{ "id": 3949602, "name": "HERCULES, INCORPORATED, Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE et al., Defendants-Appellees", "name_abbreviation": "Hercules, Inc. v. Department of Revenue", "decision_date": "2004-03-26", "docket_number": "No. 1-02-1459", "first_page": "657", "last_page": "666", "citations": [ { "type": "official", "cite": "347 Ill. App. 3d 657" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "575 N.W.2d 111", "category": "reporters:state_regional", "reporter": "N.W.2d", "case_ids": [ 11858219 ], "weight": 2, "year": 1998, "pin_cites": [ { "page": "113", "parenthetical": "noting that Minnesota tax court had previously found the gain generated by plaintiffs sale of its interest in Himont could be apportioned in Minnesota" } ], "opinion_index": 0, "case_paths": [ "/nw2d/575/0111-01" ] }, { "cite": "351 Md. 101", "category": "reporters:state", "reporter": "Md.", "case_ids": [ 1619557 ], "weight": 4, "year": 1998, "pin_cites": [ { "page": "104" }, { "page": "277" }, { "page": "104" }, { "page": "277", "parenthetical": "noting that Maryland Special Court of Appeals had previously found that Maryland could tax a portion of the capital gain it realized from the 1987 sale of plaintiffs interest in Himont" } ], "opinion_index": 0, "case_paths": [ "/md/351/0101-01" ] }, { "cite": "680 F.2d 647", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 548614, 548943 ], "year": 1982, "pin_cites": [ { "page": "649" } ], "opinion_index": 0, "case_paths": [ "/f2d/680/0647-02", "/f2d/680/0647-01" ] }, { "cite": "487 U.S. 552", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 1775136 ], "weight": 9, "year": 1988, "pin_cites": [ { "page": "565" }, { "page": "504" }, { "page": "2550" }, { "page": "565" }, { "page": "504-05" }, { "page": "2550" }, { "page": "568-69" }, { "page": "506-07" }, { "page": "2551-52", "parenthetical": "prior judicial decisions on the merits of a position taken by a government agency are relevant to, although not necessarily dispositive of, the issue of whether the agency's position was substantially justified and thus did not warrant award of attorney fees" } ], "opinion_index": 0, "case_paths": [ "/us/487/0552-01" ] }, { "cite": "978 F.2d 1139", "category": "reporters:federal", "reporter": "F.2d", "year": 1992, "pin_cites": [ { "page": "1143", "parenthetical": "\"[t]he reasoning employed by the courts under the attorneys' fees provision of the *** Justice Act applies equally to review under section 7430 [of the Revenue Code]\"" } ], "opinion_index": 0 }, { "cite": "28 U.S.C. \u00a7 2412", "category": "laws:leg_statute", "reporter": "U.S.C.", "year": 1994, "pin_cites": [ { "page": "(d)" } ], "opinion_index": 0 }, { "cite": "26 U.S.C. \u00a7\u00a7 7430", "category": "laws:leg_statute", "reporter": "U.S.C.", "pin_cites": [ { "page": "(a)(2)" } ], "opinion_index": 0 }, { "cite": "284 Ill. App. 3d 473", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 1260410 ], "weight": 4, "year": 1996, "pin_cites": [ { "page": "483-84" }, { "page": "484" }, { "page": "484" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/284/0473-01" ] }, { "cite": "155 Ill. 2d 402", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 4810152 ], "weight": 2, "year": 1993, "pin_cites": [ { "page": "410-11" }, { "page": "411" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/155/0402-01" ] }, { "cite": "154 Ill. 2d 90", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 4820940 ], "year": 1992, "pin_cites": [ { "page": "102" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/154/0090-01" ] }, { "cite": "458 U.S. 307", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 636598 ], "weight": 3, "year": 1982, "opinion_index": 0, "case_paths": [ "/us/458/0307-01" ] }, { "cite": "504 U.S. 768", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 11730954 ], "weight": 12, "year": 1992, "pin_cites": [ { "page": "787" }, { "page": "552" }, { "page": "2263" }, { "page": "785" }, { "page": "550" }, { "page": "2262" }, { "page": "787" }, { "page": "552" }, { "page": "2263" }, { "page": "785" }, { "page": "550" }, { "page": "2262" } ], "opinion_index": 0, "case_paths": [ "/us/504/0768-01" ] }, { "cite": "197 Ill. 2d 560", "category": "reporters:state", "reporter": "Ill. 2d", "year": 2001, "opinion_index": 0 }, { "cite": "324 Ill. App. 3d 329", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 256305 ], "weight": 16, "year": 2001, "pin_cites": [ { "page": "344" }, { "page": "336" }, { "page": "336-43" }, { "page": "337" }, { "page": "337" }, { "page": "339" }, { "page": "340" }, { "page": "340" }, { "page": "340-41" }, { "page": "337" }, { "page": "338-39" }, { "page": "338-40" }, { "page": "338-39" }, { "page": "329" }, { "page": "338-39" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/324/0329-01" ] } ], "analysis": { "cardinality": 785, "char_count": 