                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




        AT&T Teleholdings, Inc. v. Department of Revenue, 2012 IL App (1st) 113053




Appellate Court            AT&T TELEHOLDINGS, INC., f/k/a SBC Teleholdings, Inc., f/k/a
Caption                    Ameritech Corporation, Plaintiff-Appellee, v. THE DEPARTMENT OF
                           REVENUE and BRIAN A. HAMER, Director of Revenue, Defendants-
                           Appellants.



District & No.             First District, First Division
                           Docket No. 1-11-3053


Filed                      December 28, 2012


Held                       In a dispute arising from plaintiff corporation’s request for an income tax
(Note: This syllabus       refund for a tax year in which plaintiff and its subsidiaries were involved
constitutes no part of     in a merger, the Illinois Department of Revenue improperly utilized the
the opinion of the court   mathematical error procedure, rather than the deficiency procedure, in
but has been prepared      correcting the apportionment factor in plaintiff’s return for the premerger
by the Reporter of         portion of the tax year at issue, and the Department forfeited the claim
Decisions for the          that its offset powers under section 909(a) of the Income Tax Act applied.
convenience of the
reader.)


Decision Under             Appeal from the Circuit Court of Cook County, No. 07-L-50939; the
Review                     Hon. James C. Murray, Jr., Judge, presiding.



Judgment                   Circuit court affirmed in part and vacated in part; Department’s decision
                           set aside; and cause remanded to circuit court with directions.
Counsel on                 Lisa Madigan, Attorney General, of Chicago (Brian F. Barov, Assistant
Appeal                     Attorney General, of counsel), for appellants.

                           McDermott Will & Emery LLP, of Chicago (Thomas H. Donohoe and
                           Fred M. Ackerson, of counsel), for appellee.


Panel                      JUSTICE ROCHFORD delivered the judgment of the court, with
                           opinion.
                           Presiding Justice Hoffman and Justice Cunningham concurred in the
                           judgment and opinion.




                                             OPINION

¶1          Defendants-appellants, the Department of Revenue (Department) and Brian A. Hamer,
        Director of Revenue (Director),1 have appealed from an order of the circuit court reversing
        the Director’s administrative decision to deny a corporate income tax refund to plaintiff-
        appellee, AT&T Teleholdings, Inc., f/k/a SBC Teleholdings, Inc., f/k/a Ameritech
        Corporation (Ameritech). For the following reasons, the judgment of the circuit court is
        affirmed in part and vacated in part.

¶2                                         I. BACKGROUND
¶3          The matters at issue in this appeal arise out of Ameritech’s merger with SBC
        Teleholdings, Inc. (SBC), on October 8, 1999. Prior to that time, Ameritech and its
        subsidiaries were a part of their own federal consolidated group for purposes of filing federal
        tax returns. Upon the merger, Ameritech and its subsidiaries became a part of SBC’s federal
        consolidated return group. As such, Ameritech’s federal income tax reporting for the 1999
        calendar year was spread over two separate federal tax returns. First, Ameritech filed its own
        federal consolidated return for the premerger period covering January 1, 1999, through
        October 8, 1999. Second, Ameritech was included as part of SBC’s federal consolidated
        return group with respect to the postmerger period covering October 9, 1999, to December
        31, 1999.
¶4          Pursuant to federal tax regulations, Ameritech made a “rateable allocation” election to
        allocate its 1999 federal income between the pre- and postmerger periods. Under this


               1
                 The defendants-appellants will, where there is no need for differentiation, also be
        collectively referred to as the “Department.”

                                                  -2-
     election, Ameritech calculated its total taxable federal income for all of 1999 and then
     allocated that income on the basis of the number of days in each period. As such, 281/365ths
     of Ameritech’s 1999 income was allocated to the premerger period, while 84/365ths of that
     income was allocated to the postmerger period.
¶5       Ameritech and its subsidiaries similarly allocated their 1999 income between two Illinois
     combined tax returns, with one covering the premerger period (premerger return) and one
     accounting for the postmerger period (postmerger return). Notably, Ameritech did not
     become a part of SBC’s Illinois “unitary business group” in 1999, so it filed both Illinois
     combined returns solely on behalf of itself and its subsidiaries. Once again, Ameritech
     followed the “ratable allocation” election it made in its federal returns for the purpose of
     allocating its income between the two 1999 Illinois tax returns. As such, 281/365ths of
     Ameritech’s 1999 income was allocated to the premerger period, with 84/365ths of that
     income allocated to the postmerger period.2
¶6       Because Ameritech earned business income in 1999 from Illinois and other states,
     Ameritech also had to calculate how much of its total income in each period should be
     apportioned to Illinois and therefore be subject to Illinois income taxation pursuant to section
     304 of the Illinois Income Tax Act (Income Tax Act). 35 ILCS 5/304 (West 2000). This
     calculation included the use of an “apportionment factor.” Id. On both of its 1999 Illinois tax
     returns, Ameritech calculated its apportionment factor by utilizing the formula described in
     section 304(h)(2) of the Income Tax Act, applicable to “tax years ending on or after
     December 31, 1999 and before December 31, 2000.” 35 ILCS 5/304(h)(2) (West 2000). Both
     of Ameritech’s 1999 Illinois tax returns were delivered to the Department on October 13,
     2000, in a single envelope.
¶7       In processing Ameritech’s two Illinois tax returns, the Department changed the
     apportionment factor for the premerger return to reflect the use of the formula described in
     section 304(h)(1) of the Income Tax Act, applicable to “tax years ending on or after
     December 31, 1998 and before December 31, 1999.” 35 ILCS 5/304(h)(1) (West 2000). As
     a result of this change, the amount of Ameritech’s tax liability for the premerger period was
     increased by almost $1.5 million. This in turn reduced the amount of Ameritech’s
     overpayment of estimated income tax for the premerger period by this same amount. As
     such, the amount of overpayment the Department credited to Ameritech’s estimated tax
     payments for the next tax year, pursuant to Ameritech’s request on its premerger return, was
     similarly reduced.
¶8       The Department did not provide Ameritech “notice of deficiency” of this change or
     provide Ameritech an opportunity to protest the decision beforehand. See 35 ILCS 5/904,
     908 (West 2000). Instead, the Department’s correction of Ameritech’s return was made
     pursuant to its authority to summarily correct a “mathematical error” on a taxpayer’s return.
     See 35 ILCS 5/903(a)(1) (West 2000).


