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91st General Assembly
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Public Act 91-0205

SB665 Enrolled                                 LRB9103055PTpk

    AN ACT to amend the Illinois Income Tax Act  by  changing
Section 203.

    Be  it  enacted  by  the People of the State of Illinois,
represented in the General Assembly:

    Section 5.  The Illinois Income Tax  Act  is  amended  by
changing Section 203 as follows:

    (35 ILCS 5/203) (from Ch. 120, par. 2-203)
    Sec. 203.  Base income defined.
    (a)  Individuals.
         (1)  In general.  In the case of an individual, base
    income  means  an amount equal to the taxpayer's adjusted
    gross  income  for  the  taxable  year  as  modified   by
    paragraph (2).
         (2)  Modifications.    The   adjusted  gross  income
    referred to in paragraph (1) shall be modified by  adding
    thereto the sum of the following amounts:
              (A)  An  amount  equal  to  all amounts paid or
         accrued to the taxpayer  as  interest  or  dividends
         during  the taxable year to the extent excluded from
         gross income in the computation  of  adjusted  gross
         income,  except  stock dividends of qualified public
         utilities  described  in  Section  305(e)   of   the
         Internal Revenue Code;
              (B)  An  amount  equal  to  the  amount  of tax
         imposed by this Act  to  the  extent  deducted  from
         gross  income  in  the computation of adjusted gross
         income for the taxable year;
              (C)  An amount equal  to  the  amount  received
         during  the  taxable year as a recovery or refund of
         real  property  taxes  paid  with  respect  to   the
         taxpayer's principal residence under the Revenue Act
         of  1939  and  for  which a deduction was previously
         taken under subparagraph (L) of this  paragraph  (2)
         prior to July 1, 1991, the retrospective application
         date  of Article 4 of Public Act 87-17.  In the case
         of  multi-unit  or  multi-use  structures  and  farm
         dwellings, the taxes  on  the  taxpayer's  principal
         residence  shall  be that portion of the total taxes
         for the entire property  which  is  attributable  to
         such principal residence;
              (D)  An  amount  equal  to  the  amount  of the
         capital gain deduction allowable under the  Internal
         Revenue  Code,  to  the  extent  deducted from gross
         income in the computation of adjusted gross income;
              (D-5)  An amount, to the extent not included in
         adjusted gross income, equal to the amount of  money
         withdrawn by the taxpayer in the taxable year from a
         medical care savings account and the interest earned
         on  the  account in the taxable year of a withdrawal
         pursuant to subsection (b)  of  Section  20  of  the
         Medical Care Savings Account Act; and
              (D-10)  For taxable years ending after December
         31,  1997,  an  amount   equal   to   any   eligible
         remediation  costs  that  the individual deducted in
         computing adjusted gross income and  for  which  the
         individual  claims  a credit under subsection (l) of
         Section 201;
    and by deducting from the total so obtained  the  sum  of
    the following amounts:
              (E)  Any  amount  included  in  such  total  in
         respect  of  any  compensation  (including  but  not
         limited  to  any  compensation  paid or accrued to a
         serviceman while a prisoner of  war  or  missing  in
         action)  paid  to  a  resident by reason of being on
         active duty in the Armed Forces of the United States
         and in respect of any compensation paid  or  accrued
         to  a  resident who as a governmental employee was a
         prisoner of war or missing in action, and in respect
         of any compensation paid to a resident  in  1971  or
         thereafter for annual training performed pursuant to
         Sections  502  and 503, Title 32, United States Code
         as a member of the Illinois National Guard;
              (F)  An amount equal to all amounts included in
         such total pursuant to the  provisions  of  Sections
         402(a),  402(c), 403(a), 403(b), 406(a), 407(a), and
         408 of the Internal Revenue  Code,  or  included  in
         such  total as distributions under the provisions of
         any retirement or disability plan for  employees  of
         any  governmental  agency  or  unit,  or  retirement
         payments  to  retired  partners,  which payments are
         excluded  in  computing  net  earnings   from   self
         employment  by  Section 1402 of the Internal Revenue
         Code and regulations adopted pursuant thereto;
              (G)  The valuation limitation amount;
              (H)  An amount equal to the amount of  any  tax
         imposed  by  this  Act  which  was  refunded  to the
         taxpayer and included in such total for the  taxable
         year;
              (I)  An amount equal to all amounts included in
         such total pursuant to the provisions of Section 111
         of  the Internal Revenue Code as a recovery of items
         previously deducted from adjusted  gross  income  in
         the computation of taxable income;
              (J)  An   amount   equal   to  those  dividends
         included  in  such  total  which  were  paid  by   a
         corporation which conducts business operations in an
         Enterprise  Zone or zones created under the Illinois
         Enterprise Zone Act, and conducts substantially  all
         of its operations in an Enterprise Zone or zones;
              (K)  An   amount   equal   to  those  dividends
         included  in  such  total  that  were  paid   by   a
         corporation  that  conducts business operations in a
         federally designated Foreign Trade Zone or  Sub-Zone
         and  that  is  designated  a  High  Impact  Business
