Did a federal refund for qualified airline payments reopen the deadline for a related Illinois refund from a closed year?

Plain-English summary

The federal refund opened a new, limited Illinois claim period. Federal law allowed certain airline employees to exclude bankruptcy-order payments that were rolled into an IRA and to seek refunds for otherwise closed years.

Because Illinois income began with federal adjusted gross income, the federal reduction could create an Illinois overpayment. Section 506(b) required the federal change to be reported within 120 days, and Section 911(b)(1) allowed the related state refund claim within two years after that notice was due.

The GIL summarized the deadline as two years plus 120 days after the federal refund was received. Recovery was limited to the Illinois overpayment produced by the federally changed item.

What this means for you

Record the federal refund receipt date and file the Illinois federal-change return promptly. The reopened period does not authorize unrelated refund issues.

Common questions

Q: Could the taxpayer seek an Illinois refund for the old year?
A: Yes, for the overpayment caused by the federal adjustment.

Q: Did the reopened period cover unrelated items?
A: No.

Citations and references

• 35 ILCS 5/203(a), 506(b)(1), 911(b)(1)
• FAA Modernization and Reform Act of 2012 § 1106

Subject

Refunds – Statute Of Limitations

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-12-0014.pdf

Original ruling text

IT 12-0014-GIL 07/02/2012 REFUNDS – STATUTE OF LIMITATIONS
General Information Letter: Allowance of federal income tax refund claim based on
exemption of income previously reported as taxable opens a new limitations period for
Illinois income tax refund claims on the same basis.
July 2, 2012
Dear:
This is in response to your letter dated June 27, 2012, in which you request a letter ruling. The nature
of your request and the information you have provided require that we respond with a General
Information Letter, which 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 found on the Department's web site at www. tax.illinois.gov.
In your letter you have stated the following:
Please tell me if the Illinois Dept of Revenue will allow the amendment and refund of
income taxes of form IL-1040 for tax year 2006 under the recently passed federal law
contained in the FAA Modernization and Reform Act which was signed into law on Feb
14, 2012. Sec. 1106 (copy enclosed) of this law allows the amendment and refund of
personal income taxes (tax years 2003 to current) for certain “Qualified Airline
Employees” who received “Qualified Airline Payments” received under approval of an
order of federal bankruptcy. Also enclosed is an IRS article explaining the new law and
its application and procedures to be followed to amend personal tax returns from closed
years.
Does Illinois law mirror the federal law allowing the amendment of tax returns beyond
the current statute of limitations under this federal regulation? I have a client that
qualifies under this regulation and I have amended his 2006 Federal form 1040 to claim
a refund of income taxes. Will I also be able to amend his IL1040 for tax year 2006 and
get a refund of Illinois taxes for 2006 under these circumstances.
Response
Section 1106 of the FAA Modernization and Reform Act (Public Act 112-95) provides that certain
payments made by an airline to its employees by order of a bankruptcy court may be exempted from
gross income to the extent “rolled over” into an individual retirement account within 180 days after the
act became law. Employees have until at least April 15, 2013, to file federal income tax refund claims
arising from such rollovers.
Under Section 203(a) of the Illinois Income Tax Act (35 ILCS 5/203), the computation of an
individual's "net income" taxed by Illinois begins with the taxpayer's federal adjusted gross income, as
properly computed for the taxable year. Various addition and subtraction modifications are then
made, and the resulting "base income" is then allocated and apportioned to Illinois.
Section 506(b)(1) of the Illinois Income Tax Act (35 ILCS 5/506) provides that a taxpayer must notify
the Department of Revenue if:
the taxable income, any item of income or deduction, the income tax liability, or any tax
credit reported in an original or amended federal income tax return of that person for

IT 12-0014-GIL
July 2, 2012
Page 2
any year or as determined by the Internal Revenue Service or the courts is altered by
amendment of such return or as a result of any other recomputation or redetermination
of federal taxable income or loss, and such alteration reflects a change or settlement
with respect to any item or items, affecting the computation of such person's net
income, net loss, or of any credit provided by Article 2 of this Act for any year under this
Act.
The so-called “federal change return” required by this provision must be filed within 120 days:
after such alteration has been agreed to or finally determined for federal income tax
purposes or any federal income tax deficiency or refund, tentative carryback
adjustment, abatement or credit resulting therefrom has been assessed or paid,
whichever shall first occur.
Section 911(b)(1) of the Illinois Income Tax Act (35 ILCS 5/911) provides:
In any case where notification of an alteration is required by Section 506 (b), a claim for
refund may be filed within 2 years after the date on which such notification was due
(regardless of whether such notice was given), but the amount recoverable pursuant to
a claim filed under this Section shall be limited to the amount of any overpayment
resulting under this Act from recomputation of the taxpayer's net income, net loss, or
Article 2 credits for the taxable year after giving effect to the item or items reflected in
the alteration required to be reported.
Pursuant to these provisions, an airline employee who receives a refund of federal income taxes for
any tax year under the provisions of the FAA Modernization and Reform Act may file a claim for
refund of his or her Illinois income taxes, to the extent the refund results from the reduction to his or
her federal adjusted gross income that generated the federal refund, at any time within 2 years plus
120 days after the date the federal income tax refund is received. For more details, see the
instructions to the Form IL-1040-X, Amended Illinois Income Tax Return, on “federal changes.”
As stated above, this is a general information letter which 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 are
not under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have
any further questions, you may contact me at (217) 782-7055.
Sincerely,

Paul S. Caselton
Deputy General Counsel – Income Tax