Did a lender's Article 9 repossession of business collateral trigger Illinois bulk-sales reporting and withholding?

Plain-English summary

A lender's repossession of equipment and inventory after borrower default did not trigger Illinois bulk-sales reporting or withholding. The Department said a UCC Article 9 repossession was not a sale or transfer within IITA Section 902(d) or the companion Retailers' Occupation Tax provision.

The request also discussed a buyer planning to purchase the assets from the lender and asked about predecessor payroll-tax exposure. The GIL's operative conclusion confirmed only the repossession rule; it did not separately resolve every consequence of the later lender-to-buyer sale.

What this means for you

Distinguish the secured lender's repossession from a later disposition of the collateral. The repossession itself fell outside the bulk-sales rules in this GIL, but the later sale and successor-liability procedures need their own analysis.

Common questions

Q: Was the lender required to file a bulk-sales notice merely to repossess collateral?
A: No.

Q: Did the GIL guarantee that a later buyer had no tax exposure?
A: No. Its conclusion was limited to the repossession.

Citations and references

• 35 ILCS 5/902(d)
• 35 ILCS 120/5j
• 86 Ill. Adm. Code 130.1701(g)(3)

Subject

Sales Outside the Ordinary Course of Business — Bulk Sales

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2015/it-15-0006-gil.pdf

Original ruling text

IT 15-0006 GIL – 7/13/2015 – Sales Outside the Ordinary Course of Business (Bulk Sales)
Bulk sales reporting is not required for repossessions of collateral.
July 13, 2015

Re:

IITA Section 902(d) Bulk Sales

Dear Mr. XXXX:
This is in response to your letter dated June 3, 2015 in which you request a written determination that
the transaction described in your letter is exempt from Section 902(d) of the Illinois Income Tax Act
("IITA" ; 35 ILCS 5/101 et seq.) and the companion provision of the Retailers' Occupation Tax Act
(“ROTA” ; 35 ILCS 120/5j.
The nature of your request and the information you have provided require 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 viewed on the Department's web site at www.ILtax.com.
Your letter states as follows:
We represent a Client who seeks to purchase assets from a lender who foreclosed on an operating
enterprise. The operating enterprise may have outstanding tax liabilities. Our client seeks
assurance that as buyer he will not be subject to liability by IDOR.
Would you please confirm that the holding from Letter No. IT 92-208, 1992 WL 489017, dated
November 19, 1992 still controls the situation and provide guidance as to whether the parties
have any other reporting responsibilities under the circumstances highlighted below.
Our Client (Buyer) has an agreement in principle to buy all of the assets of an operating
enterprise. The seller for this transaction is a third party lender who had retained an Article 9
security interest in all of the assets of the business. After a period of time, the enterprise
defaulted on the loan contract and the lender retook possession of all of the assets that had been
pledged. A security agreement was executed and an appropriate UCC financing statement was
filed to perfect the security interest of the borrower, who is no longer operating the enterprise
and the assets.
Are we correct that repossession of collateral under a U.C.C Article 9 security agreement does
not fall within the framework of tax-avoidance transactions the type of which bulk sales
withholding under IITA 902(d) was designed to prevent? The Letter cited above indicates it
would therefore be the policy of the Department of Revenue to not enforce bulk sales
withholding under 902(d) with respect to such transfers. This treatment would be consistent with
the policy the Department of Revenue has previously taken with regards to sales of collateral
following repossession pursuant to UCC Article 9 in the Department of Revenue Letter Ruling

860090, dated January 22, 1986. Special procedures exist for the successor to minimize

exposure from the predecessor. These procedures are described at subparts (a)(4) and (b) of 86
Ill. Adm. Code 130.1701.

If the successor does no more than repossess or foreclose on property that is the subject of a note
and mortgage or security interest, the situation is not subject to the bulk sales reporting
requirements because no “sale or transfer” within the statutory meaning has occurred. Please
refer to 86 Ill. Adm. Code 130.170(g)(3).
Please let us know what additional information is needed to confirm in writing that Buyer is not
liable for former owner’s payroll taxes and that this transaction as proposed is not subject to bulk
sales withholding or reporting under current IDOR rules and regulations.

RULING
Section 902(d) of the Illinois Income Tax Act (“IITA” ; 35 ILCS 5/902(d)) states in part:
If any taxpayer, outside the usual course of his business, sells or transfers the major part of any
one or more of (A) the stock of goods which he is engaged in the business of selling, or (B) the
furniture or fixtures, or (C) the machinery and equipment, or (D) the real property, of any
business that is subject to the provisions of this Act, the purchaser or transferee of such assets
shall, no later than 10 days after the sale or transfer, file a notice of sale or transfer of business
assets.
The same language appears in Section 5j of the Retailers’ Occupation Tax Act. (“ROTA” ; 35 ILCS
120/5j. Interpreting that provision, Department of Revenue Regulations Section 130.1701(g)(3) (86 Ill.
Adm. Code 130.1701) provides:
g) Examples of situations where bulk sales reporting is not required:
…
3) A repossession of equipment and inventory by a lender upon default by a borrower does not
constitute a transfer within the meaning of the Bulk Sales provisions of the Act. For example,
when a company is in default on a loan for business furniture and fixtures and the holder of the
security interest forecloses and enters the business to repossess the furniture and fixtures, bulk
sales reporting is not required.
In Letter Ruling IT 92-208 (November 19, 1992), the Department ruled that bulk sales withholding
under IITA Section 902(d) does not apply to a repossession of collateral under a U.C.C. Article 9
security agreement. The Department reasoned that such a transfer does not constitute the type of taxavoidance transaction to which the bulk sales reporting and withholding rules were intended to apply.
Therefore, you are correct that repossession of collateral under a U.C.C Article 9 security agreement
does not implicate the bulk sales rules under IITA Section 902(d) and ROTA Section 5j.
As indicated 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

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regarding this GIL, feel free to contact me at (217) 782-7055. If you have further questions related to
Illinois income tax laws, visit our website at www.revenue.state.il.us or contact the Department’s
Taxpayer Information Division at (217) 782-3336.

Sincerely,

Brian L. Stocker
Staff Attorney (Income Tax)

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