TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2000 INTRODUCTION
Section 100.2000
Introduction
a) In general. The Illinois Department of Revenue is an agency
of the government of the State of Illinois under the immediate direction of
the Director of Revenue. The Director has general administrative
responsibility for the assessment and collection of the Illinois Income
Tax. Offices of the Department are in Springfield (101 West Jefferson,
Springfield, Illinois 62708) and there are District Offices (as of May 31,
1999) in Rockford, Des Plaines, Fairview Heights, Marion, Rock Island, Peoria,
Springfield, Chicago, Evergreen Park, West Chicago, Park City and Urbana,
Illinois; and Culver City, California; Garland, Texas; Cleveland, Ohio; and
Paramus, New Jersey.
b) Scope. The procedural rules of the Department set forth
in this Part apply to the taxes imposed by the Illinois Income Tax Act.
These regulations provide a descriptive statement of the general course and
method by which the Department's functions are channeled and determined,
insofar as such functions relate generally to the assessment and collection
of the Illinois income tax and enforcement of the Illinois Income Tax Act.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
 | TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2050 NET INCOME (IITA SECTION 202)
Section 100.2050 Net Income
(IITA Section 202)
a) A taxpayer's net income under the IITA is that portion
of the taxpayer's base income (determined under IITA Section 203) for the
taxable year that is allocable or apportionable to Illinois under
the provisions of Article 3 of the IITA, less the Illinois net loss deduction
allowed by IITA Section 207 and the exemptions allowed by IITA Section
204 and Section 100.2055. (IITA Section 202) In computing net income, any
Illinois net operating loss deduction shall be subtracted before the
subtraction for the exemptions.
b) For tax years ending on or after December 31, 1986, net income
for income tax (IITA Section 201(a) and (b)) and for replacement tax (IITA Section
201(c) and (d)) are identical amounts. For prior tax years, the net income amount
for replacement tax was usually a greater amount than net income for income
tax. For purposes of the net loss deduction that may be subtracted from net
income in those prior years, the amount deductible for income tax purposes
shall govern, and the amount that may be deducted for replacement tax purposes
in a given tax year shall be the same amount as may be deducted for income tax
purposes.
(Source:
Amended at 41 Ill. Reg. 14217, effective November 7, 2017)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2055 STANDARD EXEMPTION (IITA SECTION 204)
Section 100.2055 Standard
Exemption (IITA Section 204)
a) In computing net
income, there shall be allowed as an exemption the sum of the basic amounts
provided under subsections (b) and (c) plus the additional exemptions allowed
under subsection (d), multiplied by a fraction, the numerator of which is the
amount of the taxpayer's base income allocable to this State for the taxable
year and the denominator of which is the taxpayer's total base income for the
taxable year. (IITA
Section 204(a))
b) Each taxpayer shall be
allowed an exemption in the basic amount equal to:
1) in the case of an
individual:
A) for taxable years
ending prior to December 31, 1998, $1,000; (IITA Section 204(b))
B) for taxable years
ending on or after December 31, 1998 and prior to December 31, 1999, $1,300;
(IITA Section 204(b)(1))
C) for taxable years
ending on or after December 31, 1999 and prior to December 31, 2000, $1,650; (IITA
Section 204(b)(2))
D) for taxable years
ending on or after December 31, 2000, and prior to
December 31, 2012, $2,000; (IITA
Section 204(b)(3))
E) for taxable years
ending on or after December 31, 2012 and prior to December 31, 2013 and for
taxable years beginning on or after June 1, 2017, $2,050; (IITA Section
204(b)(4))
F) for taxable years
ending on or after December 31, 2013 and on or before December 31, 2022, $2,050
plus the cost-of-living adjustment under subsection (e); (IITA Section
204(b)(5))
G) for taxable years
ending on or after December 31, 2023 and prior to December 31, 2024, $2,425;
(IITA Section 204(b)(6))
H) for taxable years
ending on or after December 31, 2024 and on or before December 31, 2028, $2,050
plus the cost-of-living adjustment under subsection (e); and (IITA Section
204(b)(7))
I) for taxable years ending
after December 31, 2028, zero.
2) for taxable years
ending on or after December 31, 1992, an individual taxpayer whose Illinois
base income exceeds the basic amount and who is claimed as a dependent on
another person's tax return under the Internal Revenue Code shall not be
allowed any basic amount under this subsection (b). (IITA Section
204(b))
3) in the case of a
corporation, $1000 for taxable years ending prior to December 31, 2003 and $0
for taxable years ending on or after December 31, 2003. (IITA Section
204(b))
4) in the case of an
organization exempt from tax under IITA Section 205(a), $0. (See IITA Section
205.)
5) in all other cases, $1,000.
(See IITA Section 204(b).)
c) Each individual
taxpayer shall be allowed an additional exemption equal to the basic amount for
each exemption in excess of one allowable to that individual taxpayer for the
taxable year under IRC section 151. (IITA Section 204(c))
d) Additional Exemptions
1) Each individual taxpayer is allowed:
A) an additional
exemption of $1,000 for the taxpayer if he or she has attained the age of 65
before the end of the taxable year; (IITA Section 204(d)(1))
B) an additional
exemption of $1,000 for the taxpayer if he or she is blind at the end of the
taxable year; (IITA Section 204(d)(2))
C) an additional
exemption of $1,000 for the spouse of the taxpayer if the spouse has attained
the age of 65 before the end of the taxable year plus an additional
exemption of $1,000 for the spouse of the taxpayer if the spouse is blind as of
the end of the taxable year and, in either case:
i) a joint return is
not made by the taxpayer and his or her spouse;
ii) for the calendar
year in which the taxable year of the taxpayer begins, the spouse has no gross
income and is not the dependent of another taxpayer. (IITA Section
204(d)(1) and (2))
2) For purposes of this
subsection (d), an individual is blind only if his or her central visual
acuity does not exceed 20/200 in the better eye with correcting lenses, or if
his or her visual acuity is greater than 20/200 but is accompanied by a
limitation in the fields of vision such that the widest diameter of the visual
fields subtends an angle no greater than 20 degrees. A spouse who dies before
the end of a taxpayer's taxable year and who is blind at the time of his or her
death shall be treated as blind as of the end of the taxable year. (IITA
Section 204(d)(2))
e) The
cost-of-living adjustment for any calendar year and for taxable years ending
prior to the end of the subsequent calendar year is equal to $2,050 times the
percentage (if any) by which the Consumer Price Index for the preceding
calendar year exceeds the Consumer Price Index for the calendar year 2011.
For purposes of this subsection (e):
1) The
Consumer Price Index for any calendar year is the average of the Consumer Price
Index as of the close of the 12-month period ending on August 31 of that
calendar year.
2) The
term "Consumer Price Index" means the last Consumer Price Index for
All Urban Consumers published by the United States Department of Labor or any
successor agency.
3) If any cost-of-living
adjustment is not a multiple of $25, that adjustment shall be rounded to the
next lowest multiple of $25. (IITA Section 204(d-5))
f) In the case of a taxable year for a period of
less than 12 months, the standard exemption allowed under this Section shall be
prorated on the basis of the number of days in that year to 365.
(IITA Section 401(b))
g) Notwithstanding
any other provision of law, for taxable years beginning on or after January 1,
2017, if the taxpayer's adjusted gross
income for the taxable year exceeds $500,000, in the case of spouses filing a
joint federal tax return or
$250,000, in the case of all other taxpayers, the exemption allowed under this Section is zero. (IITA
Section 204(g)) For purposes of this provision, each spouse is a separate
taxpayer. This provision applies to partnerships, trusts and estates as well as
to individuals. For estates and trusts, adjusted gross income is defined in IRC
section 67(e). Because partnerships are not required to compute adjusted gross
income, partnerships may use taxable income as defined in IITA Section
203(e)(2)(H) for purposes of this subsection (g).
(Source: Amended
at 48 Ill. Reg. 1677, effective January 10, 2024)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2060 COMPASSIONATE USE OF MEDICAL CANNABIS PILOT PROGRAM ACT SURCHARGE (IITA SECTION 201(O))
Section 100.2060 Compassionate Use of Medical
Cannabis Pilot Program Act Surcharge (IITA Section 201(o))
a) In
general. For each taxable year beginning or ending during the Compassionate
Use of Medical Cannabis Pilot Program, a surcharge is imposed on all taxpayers
on income arising from the sale or exchange of capital assets, depreciable
business property, real property used in the trade or business, and Section 197
intangibles of an organization registrant under the Compassionate Use of Medical
Cannabis Pilot Program Act [410 ILCS 130]. (IITA Section 201(o))
b) Definitions.
