                                       2019 IL App (1st) 172588
                                            No. 1-17-2588
                                    Opinion filed February 27, 2019
                                                                                      Third Division
     ______________________________________________________________________________

                                                IN THE
                                  APPELLATE COURT OF ILLINOIS
                                          FIRST DISTRICT
     ______________________________________________________________________________

     CHAK FAI HAU, d/b/a Joye Chop Suey,    )     Appeal from the
                                            )     Circuit Court of
            Plaintiff-Appellant,            )     Cook County.
                                            )
            v.                              )     No. 15 CH 10662
                                            )
     THE DEPARTMENT OF REVENUE and          )     Honorable
     CONSTANCE BEARD, in Her Official       )     Daniel J. Kubasiak,
     Capacity as Director of Revenue,       )     Judge, presiding.
                                            )
            Defendants-Appellees.           )
                                            )
     ______________________________________________________________________________

           JUSTICE COBBS delivered the judgment of the court, with opinion.
           Presiding Justice Fitzgerald Smith and Justice Ellis concurred in the judgment and opinion.

                                              OPINION

¶1         Plaintiff-taxpayer, Chak Fai Hau, doing business as Joye Chop Suey, appeals from the

        circuit court’s judgment affirming in part the Department of Revenue’s (Department) tax

        assessment for the period from January 1, 2008, through December 31, 2010. For the reasons

        that follow, we affirm.

¶2                                        I. BACKGROUND
     No. 1-17-2588

¶3           Hau is the sole proprietor of Joye Chop Suey, a carryout-only Chinese restaurant located

         at 4829 West Chicago Avenue in Chicago, Illinois. The Department assigned Denise Berry to

         audit Hau’s business taxes for the period from January 1, 2008, through December 31, 2010.

         The Department found that Hau fraudulently underreported his total sales during this period

         and issued corrected tax returns requesting Hau pay $206,455 to cover tax deficiencies under

         the Retailers’ Occupation Tax Act (Act) (35 ILCS 120/1 et seq. (West 2014)), penalties for

         fraud and late payment, and accumulated interest. On June 13, 2012, the Department issued

         two Notices of Tax Liability (NTLs) to Hau, covering the tax periods from January 1, 2008,

         through June 30, 2009, and from July 1, 2009, through December 31, 2010, detailing the

         breakdown of the corrected tax assessment. 1 Per the instructions on the NTLs, Hau filed a

         protest on July 16, 2012, and requested an administrative hearing. The evidentiary hearing

         before an administrative law judge (ALJ) took place on December 11, 2013.

¶4                                        A. The Evidentiary Hearing

¶5           The Department limited its case-in-chief to submitting records, certified by the

         Department’s director, into evidence. These records consisted of a completed form titled

         “Audit Correction and/or Determination of Tax Due” and copies of the NTLs issued to Hau.

         The ALJ found that such certified documents were prima facie correct and overruled Hau’s

         counsel’s hearsay objections. The ALJ also asked counsel if he understood that the admitted

         documents established the Department’s prima facie case. Counsel responded that he

         understood but nevertheless argued that a prima facie case was not made because the exhibits


             1
              For January 1, 2008, through June 30, 2009, Hau was assessed $51,995 due in tax; $20,798 for a
     late payment penalty; $51,995 for a fraud penalty; and $11,650.06 due in interest, for a total assessment
     of $136,438.06. From July 1, 2009, through December 31, 2010, Hau was assessed $48,007 due in tax;
     $9658 for a late payment penalty; $24,003 for a fraud penalty; and $2194.15 due in interest, for a total
     assessment of $83,862.15.

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     No. 1-17-2588

        failed to establish whether the Department employed minimum standards of reasonableness

        to determine Hau’s tax liability. Counsel further complained that the auditor was not present

        to testify. The Department responded once again that the law supported finding the proffered

        exhibits as prima facie correct irrespective of anything else. The ALJ agreed and counsel

        commented, “We’ll see, yeah. I’m—Sure.”

¶6         Hau testified, with the help of a Chinese interpreter, that he was 73 years old at the time

        of the hearing. He opened the restaurant in 2001 and operated it with the help of his wife.

        From the restaurant’s opening through early 2012, Hau retained Maria Tai, an accountant

        from First Quality Financial Group, to file his taxes. During the audit period, Hau had two

        part-time employees who assisted with food preparation and other small tasks. His wife

        worked the front of the store taking orders and “handl[ing] purchase transactions” while Hau

        managed everything else, including all the cooking.