         located   in   Illinois;   provided  that  dividends
         eligible for the deduction provided in  subparagraph
         (J) of paragraph (2) of this subsection shall not be
         eligible  for  the  deduction  provided  under  this
         subparagraph (K);
              (L)  For  taxable  years  ending after December
         31, 1983, an amount equal  to  all  social  security
         benefits  and  railroad retirement benefits included
         in such total pursuant to Sections 72(r) and  86  of
         the Internal Revenue Code;
              (M)  With   the   exception   of   any  amounts
         subtracted under subparagraph (N), an  amount  equal
         to  the  sum of all amounts disallowed as deductions
         by Sections 171(a) (2), and 265(2) of  the  Internal
         Revenue  Code  of 1954, as now or hereafter amended,
         and all amounts of expenses  allocable  to  interest
         and   disallowed  as deductions by Section 265(1) of
         the  Internal  Revenue  Code  of  1954,  as  now  or
         hereafter amended;
              (N)  An amount equal to all amounts included in
         such total which are exempt from  taxation  by  this
         State   either   by   reason   of  its  statutes  or
         Constitution  or  by  reason  of  the  Constitution,
         treaties or statutes of the United States;  provided
         that,  in the case of any statute of this State that
         exempts  income  derived   from   bonds   or   other
         obligations from the tax imposed under this Act, the
         amount  exempted  shall  be the interest net of bond
         premium amortization;
              (O)  An amount equal to any  contribution  made
         to  a  job  training project established pursuant to
         the Tax Increment Allocation Redevelopment Act;
              (P)  An amount  equal  to  the  amount  of  the
         deduction  used  to  compute  the federal income tax
         credit for restoration of substantial  amounts  held
         under  claim  of right for the taxable year pursuant
         to Section 1341 of  the  Internal  Revenue  Code  of
         1986;
              (Q)  An amount equal to any amounts included in
         such   total,   received   by  the  taxpayer  as  an
         acceleration in the payment of  life,  endowment  or
         annuity  benefits  in advance of the time they would
         otherwise be payable as an indemnity for a  terminal
         illness;
              (R)  An  amount  equal  to  the  amount  of any
         federal or State  bonus  paid  to  veterans  of  the
         Persian Gulf War;
              (S)  An  amount,  to  the  extent  included  in
         adjusted  gross  income,  equal  to  the amount of a
         contribution made in the taxable year on  behalf  of
         the  taxpayer  to  a  medical  care  savings account
         established under the Medical Care  Savings  Account
         Act  to  the  extent the contribution is accepted by
         the account administrator as provided in that Act;
              (T)  An  amount,  to  the  extent  included  in
         adjusted  gross  income,  equal  to  the  amount  of
         interest earned in the taxable  year  on  a  medical
         care  savings  account established under the Medical
         Care Savings Account Act on behalf of the  taxpayer,
         other  than interest added pursuant to item (D-5) of
         this paragraph (2);
              (U)  For one taxable year beginning on or after
         January 1, 1994, an amount equal to the total amount
         of tax imposed and paid under  subsections  (a)  and
         (b)  of  Section  201  of  this Act on grant amounts
         received by the  taxpayer  under  the  Nursing  Home
         Grant  Assistance  Act during the taxpayer's taxable
         years 1992 and 1993;
              (V)  Beginning with  tax  years  ending  on  or
         after  December  31,  1995 and ending with tax years
         ending on or before December  31,  1999,  an  amount
         equal  to  the  amount  paid  by a taxpayer who is a
         self-employed taxpayer, a partner of a  partnership,
         or  a  shareholder in a Subchapter S corporation for
         health insurance or  long-term  care  insurance  for
         that   taxpayer   or   that   taxpayer's  spouse  or
         dependents, to the extent that the amount  paid  for
         that  health  insurance  or long-term care insurance
         may be deducted under Section 213  of  the  Internal
         Revenue  Code  of 1986, has not been deducted on the
         federal income tax return of the taxpayer, and  does
         not  exceed  the taxable income attributable to that
         taxpayer's  income,   self-employment   income,   or
         Subchapter  S  corporation  income;  except  that no
         deduction shall be allowed under this  item  (V)  if
         the  taxpayer  is  eligible  to  participate  in any
         health insurance or long-term care insurance plan of
         an  employer  of  the  taxpayer  or  the  taxpayer's
         spouse.  The amount  of  the  health  insurance  and
         long-term  care insurance subtracted under this item
         (V) shall be determined by multiplying total  health
         insurance and long-term care insurance premiums paid
         by  the  taxpayer times a number that represents the
         fractional percentage of eligible  medical  expenses
         under  Section  213  of the Internal Revenue Code of
         1986 not actually deducted on the taxpayer's federal
         income tax return; and
              (W)  For taxable years beginning  on  or  after
         January   1,  1998,  all  amounts  included  in  the
         taxpayer's federal gross income in the taxable  year
         from  amounts converted from a regular IRA to a Roth
         IRA. This paragraph is exempt from the provisions of
         Section 250.

    (b)  Corporations.
         (1)  In general.  In the case of a corporation, base
    income means an amount equal to  the  taxpayer's  taxable
    income for the taxable year as modified by paragraph (2).