             2
              On both the federal and Illinois tax returns, certain “extraordinary” items of income were
     treated otherwise. The tax treatment of these items is not at issue in this appeal.

                                                -3-
¶9          Subsequently, the Department mailed Ameritech a letter dated March 3, 2001. This letter
       concerned the Department’s assertion that Ameritech owed certain penalties for late filing
       of its tax returns and did not address the issue of the proper apportionment factor in any way.
¶ 10        It was in a letter dated May 13, 2002, addressed to a company affiliated with Ameritech,
       that the Department first provided any written notice of the change to the apportionment
       factor with respect to the premerger Illinois tax return. At the request of the affiliated
       company, the Department had provided worksheets outlining Ameritech’s history of
       overpayment of income tax in proceeding years. In describing these worksheets, the letter
       stated: “Please note that the income tax liability shown for the tax year ended October 08,
       1999 was increased from the amount of tax as originally filed due to the use of incorrect
       weighted apportionment factors.”
¶ 11        Additionally, the Department also completed an audit of several of Ameritech’s Illinois
       tax returns, including the two returns filed for 1999. In reporting the results of the audit of
       the 1999 returns, the Department again employed the apportionment factor formula described
       in section 304(h)(1) of the Income Tax Act to the premerger return. Following the
       Department’s audit, Ameritech filed amended Illinois tax returns for both the pre- and
       postmerger periods of 1999. The amended premerger return contained figures matching
       Ameritech’s originally filed premerger return, and Ameritech therefore sought a refund based
       upon the Department’s improper insistence on using the apportionment formula contained
       in section 304(h)(1) of the Income Tax Act.
¶ 12        On February 18, 2005, the Department partially granted and partially denied Ameritech’s
       refund request with respect to the premerger return. First, the Department granted Ameritech
       a nearly $400,000 refund with respect to matters not at issue here. Second, the Department
       denied a refund of nearly $600,000 with respect to other unrelated issues. Finally, the
       Department rejected Ameritech’s argument that the apportionment factor calculation for the
       premerger return should be calculated pursuant to the section 304(h)(2) apportionment
       formula instead of the one outlined in section 304(h)(1). As such, the Department rejected
       that portion of Ameritech’s refund request–nearly $1.5 million–that was attributable to this
       dispute. The Department also rejected Ameritech’s contention that the apportionment factor
       calculation was improperly corrected as a mathematical error during the processing of the
       original premerger return. Specifically, the Department rejected the argument that any
       disagreement about this calculation was substantive and not therefore a mathematical error
       subject to correction without prior notice and an opportunity to protest. Ameritech filed a
       timely protest of the Department’s partial denial of its refund request and requested an
       administrative hearing.
¶ 13        Instead of a full administrative hearing, however, the administrative proceedings below
       proceeded on the basis of a stipulated record consisting of stipulated facts and an agreement
       as to the admissibility and genuineness of a number of documents. The stipulated facts
       generally included the factual background outlined above, and the documents admitted
       included, inter alia, the tax returns, correspondence, audit results, refund denial, and written



                                                 -4-
       protest we have previously discussed.3 Ameritech and the Department then provided the
       administrative law judge (ALJ) with written argument.
¶ 14       In its briefs to the ALJ, Ameritech argued that it had properly utilized the apportionment
       factor formula contained in section 304(h)(2) for the premerger return. Additionally,
       Ameritech asserted that, because there was a substantive dispute between it and the
       Department as to the correct apportionment factor formula applicable to the premerger
       return, the Department’s use of the mathematical error procedure was improper. Moreover,
       even if that procedure was proper, the Department failed to provide proper notice of the
       correction it made to the original premerger return. In light of all these arguments, Ameritech
       contended that it was owed a refund. That argument was further supported, in part, by a
       contention that the Department was now time-barred by statute from making any further
       claim for taxes it might claim were owed from the premerger period.
¶ 15       The ALJ rejected Ameritech’s arguments in a written recommendation for disposition
       issued on July 9, 2007. First, the ALJ concluded that the Department properly concluded that
       Ameritech used the wrong apportionment factor in its premerger return. The ALJ noted that,
       on its face, that return was filed for a period of time ending on October 8, 1999, and as such
       was not a return filed for a tax year ending “on or after December 31, 1999 and before
       December 31, 2000.” As such, the ALJ also concluded that the Department properly utilized
       the mathematical error procedure to correct this plain error on the premerger return. Indeed,
       the ALJ rejected Ameritech’s argument that, because it elected to calculate its income for the
       premerger period on the basis of a prorated amount of its total 1999 income for purposes of
       its federal return, Ameritech kept its “books open” until the end of 1999 and the
       apportionment factor formula contained in section 304(h)(2) of the Income Tax Act was thus
       properly used for the premerger return. In essence, the ALJ concluded that under applicable
       Federal and Illinois law, the pre- and postmerger periods represented totally separate tax
       years to which different apportionment factors applied.
¶ 16       Finally, the ALJ concluded that the Department’s May 13, 2002, letter provided
       Ameritech sufficient notice of the correction of this mathematical error, even if that notice
       did not fully track certain statutory requirements contained in the Income Tax Act. The ALJ
       noted that this notice plainly informed Ameritech that “the income tax liability shown for the
       tax year ended October 08, 1999 was increased from the amount of tax as originally filed due
       to the use of incorrect weighted apportionment factors.” The Department issued a notice of
       decision adopting the AJL’s findings and conclusions on July 13, 2007.
¶ 17       Ameritech filed a request for rehearing, in which it contended: (1) the Department’s
       notice of the mathematical error correction violated the Taxpayers’ Bill of Rights Act (20
       ILCS 2520/1 et seq. (West 2000)); (2) the Department’s interpretation of section 304(h) of
       the Income Tax Act violated the uniformity clause of the Illinois Constitution (Ill. Const.