¶7         Hau prepared his sales tax returns by calculating total daily sales and reporting those

        figures along with his expenses to Tai on a monthly basis. He did not provide Tai with any of

        the physical sales receipts. Hau also initially testified that he only accepted cash payments

        during the audit period because he did not have the machine to read credit cards, however he

        changed his statement and acknowledged that there were a small percentage of credit

        transactions during the audit period. He later testified that the register machine had been

        stolen at least twice, although he only reported the theft once, and it was unclear during

        which periods of time he did not have a register.

¶8         Hau submitted into evidence copies of his tax returns for 2008, 2009, and 2010. The

        copies were signed by a preparer from First Quality Financial Group but did not bear Hau’s

        signature. Hau commented, unprompted, that he did not understand the tax forms and just


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          signed what his accountant had prepared. When asked specifically about the Schedule C

          figures, Hau responded, “To be honest, I never see this. I never see that because I have no

          knowledge how to calculate this number.” Hau further testified that although he reported the

          information to Tai, he had forgotten the amounts due to his old age. The Department objected

          to the admission of the tax returns because Hau could not authenticate the documents. The

          ALJ admitted the evidence over the Department’s objection.

¶9           Hau also submitted a copy of the restaurant’s menu representing the prices charged

          during the audit period. The most expensive item on the menu cost $16.45, the cheapest cost

          $0.60, and the majority of items cost $3 to $8. He testified that he used four sizes of

          containers, ranging from 8 to 38 ounces, to package food. The extra-large 38-ounce container

          was sparingly used for items like egg foo young. Rice would be packed for free, in a separate

          small or large container, with each purchase of a small or large entree. Some appetizers, such

          as egg rolls, were not packaged in a container at all and were placed in a small white bag

          instead. Hau also gave rough estimates about the percentage each type of item accounted for

          from his total sales, with fried rice at 50%, seafood entrees at 30%, and other meat entrees at

          20%. Hau estimated his average sales revenue to be $300 per day for Monday through

          Thursday, around $600 to $700 on Fridays and Saturdays, and that his profit margin for sales

          averaged 25%. The restaurant was closed on Sundays, holidays, and on slow nights when

          there was no business.

¶ 10         Hau testified about his expenses and stated that he would buy containers whenever they

          were on sale and place them into storage. He could not estimate how often he would deplete

          and restock the containers, which came in packs of 500. Hau also estimated that he would




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          lose money on 10% of phone orders after the customers failed to pick up and pay for their

          food.

¶ 11         Hau was questioned about a previous hearing he had against the Department regarding a

          sales tax issue. It was elicited that in relation to an audit for the period of January 1, 2005,

          through December 31, 2007, Hau and the Department reached an agreement that he would

          reduce the percentage of markup on sales. Hau denied that he had received notice or was

          informed by his accountant about the need for cash register tapes after the first audit.

          However, he stated that, in the last six months, he had begun to maintain records in a new

          way. He then attempted to submit the physical sales receipts and a prepared statement

          recording the daily gross receipts for August 2013. Although Hau testified the figures were

          “probably the same” as a monthly statement for the audit period would be, the ALJ sustained

          the Department’s objection and excluded the evidence as irrelevant to the audit period. Hau

          was asked if he also maintained purchase records, to which he stated, “Now we have, yeah,”

          and he indicated that he would have produced them for the hearing if he had been asked.

          Lastly, Hau testified that during the audit he complied fully and turned over all the sales

          receipts and purchase records he had available. He also noted that there was a leak in his

          restaurant’s roof at one point in time and there was water damage to some records, which he

          threw away.

¶ 12         After the conclusion of Hau’s testimony, the Department offered into evidence an “Audit

          Narrative” prepared by Berry on April 30, 2012, and filed with the certificate of the

          Department’s director. Berry wrote that during the audit she examined invoices, some guest

          checks, Hau’s personal tax returns and the related Schedule Cs, the monthly sales tax returns,

          bank statements, EDA-20s, as well as numerous documents prepared by Hau in Chinese and


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       No. 1-17-2588

          transmitted to Tai. These self-prepared documents included monthly receipt summaries, cash

          payouts, and inventory purchases as well as yearly recaps of sales/receipts, expenses, and

          gross profit. Berry thus found that “[t]he owner is in control of all figures that go on the

          [monthly sales tax returns] and personal returns.”