         (2)  Modifications.   The taxable income referred to
    in paragraph (1) shall be modified by adding thereto  the
    sum of the following amounts:
              (A)  An  amount  equal  to  all amounts paid or
         accrued  to  the  taxpayer  as  interest   and   all
         distributions  received  from  regulated  investment
         companies  during  the  taxable  year  to the extent
         excluded from gross income  in  the  computation  of
         taxable income;
              (B)  An  amount  equal  to  the  amount  of tax
         imposed by this Act  to  the  extent  deducted  from
         gross  income  in  the computation of taxable income
         for the taxable year;
              (C)  In the  case  of  a  regulated  investment
         company,  an  amount  equal to the excess of (i) the
         net long-term capital gain  for  the  taxable  year,
         over  (ii)  the amount of the capital gain dividends
         designated  as  such  in  accordance  with   Section
         852(b)(3)(C)  of  the  Internal Revenue Code and any
         amount designated under Section 852(b)(3)(D) of  the
         Internal  Revenue  Code, attributable to the taxable
         year. (this  amendatory  Act  of  1995  (Public  Act
         89-89)  is  declarative of existing law and is not a
         new enactment);.
              (D)  The  amount  of  any  net  operating  loss
         deduction taken in arriving at taxable income, other
         than a net operating loss  carried  forward  from  a
         taxable year ending prior to December 31, 1986; and
              (E)  For taxable years in which a net operating
         loss  carryback  or carryforward from a taxable year
         ending prior to December 31, 1986 is an  element  of
         taxable income under paragraph (1) of subsection (e)
         or  subparagraph  (E) of paragraph (2) of subsection
         (e), the  amount  by  which  addition  modifications
         other  than  those provided by this subparagraph (E)
         exceeded subtraction modifications in  such  earlier
         taxable year, with the following limitations applied
         in the order that they are listed:
                   (i)  the addition modification relating to
              the  net operating loss carried back or forward
              to the  taxable  year  from  any  taxable  year
              ending  prior  to  December  31,  1986 shall be
              reduced by the amount of addition  modification
              under  this  subparagraph  (E) which related to
              that net operating loss  and  which  was  taken
              into  account in calculating the base income of
              an earlier taxable year, and
                   (ii)  the addition  modification  relating
              to  the  net  operating  loss  carried  back or
              forward to the taxable year  from  any  taxable
              year  ending  prior  to December 31, 1986 shall
              not exceed the  amount  of  such  carryback  or
              carryforward;
              For  taxable  years  in  which  there  is a net
         operating loss carryback or carryforward  from  more
         than one other taxable year ending prior to December
         31, 1986, the addition modification provided in this
         subparagraph  (E)  shall  be  the sum of the amounts
         computed   independently   under    the    preceding
         provisions  of  this  subparagraph (E) for each such
         taxable year;, and
              (E-5)  For taxable years ending after  December
         31,   1997,   an   amount   equal  to  any  eligible
         remediation costs that the corporation  deducted  in
         computing  adjusted  gross  income and for which the
         corporation claims a credit under subsection (l)  of
         Section 201;
    and  by  deducting  from the total so obtained the sum of
    the following amounts:
              (F)  An amount equal to the amount of  any  tax
         imposed  by  this  Act  which  was  refunded  to the
         taxpayer and included in such total for the  taxable
         year;
              (G)  An  amount equal to any amount included in
         such total under Section 78 of the Internal  Revenue
         Code;
              (H)  In  the  case  of  a  regulated investment
         company, an amount equal to  the  amount  of  exempt
         interest  dividends as defined in subsection (b) (5)
         of Section 852 of the Internal Revenue Code, paid to
         shareholders for the taxable year;
              (I)  With  the   exception   of   any   amounts
         subtracted  under  subparagraph (J), an amount equal
         to the sum of all amounts disallowed  as  deductions
         by  Sections  171(a)  (2), and 265(a)(2) and amounts
         disallowed as interest expense by Section  291(a)(3)
         of  the  Internal  Revenue Code, as now or hereafter
         amended, and all amounts of  expenses  allocable  to
         interest  and  disallowed  as  deductions by Section
         265(a)(1) of the Internal Revenue Code,  as  now  or
         hereafter amended;
              (J)  An amount equal to all amounts included in
         such  total  which  are exempt from taxation by this
         State  either  by  reason   of   its   statutes   or
         Constitution  or  by  reason  of  the  Constitution,
         treaties  or statutes of the United States; provided
         that, in the case of any statute of this State  that
         exempts   income   derived   from   bonds  or  other
         obligations from the tax imposed under this Act, the
         amount exempted shall be the interest  net  of  bond
         premium amortization;
              (K)  An   amount   equal   to  those  dividends
         included  in  such  total  which  were  paid  by   a
         corporation which conducts business operations in an
         Enterprise  Zone or zones created under the Illinois
         Enterprise Zone Act and conducts  substantially  all
         of its operations in an Enterprise Zone or zones;
              (L)  An   amount   equal   to  those  dividends
         included  in  such  total  that  were  paid   by   a
         corporation  that  conducts business operations in a
         federally designated Foreign Trade Zone or  Sub-Zone
         and  that  is  designated  a  High  Impact  Business
         located   in   Illinois;   provided  that  dividends
         eligible for the deduction provided in  subparagraph
         (K)  of  paragraph 2 of this subsection shall not be
         eligible  for  the  deduction  provided  under  this
         subparagraph (L);
              (M)  For  any  taxpayer  that  is  a  financial
         organization within the meaning of Section 304(c) of
         this Act,  an  amount  included  in  such  total  as
         interest  income  from  a loan or loans made by such
         taxpayer to a borrower, to the extent  that  such  a
         loan  is  secured  by property which is eligible for
         the Enterprise Zone Investment Credit. To  determine
         the  portion  of  a loan or loans that is secured by
         property eligible for a  Section  201(h)  investment
         credit  to the borrower, the entire principal amount
         of the loan or loans between the  taxpayer  and  the
         borrower  should  be  divided  into the basis of the
         Section  201(h)  investment  credit  property  which
         secures the loan or loans, using  for  this  purpose
         the original basis of such property on the date that
         it  was  placed  in  service in the Enterprise Zone.