               3
               In this stipulation, the parties also agreed that the Department’s denial of that portion of
       Ameritech’s requested refund involving unrelated issues (nearly $600,000) was specifically
       withdrawn from consideration in the administrative proceeding below.

                                                   -5-
       1970, art. IX, § 2); and (3) the ALJ erred in concluding that the Department properly
       corrected a mathematical error on Ameritech’s original premerger return. The ALJ rejected
       all three of these arguments on the merits in an order entered on August 20, 2007, while also
       noting that the first two arguments were waived because they had not been previously raised.
       The Department accepted these findings in a notice of final decision entered the same day.
¶ 18        Thereafter, Ameritech filed a timely complaint for administrative review. In the circuit
       court, Ameritech essentially restated the arguments it had made during the administrative
       proceeding and asked that the Department’s administrative decision be reversed. In addition
       to responding to Ameritech’s restated arguments, the Department also contended in its
       written brief that because Ameritech had originally paid more in tax for the premerger period
       than it owed, irrespective of which apportionment factor actually applied, a request for a
       refund was Ameritech’s sole remedy under the Income Tax Act. Thus, the Department
       contended that any issue regarding the propriety of using the mathematical error procedure
       to correct the original premerger return was irrelevant because Ameritech had in fact filed
       just such a request for a refund. Indeed, the Department asserted that Ameritech lacked any
       standing to challenge the mathematical error procedure in light of this record.
¶ 19        The circuit court filed an initial order on October 6, 2010, in which it first rejected the
       Department’s argument with respect to Ameritech’s standing to challenge the mathematical
       error procedure. The circuit court found that this argument had been waived because it was
       not raised in the administrative proceeding. The circuit court next rejected the AJL’s finding
       that the Department’s use of the mathematical error procedure to correct the premerger return
       was proper. The circuit court concluded that the mathematical error procedure was
       inapplicable because resolution of the apportionment factor issue would require such
       extensive analysis of both federal tax law and the Income Tax Act that a notice of deficiency
       should have been issued instead. Finally, the circuit court rejected the Department’s
       argument that any error in using the mathematical error procedure was harmless because
       Ameritech finally received a full administrative hearing in the context of its request for a
       refund. The circuit court concluded that accepting the Department’s position would allow
       it to improperly and without statutory authority offset Ameritech’s overpayment of income
       tax reported on the original premerger return by the additional amount the Department
       deemed to be actually due.
¶ 20        As a result of these findings and conclusions, the circuit court ordered that the
       Department’s administrative decision be reversed and directed the Department to issue
       Ameritech a refund with interest. The circuit court also noted that, in light of its decision
       invalidating the use of the mathematical error procedure in this case, it did not actually need
       to make any conclusions as to whether the notices issued by the department were sufficient
       or which apportionment factor formula actually applied to Ameritech’s premerger return.
¶ 21        The Department filed a motion to reconsider the circuit court’s decision. In that motion,
       the Department contended that the circuit court’s original decision overlooked the
       Department’s statutory authority to offset a taxpayer’s overpayments against other tax
       liabilities, as provided in section 909(a) of the Income Tax Act. 35 ILCS 5/909(a) (West
       2000). The circuit court granted the Department’s motion for reconsideration to the extent

                                                 -6-
       that its prior analysis did not properly account for the authority granted by section 909(a) of
       the Income Tax Act. However, the circuit court ultimately concluded that this section of the
       Income Tax Act did not alter its prior conclusion that the Department improperly utilized the
       mathematical error procedure to correct Ameritech’s original premerger return, or its
       conclusion that the request for a refund was improperly denied on that basis. The circuit court
       therefore reaffirmed its reversal of the Department’s decision and its direction that the
       Department issue Ameritech a refund with interest. The Department has now appealed.

¶ 22                                     II. ANALYSIS
¶ 23       On appeal, the Department makes a number of attempts to demonstrate why the circuit
       court’s decision should be overturned and the administrative decision in this matter upheld.
       However, we need not address each of these arguments because we find that the Department:
       (1) did not properly utilize the mathematical error procedure to correct Ameritech’s
       premerger return; and (2) has forfeited any argument with respect to the applicability of its
       offset powers under section 909(a) of the Income Tax Act.

¶ 24                                     A. Standard of Review
¶ 25        As an initial matter, the parties dispute the proper standard of review applicable in this
       matter.
¶ 26        Our review of the Department’s final administrative decision is governed by the
       Administrative Review Law. 735 ILCS 5/3-101 et seq. (West 2010); 35 ILCS 5/1201(West
       2010). While our review extends to all questions of law and fact presented by the record (735
       ILCS 5/3-110 (West 2010)),”[i]n administrative cases, our role is to review the decision of
       the administrative agency, not the determination of the circuit court.” Marconi v. Chicago
       Heights Police Pension Board, 225 Ill. 2d 497, 531 (2006) (per curiam). “The applicable
       standard of review depends upon whether the question presented is one of fact, one of law,
       or a mixed question of fact and law.” American Federation of State, County & Municipal
       Employees, Council 31 v. Illinois State Labor Relations Board, State Panel, 216 Ill. 2d 569,
       577 (2005).
¶ 27        Specifically, it is well established that an agency’s findings and conclusions of fact are
       deemed to be prima facie true and correct and overturned only if they are against the manifest
       weight of the evidence. City of Sandwich v. Illinois Labor Relations Board, State Panel, 406
       Ill. App. 3d 1006, 1008 (2011) (citing Cinkus v. Village of Stickney Municipal Officers
       Electoral Board, 228 Ill. 2d 200, 210-11 (2008)). A determination is against the manifest
       weight of the evidence if the opposite conclusion is clearly evident. Id.
¶ 28        Moreover, it is clear that a question of law–such as the proper interpretation of a
       statute–is to be reviewed de novo. Id. Our supreme court has described this type of review
       as “ ‘independent and not deferential.’ ” (Internal quotation marks omitted.) Goodman v.
       Ward, 241 Ill. 2d 398, 406 (2011) (quoting Hossfeld v. Illinois State Board of Elections, 238
       Ill. 2d 418, 423 (2010)).