¶ 13         Berry noted that Hau’s bank deposits and cash payout reports did not match up. She

          calculated that $135,642 of unreported receipts were missing from the bank deposits. Berry

          found that Hau paid for inventory with cash and other expenses and investments were paid

          by money orders. Berry further noted that Hau also retained Tai as a personal financial

          investor and was well diversified. Although Berry worked with Tai at the beginning of the

          audit, Tai expressed that she would stop representing Hau in 2012 citing her company’s

          inability to spare the time needed to continue compliance with the audit.

¶ 14         Berry described Hau’s restaurant and her personal experience ordering food for carryout.

          She related that when paying using her debit card, she was provided with a receipt, however,

          she did not receive one when paying with cash. Rather, she noted that customers were given

          their orders with the “guest check” stapled to the bag. These guest checks were written in

          Chinese and copies of the guest checks were turned over for the audit. Berry attempted to

          schedule the receipts based on the June 2010 guest checks despite the checks being out of

          numerical order and her belief that “[t]here’s no control whatsoever for guest checks.” Berry

          calculated receipts totalling $15,200.21 based on the June 2010 guest checks, which did not

          match Hau’s reported receipts of $9,941.

¶ 15         Berry contacted the suppliers Hau relied on and requested they complete EDA-20s. Berry

          believed that purchase orders for meat and seafood were missing from the documents turned

          over for the current audit because in comparison to figures from Hau’s first audit, meat and


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       No. 1-17-2588

          seafood purchases had decreased around $23,000 annually whereas the amount of rice

          purchased remained the same. As she believed too many purchase orders were missing to

          utilize a markup method, she calculated the tax due by estimating sales receipts under “the

          container method.” She described her calculations as follows: Using 2010 as a test year,

          Berry reviewed invoices from June through August and “scheduled out all of the containers.”

          Berry then calculated the average selling price for the large and small rice orders and

          determined the average monthly receipts based on the number of containers used. From

          there, she multiplied by 12 to get the expected annual total sales receipts. She then calculated

          the tax deficiency by subtracting the reported taxable sales receipts from her calculated total

          and multiplying by the sales tax percentage.

¶ 16         Berry calculated the total tax due for the audit period as $100,002. She reported that she

          hand-delivered the audit results to Hau and informed him he had 30 days to review the audit

          and make his payment. At that point, Hau had not retained a new accountant and stated he

          would have his new accountant speak with Berry later. Berry’s narrative also referenced

          several documents in the “audit package,” however these documents were not introduced into

          evidence.

¶ 17                                   B. The ALJ’s Recommendation

¶ 18         The ALJ prepared a 12-page recommendation for disposition in which he found that the

          NTLs admitted into evidence established the Department’s prima facie case. Further, Hau did

          not have books and records available for audit as required by Illinois law. The ALJ

          concluded that, due to Hau’s failure to maintain records, the container method employed by

          the auditor to determine the unreported tax liability and related penalties was a “reasonable”

          method to estimate revenue and the related sales tax. Although Hau disputed the container


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       No. 1-17-2588

          method, Hau’s testimony about his use of the containers without documentary support was

          insufficient to disprove the reasonableness of the auditor’s calculations. The ALJ concluded

          that Hau’s submission of his tax forms was inadequate to establish that the figures listed were

          more accurate or more reasonable than the auditor’s calculations. The ALJ noted that Hau

          had not signed the tax forms and could not testify as to their accuracy. Furthermore, Hau

          testified that his accountant prepared the forms based on information that he calculated and

          submitted without the supporting physical receipts. The ALJ found that in line with case law,

          he could not find Hau’s summary calculations overcame the Department prima facie case.

¶ 19         The ALJ also found that the record failed to establish, by clear and convincing evidence,

          that Hau filed his returns with an intent to defraud. The Department had the burden to prove

          fraud, and the ALJ found that the sole support for a fraud penalty stemmed from the auditor’s

          calculation that the net tax reported percentage change was 555%. The auditor’s narrative

          directed the reader to other supporting documents which were not submitted into evidence at

          the hearing. The ALJ believed that a simple misunderstanding on Hau’s part due to the

          language barrier and his advanced age could just as likely explain his accounting errors as

          intent to defraud.

¶ 20         In addressing Hau’s remaining contentions, the ALJ found that the Department had not

          violated Hau’s due process rights in relation to waiving the statute of limitations. The ALJ

          noted that the forms indicated the waiver was marked for the benefit of the taxpayer rather

          than the Department, and the Department was not required by statute, regulation, obligation,

          or duty to present the waivers in Chinese or communicate with Hau in Chinese. The ALJ

          found that Hau had his own duty to ensure he understood the agreement before signing.