22743, "ocr_confidence": 0.73, "pagerank": { "raw": 4.03580807328026e-08, "percentile": 0.1217513067364159 }, "sha256": "725fdc38dd9f7fa64c89ae01cb7a2a900542bf08178cb2e7fe8cb695fe420bb6", "simhash": "1:21772e87cf45b555", "word_count": 3662 }, "last_updated": "2023-07-14T18:28:47.759631+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "GALLAGHER and FITZGERALD SMITH, JJ., concur." ], "parties": [ "HERCULES, INCORPORATED, Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE et al., Defendants-Appellees." ], "opinions": [ { "text": "PRESIDING JUSTICE O\u2019MARA FROSSARD\ndelivered the opinion of the court:\nPlaintiff Hercules, Inc., filed a two-count second amended complaint for administrative review against defendants the Illinois Department of Revenue and Kenneth Zehnder, the Department\u2019s director, after the Department found plaintiff owed taxes on a $1.3 billion capital gain it earned in 1987. Count I of the complaint sought reversal of the Department\u2019s finding of deficiency, and count II sought attorney fees under section 7 of the Taxpayers\u2019 Bill of Rights Act (Act) (20 ILCS 2520/7 (West 2000)). The circuit court entered an order affirming the Department\u2019s finding of deficiency. Plaintiff appealed the circuit court\u2019s order, and we in turn reversed the circuit court\u2019s finding of deficiency. See Hercules, Inc. v. Department of Revenue, 324 Ill. App. 3d 329 (2001), appeal denied, 197 Ill. 2d 560 (2001). After we issued the mandate returning the case to the circuit court, plaintiff filed a motion requesting the circuit court to reinstate its claim for attorney fees and enter summary judgment in its favor on that claim. The trial court entered an order reinstating plaintiffs claim for attorney fees, but denied its motion for summary judgment and dismissed its action. Plaintiff now appeals that order, contending that the trial court improperly denied its motion and dismissed its attorney fee claim because the Department did not have reasonable cause under section 7 of the Act to issue the notice of deficiency.\nBACKGROUND\nIn 1987, plaintiff, a global chemical manufacturing and aerospace company doing business in Illinois, sold its interest in a joint venture, known as Himont, and realized a $1.3 billion gain from that sale. Plaintiff reported the gain as nonbusiness income on its 1987 Illinois income tax return. After auditing plaintiff and determining that this capital gain constituted business income, the Department issued a notice of deficiency for additional taxes, interest, and penalties. Plaintiff filed a protest, and an administrative law judge (ALJ) subsequently conducted a hearing at which evidence was presented regarding the formation of Himont and its relationship to plaintiff. Plaintiff contended in a posthearing memorandum that it was not operationally integrated with Himont after Himont\u2019s formation, and thus the gain from the sale of its stock in the joint venture was not constitutionally apportionable in Illinois.\nFollowing the hearing, the ALJ recommended that the Department sustain the notice of tax deficiency. The ALJ found that the capital gain income qualified as business income under section 1501(a)(1) of the Illinois Income Tax Act (Tax Act) (35 ILCS 5/1501(a)(l) (West 2000)). The ALJ observed that courts apply either a transactional or functional test when applying section 1501(a)(1) of the Tax Act. The ALJ found that the gain qualified as business income under the transactional test because creating and selling joint ventures was a regular practice of plaintiff.\nThe ALJ also found that the capital gain qualified as business income under the functional test because Himont was an asset used in plaintiff\u2019s regular trade or business. The ALJ reasoned that the income received by plaintiff was not just a result of a sale of stock but of the transfer of its entire polypropylene operation to Himont. The ALJ next found a unitary business relationship existed between plaintiff and Himont\u2019s manufacture and sale of polypropylene. The ALJ thus believed that because plaintiff and Himont were functionally integrated, they had a sufficient nexus with Illinois to allow the Department to tax plaintiffs income from the sale of stock. The Department adopted the ALJ\u2019s decision.\nPlaintiff filed a petition for administrative review in the circuit court, and the circuit court in turn affirmed the Department\u2019s decision. The circuit court agreed with the ALJ that there was a unitary business relationship between Himont and plaintiff. The court found that the Himont stock sold by plaintiff was an integral part of its regular trade or business operations and thus qualified as business income under the functional test.