                                                 -7-
¶ 29        Finally, it has been established that a “clearly erroneous” standard of review is to be
       applied to mixed questions of law and fact. City of Sandwich, 406 Ill. App. 3d at 1008.
       Mixed questions of fact and law are “ ‘questions in which the historical facts are admitted
       or established, the rule of law is undisputed, and the issue is whether the facts satisfy the
       statutory standard, or to put it another way, whether the rule of law as applied to the
       established facts is or is not violated.’ ” (Emphasis added.) (Internal quotation marks
       omitted.) Cinkus, 228 Ill. 2d at 211 (quoting American Federation of State, County &
       Municipal Employees, Council 31 v. State Labor Relations Board, State Panel, 216 Ill. 2d
       569, 577 (2005)). “An agency’s decision is ‘clearly erroneous’ when the reviewing court is
       left with a firm and definite conviction that the agency has committed a mistake.” City of
       Sandwich, 406 Ill. App. 3d at 1008. However, “where the historical facts are admitted or
       established, but there is a dispute as to whether the governing legal provisions were
       interpreted correctly by the administrative body, the case presents a purely legal question for
       which our review is de novo.” (Emphasis added.) Goodman, 241 Ill. 2d at 406.
¶ 30        Our supreme court has “acknowledge[d] that the distinction between these three different
       standards of review has not always been apparent in [its] case law.” Cinkus, 228 Ill. 2d at
       211; see also Kathleen L. Coles, Mixed Up Questions of Fact and Law: Illinois Standards
       of Appellate Review in Civil Cases Following the 1997 Amendment to Supreme Court Rule
       341, 28 S. Ill. U. L.J. 13 (2003). Nevertheless, in this case we are clearly being asked to
       review the Department’s disputed interpretation of various statutory provisions, as well as
       the Department’s application of those disputed interpretations to historical facts that were
       established via the stipulated record. As such, and pursuant to our supreme court’s decision
       in Goodman, our review must be de novo.
¶ 31        The only remaining question is what deference, if any, we should give to the
       Department’s interpretation of those statutory provisions in conducting such a de novo
       review. Despite the fact that our de novo review is independent and not deferential, in
       Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368, 387 n.9 (2010)
       (plurality op.), our supreme court specifically noted that “[e]ven where review is de novo,
       an agency’s construction is entitled to substantial weight and deference. Courts accord such
       deference in recognition of the fact that agencies make informed judgments on the issues
       based upon their experience and expertise and serve as an informed source for ascertaining
       the legislature’s intent.”
¶ 32        While this pronouncement is couched in somewhat broad terms, historically our supreme
       court has only afforded deference to an administrative agency’s interpretation of an
       ambiguous statute. Abrahamson v. Illinois Department of Professional Regulation, 153 Ill.
       2d 76, 97-98 (1992); Boaden v. Department of Law Enforcement, 171 Ill. 2d 230, 239
       (1996); Hadley v. Illinois Department of Corrections, 224 Ill. 2d 365, 370 (2007).
       Furthermore, even if some deference is to be afforded to the Department’s statutory
       interpretations, our supreme court has consistently indicated that “[a]n agency’s
       interpretation is not binding, however, and will be rejected when it is erroneous.” Shields v.
       Judges’ Retirement System of Illinois, 204 Ill. 2d 488, 492 (2003); Hadley, 224 Ill. 2d at 371
       (same). As such, while we will consider the Department’s statutory interpretations in this

                                                -8-
       case, we remain free to reject any that we find unreasonable or otherwise erroneous.

¶ 33                            B. Income Tax Act Legal Framework
¶ 34       We begin by providing an outline of the authority the Income Tax Act grants to the
       Department to collect income taxes.
¶ 35       Income taxes in this state are imposed and collected pursuant to the provisions of the
       Income Tax Act, as well as the regulations promulgated by the Department for the
       implementation of the Income Tax Act. See 35 ILCS 5/1401(a) (West 2000) (“The
       Department is authorized to make, promulgate and enforce such reasonable rules and
       regulations, and to prescribe such forms, relating to the administration and enforcement of
       the provisions of this Act, as it may deem appropriate.”). Those administrative rules and
       regulations “have the force of law.” CBS Outdoor, Inc. v. Department of Transportation,
       2012 IL App (1st) 111387, ¶ 27.
¶ 36       Section 601(a) of the Income Tax Act requires that “[e]very taxpayer required to file a
       return under this Act shall, without assessment, notice or demand, pay any tax due thereon
       to the Department, at the place fixed for filing, on or before the date fixed for filing such
       return (determined without regard to any extension of time for filing the return) pursuant to
       regulations prescribed by the Department.” 35 ILCS 5/601(a) (West 2000). The Department’s
       regulations explain that “[Income Tax Act] Section 601(a) requires that a taxpayer pay
       (without notice or demand) the amount of tax shown on a return ***.” 86 Ill. Adm. Code
       100.9100(a)(2) (2001). As the Department’s regulations further explain, “[t]he Illinois
       income tax system basically is one of self-assessment. In general, each person or taxpayer
       liable for tax is required to file a prescribed form of return showing the facts upon which tax
       liability may be determined and assessed; the taxpayer is required to compute the tax due on
       the return and make payment thereof on or before the due date for filing the return.” 86 Ill.
       Adm. Code 100.9000(a) (2001).
¶ 37       Of course, a taxpayer’s self-reported income tax liability may or may not be correct.
       Thus, should the Department find that the return filed by the taxpayer understates the actual
       amount of tax owed, the Income Tax Act provides two relevant ways that the Department
       may seek to assess and collect that underpayment: (1) by summarily correcting a simple
       “mathematical error” on the return; and (2) with respect to other reasons for an
       understatement of tax, by issuing the taxpayer a “notice of deficiency” and proceeding with
       a more involved administrative procedure. 35 ILCS 5/903(a)(1) (West 2000); 35 ILCS
       5/904(a) (West 2000). The distinction between these two options is significant.
¶ 38       Specifically, section 903(a)(1) of the Income Tax Act states that “[i]n the event that the
       amount of tax is understated on the taxpayer’s return due to a mathematical error, the
       Department shall notify the taxpayer that the amount of tax in excess of that shown on the
       return is due and has been assessed. Such notice of additional tax due shall be issued no later
       than 3 years after the date the return was filed. Such notice of additional tax due shall not be
       considered a notice of deficiency nor shall the taxpayer have any right of protest.” 35 ILCS
       5/903(a)(1) (West 2000); 86 Ill. Adm. Code 100.9200(a)(1)(A) (1987) (same).