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       No. 1-17-2588

          Thus, Hau could not complain where he had the opportunity and means to seek assistance

          from counsel or his accountant prior to signing the waivers.

¶ 21         The ALJ recommended that the NTLs be revised to eliminate the fraud penalties but

          found that the alleged taxes owed and late penalties due should be finalized as assessed.

¶ 22                                      C. The Director’s Decision

¶ 23         In 2015, Department Director Constance Beard (Director) entered her decision and

          ordered finalization of the NTLs issued to Hau as they were originally entered. Although she

          adopted the majority of the ALJ’s recommendations, the Director believed that the record

          supported a fraud penalty and entered additional findings of facts and conclusions of law in

          accordance with her opinion.

¶ 24         The Director gave special consideration to the differences between Hau’s first audit and

          the current audit. The Director found that Hau had been given actual written notice of the

          record-keeping requirements. She believed he realized that if such records were not provided

          the auditor would be forced to use the markup method and roughly estimate sales based on

          purchase records. Thus, she inferred that Hau had intentionally produced fewer purchase

          records in an attempt to reduce the estimated gross sales.

¶ 25         The Director further highlighted that Hau provided the auditor with a receipt for her

          purchase on a debit card but not for the cash purchase. She also determined that at the very

          least, Hau fraudulently reported his sales based on the guest checks he had provided to the

          auditor for June 2010, which were totaled to be 150% greater than the reported receipts.

          Lastly, the Director placed emphasis on the fact that the auditor determined that Hau used

          cash from his sales to purchase savings bonds and other personal investments in amounts that

          greatly exceeded the gross receipts reported on the tax returns.

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¶ 26           Following the Director’s decision, two “Revised Final Assessments” were issued to Hau

           on June 5, 2015. For the tax period from January 1, 2008, through June 30, 2009, Hau was

           assessed as owing $143,117.26 and from July 1, 2009, through December 31, 2010,

           $88,250.28 for a total assessment of $231,367.54 2 due by July 5, 2015. Hau filed a complaint

           for administrative review on July 10, 2015.

¶ 27                                           D. Circuit Court Order

¶ 28           The circuit court held that the Act and case law established the Department’s prima facie

           case was proven by the certified exhibits. However, the court agreed with Hau that the

           auditor’s methods were “opaque at best” because she did not give a formal accounting or

           mention the exact prices used in her calculations. Given the “rather large estimate” her

           calculations netted, the court expected to see a more thorough work-up in the audit.

           Nevertheless, the court could not rule that the Department failed to meet a minimum standard

           of reasonableness. The court wrote that Hau’s challenge to the calculations lacked

           documentary evidence and could not prove that there was a better way to calculate the

           estimated sales receipts where no books and records existed. Even Hau’s testimony failed to

           mount a sufficient challenge to the auditor’s “container method,” where Hau could not

           describe the frequency of his purchases of containers, the rate at which he used them, or

           adequately describe which containers were used for which items he sold. Although the court

           was sympathetic to Hau, it did not find that the Department’s prima facie case had been

           overcome.




               2
                The revised final assessment included an additional $100 “Cost of Collection Fee” for each
       reporting period and levied additional interest charges computed through June 5, 2015.

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¶ 29         As to the fraud penalties, the court overruled the director’s decision finding that there was

          no clear showing of the prerequisite intent to fraud. Although the director drew comparisons

          to another case, the court found that the director had an aggressive reading of the evidence in

          the record and Hau’s case was distinguishable from case law in which the Department had

          submitted significantly more evidence and the taxpayer had a less believable defense. The

          court would not absolve Hau’s tax liability due to the language barrier and his old age but

          found that such circumstances called into question his intent to defraud the State. Thus, the

          court held that the Department had failed to prove fraud by clear and convincing evidence

          where fraud or general incompetence and ignorance were equally likely explanations for

          Hau’s tax deficiency.