For purposes of this Section:
"Act" means the
Compassionate Use of Medical Cannabis Pilot Program Act [410 ILCS 130].
"Organization
Registrant" means a corporation, partnership, trust, limited liability
company, or other organization, but not an individual, that holds either a medical
cannabis cultivation center registration issued by the Department of
Agriculture under Section 85 of the Act or a medical cannabis dispensary
registration issued by the Department of Financial and Professional Regulation
under Section 115 of the Act.
"Transactions Subject to the Surcharge"
means sales and exchanges of capital assets, depreciable business property,
real property used in the trade or business, and Section 197 intangibles of an organization
registrant. (IITA Section 201(o)) Although a unitary business group filing
combined Illinois returns under IITA Section 502(f) is treated as a single
taxpayer and its members are jointly and severally liable for any surcharge
imposed on the group, the group itself is not an organization registrant and
transactions of any member that is not itself an organization registrant are
not subject to the surcharge.
c) Imposition
of the Surcharge. The surcharge is imposed on any taxpayer who incurs a
federal income tax liability on the income realized on a transaction subject to
the surcharge, including individuals and other taxpayers who are not themselves
the organization registrant that engaged in the transaction. An entity that is
exempt from federal income tax and therefore incurs no liability with respect
to a transaction otherwise subject to the surcharge will incur no surcharge.
For example:
1) A
disregarded entity, whose existence separate from that of its owner is
disregarded under 26 CFR 301.7701-3, and a grantor trust will incur no federal
income tax liability because income of these entities is taxed to the owner or
the grantor. The disregarded entity or grantor trust will therefore incur no
surcharge. Rather, the surcharge is imposed on the owner of the entity, or the
grantor of the trust, who is taxable on the income from a transaction subject
to the surcharge.
2) A
partnership incurs no federal income tax liability because its income is taxed
to its partners, and so will incur no surcharge. In the case of an organization
registrant that is a partnership, the surcharge is imposed on each partner who
is taxable on the income from a transaction of the partnership that is subject
to the surcharge.
3) A
Subchapter S corporation will generally incur no federal income tax liability
because its income is taxed to its shareholders, and so will generally incur no
surcharge. However, a Subchapter S corporation subject to federal income tax
on built-in gains or passive income from transactions subject to the surcharge
is subject to the surcharge. The surcharge is imposed on a shareholder for
income from transactions of the Subchapter S corporation that are subject to
the surcharge, including transactions on which the surcharge is also imposed on
the Subchapter S corporation.
4) A
trust will incur no federal income tax liability for transactions subject to
the surcharge if the income from a transaction subject to the surcharge is
distributed or deemed distributed to its beneficiaries, who are then taxed on
the income. In those situations, the trust will incur no surcharge, but the
beneficiary to whom the income is taxable will incur the surcharge.
d) Amount
of the Surcharge. The amount of the surcharge is equal to the amount of
federal income tax liability of the taxpayer for the taxable year attributable
to transactions subject to the surcharge. (IITA Section 201(o))
1) The
federal income tax liability attributable to transactions subject to the
surcharge means the federal income tax liability of the taxpayer for the
taxable year, minus the federal income tax liability of the taxpayer for the
taxable year computed as if the transactions subject to the surcharge made in
that year had not been made by the organization registrant.
2) If
taxpayer is a member of an affiliated group of corporations that files a
federal consolidated income tax return, the federal income tax liability
attributable to transactions subject to the surcharge means the consolidated
federal income tax liability of the affiliated group for the taxable year,
minus the federal income tax liability of the affiliated group for the taxable
year computed as if the transactions subject to the surcharge for which taxable
income or gain was recognized in that taxable year had not been made,
multiplied by a fraction equal to the amount of the separate taxable income of
that member that is attributable to transactions subject to surcharge divided
by the sum of the separate taxable incomes attributable to transactions subject
to surcharge of all members of the affiliated group.
e) Transactions
Exempt from the Surcharge. Under IITA Section 201(o)(1) and (2), the surcharge
does not apply to a transaction if:
1) the
transaction occurs in connection with the transfer of the medical cannabis
cultivation center registration, medical cannabis dispensary registration, or
the property of the organization registrant as a result of any of the
following:
A) a
bankruptcy, receivership or debt adjustment initiated by or against the
organization registrant;
B) the
cancellation, revocation or termination of the organization registrant's
registration by the Illinois Department of Public Health;
C) a
determination by the Illinois Department of Public Health that transfer of the
organization registrant's registration is in the best interests of Illinois
qualifying patients;
D) the
death of an owner of the equity interest in a organization registrant;
E) the
acquisition of a controlling interest in the stock or substantially all of the
assets of an organization registrant that is a publicly traded company;
F) a transfer by a parent
company to a wholly owned subsidiary; or
G) the
transfer or sale to or by one person to another person where both persons were
initial owners of the registration when the registration was issued; or
2) the
cannabis cultivation center registration, medical cannabis dispensary
registration, or the controlling interest in a registrant's property is
transferred in a transaction to lineal descendants or because of a transaction under
26 USC 351, so long as no gain or loss is recognized.
f) Special
Rules and Provisions
1) Because
the surcharge is imposed under Article 2 of the IITA, the taxpayer's surcharge
liability for a taxable year is included in the tax liability for which
estimated payments must be made for that taxable year. (See IITA Section
804(f).)
2) Because
the surcharge is imposed under IITA Section 201, refunds of overpayments of the
surcharge may be made from funds in the Income Tax Refund Fund. (See IITA
Section 901(d)(1).)
(Source: Added at 38 Ill.
Reg. 17043, effective July 23, 2014)
SUBPART B: CREDITS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2100 REPLACEMENT TAX INVESTMENT CREDIT PRIOR TO JANUARY 1, 1994 (IITA 201(E))
Section 100.2100 Replacement
Tax Investment Credit Prior to January 1, 1994 (IITA 201(e))
a) Scope of this Section. Hereinafter, unless specifically
provided otherwise the term "investment credit" refers to the
credit against the Personal Property Tax Replacement Income Tax provided by
IITA Section 201(e).
b) A taxpayer shall be allowed a credit equal
to .5% of the basis of qualified property placed in service during
the taxable year, provided such property is placed in service on or after
July 1, 1984 (IITA Section 201(e)(1)).
c) There shall be allowed an additional credit equal to .5% of
the basis of qualified property placed in service during the taxable year
provided such property is placed in service on or after July 1, 1986, and
the taxpayer's base employment within Illinois has increased by 1% or more over
the preceding year as determined by the taxpayer's employment records filed
with the Illinois Department of Employment Security. If, in any year,
the increase in base employment over the preceding year is less than 1%, the
additional credit shall be limited to that percentage times a fraction, the
numerator of which is .5% and the denominator of which is 1%, but shall not
exceed .5% (IITA Section 201(e)(1)).
1) Base employment. For purposes of calculating the additional
investment credit, base employment in Illinois is defined as the average
monthly total of individuals employed in Illinois by a taxpayer during the
taxable year. To calculate base employment for a particular taxable year, the
taxpayer need only total the number of individuals he employed in Illinois during
each month of the taxable year as reported to the Illinois Department of
Employment Security on Line 1 of Form UC-3/40 or UI-3/40M and divide this total
by the number of months in the taxable year.
2) Example of the Additional Investment Credit Computation.
During the calendar year 1991, Corporation A reported 500 employees each month
on Line 1 of Form UC-3/40. Therefore, Corporation A's base employment in
Illinois for 1991 was 500 ((500 x 12)/12 = 500). In 1992, Corporation A
reported 500 employees for each of the first six months, and 505 employees for
each of the remaining six months of the taxable year. Therefore, Corporation
A's base employment for 1992 was 502.5 ((500 x 6) + (505 x 6)/12 = 502.5).