                                                 -9-
¶ 39       In interpreting and implementing this section, the Department has adopted a regulation
       providing that “[t]he term ‘mathematical error’, calling for informal inquiry to the taxpayer
       in apparently appropriate cases or for issuance of a notice of tax due in addition to the tax
       liability shown on or paid with the original return, is of substantial administrative
       importance. Its use enables the Department with a minimum of correspondence and
       inconvenience to taxpayers to process or to complete the processing of returns containing
       defects.” 86 Ill. Adm. Code 100.9200(a)(2)(B) (1987). Moreover, because section 903(a)(1)
       of the Income Tax Act provides that the Department may summarily correct mathematical
       errors, “[t]he proper response to a mathematical error notice of additional tax due is for the
       taxpayer promptly, within the time specified in the notice (to avoid other collection efforts
       and the assessment of interest thereon under [Income Tax Act] Section 1003), to pay the
       amount due unless the defect(s) can be corrected by the taxpayer’s furnishing correcting
       information including, for example, any supporting forms or schedules indicated to have
       been omitted from the return.” 86 Ill. Adm. Code 100.9200(a)(2)(C) (1987).
¶ 40       While a taxpayer issued a notice of a correction does not have an immediate right to
       protest the Department’s correction of a mathematical error before additional taxes are
       deemed assessed and due, we note that such a taxpayer does have the right to seek a refund
       pursuant to section 909(d) of the Income Tax Act. 35 ILCS 5/909(d) (West 2000).
¶ 41       In contrast to the summary mathematical error correction procedure, the Income Tax Act
       also provides that “[a]s soon as practicable after a return is filed, the Department shall
       examine it to determine the correct amount of tax. If the Department finds that the amount
       of tax shown on the return is less than the correct amount, it shall issue a notice of deficiency
       to the taxpayer which shall set forth the amount of tax and penalties proposed to be
       assessed.” 35 ILCS 5/904(a) (West 2000). As the Department’s interpretive regulation
       indicates:
           “The Department shall examine a return as soon as practicable after it is filed to
           determine the correct amount of tax. If for reasons other than mathematical error
           [citation] the Department finds that the correct amount of tax exceeds that shown on the
           return, and the taxpayer disagrees, the Department then shall issue to the taxpayer ***
           a notice of deficiency which shall set forth the amount of tax and any penalties proposed
           to be assessed.” (Emphasis added.) 86 Ill. Adm. Code 100.9300(a) (2000).
¶ 42       Thus, the notice of deficiency procedure is used where the Department concludes that a
       taxpayer has failed to properly self-report its tax liability “for reasons other than
       mathematical error.” Id. Moreover, when a taxpayer is issued a notice of deficiency for an
       understatement of tax resulting from something other than a simple mathematical error, that
       taxpayer has a right to formally protest the additional tax that the Department proposes are
       due. 35 ILCS 5/908 (West 2000). The Department is not authorized to collect the amount of
       the claimed tax deficiency until after a taxpayer has forgone a formal protest or such a protest
       has been filed and finally resolved. 35 ILCS 5/903(a)(1), (a)(2) (West 2000). Finally, and
       except for reasons not applicable to this matter, the Income Tax Act also states that a notice
       of deficiency must be issued by the Department within three years of the filing of a
       taxpayer’s return, and that “[n]o deficiency shall be assessed or collected with respect to the

                                                 -10-
       year for which the return was filed unless such notice is issued within such period.” 35 ILCS
       5/905(a)(2) (West 2000).
¶ 43       Having delineated in some detail the distinction between the mathematical error
       correction procedures and the notice of deficiency procedures contained in the Income Tax
       Act, we note that these distinctions have been accurately and succinctly described as follows:
               “A correction notice is to be distinguished from a deficiency notice because the
           purpose of each is separate and the legal consequences flowing from each is substantially
           different. In brief, the correction notice is sent to notify the taxpayer that his return is
           ‘facially’ defective, and cannot be processed, because of an error in computation or other
           ‘mathematical’ error. In such a situation the taxpayer must pay the amount due, without
           the right to contest it before paying. He or she may then file for a refund. [Citation.]
               A deficiency notice is sent when the Department disagrees with the taxpayer’s
           interpretation of the substantive tax laws, leading to the assessment of a deficiency that
           the taxpayer may contest before paying the government. [Citation.] If the underpayment
           of tax is classified under the deficiency procedures, the Department has three years in
           which to send notice to the taxpayer. [Citation.]” (Emphasis in original.) Department of
           Revenue v. Walsh, 196 Ill. App. 3d 772, 774-75 (1990).

¶ 44                                   C. Mathematical Error
¶ 45       With this background in place, we now address the issue central to our resolution of this
       appeal, i.e., the propriety of the Department’s use of the Income Tax Act’s mathematical
       error correction procedure with respect to Ameritech’s premerger return. We begin with a
       number of preliminary observations.

¶ 46                                    1. Preliminary Matters
¶ 47       First, the Income Tax Act provides:
           “The term ‘mathematical error’ includes the following types of errors, omissions, or
           defects in a return filed by a taxpayer which prevents acceptance of the return as filed for
           processing:
                    (A) arithmetic errors or incorrect computations on the return or supporting
               schedules;
                    (B) entries on the wrong lines;
                    (C) omission of required supporting forms or schedules or the omission of the
               information in whole or in part called for thereon; and
                    (D) an attempt to claim, exclude, deduct, or improperly report, in a manner
               directly contrary to the provisions of the Act and regulations thereunder any item of
               income, exemption, deduction, or credit.” 35 ILCS 5/1501(a)(12) (West 2000).
       In the administrative proceeding below, the Department took the position that Ameritech’s
       use of the wrong apportionment factor formula was a mathematical error pursuant to section