         The subtraction modification available  to  taxpayer
         in  any  year  under  this  subsection shall be that
         portion of the total interest paid by  the  borrower
         with  respect  to  such  loan  attributable  to  the
         eligible  property  as calculated under the previous
         sentence;
              (M-1)  For any taxpayer  that  is  a  financial
         organization within the meaning of Section 304(c) of
         this  Act,  an  amount  included  in  such  total as
         interest income from a loan or loans  made  by  such
         taxpayer  to  a  borrower, to the extent that such a
         loan is secured by property which  is  eligible  for
         the  High  Impact  Business  Investment  Credit.  To
         determine the portion of a loan  or  loans  that  is
         secured  by  property  eligible for a Section 201(i)
         investment  credit  to  the  borrower,  the   entire
         principal  amount  of  the loan or loans between the
         taxpayer and the borrower should be divided into the
         basis  of  the  Section  201(i)  investment   credit
         property  which secures the loan or loans, using for
         this purpose the original basis of such property  on
         the  date  that  it  was  placed  in  service  in  a
         federally  designated Foreign Trade Zone or Sub-Zone
         located in Illinois.  No taxpayer that  is  eligible
         for  the  deduction  provided in subparagraph (M) of
         paragraph (2) of this subsection shall  be  eligible
         for  the  deduction provided under this subparagraph
         (M-1).  The subtraction  modification  available  to
         taxpayers in any year under this subsection shall be
         that  portion  of  the  total  interest  paid by the
         borrower with respect to such loan  attributable  to
         the   eligible  property  as  calculated  under  the
         previous sentence;
              (N)  Two times any contribution made during the
         taxable year to a designated  zone  organization  to
         the  extent that the contribution (i) qualifies as a
         charitable  contribution  under  subsection  (c)  of
         Section 170 of the Internal Revenue  Code  and  (ii)
         must,  by  its terms, be used for a project approved
         by the Department of Commerce and Community  Affairs
         under  Section  11  of  the Illinois Enterprise Zone
         Act;
              (O)  An amount equal to: (i)  85%  for  taxable
         years  ending  on or before December 31, 1992, or, a
         percentage equal to the percentage  allowable  under
         Section  243(a)(1)  of  the Internal Revenue Code of
         1986 for taxable years  ending  after  December  31,
         1992,  of  the amount by which dividends included in
         taxable income and received from a corporation  that
         is  not  created  or organized under the laws of the
         United States or any state or political  subdivision
         thereof,  including,  for taxable years ending on or
         after  December  31,  1988,  dividends  received  or
         deemed  received  or  paid  or  deemed  paid   under
         Sections  951  through  964  of the Internal Revenue
         Code, exceed the amount of the modification provided
         under subparagraph (G)  of  paragraph  (2)  of  this
         subsection  (b)  which is related to such dividends;
         plus (ii) 100% of the  amount  by  which  dividends,
         included  in taxable income and received, including,
         for taxable years ending on or  after  December  31,
         1988,  dividends received or deemed received or paid
         or deemed paid under Sections 951 through 964 of the
         Internal Revenue Code,  from  any  such  corporation
         specified  in  clause  (i)  that  would  but for the
         provisions of Section 1504 (b) (3) of  the  Internal
         Revenue   Code   be  treated  as  a  member  of  the
         affiliated  group  which   includes   the   dividend
         recipient,  exceed  the  amount  of the modification
         provided under subparagraph (G) of paragraph (2)  of
         this   subsection  (b)  which  is  related  to  such
         dividends;
              (P)  An amount equal to any  contribution  made
         to  a  job  training project established pursuant to
         the Tax Increment Allocation Redevelopment Act; and
              (Q)  An amount  equal  to  the  amount  of  the
         deduction  used  to  compute  the federal income tax
         credit for restoration of substantial  amounts  held
         under  claim  of right for the taxable year pursuant
         to Section 1341 of  the  Internal  Revenue  Code  of
         1986; and.