Corporation A's percentage of increase in 1992 base employment over 1991 base
employment is .5%. This figure is computed by subtracting the 1991 base
employment from the 1992 base employment and dividing the remainder by the 1991
base employment ((502.5 - 500)/500 = .005 or .5%). Corporation A will be
allowed an additional investment credit for 1992 of .25% (one-half the
percentage of increase) times the adjusted basis of qualified property placed
in service in Illinois during the taxable year and on or after July 1986.
d) The investment credit is not allowed to the extent it would
decrease the taxpayer's replacement tax liability for the taxable year to less
than zero, nor may any credit for qualified property be allowed for any year
other than the year in which the property was placed in service in Illinois.
1) No carryback or carryforward of unused credit is allowed for
tax years ending prior to December 31, 1985.
2) For tax years ending on or after December 31, 1987, and on
or before December 31, 1988, the credit shall be allowed for the tax year in
which the property is placed in service, or, if the amount of the credit
exceeds the tax liability for that year, whether it exceeds the original
liability or the liability as later amended, such excess may be carried forward
and applied to the tax liability of the 5 taxable years following the excess
credit years if the taxpayer:
A) makes investments which cause the creation of a minimum of
2,000 full-time equivalent jobs in Illinois,
B) is located in an enterprise zone established pursuant to the
Illinois Enterprise Zone Act, and
C) is certified by the Department of Commerce and Community
Affairs as complying with the requirements specified in subsections (d)(2)(A)
and (B) above, by July 1, 1986 (IITA Section 203(e)(1)).
3) For tax years ending after December 31, 1988, the credit shall
be allowed for the tax year in which the property is placed in service, or,
if the amount of the credit exceeds the tax liability for that year,
whether it exceeds the original liability or the liability as later
amended, such excess may be carried forward and applied to the tax liability
of the 5 taxable years following the excess credit year. The credit shall be
applied to the earliest year for which there is a liability. If there is
credit from more than one tax year that is available to offset a liability,
earlier credit shall be applied first.
e) Qualified property. In order to qualify for the investment
credit, property must be tangible; depreciable pursuant to Internal Revenue
Code Section 167, except that "3-year property" as defined in IRC
Section 168(c)(2)(A) is not eligible; and acquired by purchase as defined in
Internal Revenue Code Section 179(d). IRC Section 168(c)(2)(A), as in effect
at the time the credit was enacted, defined "3-year property" to mean
"section 1245 property: with a present class life of 4 years or less; or
used in connection with research and experimentation." In addition to
the above requirements, property must be used in Illinois, by the taxpayer,
in manufacturing, retailing, coal mining or fluorite mining in order to
qualify for the IITA Section 201(e) credit against the replacement tax.
Qualified property can be new or used; but cannot have been previously used
in Illinois, in such a manner and by such a person as would qualify for the
investment credit, or for the Section 201(f) Enterprise Zone Investment
Credit, and includes buildings and structural components thereof.
1) Tangible property. Tangible property can consist of
personalty or realty and includes, but is not limited to, buildings,
component parts of buildings, machinery, equipment, and vehicles. Certain
property, though tangible in nature, does not qualify as investment credit
property because it is not depreciable.
2) Depreciable. In order to qualify for the investment credit,
property must also be depreciable pursuant to IRC Section 167. IRC Section 167
provides that depreciable property is property used in the taxpayer's trade
or business or held for the production of income which is subject to wear and
tear, exhaustion, or obsolescence.
A) Property which is depreciated under the Modified Accelerated
Cost Recovery System (MACRS) as provided by IRC Section 168, is considered depreciable
pursuant to IRC Section 167 for purposes of the investment credit.
Property assigned to a MACRS class of less than 4 years does not qualify for
the investment credit.
B) Examples of tangible property which is not depreciable are
land, inventories or stock in trade, natural resources, and coin or
currency.
C) The provisions of Treasury Reg. Section 1.167(a)-4 shall
govern in determining whether leasehold improvements are depreciable.
D) IRC Section 179 allows taxpayers, under certain circumstances,
to expense up to $10,000 of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was $10,000 or less, the
taxpayer has the option of expensing the cost all in one year as a depreciation
expense. While the property does have a useful life of four or more years,
since the election was made to completely expense the cost of the property in
one year, the property has no federal depreciable basis and does not have a
basis upon which to compute the Illinois investment tax credit. Property not
fully expensed under Section 179 would qualify for the credit based on the cost
of the depreciable property reduced by the Section 179 deduction.
3) Placed in service. For purposes of the Illinois investment
credit, "placed in service" has the same meaning as under IRC
Section 46. Property will be considered to have been placed in service in
the same taxable year in which it is taken into account in determining
the federal investment tax credit. See Treasury Reg. Section 1.46-3(d).
A) Even though property is placed in service in the same taxable
year in which it is taken into account in determining the Federal investment
tax credit only property placed in service in Illinois after June 30, 1984
and before January 1, 1997 can qualify for consideration in determining the
credit against the replacement tax. Qualifying property shall be considered
placed in service in Illinois on the date on which the property is placed in
a condition or state of readiness and availability for a specifically
assigned function. See Treasury Reg. Section 1.46-3(d)(2).
B) Property which is disposed of or which ceases to qualify
for any other reason during the same taxable year it was placed in
service in Illinois will not be considered in computing the investment credit
for the taxable year.
4) Adjusted basis. The basis of qualified property for purposes
of the investment credit is the property's basis used to compute the
depreciation deduction for federal income tax purposes.
A) In computing the amount of investment credit available for a taxable
year, the proper investment credit rate will be applied to the total basis of
all qualified property placed in service in Illinois during the taxable year,
provided the property continues to qualify on the last day of the taxable year.
B) If the basis of property placed in service during a taxable
year is increased or decreased during the same taxable year, the increased or
decreased basis will be used to compute the investment credit for the taxable
year.
5) Acquired by purchase. In order to qualify for the investment
credit, the property must have been acquired by purchase as defined in IRC
Section 179(d). For purposes of determining whether property is acquired by
purchase as defined by IRC Section 179(d), the family of an individual includes
only his spouse, ancestors and lineal descendants. Also, for these purposes
only, a controlled group has the same meaning as in IRC Section 1563(a), except
stock ownership of only 50% or more is required. See Treasury Reg. Section
1.179-4 under the Internal Revenue Code. Property which the taxpayer
constructs, reconstructs or erects itself is generally considered acquired by
purchase. IRC Section 179 defines purchase as any acquisition of property
except:
A) an acquisition from a person whose relationship to the
acquiring person is such that a resulting loss would be disallowed under IRC
Section 267 or 707(b);
B) an acquisition by one component member of a controlled group
from another component member of the group; an acquisition of property, if the
basis of the property in the hands of the person acquiring it is determined in
whole or in part by its adjusted basis in the hands of the person from whom
the property was acquired; or
C) an acquisition of property, the basis of which is determined
under IRC Section 1014(a). IRC Section 1014(a) covers property acquired from a
decedent. Property acquired by bequest or demise is not acquired by purchase.
6) Used in Illinois. Mobile property such as vehicles must be
used predominantly in Illinois. Removal of such property from Illinois for a
temporary and transitory purpose will not disqualify the property so long as it
continues to be used predominantly in the Illinois operation of the taxpayer.
For purposes of this Section, mobile property is considered to be predominantly
used in Illinois if usage in Illinois exceeds usage outside of Illinois.
Example. A retailer sometimes uses its trucks based in Illinois to deliver
goods both in Illinois and to out-of-State buyers. Such temporary absence of
its trucks from Illinois does not disqualify them.
7) Manufacturing, retailing, coal or fluorite mining. In
general, in order to qualify for the investment credit against the replacement
tax, property must be used in Illinois by the taxpayer exclusively in
manufacturing operations, retailing, coal mining, or fluorite mining. See
subsection (d) of this regulation for the method of apportioning the cost of a
building or structural component thereof when a portion of such building or
structural component is used in a non-qualifying operation. A lessor of
otherwise qualifying property, which property is used by the lessee in
manufacturing, retailing, or coal or fluorite mining operations, would not
qualify for the credit because the property is not used "by the
taxpayer".
8) Manufacturing operations. "Manufacturing
operations" is defined in IITA Section 201(e)(3) as the material staging
and production of tangible personal property by procedures commonly regarded
as manufacturing, processing, fabrication or assembling which changes some
existing material into new shapes, new qualities, or new combinations. It is
not necessary that such procedures result in a finished consumer product.