¶ 30                                           II. ANALYSIS

¶ 31                                        A. Standard of Review

¶ 32         When an appeal is taken to the appellate court following entry of judgment by the circuit

          court on administrative review, it is the decision of the administrative agency, not the

          judgment of the circuit court, which is under consideration. See Anderson v. Department of

          Professional Regulation, 348 Ill. App. 3d 554, 560 (2004). Our statutes mandate that “[t]he

          findings and conclusions of the administrative agency on questions of fact shall be held to be

          prima facie true and correct” and “[n]o new or additional evidence in support of or in

          opposition to any finding, order, determination or decision of the administrative agency shall

          be heard by the court.” 735 ILCS 5/3-110 (West 2014). Thus our courts have held that “it is

          not a court’s function on administrative review to reweigh evidence or to make an

          independent determination of the facts.” Kouzoukas v. Retirement Board of the Policemen’s

          Annuity & Benefit Fund, 234 Ill. 2d 446, 463 (2009). When an administrative agency’s


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          factual findings are contested, the court will only ascertain whether such findings of fact are

          against the manifest weight of the evidence. Cook County Republican Party v. Illinois State

          Board of Elections, 232 Ill. 2d 231, 244 (2009).

¶ 33         Conversely, if the dispute is over an agency’s conclusion on a point of law, the decision

          of the agency is subject to de novo review by the courts. Cinkus v. Village of Stickney

          Municipal Officers Electoral Board, 228 Ill. 2d 200, 210-11 (2008). A third standard is

          applicable where the dispute concerns the legal effect of a given set of facts, i.e., where the

          historical facts are admitted or established, the rule of law is undisputed, and the issue is

          whether the facts satisfy the statutory standard. A mixed question of law and fact is reviewed

          for clear error. Exelon Corp. v. Department of Revenue, 234 Ill. 2d 266, 273 (2009). An

          administrative decision will be set aside as clearly erroneous only when the reviewing court

          is left with the definite and firm conviction that a mistake has been committed. Id.

¶ 34                                      B. The Auditor’s Narrative

¶ 35         As a preliminary matter we address Hau’s arguments regarding the admission of and use

          of the auditor’s narrative during these proceedings. Hau first challenges the admissibility of

          the narrative arguing that it did not constitute competent evidence because the auditor did not

          testify. Hau further contends it was unfair for the ALJ and Director to draw conclusions

          based on the narrative, which was not presented during the Department’s case-in-chief. Hau

          argues that the narrative was not a part of the Department’s prima facie case and therefore it

          was erroneous to cite the narrative in support of finding that Hau failed to rebut the

          Department’s prima facie case. Although Hau raised the issues as evidentiary objections, the

          Act has several applicable provisions which the Department cites in rebuttal to Hau’s




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          objections. Thus, Hau’s arguments pose mixed questions of law and fact, which we review

          for clear error.

¶ 36          First, we find that the plain language of the Act clearly negates Hau’s challenge to the

          auditor’s narrative as competent evidence. Section 8 of the Act states,

              “[t]he books, papers, records and memoranda of the Department, or parts thereof, may be

              proved in any hearing, investigation, or legal proceeding by a reproduced copy thereof

              under the certificate of the Director of Revenue. Such reproduced copy shall, without

              further proof, be admitted into evidence before the Department or in any legal

              proceeding.” 35 ILCS 120/8 (West 2014).

          Hau makes no effort to explain why the auditor’s narrative does not fall under the “books,

          papers, records and memoranda of the Department.” Hau simply repeats the same hearsay

          argument made during the hearing. We find that the auditor’s narrative was prepared as a

          memorandum of the Department detailing the procedures of the audit, certified by the

          Department’s director, and properly admitted into evidence by the ALJ. Under section 8 of

          the Act, the auditor was not required to testify in order to admit the narrative into evidence.

¶ 37          Second, we disagree with Hau that the ALJ and Director incorrectly referred to and relied

          on the auditor’s narrative to draw conclusions about the case. We find that Hau’s argument

          amounts to a mere technicality about the presentation of evidence. The Act provides that the

          Department is not bound by the technical rules of evidence during the hearing. See 35 ILCS

          120/8 (West 2014); but see Novicki v. Department of Finance, 373 Ill. 342, 344 (1940) (this

          statutory provision does not abrogate the fundamental rules of evidence). The provision

          further provides that, “[i]n the conduct of any investigation or hearing, *** no informality in

          any proceeding, or in the manner of taking testimony, shall invalidate any order, decision,

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       No. 1-17-2588

          rule or regulation made or approved or confirmed by the Department.” 35 ILCS 120/8 (West

          2014). Thus, we find no justification for invalidating the administrative decision simply

          because the ALJ or Director relied on evidence introduced in rebuttal in discussing Hau’s

          failure to overcome the Department’s prima facie case.

¶ 38         We cannot find any error in the ALJ’s admission of the auditor’s narrative into evidence

          or the ALJ’s and Director’s reliance on the narrative in drawing their conclusions.