\nThe circuit court subsequently granted a motion for reconsideration filed by plaintiff and vacated its prior decision and order. Thereafter, the court issued a memorandum decision and order affirming the Department\u2019s decision \u201cbased on different application of the law to the facts from those espoused by the [ALJ].\u201d The circuit court reversed its finding in the previous order that a unitary business relationship existed. The court also reversed its conclusion that the ALJ properly found the transactional test was satisfied. In support of that reversal the court noted the absence of evidence that plaintiff was in the business of forming and divesting itself of joint ventures. Despite its reversal of these findings, the court concluded that the functional test for business income was satisfied. In support of this conclusion, the court noted Himont was not simply a passive investment of plaintiff, but was an asset used in its regular trade and business. The court further noted that the gain from its sale was used for operational functions. The court also concluded that the commerce clause and due process clause of the United States Constitution (U.S. Const., art. I, \u00a7 8, amend. XIV) did not preclude the Department from taxing the subject gain, based on its finding that \u201cthere was an operational function between [plaintiff] and Himont when it surrendered its stock to allow for an initial public offering [which] was a means of supplying financial support to Himont.\u201d\nPlaintiff appealed the circuit court\u2019s order affirming the tax to this court, and we in turn reversed that order. See Hercules, 324 Ill. App. 3d at 344. In our decision, we noted that the United States Supreme Court has adopted two tests to determine whether a state may apportion income of a nondomiciliary corporation: the \u201cunitary business relationship\u201d test and the \u201coperational function\u201d test. Hercules, 324 Ill. App. 3d at 336, citing Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768, 787, 119 L. Ed. 2d 533, 552, 112 S. Ct. 2251, 2263 (1992). After noting the Department, in the instant case, acknowledged that the unitary test had not been satisfied, we reviewed the applicability of the operational function test to the income at issue. Hercules, 324 Ill. App. 3d at 336-43. Under the operational function test, a state may apportion income \u201cwhen the capital transaction serves an operational rather than an investment function.\u201d Hercules, 324 Ill. App. 3d at 337. \u201cThe relevant inquiry in determining whether a capital transaction involving an asset serves an investment or operational function \u2018focuses on the objective characteristics of the asset\u2019s use and its relation to the taxpayer and its activities within the taxing State.\u2019 \u201d Hercules, 324 Ill. App. 3d at 337, quoting Allied-Signal, Inc., 504 U.S. at 785, 119 L. Ed. 2d at 550, 112 S. Ct. at 2262.\nWe observed that ASARCO Inc. v. Idaho State Tax Comm\u2019n, 458 U.S. 307, 73 L. Ed. 2d 787, 102 S. Ct. 3103 (1982), was \u201cinstructive\u201d in determining whether the operational function test was satisfied. Hercules, 324 Ill. App. 3d at 339. After analyzing the facts presented to the ALJ in light of ASARCO, we found no \u201csignificant\u201d distinction between the investment at issue in ASARCO and plaintiffs investment in Himont. Hercules, 324 Ill. App. 3d at 340. Thus, we rejected the Department\u2019s argument that \u201cthere was a significant flow of value between Hercules and Himont, well beyond what the facts showed in ASARCO.\u201d Hercules, 324 Ill. App. 3d at 340. In support of our decision, we also noted that the highest courts in Minnesota and Maryland had each recently reviewed plaintiffs sale of Himont stock, the same transaction before us, and concluded that the capital gain earned from that transaction was not apportionable in the respective states over which those courts presided. Hercules, 324 Ill. App. 3d at 340-41.\nIn January 2002, this court issued the mandate transferring this case to the circuit court. In February 2002, plaintiff filed a motion seeking to reinstate and obtain summary judgment on count II of its second amended complaint, which sought attorney fees under the Act. Plaintiff contended in its motion that the Department was required to pay its attorney fees because the Department did not have \u201creasonable cause\u201d under section 7 of the Act for issuing the deficiency. Plaintiff noted that the term \u201creasonable cause\u201d under section 7 had not previously been interpreted and argued that it should be construed as it had been under other Illinois tax-related statutory provisions.\nThe Department filed a response to plaintiffs motion for summary judgment, contending that it had \u201creasonable cause\u201d for issuing the deficiency and that \u201creasonable cause\u201d should be construed in accordance with the standard applied by federal courts to the federal statute upon which the Act was modeled.