Procedures commonly regarded as manufacturing, processing, fabrication or
assembling are those so regarded by the general public. The use of
otherwise qualifying property in any industrial, commercial or business
activity which may be distinguished from manufacturing, processing,
fabrication or assembling will not be considered a manufacturing operation
for purposes of the Section 201(e) credit. For example, a building
constructed to house the administrative services division of a manufacturing
company would not be used for manufacturing operations and would not
qualify for the Section 201(e) credit. By way of further example, otherwise
qualifying property used in the following operations will not qualify for the
investment credit because the activities described are generally not
considered manufacturing operations:
A) Agricultural activities such as cultivating the soil; raising
or harvesting crops; the production of seed or seedlings; and the development
of hybrid seeds, plants, or shoots are not manufacturing operations. The
raising or breeding of livestock, poultry, fish or any other animals, as well
as commercial fishing or beekeeping is not manufacturing.
B) Manufacturing operations do not include mining; quarrying;
logging; drilling for oil, gas or water; or any other operations which
result in the extraction or procurement of a natural resource. However, the
refining or processing of such natural resources into a product of a
different form or a product which has different qualities is manufacturing.
C) Persons engaged in the construction, reconstruction,
alteration, remodeling, or improvement of real estate are not considered
engaged in manufacturing operations.
D) Manufacturing operations do not include research and
development of new products or production techniques.
E) Manufacturing operations do not include the use of machinery
or equipment in managerial or other non-production, non-operational
activities including disposal of waste, scrap or residue, inventory
control, production scheduling, work routing, purchasing, receiving,
accounting, fiscal management, general communications, plant security, or
personnel recruitment, selection or training.
9) Retailing. Retailing is defined as the sale of tangible
personal property or services rendered in conjunction with the sale of
tangible consumer goods or commodities (IITA Section 203(e)(3)). It is not
required that such tangible personal property be finished consumer goods, or
that the property be sold to its ultimate consumer. For example, sales of tangible
personal property for resale are included in the definition of retailing.
Also included in the definition of retailing for these purposes are any
services rendered in conjunction with the sale of tangible consumer goods or
commodities such as uncrating, cleaning, assembling, delivery or
installation, provided such services are in conjunction with a specific
sale. For example, a delivery truck would qualify for the Section
201(e) credit as it is used in conjunction with specific sales but a
company jet used by the president of the company for general or personal
purposes would not. Similarly, equipment used by the payroll division of a
company would not be used in a retailing operation or in a service rendered
in conjunction with the sale of tangible consumer goods. The following
activities are not considered retailing operations:
A) The construction, reconstruction, alteration, remodeling, or
improvement of real estate;
B) The operation of a hotel or motel or other institution
providing only lodging facilities;
C) Other service professions which do not involve the transfer of
tangible personal property other than as an incident to the service
performed. For guidance in distinguishing service professions from retailing
professions, the Department will rely on rules promulgated under the Service
Occupation Tax Act at 86 Ill. Adm. Code 140;
D) Farming operations related to crop and livestock production do
not constitute retailing. However, the marketing of such products would
constitute a retailing operation and otherwise qualifying property used in
marketing farm produce would qualify for the Section 201(h) credit.
10) Mining of coal or fluorite. Mining has the same meaning as in
Section 613(c) of the Internal Revenue Code, but shall be limited to the mining
of coal and fluorite (IITA Section 203(e)(3)). Mining as defined in IRC
Section 613(c) includes not only extraction, but also treatment processes such
as cleaning, breaking, sorting, sizing, dust allaying, and loading for
shipment.
11) New or used. Qualifying property can be new or used; however,
used property does not qualify if it was previously used in Illinois in
such a manner and by such a person as would qualify for the Illinois
investment credit.
A) Example: Corporation A purchases a used pick-up truck, for
use in its manufacturing business in Illinois, from an Illinois resident
who used the truck for personal purposes in Illinois. If the truck meets
all the other requirements for the investment credit it will not be
disqualified, merely, because it was previously used in Illinois for a
purpose which did not qualify for the credit. However, had Corporation
A purchased the used truck from an Illinois taxpayer in whose hands
the truck qualified for the investment credit, the truck would not be
qualified property to Corporation A, even though the party from whom the
truck was acquired had never received an investment credit for it.
B) Property which would otherwise qualify for the credit will
not be disqualified because it was previously used in such a manner and by
such a person as would have qualified for the investment credit before the
time such credit came into effect. Example: In August of 1983, Corporation A
purchased a drill press for use in its manufacturing operation in an
Illinois Enterprise Zone from Corporation B. Corporation B originally
placed the drill press into service in its Illinois manufacturing operation
in January of 1980, before the investment credit came into effect. Even
though Corporation B would have qualified for the Illinois investment
credit had there been a credit in 1980, this will not disqualify Corporation
A from claiming a credit for this property, provided the property is
otherwise qualified. However, should Corporation A sell the property to
Corporation C for use in its Illinois manufacturing operation, the
property would not qualify for the investment credit, even though it would
otherwise qualify. Because the property was used in such a manner and by
such a person as would have qualified for the investment credit at a time when
at least one of the credits was in effect. The fact that the credit was not
yet effective when Corporation A placed the property in service will not
cause the property to qualify for the credit in the hands of Corporation C
because IITA Section 201(e) specifically provides that the property is
disqualified if it previously qualified under either IITA Section 201(e) or
201(f).
f) Apportioning cost when a building is used for both
qualifying and non-qualifying operations. To qualify for the Section 201(e)
credit, property must be used exclusively in one of the qualified operations,
such as manufacturing, but the taxpayer need not be exclusively engaged
in such operations. Therefore, situations may arise where a building or
structure is used to house both qualifying and non-qualifying
operations. In such cases, the portion of the cost associated with that
part of the building used exclusively in manufacturing operations would
qualify for the credit, but not that part of the building, or any part of
a separate building, used for non-qualified operations. The cost of the
building can be apportioned by multiplying the cost of the building by a
fraction, the numerator of which is total square footage devoted to
qualifying operations and the denominator of which is total square footage.
g) Recapture. If within 48 months after being placed in service,
any property ceases to be qualified property in the hands of the taxpayer
or the situs of any qualified property is moved outside of Illinois, or
outside of the enterprise zone, for other than a temporary or transitory
purpose, then the personal property tax replacement income or the income
tax (whichever was reduced by the credit) for the taxable year in which such
event occurred will be increased.
1) Any property disposed of by the taxpayer within 48 months of
being placed in service ceases to qualify. Also, any property converted to
personal use ceases to qualify. Any property used in other than manufacturing,
retailing, coal mining or fluorite mining ceases to qualify.
2) A taxpayer disposes of property when he sells the property,
exchanges or trades in worn-out property for new property, abandons the
property or retires it from use. Property destroyed by casualty, stolen, or
transferred as a gift is treated as having been disposed of. Property
which is mortgaged or used as security for a loan does not cease to qualify
provided the taxpayer continues to use the property in its business within
Illinois. Property transferred to a trustee in bankruptcy is considered
disposed of in the year the property is transferred to the trustee. A
transfer of property by foreclosure is treated as a disposition.
3) The reduction of the basis of qualified property resulting
from the redetermination of the purchase price is a disposition of
qualified property to the extent of such reduction in the taxable year the
reduction takes place. This occurs, for example, when property is purchased
and placed in service in one year, and in a later year the taxpayer receives
a refund of part of the original purchase price. See Treasury Reg. Section
1.47-2(c) under the Internal Revenue Code.
4) In order to determine the amount by which the personal
property tax replacement income tax or the income tax must be increased in
the taxable year in which the property ceased to qualify, was moved outside of
Illinois or the enterprise zone, the taxpayer must recompute the investment
credit for the taxable year in which the property was placed in service by
eliminating from his calculations any such property. This recomputed
investment credit is subtracted from the amount of credit actually used in
the year in which the disqualified property was placed in service. The
difference between the recomputed credit and the credit actually used is
added to the personal property tax replacement income tax or the income tax
for the year in which the property ceased to qualify or was moved outside of
Illinois. If the recomputed credit is greater than the credit actually
used in the year the property was placed in service, no addition to the
current taxable year's personal property tax replacement income tax or income
tax is required.