          Accordingly, there is no reason to set aside the administrative decision on these claims.

¶ 39                                      C. The Prima Facie Case

¶ 40         Hau contends that the Department failed to present a prima facie case where the corrected

          tax return and NTLs allegedly proving the prima facie case were based on inadmissible

          hearsay. Hau further challenges the Department’s method of assessment, arguing that it failed

          to meet a minimum standard of reasonableness. In the alternative, Hau argues that he

          factually rebutted the Department’s prima facie case through his credible testimony and the

          submission of his federal income tax returns for the audit period.

¶ 41                                  1. Corrected Tax Return and NTLs

¶ 42         Like his challenge to the auditor’s narrative, Hau’s contention that the exhibits offered in

          the Department’s case-in-chief are inadmissible is negated by the Act. Section 4 of the Act

          expressly provides that:

             “In the event that the return is corrected for any reason other than a mathematical error,

             any return so corrected by the Department shall be prima facie correct and shall be

             prima facie evidence of the correctness of the amount of tax due, as shown therein. ***

                       ***



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                       Proof of such correction by the Department may be made at any hearing before

             the Department or the Illinois Independent Tax Tribunal or in any legal proceeding by a

             reproduced copy or computer print-out of the Department’s record relating thereto in the

             name of the Department under the certificate of the Director of Revenue. *** Such

             certified reproduced copy or certified computer print-out shall without further proof, be

             admitted into evidence before the Department or in any legal proceeding and shall be

             prima facie proof of the correctness of the amount of tax due, as shown therein.”

             (Emphasis added.) 35 ILCS 120/4 (West 2014).

          Here, the documents submitted were provided along with the certification of the

          Department’s director. The Act is clear that corrected tax returns are admissible and that no

          further proof is necessary. We further find that copies of the NTLs issued and submitted into

          evidence were also admissible under section 8 of the Act as “books, papers, records and

          memoranda of the Department.” See 35 ILCS 120/8 (West 2014). Thus, we find that the ALJ

          properly admitted these documents into evidence under the Act and Hau’s argument for

          setting aside the decision on this claim has no merit.

¶ 43         Furthermore, we have strictly construed the statute insofar as establishing a prima facie

          case is concerned. Masini v. Department of Revenue, 60 Ill. App. 3d 11, 14 (1978). “Illinois

          courts have uniformly sustained a prima facie case based on corrected tax returns.” Mel-Park

          Drugs, Inc. v. Department of Revenue, 218 Ill. App. 3d 203, 207 (1991). See also Central

          Furniture Mart, Inc. v. Johnson, 157 Ill. App. 3d 907, 910 (1987). Thus, the ALJ and

          Director correctly interpreted the Act and found that the Department’s submission of

          corrected returns and the NTLs established its prima facie case.

¶ 44                               2. Minimum Standard of Reasonableness


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¶ 45         Hau further challenges the Department’s prima facie case by arguing that the audit

          procedures were arbitrary and capricious resulting in an unreliable assessment. Hau contends

          that the Department’s prima facie case was not substantiated with “sufficient and probative

          documentary proofs” and, therefore, the auditor should have testified to explain and justify

          the amounts Hau was alleged to owe in tax. Hau cites Grand Liquor Co. v Department of

          Revenue, 67 Ill. 2d 195, 201-02 (1977), in support of finding that the auditor needs to testify.

          He also points to the circuit court’s finding that the auditor’s narrative was “opaque” in

          describing the methods employed to determine tax liability. Thus, Hau argues that the

          narrative was meaningless in establishing whether the Department’s methods of assessment

          met a minimum standard of reasonableness and the prima facie case must fail.

¶ 46         If the taxpayer calls into question the method employed by the Department to calculate

          the amount of tax due, then the record must show that the techniques and assumptions that

          the Department used met some minimum standard of reasonableness. Mansini, 60 Ill. App.

          3d at 14. This requirement is tied to section 4 of the Act, which states that, “the Department

          shall examine such return and shall, if necessary, correct such return according to its best

          judgment and information.” 35 ILCS 120/4 (West 2014). However, “[t]he statute does not

          spell out any precise method of producing the corrected return.” Puleo v. Department of

          Revenue, 117 Ill. App. 3d 260, 266 (1983). Hau raises a mixed question of law and fact as to

          whether the Department proved it complied with the statutory requirement of correcting

          Hau’s return using “best judgment and information,” which we review for clear error.