              (R)  In  the  case  of an attorney-in-fact with
         respect to whom  an  interinsurer  or  a  reciprocal
         insurer  has  made the election under Section 835 of
         the Internal Revenue Code, 26 U.S.C. 835, an  amount
         equal  to the excess, if any, of the amounts paid or
         incurred by that interinsurer or reciprocal  insurer
         in the taxable year to the attorney-in-fact over the
         deduction allowed to that interinsurer or reciprocal
         insurer  with  respect to the attorney-in-fact under
         Section 835(b) of the Internal Revenue Code for  the
         taxable year.
         (3)  Special  rule.   For  purposes of paragraph (2)
    (A), "gross income" in  the  case  of  a  life  insurance
    company,  for  tax years ending on and after December 31,
    1994, shall mean the  gross  investment  income  for  the
    taxable year.

    (c)  Trusts and estates.
         (1)  In  general.  In the case of a trust or estate,
    base income means  an  amount  equal  to  the  taxpayer's
    taxable  income  for  the  taxable  year  as  modified by
    paragraph (2).
         (2)  Modifications.  Subject to  the  provisions  of
    paragraph   (3),   the  taxable  income  referred  to  in
    paragraph (1) shall be modified by adding thereto the sum
    of the following amounts:
              (A)  An amount equal to  all  amounts  paid  or
         accrued  to  the  taxpayer  as interest or dividends
         during the taxable year to the extent excluded  from
         gross income in the computation of taxable income;
              (B)  In the case of (i) an estate, $600; (ii) a
         trust  which,  under  its  governing  instrument, is
         required to distribute all of its income  currently,
         $300;  and  (iii) any other trust, $100, but in each
         such case,  only  to  the  extent  such  amount  was
         deducted in the computation of taxable income;
              (C)  An  amount  equal  to  the  amount  of tax
         imposed by this Act  to  the  extent  deducted  from
         gross  income  in  the computation of taxable income
         for the taxable year;
              (D)  The  amount  of  any  net  operating  loss
         deduction taken in arriving at taxable income, other
         than a net operating loss  carried  forward  from  a
         taxable year ending prior to December 31, 1986;
              (E)  For taxable years in which a net operating
         loss  carryback  or carryforward from a taxable year
         ending prior to December 31, 1986 is an  element  of
         taxable income under paragraph (1) of subsection (e)
         or  subparagraph  (E) of paragraph (2) of subsection
         (e), the  amount  by  which  addition  modifications
         other  than  those provided by this subparagraph (E)
         exceeded subtraction modifications in  such  taxable
         year,  with the following limitations applied in the
         order that they are listed:
                   (i)  the addition modification relating to
              the net operating loss carried back or  forward
              to  the  taxable  year  from  any  taxable year
              ending prior to  December  31,  1986  shall  be
              reduced  by the amount of addition modification
              under this subparagraph (E)  which  related  to
              that  net  operating  loss  and which was taken
              into account in calculating the base income  of
              an earlier taxable year, and
                   (ii)  the  addition  modification relating
              to the  net  operating  loss  carried  back  or
              forward  to  the  taxable year from any taxable
              year ending prior to December  31,  1986  shall
              not  exceed  the  amount  of  such carryback or
              carryforward;
              For taxable years  in  which  there  is  a  net
         operating  loss  carryback or carryforward from more
         than one other taxable year ending prior to December
         31, 1986, the addition modification provided in this
         subparagraph (E) shall be the  sum  of  the  amounts
         computed    independently    under   the   preceding
         provisions of this subparagraph (E)  for  each  such
         taxable year;
              (F)  For  taxable  years  ending  on  or  after
         January 1, 1989, an amount equal to the tax deducted
         pursuant to Section 164 of the Internal Revenue Code
         if  the trust or estate is claiming the same tax for
         purposes of the Illinois foreign  tax  credit  under
         Section 601 of this Act;
              (G)  An  amount  equal  to  the  amount  of the
         capital gain deduction allowable under the  Internal
         Revenue  Code,  to  the  extent  deducted from gross
         income in the computation of taxable income; and
              (G-5) For taxable years ending  after  December
         31,   1997,   an   amount   equal  to  any  eligible
         remediation costs that the trust or estate  deducted
         in computing adjusted gross income and for which the
         trust or estate claims a credit under subsection (l)
         of Section 201;
    and  by  deducting  from the total so obtained the sum of
    the following amounts:
              (H)  An amount equal to all amounts included in
         such total pursuant to the  provisions  of  Sections