EXAMPLE: In
1985, Corporation A places qualifying property with a basis of $55,000 into
service in an enterprise zone located in Illinois and computes a Section
201(g) investment credit for the year of $275 ($55,000.00 x .5%) and a Section
201(h) investment credit of $275 ($55,000 x .5%). Corporation A's 1985
personal property tax replacement income tax is $260 and its income tax
liability for the year is $420. After application of the investment
credit, Corporation A has no remaining replacement tax liability and its
remaining income tax liability is $145. In the following year, Corporation
A moved a qualifying asset having a basis in 1985 of $5,000 from Illinois
and is therefore required to recapture a portion of the investment credit
applied against its replacement tax. In order to determine its additional
income tax for 1986, Corporation A must recompute its 1985 investment
credit by eliminating the disqualified property ($55,000 - $5,000 x .5% =
$250). This recomputed credit is subtracted from the investment credit
actually used in 1985 against the income tax ($260 - $250 = $10) and the
difference is added to Corporation A's 1986 income tax after application of the
1986 investment credit.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2101 REPLACEMENT TAX INVESTMENT CREDIT (IITA 201(E))
Section 100.2101 Replacement
Tax Investment Credit (IITA 201(e))
a) A taxpayer shall be allowed a credit against the Personal
Property Replacement Income Tax for investment in qualified property
("the investment credit"). The qualified property must be used in
Illinois by a taxpayer who is primarily engaged in manufacturing, retailing,
coal mining or fluorite mining.
b) A taxpayer shall be allowed a credit equal to .5% of the
basis of qualified property placed in service during the taxable year,
provided such property is placed in service on or after July 1, 1984 (IITA
Section 201(e)(1)). However, the basis of qualified property shall not
include costs incurred after December 31, 2013, except for costs incurred
pursuant to a binding contract entered into on or before December 31, 2013 (IITA
Section 201(e)(8)).
c) There shall be allowed an additional credit equal to .5%
of the basis of qualified property placed in service during the taxable year,
provided such property is placed in service on or after July 1, 1986, and the
taxpayer's base employment in Illinois has increased by at least 1% over the
preceding year. If, in any year, the increase in base employment within
Illinois over the preceding year is less than 1%, the additional credit shall
be limited to that percentage times a fraction, the numerator of which is .5%
and denominator of which is 1%, but shall not exceed .5% (IITA Section
201(e)(1)).
1) Base employment. For purposes of calculating the additional
investment credit, base employment in Illinois is defined as the average
monthly total of individuals employed in Illinois by a taxpayer during the
taxable year. To calculate base employment for a particular taxable year, the
taxpayer need only total the number of individuals he employed in Illinois
during each month of the taxable year as reported to the Illinois Department of
Employment Security on Line 1 of Form UC-3/40 or Form UI-3/40M and divide this
total by the number of months in the taxable year.
2) Example of the Additional Investment Credit Computation.
During the calendar year 1994, Corporation A reported 500 employees each month
on Line 1 of Form UC-3/40. Therefore, Corporation A's base employment in
Illinois for 1994 was 500 ((500 x 12) divided by 12 = 500). In 1995,
Corporation A reported 500 employees for each of the first six months, and 505
employees for each of the remaining six months of the taxable year. Therefore,
Corporation A's base employment for 1995 was 502.5 ((500 x 6) + (505 x 6)
divided by 12 = 502.5). Corporation A's percentage of increase in 1995 base
employment over 1994 base employment is .5%. This figure is computed by
subtracting the 1994 base employment from the 1995 base employment and dividing
the remainder by the 1994 base employment ((502.5 - 500) divided by 500 = .005
or .5%). Corporation A will be allowed an additional investment credit for
1995 of .25% (one-half of the percentage of increase) times the adjusted basis
of qualified property placed in service in Illinois during the taxable year and
on or after July 1, 1986.
d) The investment credit is not allowed to the extent it would
decrease the taxpayer's replacement tax liability for the taxable year to less
than zero, nor may any credit for qualified property be allowed for any year
other than the year in which the property was placed in service in Illinois.
No carryback or carryforward of unused credit is allowed for tax years ending
prior to December 31, 1985. For tax years ending after December 31, 1988, the
credit shall be allowed for the tax year in which the property is placed in
service, or, if the amount of the credit exceeds the tax liability for that
year, whether it exceeds the original liability or the liability as later
amended, such excess may be carried forward and applied to the tax liability of
the 5 taxable years following the excess credit year. The credit shall be
applied to the earliest year for which there is a liability. If there is
credit from more than one tax year that is available to offset a liability,
earlier credit shall be applied first.
e) Qualified property. In order to qualify for the investment
credit, property must be tangible; depreciable pursuant to Internal Revenue
Code Section 167, except that "3-year property" as defined in IRC
section 168(c)(2)(A) is not eligible; and acquired by purchase as defined in
Internal Revenue Code section 179(d). IRC section 168(c)(2)(A), as in effect at
the time the credit was enacted, defined "3-year property" to mean
"section 1245 property: with a present class life of 4 years or less; or
used in connection with research and experimentation". In addition to the
above requirements, property must be used in Illinois by the taxpayer who is
engaged primarily in manufacturing, retailing, coal mining or fluorite mining,
in order to qualify for the IITA Section 201(e) credit against the replacement
tax. Qualified property can be new or used, but cannot have been previously
used in Illinois, in such a manner and by such a person as would qualify for
the investment credit, or for the Section 201(f) Enterprise Zone Investment
Credit, and includes buildings and structural components of buildings.
1) Tangible property, whether new or used, can consist of
personalty or realty and includes, but is not limited to, buildings and
structural components of buildings, signs that are real property, machinery,
equipment, and vehicles. Certain property, though tangible in nature, does not
qualify as investment credit property because it is not depreciable.
2) Depreciable. In order to qualify for the investment credit,
property must also be depreciable pursuant to IRC section 167. IRC section 167
provides that depreciable property is property used in the taxpayer's trade or
business or held for the production of income which is subject to wear and
tear, exhaustion, or obsolescence.
A) Property that is depreciated under the Modified Accelerated
Cost Recovery System (MACRS), as provided by IRC section 168, is considered
depreciable pursuant to IRC section 167 for purposes of the investment credit.
Property assigned to a MACRS class of less than 4 years does not qualify for
the investment credit.
B) Examples of tangible property that is not depreciable are land,
inventories or stock in trade, natural resources, and coin or currency.
C) The provisions of Treasury Reg. section 1.167(a)-4 shall govern
in determining whether leasehold improvements are depreciable.
D) IRC section 179 allows taxpayers, under certain circumstances,
to expense up to $25,000 of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was $25,000 or less, the
taxpayer has the option of expensing the cost all in one year as a depreciation
expense. While the property does have a useful life of four or more years,
since the election was made to completely expense the cost of the property in
one year, the property has no federal depreciable basis and does not have a
basis upon which to compute the Illinois investment tax credit. Property not
fully expensed under section 179 would qualify for the credit based on the cost
of the depreciable property reduced by the section 179 deduction.
3) Placed in service. For purposes of the Illinois investment
credit, "placed in service" has the same meaning as under IRC section
46. Property will be considered to have been placed in service in the same
taxable year in which it is taken into account in determining the federal
investment tax credit. See Treasury Reg. section 1.46-3(d).
A) Even though property is placed in service in the same taxable
year in which it is taken into account in determining the Federal investment
tax credit, only property placed in service in Illinois after June 30, 1984 and
before January 1, 1997 can qualify for consideration in determining the credit
against the replacement tax. Qualifying property shall be considered placed in
service in Illinois on the date on which the property is placed in a condition
or state of readiness and available for a specifically assigned function. See
Treasury Reg. section 1.46-3(d)(2).
B) Property that is disposed of, moved out of Illinois or which
ceases to qualify for any other reason during the same taxable year it was
placed in service in Illinois will not be considered in computing the investment
credit for the taxable year.
4) Adjusted basis. The basis of qualified property for purposes
of the investment credit is the property's basis used to compute the
depreciation deduction for federal income tax purposes. Accordingly, the basis
for the credit is determined without regard to any bonus depreciation under IRC
section 168(k), but after taking into account any amount treated as an expense
not chargeable to capital under IRC section 179.
A) In computing the amount of investment credit available for a
taxable year, the proper investment credit rate will be applied to the total
basis of all qualified property placed in service in Illinois during the
taxable year, provided the property continues to qualify on the last day of the
taxable year.
B) If the basis of property placed in service during a taxable
year is increased or decreased during the same taxable year, the increased or
decreased basis will be used to compute the investment credit for the taxable
year.