                                                -11-
       1501(a)(12)(D) of the Income Tax Act. The ALJ, however, rejected that argument. Instead,
       the ALJ found that the use of the wrong apportionment factor formula was an “arithmetic
       error[ ] or incorrect computation[ ],” and thus constituted a mathematical error pursuant to
       section 1501(a)(12)(A) of the Income Tax Act. The parties dispute only this conclusion
       before this court. Therefore, as presented by the parties, the issue presented on appeal is
       whether the Department had the authority to summarily correct Ameritech’s purported use
       of the wrong apportionment factor formula because it constituted a mathematical error under
       section 1501(a)(12)(A) of the Income Tax Act. 35 ILCS 5/1501(a)(12)(A) (West 2000).
¶ 48        Second, it appears that the Department’s authority to correct mathematical errors under
       the Income Tax Act has been previously discussed in only two cases: Walsh, 196 Ill. App.
       3d 772, and The Holding Co. v. Department of Revenue, 214 Ill. App. 3d 390 (1991). We
       note that each of these cases specifically involved a discussion of whether a taxpayer had
       made a mathematical error pursuant to section 1501(a)(12)(D) of the Income Tax Act. Walsh,
       196 Ill. App. 3d at 775; Holding Co., 214 Ill. App. 3d at 396. Again, both Ameritech and the
       Department have disclaimed that this provision has any applicability to this matter. However,
       both Walsh and Holding Co. do include some general discussion of the mathematical error
       correction provision of the Income Tax Act that is useful to our resolution of this appeal.
¶ 49        Thus, in Walsh, 196 Ill. App. 3d at 779, this court recognized the distinction between the
       mathematical error correction procedures and the notice of deficiency procedures by noting
       that “[t]he term ‘mathematical error’ by itself denotes mistakes in computation, the type of
       error that is most clearly capable of summary correction without a deficiency proceeding.”
       In general, we found that the structure of the Income Tax Act established that the
       mathematical error correction procedure should be used where the taxpayer’s return is
       “ ‘facially’ defective,” while the notice of deficiency procedure should be used where “the
       Department disagrees with the taxpayer’s interpretation of substantive tax laws.” (Emphasis
       added.) Id. at 775. We also recognized, albeit in the context of discussing section
       1501(a)(12)(D) of the Income Tax Act, that the distinction between these two procedures
       should be maintained. Id. at 782.
¶ 50        As such, the definition of a mathematical error should not be so expanded that it would
       “undercut the deficiency procedures to the point that it repeals them sub silentio.” Id. Finally,
       this court recognized that the first three categories of errors described in section 1501(a)(12)
       of the Income Tax Act, which include the one at issue here, “presume an error of the type
       that may be considered ‘inarguable,’ ‘unequivocal,’ or ‘indisputable,’ in the sense that no
       reasonable minds could differ because no interpretation of tax law is required.” Id. at 780.
       In Holding Co., 214 Ill. App. 3d at 397, the court recognized that the Walsh decision stood
       for the general proposition that “substantive matters requiring extensive analysis should not
       be treated as math errors.”

¶ 51                     2. Proper Apportionment Factor Arguments
¶ 52      The foundational dispute between Ameritech and the Department is the proper
       apportionment factor formula to apply to the income reported on the premerger return.


                                                 -12-
¶ 53       Again, because Ameritech earned business income from Illinois and other states during
       the premerger period of 1999, Ameritech had to calculate how much of its total income in
       that period should be apportioned to Illinois for purposes of income taxation. 35 ILCS 5/304
       (West 2000). Section 304 of the Income Tax Act contains specific provisions for how to
       properly calculate this apportionment factor for the period from 1998 to 2000. Id. The proper
       method of apportionment was gradually changed over this time period from one which both
       accounted for and weighted a taxpayer’s property, payroll, and sales in Illinois to one solely
       focused on a taxpayer’s sales in this state. Id. As such, section 304(h) specifically provides:
           “For tax years ending on or after December 31, 1998, the apportionment factor of persons
           who apportion their business income to this State under section (a) shall be equal to:
                   (1) for tax years ending on or after December 31, 1998 and before December 31,
               1999, 16b% of the property factor plus 16b% of the payroll factor plus 66b% of
               the sales factor;
                   (2) for tax years ending on or after December 31, 1999 and before December 31,
               2000, 8a% of the property factor plus 8a% of the payroll factor plus 83a% of the
               sales factor;
                   (3) for tax years ending on or after December 31, 2000, the sales factor.” 35 ILCS
               5/304(h) (West 2000).
¶ 54       The Department contends that the plain language of this provision mandates that the
       proper apportionment factor formula for Ameritech’s premerger return, which covered the
       premerger period from January 1, 1999 to October 8, 1999, must be the one contained in
       section 304(h)(1) of the Income Tax Act, i.e., the one applicable “for tax years ending on or
       after December 31, 1998 and before December 31, 1999.” 35 ILCS 5/304(h)(1) (West 2000).
¶ 55       In support of this argument, the Department also cites to another provision of the Income
       Tax Act and to federal tax regulations. Specifically, the Department cites to section 401 of
       the Income Tax Act, which provides:
           “(a) In general. For purposes of the tax imposed by this Act, the taxable year of a person
           shall be the same as the taxable year of such person for federal income tax purposes. The
           taxable year of any person required to file a return under this Act but not under the
           Internal Revenue Code shall be his annual accounting period if it is a fiscal or calendar
           year, and in all other cases shall be the calendar year.
               (b) Change in taxable year. If the taxable year of a person is changed for federal
           income tax purposes, the taxable year of such person for purposes of the tax imposed by
           this Act shall be similarly changed.” 35 ILCS 5/401(a), (b) (West 2000).
       The Department then cites to federal regulations for the proposition that when a corporation
       such as Ameritech joins another federal consolidated return group such as SBC’s, “its tax
       year ends for all Federal income tax purposes at the end of that day” (Treas. Reg. § 1.1502-
       76(b)(1)(ii)(A)(1)), and that the separate returns Ameritech was required to file “are separate
       tax years for all Federal income tax purposes” (Treas. Reg. § 1.1502-76(b)(2)(i)). It is the
       Department’s contention that the combination of these state and federal provisions renders
       the apportionment factor contained in section 304(h)(1) of the Income Tax Act applicable