         402(a),  402(c),  403(a), 403(b), 406(a), 407(a) and
         408 of the Internal Revenue Code or included in such
         total as distributions under the provisions  of  any
         retirement  or  disability plan for employees of any
         governmental agency or unit, or retirement  payments
         to  retired partners, which payments are excluded in
         computing  net  earnings  from  self  employment  by
         Section  1402  of  the  Internal  Revenue  Code  and
         regulations adopted pursuant thereto;
              (I)  The valuation limitation amount;
              (J)  An amount equal to the amount of  any  tax
         imposed  by  this  Act  which  was  refunded  to the
         taxpayer and included in such total for the  taxable
         year;
              (K)  An amount equal to all amounts included in
         taxable  income  as  modified  by subparagraphs (A),
         (B), (C), (D), (E), (F) and  (G)  which  are  exempt
         from  taxation by this State either by reason of its
         statutes  or  Constitution  or  by  reason  of   the
         Constitution,  treaties  or  statutes  of the United
         States; provided that, in the case of any statute of
         this State that exempts income derived from bonds or
         other obligations from the tax  imposed  under  this
         Act,  the  amount exempted shall be the interest net
         of bond premium amortization;
              (L)  With  the   exception   of   any   amounts
         subtracted  under  subparagraph (K), an amount equal
         to the sum of all amounts disallowed  as  deductions
         by Sections 171(a) (2) and 265(a)(2) of the Internal
         Revenue  Code,  as now or hereafter amended, and all
         amounts  of  expenses  allocable  to  interest   and
         disallowed  as  deductions  by Section 265(1) of the
         Internal Revenue Code of 1954, as now  or  hereafter
         amended;
              (M)  An   amount   equal   to  those  dividends
         included  in  such  total  which  were  paid  by   a
         corporation which conducts business operations in an
         Enterprise  Zone or zones created under the Illinois
         Enterprise Zone Act and conducts  substantially  all
         of its operations in an Enterprise Zone or Zones;
              (N)  An  amount  equal to any contribution made
         to a job training project  established  pursuant  to
         the Tax Increment Allocation Redevelopment Act;
              (O)  An   amount   equal   to  those  dividends
         included  in  such  total  that  were  paid   by   a
         corporation  that  conducts business operations in a
         federally designated Foreign Trade Zone or  Sub-Zone
         and  that  is  designated  a  High  Impact  Business
         located   in   Illinois;   provided  that  dividends
         eligible for the deduction provided in  subparagraph
         (M) of paragraph (2) of this subsection shall not be
         eligible  for  the  deduction  provided  under  this
         subparagraph (O); and
              (P)  An  amount  equal  to  the  amount  of the
         deduction used to compute  the  federal  income  tax
         credit  for  restoration of substantial amounts held
         under claim of right for the taxable  year  pursuant
         to  Section  1341  of  the  Internal Revenue Code of
         1986.
         (3)  Limitation.  The  amount  of  any  modification
    otherwise  required  under  this  subsection shall, under
    regulations prescribed by the Department, be adjusted  by
    any  amounts  included  therein which were properly paid,
    credited, or required to be distributed,  or  permanently
    set  aside  for charitable purposes pursuant  to Internal
    Revenue Code Section 642(c) during the taxable year.

    (d)  Partnerships.
         (1)  In general. In the case of a partnership,  base
    income  means  an  amount equal to the taxpayer's taxable
    income for the taxable year as modified by paragraph (2).
         (2)  Modifications. The taxable income  referred  to
    in  paragraph (1) shall be modified by adding thereto the
    sum of the following amounts:
              (A)  An amount equal to  all  amounts  paid  or
         accrued  to  the  taxpayer  as interest or dividends
         during the taxable year to the extent excluded  from
         gross income in the computation of taxable income;
              (B)  An  amount  equal  to  the  amount  of tax
         imposed by this Act  to  the  extent  deducted  from
         gross income for the taxable year; and
              (C)  The  amount  of  deductions allowed to the
         partnership pursuant  to  Section  707  (c)  of  the
         Internal  Revenue  Code  in  calculating its taxable
         income; and
              (D)  An amount  equal  to  the  amount  of  the
         capital  gain deduction allowable under the Internal
         Revenue Code, to  the  extent  deducted  from  gross
         income in the computation of taxable income;
    and by deducting from the total so obtained the following
    amounts:
              (E)  The valuation limitation amount;
              (F)  An  amount  equal to the amount of any tax
         imposed by  this  Act  which  was  refunded  to  the
         taxpayer  and included in such total for the taxable
         year;
              (G)  An amount equal to all amounts included in
         taxable income as  modified  by  subparagraphs  (A),