5) Acquired by purchase. In order to qualify for the investment
credit, the property must have been acquired by purchase as defined in IRC
section 179(d). For purposes of determining whether property is acquired by
purchase as defined by IRC section 179(d), the family of an individual includes
only his spouse, ancestors and lineal descendants. Also, for these purposes
only, a controlled group has the same meaning as in IRC section 1563(a), except
stock ownership of only 50% or more is required. See Treasury Reg. section
1.179-4 under the Internal Revenue Code. Property which the taxpayer
constructs, reconstructs or erects itself is generally considered acquired by
purchase. IRC section 179 defines purchase as any acquisition of property
except:
A) an acquisition from a person whose relationship to the
acquiring person is such that a resulting loss would be disallowed under IRC
section 267 or 707(b);
B) an acquisition by one component member of a controlled group
from another component member of the group; an acquisition of property, if the
basis of the property in the hands of the person acquiring it is determined in
whole or in part by its adjusted basis in the hands of the person from whom the
property was acquired; or
C) an acquisition of property, the basis of which is determined
under IRC section 1014(a). IRC section 1014(a) covers property acquired from a
decedent. Property acquired by bequest or demise is not acquired by purchase.
6) Used in Illinois. Mobile property such as vehicles must be
used predominantly in Illinois. Removal of such property from Illinois for a
temporary and transitory purpose will not disqualify the property so long as it
continues to be used predominantly in the Illinois operation of the taxpayer.
For purposes of this Section, mobile property is considered to be predominantly
used in Illinois if usage in Illinois exceeds usage outside of Illinois.
Example: A retailer sometimes uses its trucks based in Illinois to deliver
goods both in Illinois and to out-of-State buyers. Temporary absence of its
trucks from Illinois does not disqualify them.
7) A lessor of otherwise qualifying property that is used by the
lessee in manufacturing, retailing, or coal or fluorite mining operations,
would not qualify for the credit because the property is not used "by the
taxpayer".
8) "Manufacturing" is defined in IITA Section 201(e)(3)
as the material staging and production of tangible personal property by
procedures commonly regarded as manufacturing, processing, fabrication or
assembling which changes some existing material into new shapes, new qualities,
or new combinations. It is not necessary that these procedures result in a
finished consumer product. Procedures commonly regarded as manufacturing,
processing, fabrication or assembling are those so regarded by the general
public. If a taxpayer primarily engages in the following operations, the
taxpayer will not qualify for the investment credit on the basis of engaging
primarily in manufacturing. The activities described are generally not
considered manufacturing operations:
A) Agricultural activities such as cultivating the soil, raising
or harvesting crops, the production of seed or seedlings, and the development
of hybrid seeds, plants or shoots are not manufacturing operations. The raising
or breeding of livestock, poultry, fish or any other animals, as well as
commercial fishing or beekeeping, is not manufacturing.
B) Manufacturing operations do not include mining, quarrying,
logging, drilling for oil, gas or water, or any other operations that result in
the extraction or procurement of a natural resource. However, the refining or
processing of natural resources into a product of a different form or a product
that has different qualities is manufacturing.
C) Persons engaged in the construction, reconstruction,
alteration, remodeling or improvement of real estate are not considered engaged
in manufacturing operations.
D) Manufacturing operations do not include research and
development of new products or production techniques.
E) Manufacturing operations do not include the use of machinery or
equipment in managerial or other non-production, non-operational activities
including disposal of waste, scrap or residue, inventory control, production
scheduling, work routing, purchasing, receiving, accounting, fiscal management,
general communications, plant security, or personnel recruitment, selection or
training.
9) Retailing. Retailing is defined as the sale of tangible
personal property for use or consumption and not for resale, or services
rendered in conjunction with the sale of tangible personal property for use or
consumption and not for resale. For purposes of this Section, the term
"tangible personal property" has the same meaning as when used in the
Retailers' Occupation Tax Act, and does not include the generation,
transmission, or distribution of electricity (IITA Section 201(e)(3)). It
is required that the tangible personal property be finished consumer goods, and
the property be sold to its ultimate consumer. For example, sales of tangible
personal property for resale are not included in the definition of retailing.
The following activities are not considered retailing operations:
A) The construction, reconstruction, alteration, remodeling or improvement
of real estate;
B) The operation of a hotel or motel or other institution
providing only lodging facilities;
C) Other service professions that do not involve the transfer of
tangible personal property other than as an incident to the service performed.
For guidance in distinguishing service professions from retailing professions,
the Department will rely on rules promulgated under the Service Occupation Tax
Act at 86 Ill. Adm. Code 140;
D) Farming operations related to crop and livestock production do
not constitute retailing. However, the marketing of these products would
constitute a retailing operation.
10) Mining of coal or fluorite. Mining has the same meaning
as in section 613(c) of the Internal Revenue Code, but shall be limited to
the mining of coal and fluorite (IITA Section 201(e)(3)). Mining as defined in
IRC Section 613(c) includes not only extraction, but also treatment processes
such as cleaning, breaking, sorting, sizing, dust allaying, and loading for
shipment.
11) New or used. Qualifying property can be new or used;
however, used property does not qualify if it was previously used in Illinois
in such a manner and by such a person as would qualify for the Illinois
investment credit.
A) Example: Corporation A purchases a used pick-up truck, for
use in its manufacturing business in Illinois, from an Illinois resident who
used the truck for personal purposes in Illinois. If the truck meets all the
other requirements for the investment credit, it will not be disqualified
merely because it was previously used in Illinois for a purpose that did not
qualify for the credit. However, had Corporation A purchased the used truck
from an Illinois taxpayer in whose hands the truck qualified for the investment
credit, the truck would not be qualified property to Corporation A, even though
the party from whom the truck was acquired had never received an investment
credit for it.
B) Property that would otherwise qualify for the credit will not
be disqualified because it was previously used in such a manner and by such a
person as would have qualified for the investment credit before the credit came
into effect. Example: In August of 1983, Corporation A purchased a drill press
for use in its manufacturing operation in an Illinois Enterprise Zone from
Corporation B. Corporation B originally placed the drill press into service in
its Illinois manufacturing operation in January of 1980, before IITA Section
201(e) came into effect. Even though Corporation B would have qualified for
the Illinois investment credit had there been a credit in 1980, this will not
disqualify Corporation A from claiming a credit for this property, provided the
property is otherwise qualified. However, should Corporation A sell the
property to Corporation C for use in its Illinois manufacturing operation, the
property would not qualify for the credit, even though it would otherwise qualify,
because the property was used in such a manner and by such a person as would
have qualified for the investment credit under Section 201(e) or 201(f) at a
time when at least one of the credits was in effect. The fact that the
Section 201(e) credit was not yet effective when Corporation A placed the
property in service will not cause the property to qualify for the Section
201(e) credit in the hands of Corporation C because IITA Section 201(e)
specifically provides that the property is disqualified if it previously
qualified under either IITA Section 201(e) or 201(f).
f) To
qualify for the credit, property must be used in Illinois by a taxpayer who is
primarily engaged in manufacturing, or in mining coal or fluorite, or in
retailing. It is not required that the property be used exclusively in
manufacturing, mining of coal or fluorite or in retailing. So long as the
taxpayer is primarily, more than 50%, engaged in one of these operations, all
qualified property is eligible for the credit, even if the property is not
actually used in an exempt manufacturing, coal or fluorite mining or retailing
process. The taxpayer must engage primarily in one or more of the operations.
In other words, a taxpayer that is engaged 30% of the time in retailing and 40%
of the time in manufacturing will qualify for the credit, because the taxpayer
is engaged primarily in one or more of the operations. In determining whether
a taxpayer is primarily engaged in an activity the Department will look to the
gross receipts of the taxpayer received in the ordinary course of business by
that taxpayer. For example, if more than 50% of the taxpayer's gross receipts
are from manufacturing, the taxpayer is primarily engaged in manufacturing, or
if more than 50% of the gross receipts are from retailing, the taxpayer is
primarily engaged in retailing. The taxpayer (and the Department) will look to
the gross receipts received by the taxpayer in the ordinary course of business.
Therefore, if, for example, the taxpayer suffers a casualty loss and that is
compensated for by an insurance payment, the amount of money so received will
not be deemed gross receipts received in the ordinary course of business, and
disqualify the taxpayer from eligibility and perhaps result in the recapture of
credits granted in prior years.