                                                -13-
       to Ameritech’s premerger return.
¶ 56        Specifically, the Department notes that Ameritech’s 1999 income was reported on two
       separate federal consolidated tax returns for 1999. Ameritech and its subsidiaries first filed
       their own federal consolidated group return for the premerger period. Upon the merger,
       however, Ameritech and its subsidiaries became a part of SBC’s federal consolidated return
       group. As such, Ameritech’s postmerger 1999 income was reported on SBC’s consolidated
       group return. Pursuant to the provisions of Treasury Regulation section 1.1502-76, the
       Department contends that Ameritech’s premerger federal return represented a separate
       federal taxable year that ended on October 8, 1999. The Department further contends that
       it necessarily follows that Ameritech’s premerger Illinois return also represented a separate
       Illinois taxable year pursuant to section 401 of the Income Tax Act, and one which also
       ended on October 8, 1999. And again, the Department asserts that the apportionment factor
       contained in section 304(h)(1) of the Income Tax Act is applicable to a tax year ending on
       that date.
¶ 57        Ameritech disagrees with this interpretation of Illinois and federal tax law. First,
       Ameritech notes that section 304 of the Income Tax Act speaks in terms of “tax years,” while
       section 401 of the Income Tax Act discusses “taxable years.” Ameritech contends that there
       are meaningful reasons why the two sections contain different language, as reflected in the
       legislative intent behind the legislation adding section 304(h) to the Income Tax Act.
       Ameritech thus contends that it is not at all clear that the provisions of section 401 of the
       Income Tax Act have any applicability to determining Ameritech’s “tax year” under section
       304(h).
¶ 58        Even if section 401 of the Income Tax Act was applicable to that determination,
       Ameritech contends that the Department’s argument fails to account for the language therein
       providing that “[t]he taxable year of any person required to file a return under this Act but
       not under the Internal Revenue Code shall be his annual accounting period if it is a fiscal or
       calendar year, and in all other cases shall be the calendar year.” 35 ILCS 5/401(a), (b) (West
       2000). Ameritech notes that it is undisputed that it did not file its own federal tax return for
       the postmerger period, but was included in SBC’s consolidated federal return. Ameritech
       thus contends that because it did not file its own federal return for a portion of 1999, its
       taxable year for Illinois tax purposes defaulted to its own calendar year accounting period,
       i.e., one which ended on December 31, 1999.
¶ 59        Finally, Ameritech generally contends that the Department’s argument fails to account
       for the fact that Ameritech’s 1999 income, as reported on the two federal and two Illinois tax
       returns, was fundamentally based upon Ameritech’s “rateable allocation” election to
       apportion its 1999 federal income between the pre- and postmerger periods. Again, under this
       election, Ameritech calculated its total taxable federal income for all of 1999, and then
       apportioned that income between the two periods. As such, Ameritech elected to keep its
       “books open” for the entire calendar year of 1999, and only then apportion its income
       between the two relevant periods.
¶ 60        Thus, Ameritech contends that its true tax year for 1999 did not end until December 31,


                                                -14-
       1999. Indeed, Ameritech quotes language contained in the same federal regulation cited by
       the Department indicating that “[u]nder ratable allocation, the items to be allocated and their
       timing, location, character, and source are generally determined by treating the original year
       as a single tax year.” (Emphasis added.) Treas. Reg. § 1.1502-76(b)(2)(ii)(B)(2). For all these
       reasons, Ameritech asserts that it properly applied the apportionment factor formula
       contained in section 304(h)(2) of the Income Tax Act to its premerger Illinois return.

¶ 61                                         3. Resolution
¶ 62        We need not reach any final conclusions with respect to this substantive dispute in order
       to resolve this appeal. Regardless of whether Ameritech or the Department has the better of
       this argument, it is clear that these are not questions that should have been resolved via the
       mathematical error correction provisions of the Income Tax Act.
¶ 63        Indeed, it is apparent that determining the correct apportionment factor formula in this
       matter required an interpretation of at least two separate sections of the Income Tax Act,
       applicable federal regulations, and how those state and federal provisions interact with each
       other. It required a determination of what, if any, significance should be placed upon the fact
       that section 304(h) of the Income Tax Act applies to “tax years,” while section 401 of the
       Income Tax Act discusses “taxable years.” It required a determination of the significance and
       applicability of the second sentence of section 401(a) of the Income Tax Act to this matter.
       And it required a determination of exactly how Ameritech’s 1999 income was treated at the
       federal level, pursuant to the federal regulations cited by the parties, and what the effect of
       that determination would have on the treatment of Ameritech’s 1999 income at the state
       level.
¶ 64        Clearly, this issue should not have been regarded as a simple arithmetic error or incorrect
       computation under section 1501(a)(12)(A) of the Income Tax Act at the time the Department
       initially processed Ameritech’s premerger return. Certainly, it cannot be said that the proper
       apportionment factor formula applicable in this matter was a question that might be
       “considered ‘inarguable,’ ‘unequivocal,’ or ‘indisputable,’ in the sense that no reasonable
       minds could differ because no interpretation of tax law is required.” (Emphasis added.)
       Walsh, 196 Ill. App. 3d at 780. Moreover, were we to find that questions such as these could
       properly be considered via the mathematical error correction procedure, we would be in
       danger of “undercut[ing] the deficiency procedures to the point that it repeals them sub
       silentio.” Id. at 782. Indeed, we conclude that these substantive issues should properly have
       been resolved via the deficiency procedures of the Income Tax Act. As the court recognized
       in Holding Co., 214 Ill. App. 3d at 397, “substantive matters requiring extensive analysis
       should not be treated as math errors.”
¶ 65        Lastly, we note that the Department also contends that it acted appropriately in this matter
       pursuant to section 100.9200(a)(2)(A), which provides: “Mathematical errors are to be
       distinguished from adjustments based on a Department determination of correct tax liability
       for the taxable year resulting from an examination (i.e., an audit) of the return (together with
       the taxpayer’s books and records) after it is accepted and processed.” 86 Ill. Adm. Code


