Tax crackdown: Allphin's revenuers find new tool in asset seizure power

THE LADY in Jersey County had just fainted. The sheriff had come to her business and announced he had an order from the Illinois Department of Revenue to seize assets to cover business taxes she hadn't paid. Just as the sheriff was bending over the prostrate form on the floor, a revenue agent walked in and announced, "Well, we got the car." In a flash, the woman was upright and screaming, "You can't take my car." Before the sheriff and agent left, they had a check for the unpaid taxes.

Robert Allphin, director of the Department of Revenue, tells the story to illustrate how tax cheaters react when they find out that the state really means business about collecting unpaid taxes.

Allphin has other stories. For example, last year in Peoria the state moved to seize the assets of a sizeable business operation. "One of the sons worked in the business," Allphin said, "and they all had their sports cars and everything conceivable titled to the business. Suddenly he realized that we had his car. He said, 'you can't take my car.' But we had it. We checked it, and it was titled to the business, and we seized the business and got junior off his wheels."

This particular seizure took place because the firm had not turned over to the state income taxes withheld from employee wages. The state acted in March of last year — the last month of the quarter — and the next quarter payments on income tax bills sent by the accounts receivable section of the department went up 500 per cent. "I can't give you the name," Allphin said as he recalled the Peoria incident(which was picked up by the national news wires) "but all of a sudden here was a guy from New York who had chartered a plane and was standing in my office with a check for $42,000. It was for past due taxes on an entirely different type of tax, but I think he was afraid we might be seizing his business next."

A watershed case The department considers the Peoria case to be a watershed. The publicity resulting from the seizures there has made tax cheaters pay heed to delinquency notices. Before the incident delinquents often stowed such notices in the circular file. The Peoria firm, for example, had been the subject of approximately 40 different contacts or warnings by departmental agents. "For years people traditionally thumbed their nose at the department and when the field guy would go and bang on the door, they would say, 'I'm going to talk to my representative,' or 'I'm going to do this or that,' and the guy would say 'thank you' and leave. And yet all the time the department had the power of seizure, and so we gave it a limited try and it worked."

The self-employed professionals who have not been paying the state what is due under the income tax act are the latest target for Allphin's raiders. Lawyers form a particularly large portion of this group, and Allphin admits the militancy of the department is sure to cause a ruckus. He predicts, however, that the psychological impact will lead to increased compliance in short order. In one unpublicized case in Champaign County, an attorney behind in his taxes erupted in rage at the seizure order. After loud protestations and the announcement that he was hiring another lawyer to fight the department, the barrister meekly complied within 48 hours, paying up in full.

State laws on seizure
The power to seize assets was written into the Income Tax Act of 1969 (Ill. Rev. Stat. 1975, ch. 120, sec. 11-1109). It was simply copied out of federal statutes. The state then found it did not have seizure powers with respect to the Retailers Occupational Tax and Use Tax — the taxes generally called the sales tax.

14 / May 1976 / Illinois Issues

For years, paying state taxes in Illinois was almost voluntary. Now a delinquent stands a good chance that agents will snatch his car

And the revenue loss in this area was considerable. The department has identified more than 1,000 aggravated accounts (individuals who have not responded to notices, calls) and over $6 million in withheld sales taxes. About $600,000 of this amount has been recovered so far. A few firms, after collecting the sales tax from customers, were keeping the money instead of turning it over to the Revenue Department.

Seizure power for sales tax delinquency was quietly negotiated through legislative channels and signed into law, becoming effective in July 1975 (Ill. Rev. Stat. 1975, ch. 120, sec. 444f). "This gave us another important tool," Allphin explained. "Some people equated this as muscle, some people equated it as being hard-nosed, but I call it just a tool. If we're charged with the responsibility of collecting taxes . . . which we are, we have to have the tools with which to do the job. We are gradually getting them."