EXAMPLE 1:
Corporation A manufactures CD ROM Units for personal computers, which are sold
to others for resale. Corporation A also engages in the retail sale of canned
computer software. Finally, Corporation A develops and sells custom computer
software to various clients. Corporation A receives 20% of its gross receipts
from the manufacturing of CD ROM Units, 40% of its gross receipts from retail
sales of canned software, and 40% of its gross receipts from its custom computer
software development and sales operations. Corporation A is eligible for the
credit. Corporation A is engaged primarily in manufacturing and retailing,
because the total of its manufacturing and retailing operations is 80% of its
gross receipts. Therefore, the Corporation is eligible for the credit.
EXAMPLE 2:
Corporation B operates a hotel. 80% of the gross receipts of Corporation B are
from the renting of rooms, 5% of the gross receipts are from the operation of a
gift shop in the hotel and the remaining 15% of the gross receipts are from the
operation of a restaurant and lounge in the hotel. The renting of rooms is not
retailing. Therefore, Corporation B is ineligible for the credit because it is
not engaged primarily in retailing, even though it does, through the operation
of the gift shop, restaurant and lounge, engage in some retailing activities.
g) Recapture. If, within 48 months after being placed in
service, any property ceases to be qualified property in the hands of the taxpayer
or the situs of any qualified property is moved outside of Illinois, or outside
of the enterprise zone, for other than a temporary or transitory purpose, then
the personal property tax replacement income for the taxable year in which such
event occurred will be increased (IITA Section 201(e)(7)). If, during the
48 month period, the taxpayer ceased to be primarily engaged in retailing,
manufacturing, coal or fluorite mining, the property ceases to be qualified
property. Therefore, previously granted credits must be recaptured.
1) Any property disposed of by the taxpayer within 48 months
after being placed in service ceases to qualify.
2) A taxpayer disposes of property when he sells the property,
exchanges or trades in worn-out property for new property, abandons the
property or retires it from use. Property destroyed by casualty, stolen, or
transferred as a gift is treated as having been disposed of. Property which is
mortgaged or used as security for a loan does not cease to qualify provided the
taxpayer continues to use the property within Illinois. Property transferred
to a trustee in bankruptcy is considered disposed of in the year the property
is transferred to the trustee. A transfer of property by foreclosure is
treated as a disposition.
3) The reduction of the basis of qualified property resulting
from the redetermination of the purchase price is a disposition of qualified
property to the extent of such reduction in the taxable year the reduction
takes place. This occurs, for example, when property is purchased and placed in
service in one year, and in a later year the taxpayer receives a refund of part
of the original purchase price. See 26 CFR 1.47-2(c) (2010).
4) In order to determine the amount by which the personal
property tax replacement income tax must be increased in the taxable year in
which the property ceased to qualify or was moved outside of Illinois or the
enterprise zone, the taxpayer must recompute the investment credit for the
taxable year in which the property was placed in service by eliminating from
his calculations any such property. This recomputed investment credit is
subtracted from the amount of credit actually used in the year in which the
disqualified property was placed in service. The difference between the
recomputed credit and the credit actually used is added to the personal
property tax replacement income tax or the income tax for the year in which the
property ceased to qualify or was moved outside of Illinois. If the recomputed
credit is greater than the credit actually used in the year the property was
placed in service, no addition to the current taxable year's personal property
tax replacement income tax or income tax is required.
EXAMPLE: In
1985, Corporation A places qualifying property with a basis of $55,000 into
service in an enterprise zone located in Illinois and computes a Section 201(e)
investment credit for the year of $275 ($55,000 x .5%) and a Section 201(h)
investment credit of $275 ($55,000 x .5%). Corporation A's 1985 personal
property tax replacement income tax is $260 and its income tax liability for
the year is $420. After application of the credit, Corporation A has no
remaining replacement tax liability and its remaining income tax liability is
$145. In the following year Corporation A moved a qualifying asset having a
basis in 1985 of $5,000 from Illinois and is therefore required to recapture a
portion of the investment credit applied against its replacement tax. In order
to determine its additional income tax for 1986, Corporation A must recompute
its 1985 investment credit by eliminating the disqualified property ($55,000 -
$5,000 x .5% = $250). This recomputed credit is subtracted from the investment
credit actually used in 1985 against the income tax ($260 - $250 = $10) and the
difference is added to Corporation A's 1986 income tax after application of the
1986 investment credit.
h) Partnerships
and Subchapter S Corporations.
1) For each taxable year ending before December 31, 2000, a
partnership may elect to pass through to its partners the credits to which the
partnership is entitled under IITA Section 201(e) for the taxable year.
The election to pass through the credits shall be irrevocable. [IITA
Section 201(e)(9)]
A) This subsection (h)(1) applies only to partnerships.
Subchapter S corporations may not pass credits through to their stockholders
under this provision.
B) Subject to the statute of limitations, the election under this
subsection (h)(1) may be made retroactively. See Borden Chemicals and Plastics,
L.P. v. Zehnder, 312 IllApp3d 35 (1st Dist. 2000). A retroactive
election shall be made by filing an amended return by the partnership making
the election for the tax year of the election and for any subsequent year
affected by the election, and including a schedule of the credits to be passed
through. An example of a subsequent year affected by an election would be a
year in which a credit carried forward from a year prior to the election was
used by the partnership or was passed through to the partners by an election
for that subsequent year.
C) All credits to which the partnership is entitled under IITA
Section 201(e) in the year an election is made are passed through to the
partners, including credits passed through to the partnership from another
partnership, credits carried forward from prior years and the share
attributable to partners who are not subject to Personal Property Tax
Replacement Income Tax and exempt organizations not subject to tax under IITA
Section 205(a).
D) Any credit passed through to a partner must be used within the
5-year carryforward period allowed to the partnership. Thus, a credit earned
by a partnership in the year the election is made may be used by the partner to
whom it is passed in that partner's taxable year in which the taxable year of
the partnership for which the election was made ends, and any unused amount may
be carried forward to the 5 succeeding taxable years of the partner. If a
partnership elects to pass through to its partners a credit earned in its
immediately preceding taxable year, a partner may use that credit in its
taxable year in which the taxable year of the partnership for which the
election was made ends, and any unused amount may be carried forward to the 4
succeeding taxable years of the partner.
2) For taxable years ending on or after December 31, 2000, a
partner that qualifies its partnership for a subtraction under Section
203(d)(2)(I) of IITA or a shareholder that qualifies a subchapter S
corporation for a subtraction under Section 203(b)(2)(S) shall be allowed a
credit under IITA Section 201(e) equal to its share of the credit earned under
IITA Section 201(e) during the taxable year by the partnership or subchapter S
corporation, determined in accordance with the determination of income and
distributive share of income under sections 702 and 704 and subchapter S of the
Internal Revenue Code. [35 ILCS 5/201(e)(9)] Under this subsection (h)(2):
A) The provisions of this subsection (h)(2) apply to both
partnerships and subchapter S corporations.
B) Credits are passed through only in the year earned. Any amount
carried forward from a prior year cannot flow through to the partners or
shareholders of the entity.
C) The share of credits allocable to a partner or shareholder who
is not subject to Personal Property Tax Replacement Income Tax and who is not
exempt from taxation under IRC section 501(a) do not pass through to that
partner or shareholder. Those amounts may be used by the partnership or
subchapter S corporation against the Personal Property Tax Replacement Income
Tax liability it incurs on the share of its income attributable to such
partners or shareholders.
D) Any credit passed through to a partner or shareholder under
this subsection (h)(2) may be used in the taxable year of the partner or
shareholder in which the taxable year of the entity that passes the credit
through ends, and may be carried forward to the 5 succeeding taxable years of
the partner or shareholder until used.
E) Any credit passed through to a partnership or subchapter S
corporation under this subsection (h)(2) shall pass through to its partners or
shareholders in the same manner as a credit earned by the partnership or
subchapter S corporation.
(Source: Amended at 35 Ill.
