The City of Chicago has begun its first tax season with the newly passed Income Tax Preparers Ordinance (the “Tax Ordinance”) with strict enforcement. On March 14, 2012, the City passed the Tax Ordinance in an effort to protect consumers from hidden fees. In an effort to enforce this Tax Ordinance, the City has sent officials from the Department of Business Affairs and Consumer Protection undercover posing as consumers. Since the Tax Ordinance requires strict compliance, the City has ticketed tax professionals that are not in full and complete compliance with the Tax Ordinance.
Under the Tax Ordinance, tax professionals are required to provide consumers with two documents. First, tax professionals must provide a “Consumer Bill of Rights Regarding Tax Preparation Services” in English and Spanish. Additionally, tax professionals must provide a “Disclosure Form.”
The “Consumer Bill of Rights Regarding Tax Preparation Services” is prepared by the City and explains consumers’ rights under the Tax Ordinance, including: 1) the right to receive a detailed explanation of the tax preparers services; 2) the right to receive a detailed explanation and estimation of the cost associated with each service; 3) the right to receive an estimation of when the consumer can expect his or her refund; and 4) the right to receive an explanation of alternate settlement products, such as a refund anticipation loan or a refund anticipate check. Both the Spanish and English versions of the Consumer Bill of Rights Regarding Tax Preparation Services can found on its website: http://www.cityofchicago.org/city/en/depts/bacp/supp_info/tax_preparation_servicesbillofrightsforconsumers.html.
The “Disclosure Form” must also be given to consumers before the tax professionals can render tax services. However, the Disclosure Form is prepared by the individual tax professionals. Accordingly, the City requires that each tax preparer’s Disclosure Form is approved annually by Department of Business Affairs & Consumer Protection. The Disclosure Form must contain: 1) a written list, description, and price of the tax preparation services offered; 2) a written list, description and price of all fees associated with each services, including filing fees and processing fees; 3) a written estimate of the total charge to the consumer based on the services the consumer has selected; 4) a written estimate of the period of time the consumer can reasonably expect to wait for his or her refund; and 5) a certification from the tax preparer indicating that the tax preparer has reviewed the disclosure with the consumer. The Disclosure Form must also be in English and Spanish.
Failure to strictly comply with the requirements of Tax Ordinance may result in fines of $250-$750 per offense. In addition, each day a violation continues may constitute a separate offense. Based on the City’s recent undercover operations, it is clear that the Tax Ordinance is a priority. Tax professionals should ensure they are compliant.
It is exceedingly rare these days to negotiate business contracts without a choice of law provision. Choice of law provisions allow parties to a contract to choose which state’s laws will apply should the parties litigate any contractual dispute. A recent Illinois appeals court case cast doubt on the power of contractual choice of law provisions to control the applicability of all Illinois laws. International Profit Associates, Inc. v. Linus Alarm Corp. __N.E.2d__, 2012 WL 236644 (Ill. App. 2012), held that contractual choice of law provisions to not control the applicability of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et. seq. (the “Fraud Act”).
In Linus, the parties formed a contract in the state of Florida and – when the defendant failed to pay under the contract – plaintiff sued defendant in Illinois for breach of contract. The defendant brought a counterclaim alleging that the plaintiff violated the Fraud Act by making false statements and misrepresentations to induce the defendant to enter into the contract. The plaintiff moved to dismiss the counterclaim. The court, relying heavily on the decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100 (2005), stated that the Fraud Act was designed to establish a cause of action for fraudulent dealings occurring within Illinois. In order for an out of state litigant to rely on the Fraud Act he must demonstrate that “the circumstances that relate to the disputed transaction occur[red] primarily and substantially in Illinois.” Linus __N.E.2d__, 2012 WL 236644 at *3. In other words, contractual choice of law provisions do not automatically mandate the application of the Fraud Act. Id. at *8.
Businesses should be aware that contractual choice of law provisions do not exist in a vacuum. When it comes to applicability of the Fraud Act, the facts and circumstances surrounding a contractual dispute will control. The more facts surrounding a contractual dispute occur within Illinois, the more likely that the Fraud Act applies. Depending on the importance of availability of a statutory fraud count, businesses may want to consider choosing a state without such limits on its consumer protection statute.