\nOn May 9, 2002, following a hearing on plaintiffs motion, the circuit court entered an order reinstating plaintiffs claim for attorney fees, denying its motion for summary judgment, and dismissing the case. Although the circuit court\u2019s order did not expressly state the basis for the dismissal, the court\u2019s oral findings, which the written order incorporated, reflect that it dismissed plaintiffs case because the undisputed facts established, as a matter of law, that the Department had \u201creasonable cause\u201d under section 7 of the Act for issuing the subject notice of deficiency. The court found that the proper standard for determining whether the Department had reasonable cause was whether the Department\u2019s position was \u201csubstantially justified.\u201d The court noted, in reliance upon both federal cases and California state cases, that a \u201csubstantially justified\u201d position was one that had a reasonable basis in law and fact. The court rejected plaintiffs argument that the \u201creasonable cause\u201d language in section 7 had the same meaning as that phrase did under the Illinois statute authorizing imposition of penalties against taxpayers for nonpayment of taxes. The circuit court ultimately concluded that the Department\u2019s tax proceedings against plaintiff \u201cdid not exceed the bounds of reason\u201d and that our prior decision did not indicate the Department lacked reasonable cause for its position.\nANALYSIS\nSummary judgment should be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992). In reviewing a motion for summary judgment, the trial court is required to consider affidavits, depositions, admissions, exhibits, and pleadings on file and to construe them strictly against the moving party and liberally in favor of the nonmoving party. In re Estate of Hoover, 155 Ill. 2d 402, 410-11 (1993). We apply de novo review to orders granting summary judgment. In re Hoover, 155 Ill. 2d at 411.\nPlaintiff contends on appeal that the trial court improperly denied its motion for summary judgment and dismissed its case because the facts established, as a matter of law, that the Department did not have \u201creasonable cause\u201d for issuing the notice of deficiency in question.\nSection 7 of the Act states in relevant part:\n\u201cThe fees for an attorney *** to aid a taxpayer in an administrative hearing relating to the tax liability or in court shall be recoverable against the Department of Revenue if the taxpayer prevails in an action under the Adminstrative Review Law and the Department has made an assessment or denied a claim without reasonable cause.\u201d (Emphasis added.) 20 ILCS 2520/7 (West 2000).\nThe parties do not dispute the underlying facts in the instant case. Rather, they dispute whether those facts establish as a matter of law that the Department had \u201creasonable cause\u201d under section 7 to issue the subject notice of deficiency. Our research reveals no case in which an Illinois court of review has previously addressed what it means to tax a party \u201cwithout reasonable cause\u201d under section 7 of the Act.\nPlaintiff recognizes that the Act does not define the term \u201creasonable cause\u201d and observes that neither the supreme court nor the appellate court has previously interpreted this phrase under section 7. Plaintiff notes, however, that other Illinois tax statutes use the phrase \u201creasonable cause,\u201d that Illinois courts have interpreted the meaning of that phrase under those statutes; and that the same interpretation applied in those cases should be applied in the instant case. Specifically plaintiff notes that section 3 \u2014 8 of the Uniform Penalty and Interest Act and the predecessor of section 1005 of the Tax Act provide that penalties for the underpayment of taxes shall not be imposed if the taxpayer shows the underpayment was due to \u201creasonable cause.\u201d 35 ILCS 5/1005 (West 1994); 35 ILCS 735/3 \u2014 8 (West 2000). In addition, plaintiff cites Kroger Co. v. Department of Revenue, 284 Ill. App. 3d 473 (1996), as the leading case interpreting \u201creasonable cause.\u201d\nIn Kroger, the reviewing court addressed whether a taxpayer had \u201creasonable cause\u201d under section 1005 of the Tax Act for underpaying taxes. Kroger, 284 Ill. App. 3d at 483-84. The court observed that \u201c[Reasonable cause generally has been interpreted to mean the exercise of ordinary business care,\u201d and that \u201c[t]he existence of reasonable cause justifying abatement of a penalty is a factual determination that can be decided only on a case-by-case basis.