Reasonable Cause

TITLE 86: REVENUE CHAPTER I: DEPARTMENT OF REVENUE PART 450 CIGARETTE USE TAX ACT SECTION 450.118 REASONABLE CAUSE Section 450.118  Reasonable Cause a)         The penalties imposed under the Sections 25a and 25b of the Act shall not apply if the person shows that the possession of unstamped original packages of cigarettes or original packages of cigarettes that bear a tax stamp of another state or taxing jurisdiction at the time of inspection or seizure was due to reasonable cause.  Reasonable cause is determined in each situation in accordance with this Section. b)         The determination of whether a person acted with reasonable cause shall be made on a case-by-case basis considering all pertinent facts and circumstances.  The most important factor to be considered in determining to abate a penalty will be the extent to which the person made a good faith effort to determine the existence of any contraband cigarettes in its possession and to timely report such contraband cigarettes to the Department. c)         A person will be considered to have made a good faith effort to determine the existence of any contraband cigarettes if the person exercised ordinary business care and prudence in so doing.  A determination of whether a person exercised ordinary business care and prudence is dependent upon the clarity of the law or its interpretation and the person's experience, knowledge, and education.  Accordingly, reliance on the advice of a professional does not necessarily establish that a person exercised ordinary business care and prudence, nor does reliance on incorrect facts. d)         A person's history of compliance is also a factor to be considered in determining whether the taxpayer acted in good faith.  An isolated incident of contraband cigarettes being found in a person's inventory generally will not indicate a lack of good faith. e)         Examples of Reasonable Cause.  The following is a non-exclusive list of situations in which reasonable cause may exist for purposes of the abatement of penalties: 1)         Reasonable cause for abatement of penalty will exist if a liability results from amendments made by the Department to regulations or formal administrative policies or positions after the discovery and seizure of contraband cigarettes. 2)         Reasonable cause for abatement may also be based on the death, incapacity or serious illness of the person or a death or serious illness in the person's immediate family that causes them to be away from the premises for an extended period of time.  In the case of a corporation, estate, trust, etc., the death, incapacity, or serious illness of an individual having sole authority to inspect inventory or a member of that individual's immediate family, may be reasonable cause for abatement. 3)         An unavoidable absence of a person due to circumstances unforeseeable by a reasonable person may also constitute reasonable cause for purposes of abatement of the penalty.  An unavoidable absence does not include a planned absence such as a vacation.  In the case of a corporation, estate, trust, etc., the absence of an individual having sole authority to inspect and approve inventory may be reasonable cause for purposes of abatement. 4)         An Illinois appellate court decision, a U.S. appellate court decision, or an appellate court decision from another state (provided that the appellate court case in the other state is based upon substantially similar statutory or regulatory law) that supports the person's position will ordinarily provide a basis for a reasonable cause determination. 5)         The Department gave erroneous information or delayed a process under its control.  In making the determination of whether the taxpayer had reasonable cause for purposes of abatement, the following factors are relevant: A)        Did the taxpayer timely inspect the incoming inventory of cigarettes? B)        Was the information requested by the taxpayer easily available in instructions or bulletins? C)        Did the taxpayer rely on the advice of the Department? D)        Did a Department employee who was acting in an official capacity and was authorized to provide assistance provide the advice? E)        Was the taxpayer's reliance upon the advice reasonable? 6)         Employee fraud not reasonably within the knowledge of the taxpayer. f)         Relevant Factors Used by the Department in Determining the Existence of Reasonable Cause. 1)         Did the taxpayer have sufficient procedures to review inventory and to timely report any contraband cigarettes? 2)         Does the taxpayer's reason address the penalty assessed? 3)         Does the length of time between the reason cited and the actual violation support abatement?  If the taxpayer cites a specific event or set of events (e.g., illness, unexpected absence, or natural disaster) or set of events that led to the imposition of the penalty, are those events directly related to the incident under review? 4)         Could the event cited have been reasonably anticipated?  Was the event one that should have been anticipated (e.g., a vacation or scheduled absence) or was it unexpected, unavoidable, or otherwise unplanned (e.g., an emergency or disaster)? 5)         Were ordinary business care and prudence exercised?  In the absence of new or unusual circumstances, possession penalties for contraband cigarettes are common knowledge or are readily available to most taxpayers.  If the taxpayer did all that could be reasonably expected of them and still possessed contraband cigarettes, reasonable cause may be present.