Auto seizures over cigarettes
There has been a running battle in the courts in Chicago over the seizure of automobiles used to bring cigarettes into the state without payment of the excise tax of 12 cents per pack. Back in 1973, cigarette tax collections dropped from $168 million to $165 million, and then started sliding further after the City of Chicago imposed a nickel-per-pack tax. It was a well-known fact in Chicago that motorists were going just across the border to Indiana to buy cigarettes at a saving of 11 cents per pack, or $ 1.10 per carton. The Indiana tax was only 6 cents — compared to the combined 17-cent levy in Chicago.

The law said it was an offense to be in possession of more than 10 cartons of cigarettes without tax stamps from Illinois. The penalty was $10 per pack for the excess, and if a car was used in the commission of a crime, it could be seized. Auto seizures were made in 1973 and tax collections soared, climbing $10 million. Then in early 1974 a Chicagoan got an injunction from Circuit Court Judge Donald O'Brien that said it was all right for an individual to bring in as many cigarettes as he might personally use. After a conference with the attorney general's office, the department worked out a strategy of prosecuting anyone possessing more than 50 cartons. Word got out quickly, and soon no one stopped had more than 45 cartons.

Another conference was held, and a decision was reached to act if more than three brands were involved. One hospital orderly had 21 different brands among 42 cartons, and was arrested. Next, the limit was 30 cartons, and when the game got below 30 the original plaintiff went back to court to get Allphin held in contempt of court for violating the original injunction. Judge O'Brien found Director Allphin in contempt of court, fined him and sentenced him to a prison term. This decision is currently being appealed.

Using IRS computer tapes
Allphin, who was considered a boy wonder in Kentucky in the 1950's when he reorganized the state's revenue machinery, was brought to Illinois by Gov. Dan Walker from a position as corporation tax manager for Pittsburgh Plate Glass Industries in Pittsburgh.

Allphin took over at a time when the Revenue Department was regearing to handle the collection of income taxes. Previously, sales and excise tax collections were the department's major responsibility. Different audit procedures and field agent personnel were needed, Allphin noted. By late 1973, the state was able to begin a "tape-match" with federal Internal Revenue Service computer tapes. This showed there were 130,000 disparities between state and federal records — everything from different sums on the adjusted gross income figure for individuals to non-filings in the state.

The department's first reaction was that 400 agents could never cope with that mass of audit work. By having the computers prepare notices for taxpayers, however, the workload was quickly diminished. "There were a lot of loud screams back in the winter of 1973 as we found that in some aspects our filing system was not as current as it should be," Allphin noted. The screams of protest had a beneficial effect in another way. It determined that those screaming indeed had been contacted. It pointed out where the errors were and indicated where second letters needed to be delivered: to those who had not responded by screams or other communications.

The second, computer-originated letters were more "forceful," according to Allphin. Any letters that came back as undeliverable were put aside to be checked against the next year's federal returns. Finally, the ones that did not come back, that did not draw responses after two letters, were assigned to the field force. "We figure by the time you check four years, you really have ended up with the hard-core evader," Allphin said, "and these you can give special attention." Revenue department computers are now working from the 1974 tapes which should be processed through the department by fall when IRS will deliver the first computer tapes of 1975 federal returns to the state. At that point the Illinois department will be as current as it could expect to be, Allphin said.

One of the benefits of the recent business recession was the increased availability of talented accountants. "When corporations and CPA firms stopped hiring, the caliber of our recruits went up noticeably," Allphin said. Each was put through almost a year's training, so the concern now is to keep the talent that has been trained.

Correcting personnel problem
One of the failures conceded by Allphin was some poor personnel assignments in the enforcement operation. Now that he has brought in Roger C. Beck, the former IRS director for the Chicago area, Allphin feels confident the angry letters involving department error will drop. In fact, he says, they already have — and his collection of delinquent taxes in the past six months has risen to $28.4 million from $17.7 million for the same period a year ago.

May 1976 / Illinois Issues / 15