\u201d (Emphasis added.) Kroger, 284 Ill. App. 3d at 484. The Kroger court ultimately held that the underpayment at issue was not supported by reasonable cause, reasoning that the taxpayer ignored an on-point case which articulated a valid legal theory upon which to impose a penalty. Kroger, 284 Ill. App. 3d at 484.\nDefendants reject plaintiffs argument that \u201creasonable cause\u201d under section 7 of the Act is synonymous with the \u201cexercise of ordinary business care.\u201d They contend that the legislative history of the Act indicates it was modeled after the federal Omnibus Taxpayers\u2019 Bill of Rights Act (federal Act), which was enacted in 1988, one year prior to the enactment of the Illinois Act. Defendants argue that we must thus look to and follow the federal courts\u2019 interpretation of the standard included in the federal Act in order to construe \u201creasonable cause\u201d under section 7 of the Illinois Act.\nThe federal Act amended the Internal Revenue Code (Revenue Code) to provide that a prevailing party in a tax dispute with the federal government may be awarded attorney fees if the government does not establish that its position in the proceeding was \u201csubstantially justified.\u201d Act of November 10, 1988, Pub. L. No. 100 \u2014 647, \u00a7 6239. This attorney fee provision is now codified at section 7430 of the Revenue Code (26 U.S.C. \u00a7\u00a7 7430(a)(2), (c)(4)(B)(i) (1994)), and is subject to the same substantial justification standard included in the attorney fee provision of the Equal Access to Justice Act (Justice Act) (28 U.S.C. \u00a7 2412(d) (1994)). See Huffman v. Commissioner of Internal Revenue, 978 F.2d 1139, 1143 (9th Cir. 1992) (\u201c[t]he reasoning employed by the courts under the attorneys\u2019 fees provision of the *** Justice Act applies equally to review under section 7430 [of the Revenue Code]\u201d). Under the Justice Act, a position is substantially justified \u201c \u2018if reasonable people could differ as to [the appropriateness of the contested action].\u2019 \u201d Pierce v. Underwood, 487 U.S. 552, 565, 101 L. Ed. 2d 490, 504, 108 S. Ct. 2541, 2550 (1988), quoting Reygo Pacific Corp. v. Johnston Pump Co., 680 F.2d 647, 649 (9th Cir. 1982). Or, stated another way, the government\u2019s position is \u201csubstantially justified\u201d if it has a \u201creasonable basis both in law and fact.\u201d See Pierce, 487 U.S. at 565, 101 L. Ed. 2d at 504-05, 108 S. Ct. at 2550.\nWe find the Department\u2019s decision to tax plaintiff was supported by \u201creasonable cause\u201d regardless of whether that statutory term is construed in accordance with the \u201cordinary business care\u201d standard articulated in Kroger and advocated by plaintiff or in accordance with the federal standard advocated by defendants. We believe that \u201creasonable cause\u201d is to be determined on a case-by-case basis in the context of the law and the facts. The determination of reasonable cause involves review of the legal theory relied upon by the Department to support its action and the facts relied upon by the Department to support that theory.\nIn the prior appeal of this case, defendants relied upon the operational function test articulated by the United States Supreme Court in Allied-Signal to support their decision to tax the gain generated by the sale of plaintiffs interest in Himont. Plaintiff does not dispute that this was a valid legal theory which, if satisfied, would warrant apportionment of the tax in question. Under the operational function test, the State may apportion the income generated by the sale of capital when that capital serves an operational rather than an investment function. Allied-Signal, 504 U.S. at 787, 119 L. Ed. 2d at 552, 112 S. Ct. at 2263. \u201cThe relevant inquiry in determining whether a capital transaction involving an asset serves an investment or operational function \u2018focuses on the objective characteristics of the asset\u2019s use and its relation to the taxpayer and its activities within the taxing State.\u2019 \u201d Hercules, 324 Ill. App. 3d at 337, quoting Allied-Signal, 504 U.S. at 785, 119 L. Ed. 2d at 550, 112 S. Ct. at 2262.\nIn our prior decision, we found that the facts in the record were insufficient to establish that the operational function test had been satisfied. Hercules, 324 Ill. App. 3d at 338-39. In support of that decision, we analogized the facts before us with those present in ASARCO and noted that the United States Supreme Court\u2019s opinion in that case was instructive. We did not, however, find that there were no facts whatsoever to support the Department\u2019s theory that the operational function test had been satisfied. Nor did we find that the facts relied upon by the Department were categorically unrelated to the theory in question. Hercules, 324 Ill. App. 3d at 338-40. Indeed, we cited the facts relied upon by the Department and found the record insufficient to \u201csupport the conclusion that an integral, operational relationship existed between Hercules and Himont.