¶ 47         At the hearing, the Department did not offer live testimony from the auditor who

          reviewed Hau’s records and calculated his additional tax liability. In lieu of her testimony,

          the Department submitted the narrative she had typed up and submitted regarding her


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          procedures and findings. The narrative supported the Department’s argument that the audit

          was performed under a minimum standard of reasonableness. The auditor’s method of

          calculation included scheduling the containers purchased by Hau, calculating the average

          menu prices for items, and estimating gross sales revenue based on the number of containers

          used multiplied by the average sales price for that size container. This method was selected

          because the auditor believed that a significant number of purchase orders for higher priced

          items were missing. The auditor did not believe that the records did not exist or that Hau had

          simply purchased less meat and seafood because other purchases had remained consistent

          between the first time Hau was audited and this current audit. Thus, a decline in production

          and sales could not account for the disparity in the meat and seafood purchases over the

          years. Using this container method, the auditor estimated monthly sales receipts to be

          $34,600. We note that the narrative also discusses a second method of calculation in which

          the auditor reviewed the guest checks provided for June 2010 and found the receipts totalled

          $15,200.21. However, the auditor found that these guest checks were unreliable because

          there was no control for the guest checks, they were not in numerical order, and guest checks

          would be stapled to carryout bags and given to customers. From the estimated monthly sales

          receipts, the auditor was able to compare the reported figures on Hau’s returns and determine

          the amount of underreported sales receipts and tax deficiencies due.

¶ 48         After reviewing the record, we find that the Department did not employ arbitrary or

          unreasonable methods to calculate the sales tax owed. The auditor attempted several methods

          of calculations but found that both the markup method and scheduling the guest checks were

          unreliable due to Hau’s poor record keeping. Thus, the Department resorted to the container

          method.


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¶ 49         In Vitale v. Illinois Department of Revenue, 118 Ill. App. 3d 210, 212-13 (1983), the

          court recognized that auditor’s calculation method was driven by the taxpayer’s failure to

          maintain adequate records. The court further determined that the method and techniques

          employed met the requirements of the law where they were not “designed by whim or

          caprice, but rather represented a studied effort to reconstruct with limited information, and

          much hard work, the taxpayer’s business records.” Id. Similarly here, we find that the auditor

          was working with limited information, which was due to the actions or inactions of the

          taxpayer himself, and engaged in a calculated effort to obtain the best reconstruction

          possible. Therefore, we find that the Director did not commit clear error in accepting the

          auditor’s container method.

¶ 50         Hau’s complaint that the auditor’s testimony was necessary is undercut by previous cases

          that recognized the Department is not required to produce the auditor to prove up the

          Department’s prima facie case. See American Welding Supply Co. v. Department of Revenue,

          106 Ill. App. 3d 93, 99 (1982) (recognizing that statute does not require the Department to

          produce auditor for testimony). See also A.R. Barnes & Co. v. Department of Revenue, 173

          Ill. App. 3d 826, 832 (1988) (noting that the auditor or someone personally familiar with the

          case may testify). Although it may be convenient to have a fuller explanation of the

          procedures employed by the auditor, we find that the narrative submitted outlined her method

          of calculation to a sufficient degree that the Director could determine whether the method

          employed met a minimum standard of reasonableness.

¶ 51         Further, we reject Hau’s reliance on Grand Liquor, which, as the court discussed in

          Puleo, 117 Ill. App. 3d at 266-67, was limited to a set of circumstances in which “the

          corrected return was based upon data generated by a computer.” Grand Liquor is further


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          distinguishable because it concerned whether hearsay evidence could be used to shore up the

          Department’s case where the taxpayer’s books and records were available. Unlike Grand

          Liquor, Hau failed to maintain adequate books and records for the audit.

¶ 52                                          3. Hau’s Rebuttal

¶ 53         Having found that the Department properly established its prima facie case and

          demonstrated its assessment methods complied with minimum standards of reasonableness,

          we turn to Hau’s contention that he factually rebutted the Department’s corrected assessment.

          Defendant argues that the submitted income tax returns and his credible testimony were

          sufficient to overcome the Department’s prima facie case.

¶ 54         The burden was on Hau to present competent evidence to show that the Department’s

          assessment of additional tax liability was incorrect. “ ‘[A taxpayer] may not prevail by

          merely saying [his] own return was correct, ***. Simply questioning the Department of

          Revenue’s return does not shift the burden to the Department of Revenue.’ ” Masini, 60 Ill.