         (B),  (C)  and (D) which are exempt from taxation by
         this State either  by  reason  of  its  statutes  or
         Constitution  or  by  reason  of  the  Constitution,
         treaties  or statutes of the United States; provided
         that, in the case of any statute of this State  that
         exempts   income   derived   from   bonds  or  other
         obligations from the tax imposed under this Act, the
         amount exempted shall be the interest  net  of  bond
         premium amortization;
              (H)  Any   income   of  the  partnership  which
         constitutes personal service income  as  defined  in
         Section  1348  (b)  (1) of the Internal Revenue Code
         (as in effect December 31,  1981)  or  a  reasonable
         allowance  for  compensation  paid  or  accrued  for
         services  rendered  by  partners to the partnership,
         whichever is greater;
              (I)  An amount equal to all amounts  of  income
         distributable  to  an entity subject to the Personal
         Property  Tax  Replacement  Income  Tax  imposed  by
         subsections (c) and (d) of Section 201 of  this  Act
         including  amounts  distributable  to  organizations
         exempt  from federal income tax by reason of Section
         501(a) of the Internal Revenue Code;
              (J)  With  the   exception   of   any   amounts
         subtracted  under  subparagraph (G), an amount equal
         to the sum of all amounts disallowed  as  deductions
         by  Sections  171(a) (2), and 265(2) of the Internal
         Revenue Code of 1954, as now or  hereafter  amended,
         and  all  amounts  of expenses allocable to interest
         and disallowed as deductions by  Section  265(1)  of
         the  Internal  Revenue  Code,  as  now  or hereafter
         amended;
              (K)  An  amount  equal   to   those   dividends
         included   in  such  total  which  were  paid  by  a
         corporation which conducts business operations in an
         Enterprise Zone or zones created under the  Illinois
         Enterprise  Zone  Act,  enacted  by the 82nd General
         Assembly, and which does not conduct such operations
         other than in an Enterprise Zone or Zones;
              (L)  An amount equal to any  contribution  made
         to  a  job  training project established pursuant to
         the   Real   Property   Tax   Increment   Allocation
         Redevelopment Act;
              (M)  An  amount  equal   to   those   dividends
         included   in   such  total  that  were  paid  by  a
         corporation that conducts business operations  in  a
         federally  designated Foreign Trade Zone or Sub-Zone
         and  that  is  designated  a  High  Impact  Business
         located  in  Illinois;   provided   that   dividends
         eligible  for the deduction provided in subparagraph
         (K) of paragraph (2) of this subsection shall not be
         eligible  for  the  deduction  provided  under  this
         subparagraph (M); and
              (N)  An amount  equal  to  the  amount  of  the
         deduction  used  to  compute  the federal income tax
         credit for restoration of substantial  amounts  held
         under  claim  of right for the taxable year pursuant
         to Section 1341 of  the  Internal  Revenue  Code  of
         1986.
    (e)  Gross income; adjusted gross income; taxable income.
         (1)  In  general.   Subject  to  the  provisions  of
    paragraph  (2)  and  subsection  (b) (3), for purposes of
    this Section  and  Section  803(e),  a  taxpayer's  gross
    income,  adjusted gross income, or taxable income for the
    taxable year shall  mean  the  amount  of  gross  income,
    adjusted   gross   income   or  taxable  income  properly
    reportable  for  federal  income  tax  purposes  for  the
    taxable year under the provisions of the Internal Revenue
    Code. Taxable income may be less than zero. However,  for
    taxable  years  ending on or after December 31, 1986, net
    operating loss carryforwards from  taxable  years  ending
    prior  to  December  31,  1986, may not exceed the sum of
    federal taxable income for the taxable  year  before  net
    operating  loss  deduction,  plus  the excess of addition
    modifications  over  subtraction  modifications  for  the
    taxable year.  For taxable years ending prior to December
    31, 1986, taxable income may never be an amount in excess
    of the net operating loss for the taxable year as defined
    in subsections (c) and (d) of Section 172 of the Internal
    Revenue Code, provided that  when  taxable  income  of  a
    corporation  (other  than  a  Subchapter  S corporation),
    trust,  or  estate  is  less  than  zero   and   addition
    modifications,  other than those provided by subparagraph
    (E) of paragraph (2) of subsection (b)  for  corporations
    or  subparagraph  (E)  of paragraph (2) of subsection (c)
    for trusts and estates, exceed subtraction modifications,
    an  addition  modification  must  be  made  under   those
    subparagraphs  for  any  other  taxable year to which the
    taxable income less than zero  (net  operating  loss)  is
    applied under Section 172 of the Internal Revenue Code or
    under   subparagraph   (E)   of  paragraph  (2)  of  this
    subsection (e) applied in conjunction with Section 172 of
    the Internal Revenue Code.