\u201d Hercules, 324 Ill. App. 3d at 338-39. That finding did not indicate the Department\u2019s reliance on those facts was unreasonable.\nWe recognize that the Minnesota Supreme Court and the Court of Appeals of Maryland examined the sale of plaintiffs interest in Himont, the same transaction at issue in this case, and found that the income generated by that sale was not apportionable in the respective states over which they preside. See Hercules Inc. v. Comptroller of the Treasury, 351 Md. 101, 104, 716 A.2d 276, 277 (1998); Hercules Inc. v. Commissioner of Revenue, 575 N.W.2d 111. 113 (Minn. 1998). We note, however, that the decisions in those cases were issued after the hearing on plaintiffs administrative appeal was conducted in the instant case. Furthermore, we note that prior to these rulings, courts in both Maryland and Minnesota found that there was a legal and factual basis for apportioning income generated by the sale of plaintiffs interest in Himont. See Hercules Inc., 351 Md. at 104, 716 A.2d at 277 (noting that Maryland Special Court of Appeals had previously found that Maryland could tax a portion of the capital gain it realized from the 1987 sale of plaintiffs interest in Himont); Hercules Inc., 575 N.W.2d at 113 (noting that Minnesota tax court had previously found the gain generated by plaintiffs sale of its interest in Himont could be apportioned in Minnesota).\nThe decisions of the above courts, along with the trial court\u2019s initial decision in the instant case affirming the ALJ, the trial court\u2019s subsequent modified decision reaffirming the ALJ on a different basis, and our own opinion (Hercules, 324 Ill. App. 3d at 329), reflect that judicial review of the Department\u2019s decision to tax a portion of the income generated by plaintiff\u2019s sale required, not application of a simple formula or equation, but rather application of the law to a complex set of facts. We recognize that the prior decisions of the Minnesota tax court, the Maryland Special Court of Appeals, and the circuit court in the instant case do not in and of themselves mandate the conclusion that the Department\u2019s position was supported by reasonable cause. We note, however, that these prior decisions are relevant to the issue in question and lend support to our conclusion that the Department\u2019s decision to tax plaintiff was supported by reasonable cause. See Pierce, 487 U.S. at 568-69, 101 L. Ed. 2d at 506-07, 108 S. Ct. at 2551-52 (prior judicial decisions on the merits of a position taken by a government agency are relevant to, although not necessarily dispositive of, the issue of whether the agency\u2019s position was substantially justified and thus did not warrant award of attorney fees). Whether \u201creasonable cause\u201d is interpreted as exercise of ordinary business care, or as substantially justified by having a reasonable basis in both law and fact, we conclude for the reasons previously discussed that the Department had \u201creasonable cause\u201d to issue the notice of deficiency.\nCONCLUSION\nIf the operational function test had been satisfied, the Department could have properly taxed the sale of plaintiffs interest in Himont. However, we found in our previous opinion the facts reflected by the record were insufficient to establish that the operational function test had been satisfied. Hercules, 324 Ill. App. 3d at 338-39. That finding does not indicate that the Department\u2019s reliance on those facts was unreasonable. That finding does not indicate the Department failed to exercise ordinary business care in relying on those facts. As previously noted, the facts were insufficient to satisfy the operational function test.\nBased on the foregoing reasons, we affirm the decision of the circuit court denying plaintiffs motion for summary judgment and dismissing plaintiffs claim for attorney fees.\nAffirmed.\nGALLAGHER and FITZGERALD SMITH, JJ., concur.", "type": "majority", "author": "PRESIDING JUSTICE O\u2019MARA FROSSARD" } ], "attorneys": [ "Foley & Lardner, of Chicago (Fred M. Ackerson and Andrew L. Reisman, of counsel), for appellant.", "Lisa Madigan, Attorney General, of Chicago (Brian F. Barov, Assistant Attorney General, of counsel), for appellees." ], "corrections": "", "head_matter": "HERCULES, INCORPORATED, Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE et al., Defendants-Appellees.\nFirst District (6th Division)\nNo. 1\u201402\u20141459\nOpinion filed March 26, 2004.\nFoley & Lardner, of Chicago (Fred M. Ackerson and Andrew L. Reisman, of counsel), for appellant.\nLisa Madigan, Attorney General, of Chicago (Brian F. Barov, Assistant Attorney General, of counsel), for appellees." }, "file_name": "0657-01", "first_page_order": 675, "last_page_order": 684 }