Illinois Request for Business Income or Loss Verification Notices

Have you received an Illinois Request for Business Income or Loss Verification Notice? Earlier in 2017, the Illinois Department of Revenue has started sending these letters out to taxpayers. It appears Illinois is targeting taxpayers with sole proprietorship businesses running at a loss. Obviously, losses reduce Illinois taxes and, in some cases, can increase the Illinois Earned Income Tax Credit paid to taxpayers. So you can see why Illinois is asking for this. But what is unusual is seeing states auditing client tax returns which, until now, always seemed to be what the IRS did.

In these notices, Illinois is asking for proof you are in business, and proof you have the expenses that caused the loss. Specifically, they are asking for:

  • Professional license, registration, or certification that may be required for your occupation
  • A copy of your federal income tax return’s Schedule C
  • Documents used to calculate your business income and expenses, such as spreadsheets, QuickBooks reports, income and expense journals, 1099 forms and other documents you may have to show you are in business and can show where the expenses came from.

In some cases, we are hearing reports that Illinois is actually asking taxpayers to substantiate the expenses by providing copies of invoices and proof of payment. For more Illinois audit information, see the Illinois website.

The letter does state that Illinois will withhold any refunds until the documentation is provided and accepted by the state.

If you have received one of these letters and need help in responding, call out office for assistance.