          App. 3d at 15 (quoting Quincy Trading Post, Inc. v. Department of Revenue, 12 Ill. App. 3d

          725, 730-31 (1973)). “[The taxpayer] must produce competent evidence, identified with [his]

          books and records and showing that the Department’s returns are incorrect.” Id. at 15 (citing

          multiple cases). “The law is well-settled that a taxpayer cannot overcome the Department’s

          prima facie case merely by denying the accuracy of the Department’s assessments or by

          suggesting hypothetical weaknesses.” Smith v. Department of Revenue, 143 Ill. App. 3d 607,

          613 (1986).

¶ 55         Hau argued that the container method used by the auditor was flawed and denied the

          estimated sales revenue as astronomically large. However, his challenge to the Department’s

          assessment consists simply of offering copies of his tax returns and his own testimony. These

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       No. 1-17-2588

          returns have little probative value as he could not testify that they were correct and he related

          that the returns were prepared by his accountant based on monthly summaries that he

          generated himself. His testimony further revealed that his accountant did not have access to

          the source material (i.e., the sales receipts) on which the summaries were based. A taxpayer’s

          failure to produce their records permits a negative inference that if the records had been

          produced, they would have reflected unfavorably on the taxpayer. Id.

¶ 56         We find that Hau’s testimony and offered evidence amount to no more than a bare

          assertion that the Department’s corrected returns were incorrect. Hau offered no evidence to

          prove the hypothetical weaknesses in the Department’s methods. Although Hau estimated his

          daily sales revenue and testified to the impoverished nature of the neighborhood, he failed to

          provide any documentary support for his claim that he could not possibly meet the estimated

          sale revenue the auditor calculated. We have consistently found that a taxpayer’s oral

          testimony without sufficient corroborative evidence will not rebut a prima facie case. Mel-

          Park Drugs, Inc., 218 Ill. App. 3d at 217; A.R. Barnes & Co., 173 Ill. App. 3d at 835; Smith,

          143 Ill. App. 3d at 613. Accordingly, we find that Hau did not factually rebut the

          Department’s prima facie case and the Director did not err in her conclusions to the contrary.

¶ 57                                D. Due Process and the Fraud Penalties

¶ 58         We briefly note that neither party raised concerns, in the circuit court or in this appeal,

          about the Director’s finding, adopted from the ALJ’s recommendation, that Hau’s due

          process rights were not violated. Thus, we do not address this issue and affirm the Director’s

          finding as written.

¶ 59         Similarly, neither party briefed the issue of whether the fraud penalties were properly

          imposed. However, the Director’s decision and the circuit court’s judgment diverge on this

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          issue placing this court in a unique position. Under administrative review, we consider only

          the administrative agency’s decision rather than the judgment of the circuit court. See

          Anderson, 348 Ill. App. 3d at 560. The question remains whether we affirm the Director’s

          imposition of the fraud penalties or, conversely, the circuit court’s finding that fraud was not

          proven by clear and convincing evidence.

¶ 60         “[U]nder our supreme court rules, both appellees and appellants forfeit any points not

          argued in their initial briefs.” Amalgamated Transit Union v. Illinois Labor Relations Board,

          Local Panel, 2017 IL App (1st) 160999, ¶ 59 (citing Ill. S. Ct. R. 341(h)(7), (i) (eff. Feb. 6,

          2013)). We have long recognized that an appellate court will not consider a point that has not

          been argued, unless justice calls for it, and this rule of practice is also applicable to appeals

          under the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2014)). See Village

          of Maywood v. Health, Inc., 104 Ill. App. 3d 948, 952 (1982). Historically, the effect of the

          dismissal of an appeal for failure of the appellant to file its brief “is an affirmance of the

          judgment of the trial court rendered following a judicial proceeding in which a judge has

          concluded that based upon the law and the facts such a judgment should be entered.” First

          Capitol Mortgage Corp. v. Talandis Construction Corp., 63 Ill. 2d 128, 131 (1976).

          Although we are instructed under Administrative Review Law to consider only the agency’s

          decision, neither party has taken issue with the fact that the Director’s decision on the

          imposition of the fraud penalty was overturned. Thus, we find that, in this instance, it is

          appropriate to affirm the circuit court’s judgment in its entirety, and we also reverse the fraud

          penalties.

¶ 61                                          III. CONCLUSION

¶ 62         For the reasons stated, we affirm the circuit court’s judgment.


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¶ 63         Affirmed.




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