         (2)  Special rule.  For purposes of paragraph (1) of
    this subsection, the taxable income  properly  reportable
    for federal income tax purposes shall mean:
              (A)  Certain  life insurance companies.  In the
         case of a life insurance company subject to the  tax
         imposed by Section 801 of the Internal Revenue Code,
         life  insurance  company  taxable  income,  plus the
         amount of distribution  from  pre-1984  policyholder
         surplus accounts as calculated under Section 815a of
         the Internal Revenue Code;
              (B)  Certain other insurance companies.  In the
         case  of  mutual  insurance companies subject to the
         tax imposed by Section 831 of the  Internal  Revenue
         Code, insurance company taxable income;
              (C)  Regulated  investment  companies.   In the
         case of a regulated investment  company  subject  to
         the  tax  imposed  by  Section  852  of the Internal
         Revenue Code, investment company taxable income;
              (D)  Real estate  investment  trusts.   In  the
         case  of  a  real estate investment trust subject to
         the tax imposed  by  Section  857  of  the  Internal
         Revenue  Code,  real estate investment trust taxable
         income;
              (E)  Consolidated corporations.  In the case of
         a corporation which is a  member  of  an  affiliated
         group  of  corporations filing a consolidated income
         tax return for the taxable year for  federal  income
         tax  purposes,  taxable income determined as if such
         corporation had filed a separate return for  federal
         income  tax  purposes  for the taxable year and each
         preceding taxable year for which it was a member  of
         an   affiliated   group.   For   purposes   of  this
         subparagraph, the taxpayer's separate taxable income
         shall be determined as if the election  provided  by
         Section  243(b) (2) of the Internal Revenue Code had
         been in effect for all such years;
              (F)  Cooperatives.    In   the   case   of    a
         cooperative  corporation or association, the taxable
         income of such organization determined in accordance
         with the provisions of Section 1381 through 1388  of
         the Internal Revenue Code;
              (G)  Subchapter  S  corporations.   In the case
         of: (i) a Subchapter S corporation for  which  there
         is  in effect an election for the taxable year under
         Section 1362  of  the  Internal  Revenue  Code,  the
         taxable  income  of  such  corporation determined in
         accordance with  Section  1363(b)  of  the  Internal
         Revenue  Code, except that taxable income shall take
         into account  those  items  which  are  required  by
         Section  1363(b)(1)  of the Internal Revenue Code to
         be  separately  stated;  and  (ii)  a  Subchapter  S
         corporation for which there is in effect  a  federal
         election  to  opt  out  of  the  provisions  of  the
         Subchapter  S  Revision Act of 1982 and have applied
         instead the prior federal Subchapter S rules  as  in
         effect  on  July 1, 1982, the taxable income of such
         corporation  determined  in  accordance   with   the
         federal  Subchapter  S rules as in effect on July 1,
         1982; and
              (H)  Partnerships.    In   the   case   of    a
         partnership, taxable income determined in accordance
         with  Section  703  of  the  Internal  Revenue Code,
         except that taxable income shall take  into  account
         those  items which are required by Section 703(a)(1)
         to be separately stated but  which  would  be  taken
         into  account  by  an  individual in calculating his
         taxable income.

    (f)  Valuation limitation amount.
         (1)  In general.  The  valuation  limitation  amount
    referred  to  in subsections (a) (2) (G), (c) (2) (I) and
    (d)(2) (E) is an amount equal to:
              (A)  The  sum  of  the   pre-August   1,   1969
         appreciation  amounts  (to  the extent consisting of
         gain reportable under the provisions of Section 1245
         or 1250  of  the  Internal  Revenue  Code)  for  all
         property  in respect of which such gain was reported
         for the taxable year; plus
              (B)  The  lesser  of  (i)  the   sum   of   the
         pre-August  1,  1969  appreciation  amounts  (to the
         extent consisting of capital gain) for all  property
         in  respect  of  which  such  gain  was reported for
         federal income tax purposes for the taxable year, or
         (ii) the net capital  gain  for  the  taxable  year,
         reduced  in  either  case by any amount of such gain
         included in the amount determined  under  subsection
         (a) (2) (F) or (c) (2) (H).
    (2)  Pre-August 1, 1969 appreciation amount.
              (A)  If  the  fair  market  value  of  property
         referred   to   in   paragraph   (1)   was   readily
         ascertainable  on  August 1, 1969, the pre-August 1,
         1969 appreciation amount for such  property  is  the
         lesser  of  (i) the excess of such fair market value
         over the taxpayer's basis (for determining gain) for
         such property on that  date  (determined  under  the
         Internal Revenue Code as in effect on that date), or
         (ii)  the  total  gain  realized  and reportable for
         federal income tax purposes in respect of the  sale,
         exchange or other disposition of such property.
              (B)  If  the  fair  market  value  of  property
         referred   to  in  paragraph  (1)  was  not  readily
         ascertainable on August 1, 1969, the  pre-August  1,
         1969  appreciation  amount for such property is that
         amount which bears the same ratio to the total  gain
         reported  in  respect  of  the  property for federal
         income tax purposes for the  taxable  year,  as  the
         number  of  full calendar months in that part of the
         taxpayer's holding period for  the  property  ending
         July  31,  1969 bears to the number of full calendar
         months in the taxpayer's entire holding  period  for
         the property.
              (C)  The   Department   shall   prescribe  such
         regulations as may be necessary  to  carry  out  the
         purposes of this paragraph.

    (g)  Double  deductions.   Unless  specifically  provided
otherwise, nothing in this Section shall permit the same item
to be deducted more than once.

    (h)  Legislative intention.  Except as expressly provided
by   this   Section   there  shall  be  no  modifications  or
limitations on the amounts of income, gain, loss or deduction
taken into account  in  determining  gross  income,  adjusted
gross  income  or  taxable  income  for  federal  income  tax
purposes for the taxable year, or in the amount of such items
entering  into  the computation of base income and net income
under this Act for such taxable year, whether in  respect  of
property values as of August 1, 1969 or otherwise.
(Source:  P.A.  89-89,  eff.  6-30-95;  89-235,  eff. 8-4-95;
89-418, eff. 11-15-95; 89-460,  eff.  5-24-96;  89-626,  eff.
8-9-96;  90-491,  eff.  1-1-98;  90-717, eff. 8-7-98; 90-770,
eff. 8-14-98; revised 9-21-98.)

    Section 99.  Effective date.  This Act takes effect  upon
becoming law.

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