, 2012. The nature of your letter requires that
we respond with a General Information Letter (GIL). A GIL is designed to provide general information,
is not a statement of Department policy and is not binding on the Department. See 86 Ill. Adm. Code
1200.120(b) and (c), which may be accessed from the Department’s web site at www.ILtax.com.
Your letter states as follows:
I am responding on behalf of the above mentioned taxpayer regarding the enclosed notice
dated July 2, 2012. I have attached a copy of the IL-2848 to this letter for your convenience.
The notice of deficiency indicates that COMPANY has a total deficiency of $XX. The amount of
the deficiency is representative of the total income tax due for the period ended December 31,
20XX.
As of December 31, 20XX, COMPANY has ceased doing business in the state of Illinois. As of
the above mentioned date, the corporation has liquidated all assets; therefore the corporation
does not have any assets left to pay the back income taxes. It is my understanding, according
to federal tax law, that once a corporation has dissolved and no longer has any assets, back
income taxes are uncollectible, with the exception of trust fund liabilities.
I am requesting an interpretation of the Illinois Tax Law that pertains to the above mentioned
understanding of the ability to collect back income taxes from a corporation that is no longer in
business and has disposed of all of its’ assets. I have searched the Illinois Department of
Revenue and I have spoken to several agents without any clear understanding. I need the
interpretation of the law in order to properly file the Form EAR-14, Format for Filing a Protest
for Income Tax.
Additionally, I have tried contacting the individual and department listed on the attached notice
for over three weeks without any response. I have left several voicemails to get in touch with a
representative to address this matter to no avail. I was informed yesterday by an Illinois
representative over the phone that the number listed on the attached notice is not active, the
department does not answer phone calls, and the department does not return voicemails. The
fact that the notice indicates if you have questions please contact us and representatives do
not answer at the listed number has caused the time to respond on this notice to expire. I am
asking for relief on the expiration of time, as I have made a good faith effort to contact Brian
Hamer at the Business Processing Division on several occasions over the past couple weeks.
RULING
The dissolution of a corporation under state law does not render uncollectible the corporation’s
previously assessed income tax liabilities. In addition to other law that may allow for recovery of
claims against a dissolved corporation (see, e.g., Blankenship v. Demmler Mfg. Co., 89 Ill. App. 3d
(Ill. App. Ct. 1980); Mid-American Elevator Co. v. Norcon, Inc., 287 Ill. App. 3d 582 (Ill. App. 3d 1997);
IBM v. Martin Prop. & Cas. Insur. Agency, 281 Ill. App. 3d 854 (Ill. App. Ct. 1996); See also, In re

IT 12-0030-GIL
October 18, 2012
Page 2
Segno Communications Inc., 246. B.R. 501 (Bankr. N.D. Ill. 2001) (“When read together the foregoing
Illinois statutes continue the existence of a dissolved corporation for a period of five years after it is
dissolved, so that the corporation can wind-up its affairs.”)), Section 1405 of the Illinois Income Tax
Act (35 ILCS 5/1405) extends transferee liability upon shareholders of a dissolved corporation. The
section states:
The liability of a transferee of property of a taxpayer for any tax, penalty or interest due the
Department under this Act, shall be assessed, paid and collected in the same manner and
subject to the same provisions as in the case of the tax to which the liability relates, except that
the period of limitations for the issuance of a notice of deficiency with respect to such liability
shall be as provided in Section 905(m). The term “transferee” includes donee, heir, legatee,
and distributee and bulk purchasers under Section 902(d).
As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies, interprets
or prescribes the tax laws, and it is not binding on the Department. If you have further questions
regarding this GIL, please call (217) 782-7055.
Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)