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                                                                                                                                                                     FIRST DIVISION
                                                                                                                                                                     December 12, 2005

JUSTICE McBRIDE delivered the opinion of the court:

This appeal arises from an administrative review action filed by plaintiff-appellee, HollingerInternational, Inc. (Hollinger), against the defendant-appellant, the Illinois Department of Revenue(Department). The Department assessed certain penalties against Hollinger under section 1005(a)of the Illinois Income Tax Act (35 ILCS 5/1005(a)(West 2000))(Income Tax Act) due to Hollinger'sunderpayment of estimated income tax for the first and second quarters of 1998. Hollinger paid thepenalties assessed but sought a refund on the ground that its reliance upon the advice of itsaccountant constituted reasonable cause for abatement of the penalties. The Department finalizedthe prior assessment of penalties and Hollinger sought review in the trial court. On review, the trialcourt reversed the final administrative decision assessing the penalties and the Department hasappealed.

On appeal we determine whether the Department's determination that penalties should beimposed upon Hollinger based on its underpayment of estimated tax installments for the first andsecond quarters of 1998 was against the manifest weight of the evidence. Although the trial court also reversed a penalty against Hollinger for failing to timely file its third quarter estimated taxesfor 1998, the Department only appeals the trial court's reversal of the penalties imposed for theunderpayment of estimated tax installments for the first and second quarters of 1998. Therefore, ourreview is limited to these penalties only. Before we analyze the question on appeal, we set forth ourstandard of review and the relevant tax law.

In an administrative review action, the appellate court reviews the agency's decision and notthe determination of the trial court. Metropolitan Water Reclamation District of Greater Chicagov. Department of Revenue, 313 Ill. App. 3d 469, 474, 729 N.E.2d 924 (2000). We note that "thefindings and conclusions of an administrative agency are prima facie correct and will not bedisturbed unless they are against the manifest weight of the evidence. [Citation.]" Soho Club, Inc.v. Department of Revenue, 269 Ill. App. 3d 220, 228, 645 N.E.2d 1060 (1995). The reviewingcourt's function is not to "reweigh the evidence or make an independent determination of the facts." Abrahamson v. Illinois Department of Professional Regulation, 153 Ill. 2d 76, 88, 606 N.E.2d 1111(1992). The decision of an administrative agency is against the manifest weight of the evidence onlyif the opposite conclusion is clearly evident. Abrahamson, 153 Ill. 2d at 88.

Specifically, an agency's determination as to whether reasonable cause existed in justifyingthe abatement of a tax penalty will be reversed only if the agency's decision was against the manifestweight of the evidence and only if the opposite conclusion was clearly evident. PPG Industries, Inc.v. Department of Revenue, 328 Ill. App. 3d 16, 21, 765 N.E.2d 34 (2002). The existence ofreasonable cause justifying abatement of a tax penalty is a factual determination that is to be decidedonly on a case-by-case basis. PPG Industries, Inc., 328 Ill. App. 3d at 21. The taxpayer has theburden of proving by competent evidence that the proposed assessment is not correct. Fillichio v.Department of Revenue, 15 Ill. 2d 327, 333, 155 N.E.2d 3 (1958). With regard to questions relatingto "a statute that an agency is charged with enforcing, the agency's interpretation is entitled tosubstantial weight and deference, but it does not bind the court and will be rejected when erroneous." Peoria & Pekin Union R.Co. v. Department of Revenue, 301 Ill. App. 3d 736, 740, 704 N.E.2d 884(1998).

The "starting point" for taxation of a corporation in Illinois is set forth in section 201(a) ofthe Income Tax Act, which states, "[a] tax measured by net income is hereby imposed on every ***corporation *** [for] the privilege of earning or receiving income in or as a resident of this State." 35 ILCS 5/201(a) (West 2000); Rockwood Holding Co. v. Department of Revenue, 312 Ill. App. 3d1120, 1123-24, 728 N.E.2d 519 (2000). The Income Tax Act defines "net income" in section 202as "that portion of [the taxpayer's] base income *** which is allocable to this State *** less thestandard exemption allowed by Section 204 and the deduction allowed by Section 207." 35 ILCS5/202 (West 2000); Rockwood Holding Co., 312 Ill. App. 3d at 1124. In general, the "base income" for a corporation means "an amount equal to the taxpayer's taxable income for the taxable year." 35 ILCS 5/203(b)(1) (West 2000); Rockwood Holding Co., 312 Ill. App. 3d at 1124. "Taxableincome" generally means "the amount of *** taxable income properly reportable for federal incometax purposes for the taxable year under the provisions of the Internal Revenue Code." 35 ILCS5/203(e)(1) (West 2000); Rockwood Holding Co., 312 Ill. App. 3d at 1124. Thus, the Income TaxAct " 'piggy-backs' onto the federal calculation of income and uses federal taxable income as thepremise for tax liability. [Citations.]" Rockwood Holding Co., 312 Ill. App. 3d at 1124. "[F]ederaltaxable income is the starting point when determining a corporation's state income tax liability." Peoria & Pekin Union R. Co., 301 Ill. App. 3d at 740.

