Please help me figure out this IL vehicle tax issue

Factual Questions
1

TLDR summary: Stepmom gave me dad’s car after he died; IL Dept. of Revenue says I owe extra taxes and I’m not sure why or if I can fix it.

My father passed away in October 2011. My stepmother gave me his car. When I titled the car in my and my husband’s name, I was told that I had to put down a purchase price, because a stepparent doesn’t count under Exception 2c, “Transferred or purchased from spouse, parent, brother, sister, or child.” I pointed out that it really was a gift, my father was unavailable to do the gifting on account of being dead; they put down $100 for the purchase price. They checked their value tables for Illinois form RUT-50, and I paid $165 in tax. Everyone seemed a bit confused by the process, and they suggested that I have someone look at it again when I did my taxes.

Which I did. My accountant said I didn’t need to do anything else. Fast forward to last week, when I received a notice in the mail from the IL Dept. of Revenue saying that they’d processed our form RUT-50, and we didn’t make full payment by the required due date. The letter additionally states that they did an independent valuation and determined the vehicle’s value to be more than we reported (it’s certainly worth more than $100, we just didn’t pay that on account of the whole gift thing). I took all this into my accountant, and she said, “Hmm. I don’t really see many of these, so I’m not sure what to do with it. You should take it to the titling place, they’ll probably know what to do.” (As you can imagine, I’ll have a new accountant next year).

The letter says that if I do not agree, I must send a copy of my bill of sale or a dealer’s assessment of the fair market value. So, here are my questions:

  1. Can I just have my stepmom write a bill of sale for $0 (or $100, I guess)?
  2. Should the titling company have initially checked either Exception 2a (estate gift for beneficiary - not surviving spouse) or 2c (Transferred or purchased from spouse, parent, brother, sister, or child)? If yes, can they amend the form to say that?
  3. The letter states that I can protest in writing and request an administrative hearing. Do I still have to do that if I can produce a bill of sale or they amend the form?
  4. Is there anyone else who can help me figure this out? Should I look for another accountant ASAP and have them handle this?

Please feel free to ask for more information if this is unclear; I’m definitely confused about this whole process. Thank you for any advice!

2

It would seem that for that form, for vehicles which were gifts, you are required to pay tax based off the fair market value of the vehicle. You receved a notice becase you listed $100 as the purchase price and I assume paid tax based off that amount instead of the FMV.
I would look to see what FMV the state is trying to assess your vehicle at and dispute that if you think it is too high based off mileage, condition, etc. It would appear that you will owe some additional tax though because of the error on the originally filed RUT 50.

3

Also, to add to what I said above, I would check to see if a step-parent is considered the same as a parent, as you would only have to pay $15 total if you could claim that exception.
In a quick google search I did not see any info on that subject.

4

Thanks. That’s one of the things I’ve been trying to figure out, since the title clerk initially said no, but the accountant said the IRS usually treats the as equivalent.

5

This court case (pdf) mentions a transfer “from M and H jointly to C (where C is the natural child of M and the stepchild of H).” Since there’s a distinction drawn between natural and stepchild, it seems that for purposes of the Illinois Vehicle Use Tax, a stepchild would not qualify for the $15 tax rate.

6

Bump for the business week - does anyone know if I can go the bill of sale route and be ok?