                                                 -15-
       100.9200(a)(2)(A) (1987). The Department contends that this regulation supports its
       argument that “[a]ny reasonable income tax return processor looking at the face of the return
       could have seen that Ameritech used the incorrect weighted apportionment factors without
       having to engage in extensive analysis of the tax laws or conduct an audit.” We obviously
       reject this argument, in light of our conclusion that determining the proper apportionment
       factor here would require an examination of Ameritech’s pre- and postmerger federal and
       state returns, as well as an analysis of how various federal and state tax law provisions
       applied in this matter.
¶ 66       Thus, we conclude that the Department improperly utilized the mathematical error
       procedures of the Income Tax Act to summarily correct the apportionment factor on
       Ameritech’s premerger return. Furthermore, because the refund request was specifically
       rejected by the Department on the basis of its authority to correct mathematical errors,
       Ameritech’s request for a refund was improperly denied. See Blount v. Stroud, 232 Ill. 2d
       302, 327 (2009) (administrative bodies possess only those powers granted by the legislature,
       and any action such an administrative body takes must be authorized by statute).4

¶ 67                                   D. Remaining Issues
¶ 68       Having concluded that the Department improperly utilized the mathematical error
       correction procedure in this matter, and having determined the consequences that flow from
       that conclusion, we briefly address a number of remaining issues.
¶ 69       Obviously, in light of the fact that the Department was not authorized to utilize the
       mathematical error correction procedure in the first place, we need not determine whether
       or not it provided Ameritech proper notice of such a correction. Moreover, we note again that
       while we have identified in some detail the legal questions involved in determining which
       apportionment factor formula in fact applied to Ameritech’s premerger return, for the reasons
       discussed above we need not actually decide that question to resolve this appeal.
¶ 70       Next, we briefly address one additional argument the Department raised in the circuit
       court and again on appeal. Specifically, the Department contends that it was entitled to deny
       Ameritech’s request for a refund pursuant to section 909(a) of the Income Tax Act. 35 ILCS
       5/909(a) (West 2000). That section of the Income Tax Act provides: “In the case of any
       overpayment, the Department may credit the amount of such overpayment, including any
       interest allowed thereon, against any liability in respect of the tax imposed by this Act,
       regardless of whether other collection remedies are closed to the Department on the part of
       the person who made the overpayment and shall refund any balance to such person.” Id.
¶ 71       We need not address this issue because it is clear that the Department raised this
       argument for the first time in the circuit court, having failed to raise the applicability of

               4
                As noted above, the Department also had the authority to correct Ameritech’s premerger
       return via the notice of deficiency procedures contained in the Income Tax Act. However, it is
       undisputed that the Department never issued a notice of deficiency in this matter. Furthermore, it is
       now time-barred from doing so. See 35 ILCS 5/905(a) (West 2000).

                                                  -16-
       section 909(a) of the Income Tax Act in the administrative proceeding below. As our
       supreme court has stated:
            “It is quite established that if an argument, issue, or defense is not presented in an
            administrative hearing, it is procedurally defaulted and may not be raised for the first
            time before the circuit court on administrative review. [Citations.] The rule of procedural
            default in judicial proceedings applies to administrative determinations, so as to preclude
            judicial review of issues that were not raised in the administrative proceedings. The rule
            is based on the demands of orderly procedure and the justice of holding a party to the
            results of his or her conduct where to do otherwise would surprise the opponent and
            deprive the opponent of an opportunity to contest an issue in the tribunal that is supposed
            to decide it. [Citation.] Additionally, raising an issue for the first time in the circuit court
            on administrative review is insufficient. The rule of procedural default specifically
            requires first raising an issue before the administrative tribunal rendering a decision from
            which an appeal is taken to the courts. Given that in administrative review cases the
            circuit courts act as the first-tier courts of review, the reason and logic behind that
            requirement are clear. [Citation.]” Cinkus, 228 Ill. 2d at 212-13.
       Because the Department failed to raise this defense in the administrative proceeding, it has
       been procedurally defaulted and the Department has therefore forfeited its right to raise this
       issue on appeal. People v. Blair, 215 Ill. 2d 427, 444 (2005).
¶ 72        Finally, we note that in addition to reversing the administrative decision of the
       Department, the circuit court also ordered “that the Department of Revenue cause a refund
       as required by law with applicable interest.” To the extent that the order contemplates the
       entry of a judgment in favor of Ameritech, it was improper. In administrative review cases,
       a circuit court is only authorized to enter such a judgment in the “case of [an] affirmance or
       partial affirmance of an administrative decision which requires the payment of money.” 735
       ILCS 5/3-111(a)(8) (West 2010). Again, here the circuit court properly reversed an
       administrative decision that improperly did not require the payment of money.
¶ 73       Furthermore, in actions for administrative review a circuit court’s powers generally “do
       not extend to granting or denying relief but are essentially limited to reviewing the decision
       of the administrative agency.” American National Bank & Trust Co. v. Department of
       Revenue, 242 Ill. App. 3d 716, 719 (1993); see also 735 ILCS 5/3-111(a)(5) (West 2010)
       (providing circuit court with general power to “affirm or reverse [administrative] decision
       in whole or in part”). Thus, while reversing the Department’s denial of Ameritech’s request
       for a refund may (and likely will) have the same ultimate effect as affirmatively directing the
       Department to “cause a refund,” the former was within the circuit court’s authority while the
       latter was not.
¶ 74        Thus, while we affirm the circuit court’s order to the extent that it reverses the
       Department’s denial of Ameritech’s request for a refund, we vacate that portion of the circuit
       court’s order that affirmatively directs the Department to “cause a refund” to be issued. This
       cause is thus remanded to the circuit court with instructions that it be further remanded to the
       Department for additional proceedings consistent with this opinion. The circuit court,


                                                  -17-
       however, shall retain jurisdiction until a final administrative decision is entered. 735 ILCS
       5/3-104 (West 2010).

¶ 75                                  III. CONCLUSION
¶ 76       For the foregoing reasons, the judgment of the circuit court is affirmed in part and
       vacated in part, and the Department’s administrative decision is set aside. This cause is
       remanded to the circuit court with directions that it be further remanded to the Department
       for additional proceedings consistent with this opinion.

¶ 77      Circuit court affirmed in part and vacated in part; Department’s decision set aside; and
       cause remanded to circuit court with directions.




                                               -18-