Section 803 of the Income Tax Act provides, in relevant part:

"Payment of Estimated Tax.

(a) Every taxpayer other than an estate, trust, partnership,Subchapter S corporation or farmer is required to pay estimated taxfor the taxable year, in such amount and with such forms as theDepartment shall prescribe, if the amount payable as estimated taxcan reasonably be expected to be more than (i) $250 for taxable yearsending before December 31, 2001 and $500 for taxable years endingon or after December 31, 2001 or (ii) $400 for corporations.

(b) Estimated tax defined. The term 'estimated tax' means theexcess of:

(1) The amount which the taxpayer estimates to be histax under this Act for the taxable year, over

(2) The amount which he estimates to be the sum ofany amounts to be withheld on account of or creditedagainst such tax.

* * *

(d) There shall be paid 4 equal installments of estimated taxfor each taxable year, payable as follows:

Required Installment: Due Date:

1st April 15

2nd June 15

3rd September 15

4th *** Corporations:December 15."

35 ILCS 5/803(a), (b),(d) (West 2000).

Section 804 of the Income Tax Act provides, in relevant part:

"Failure to Pay Estimated Tax.

(a) In general. In case of any underpayment of estimated taxby a taxpayer, except as provided in subsection (d) or (e), the taxpayershall be liable to a penalty in an amount determined at the rateprescribed by Section 3-3 of the Uniform Penalty and Interest Actupon the amount of the underpayment (determined under subsection(b)) for each required installment.

(b) Amount of underpayment. For purposes of subsection (a)the amount of the underpayment shall be the excess of:

(1) the amount of the installment which would berequired to be paid under subsection (c), over

(2) the amount, if any, of the installment paid on orbefore the last date prescribed for payment.

(c) Amount of Required Installments.

(1) Amount.

(A) In General. Except as provided inparagraph (2), the amount of any required installmentshall be 25% of the required annual payment.

(B) Required Annual Payment. For purposesof subparagraph (A), the term 'required annualpayment' means the lesser of

(i) 90% of the tax shown on the return forthe taxable year, or if no return is filed, 90% of the taxfor such year, or

(ii) 100% of the tax shown on the return of thetaxpayer for the preceding taxable year if a returnshowing a liability for tax was filed by the taxpayerfor the preceding taxable year and such precedingyear was a taxable year of 12 months.

* * *

(e) The penalty imposed for underpayment of estimated tax bysubsection (a) of this Section shall not be imposed to the extent thatthe Department or his designate determines, pursuant to Section 3-8of the Uniform and Penalty and Interest Act that the penalty shouldnot be imposed." (Emphasis added.) 35 ILCS 5/804(a),(b),(c),(e)(West 2000).

Section 904(a) of the Income Tax Act provides that if the Department finds that the amountof tax shown on the return is less than the correct amount, it shall issue a notice of deficiency to thetaxpayer which shall set forth the amount of tax and penalties proposed to be assessed. 35 ILCS5/904(a)(West 2000).

Section 1005(a) of the Income Tax Act requires that if any amount of tax to be shown on areturn is not paid on or before the date required for filing such return, a penalty shall be imposed inthe manner and rate prescribed by the Uniform Penalty and Interest Act. 35 ILCS 5/1005(a)(West2000).

Section 3-3(b-5)(1) of the Uniform Penalty and Interest Act states:

"This subsection is applicable to returns due on and afterJanuary 1, 1998 and on or before December 31, 2000. A penalty of20% of the tax shown on the return or the tax required to be showndue on the return shall be imposed for failure to pay:

(1) the tax shown due on the return on or before the due dateprescribed for payment of that tax, an amount of underpayment ofestimated tax, or an amount that is reported in an amended returntimely filed as required by subsection (b) of Section 506 of theIllinois Income Tax Act (penalty for late payment or nonpayment ofadmitted liability) ***. " 35 ILCS 735/3-3(b-5)(1) (West 2000).

Section 3-8 of the Uniform Penalty and Interest Act states:

"No penalties if reasonable cause exists. The penaltiesimposed under the provisions of Sections 3-3, 3-4, 3-5, and 3-7.5 ofthis Act shall not apply if the taxpayer shows that his failure to file areturn or pay tax at the required time was due to reasonable cause. Reasonable cause shall be determined in each situation in accordancewith the rules and regulations promulgated by the Department. Ataxpayer may protest the imposition of a penalty under Section 3-3,3-4, 3-5, or 3-7.5 on the basis of reasonable cause without protestingthe underlying tax liability." 35 ILCS 735/3-8 (West 2000).

Section 700.400 of the Department's regulations establishes a "waiver rule" where theimposition of a tax penalty may be abated if reasonable cause is found. 86 Ill. Admin Code