Reg. 15092, effective August 24, 2011)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2110 ECONOMIC DEVELOPMENT FOR A GROWING ECONOMY CREDIT (IITA SECTION 211)
Section 100.2110 Economic
Development for a Growing Economy Credit (IITA Section 211)
a) For
tax years beginning on or after January 1, 1999, a taxpayer who has entered
into an Agreement (including for tax years beginning on or after January 1,
2021, a New Construction EDGE Agreement) with the Department of Commerce
and Economic Opportunity (DCEO) under the Economic Development for a Growing
Economy Tax Credit Act [35 ILCS 10] (EDGETCA), shall be allowed a credit
against the tax imposed by the Illinois Income Tax Act (IITA) Section
201(a) and (b) in an amount to be determined in the Agreement. (IITA
Section 211)
b) The
credit shall be computed as follows:
1) The
credit allowed shall not exceed the Incremental Income Tax with respect to the
project. Additionally, the New Construction EDGE Credit shall not exceed the
New Construction EDGE Incremental Income Tax. (IITA Section 211(1)) EDGETCA
Section 5-5 defines Incremental Income Tax as the total amount withheld
during the taxable year from the compensation of new employees, and if
applicable, retained employees under Article 7 of the IITA arising from
employment at a project that is the subject of an Agreement. EDGETCA
Section 5-5 also defines New Construction EDGE Incremental Income Tax as the
total amount withheld during the taxable year from the compensation of New
Construction EDGE Employees. [35 ILCS 10/5-5]
2) The
amount of the credit allowed during the tax year plus the sum of all amounts
allowed in prior years shall not exceed 100% of the aggregate amount expended
by the taxpayer during all prior tax years on approved costs defined by
Agreement. (IITA Section 211(2))
3) Pursuant
to IITA Section 211(3), the amount of credit shall be determined on an
annual basis; provided, however, that:
A) except
in the case of a taxpayer described in subsection (b)(3)(B), the credit
against any State income tax liability may not be applied in more than 10
taxable years;
B) in the
case of a taxpayer certified by DCEO under the Corporate Headquarters
Relocation Act, the credit may not extend beyond 15 taxable years; provided,
that the taxpayer may not claim for any tax year during that period more than
60% of the credit otherwise allowed for that tax year under the EDGETCA (see
EDGETCA Section 5-45); and
C) a
credit earned within the applicable period specified in subsection (b)(3)(A) or
(B) may be carried forward beyond that period pursuant to IITA Section 211(4).
4) The
credit may not exceed the amount of taxes imposed pursuant to IITA Section 201(a)
and (b). (IITA Section 211(4))
5) In
the case of an election under Section 100.7380(a), no credit shall be allowed
under IITA Section 211 or this Section for the taxable year of the election.
c) Any
credit in excess of the tax liability for the taxable year may be carried
forward to offset the income tax liability of the taxpayer for the next five
years or until it has been fully utilized, whichever occurs first. The
credit shall be applied to the earliest year for which there is a tax
liability. If there are credits from more than one tax year that are available
to offset a liability, the earlier credit shall be applied first. (IITA
Section 211(4)) In the case of an election under Section 100.7380(a), no credit
to which the election applies may be carried forward under IITA Section 211(4)
and this Section.
d) No
credit shall be allowed with respect to any Agreement for any taxable year
ending after the Noncompliance Date. Upon receiving notification by the
Department of Commerce and Economic Opportunity of the noncompliance of a
taxpayer with an Agreement, the Department shall notify the taxpayer that no
credit is allowed with respect to that Agreement for any taxable year ending
after the Noncompliance Date, as stated in such notification. If any credit has
been allowed with respect to an Agreement for a taxable year ending after the
Noncompliance Date for that Agreement, any refund paid to the taxpayer for that
taxable year shall, to the extent of that credit allowed, be an erroneous
refund within the meaning of IITA Section 912. (IITA Section 211(5))
If, during any taxable year, a taxpayer ceases operations at a project
location that is the subject of that Agreement with the intent to terminate
operations in the State, the tax imposed under subsections (a) and (b) of
IITA Section 201 for such taxable year shall be increased by the amount of
any credit allowed under the Agreement for that project location prior to the
date the taxpayer ceases operations. (IITA Section 211(5))
e) In
the case of a credit earned by a partnership or Subchapter S corporation, the
credit passes through to the owners for use against their regular income tax
liabilities in the same proportion as other items of the taxpayer are passed
through to the taxpayer's owners for federal income tax purposes. (See IITA
Section 211.)
1) The
credit earned by a partnership or a Subchapter S corporation will be treated as
earned by its owners as of the last day of the taxable year of the partnership
or Subchapter S corporation in which the tax credit certificate is issued by
DCEO under Section 5-55 of the EDGETCA.
2) The
credit shall be allowed to each owner in the taxable year of the owner in which
the taxable year of the partnership or Subchapter S corporation ends and may be
carried forward to the 5 succeeding taxable years of the owner until used.
f) To
claim the credit, a taxpayer shall attach to its Illinois income tax return:
1) a
copy of the tax credit certificate and annual certification (if any) issued by
DCEO; and
2) in
the case of a partner in a partnership or shareholder of a Subchapter S
corporation that earned the credit, a Schedule K-1-P or other written statement
from the partnership or Subchapter S corporation stating:
A) the
portion of the total credit shown on the tax credit certificate that is allowed
to that partner or shareholder and
B) the
taxable year of the partnership or Subchapter S corporation in which the tax
credit certificate was issued.
g) For
purposes of this credit, the terms "Agreement",
"Incremental Income Tax", "new employees", "New
Construction EDGE Incremental Income Tax", "New Construction EDGE
Employee", "Noncompliance Date", and "retained
employees" shall have the same meaning as when used in EDGETCA Section
5-5. (IITA Section 211(6))
h) This
credit is exempt from the sunset provisions of IITA Section 250. (IITA Section
211)
(Source: Former
Section 100.2110 renumbered to Section 100.2131; New Section 100.2110
renumbered from Section 100.2198 and amended at 49 Ill. Reg. 3115, effective February
26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2111 REV TAX CREDIT (IITA SECTION 236)
Section 100.2111 REV Tax
Credit (IITA Section 236)
a) For tax years beginning on or after
January 1, 2025, a taxpayer who has entered into an Agreement with the
Department of Commerce and Economic Opportunity (DCEO) under the Reimagining
Energy and Vehicles in Illinois Act [20 ILCS 686] (REV Illinois Act) is
entitled to a credit against the taxes imposed under the Illinois Income
Tax Act (IITA) Section 201 (a) and (b) in an amount to be determined in the
Agreement. (IITA Section 236(a))
b) The credit may be in the form of a REV
Illinois Credit, a REV Construction Jobs Credit, or both. (IITA Section
236(b)(1))
c) Instead of claiming the credit against the
taxes imposed under IITA Section 201(a) and (b), with respect to the portion of
a REV Illinois Credit that is calculated based on the incremental income tax
attributable to new employees and retained employees, the taxpayer may elect,
in accordance with the REV Illinois Act, to claim the credit, on or after
January 1, 2025, against its obligation to pay over withholding under IITA
Section 704A. (IITA Section 236(b)(6)) (See Section 100.7381.)
d) The credit shall be computed as established
in this subsection.
1) The credit allowed shall not exceed the
percentage of incremental income tax and percentage of training costs permitted
in the REV Illinois Act and in the Agreement with respect to the
project. (IITA Section 236(b)(1))
2) The amount of the credit allowed during
a tax year plus the sum of all amounts allowed in prior tax years shall not
exceed the maximum amount of credit established in the Agreement. (IITA
Section 236(b)(2))
3) The amount of the credit shall be
determined on an annual basis.
4) The credit may not be applied against
any State income tax liability in more than 15 taxable years, except as applied
in a carryover year as provided in subsection (f). (IITA Section 236(b)(3))
5) The credit may not exceed the amount of
taxes imposed pursuant to IITA Section 201(a) and (b). (IITA Section
236(b)(4))
6) In the case of an election under Section
100.7381, no credit shall be allowed under IITA Section 236 or this Section for
the taxable year of the election against the taxes imposed under IITA Section
201(a) and (b). (IITA Section 236(b)(6))
e) The credit allowed under this Section shall
be taken in the taxable year that includes the date of the tax credit
certificate issued by DCEO under Section 30 of the REV Illinois Act, except that
credits awarded by DCEO prior to January 1, 2025, shall be taken in the first
taxable year beginning on or after January 1, 2025.
f) Any credit that is unused in the year
the credit is computed may be carried forward to and applied to the tax
liability of the 5 taxable years following the excess credit year, or until
it has been fully utilized, whichever occurs first. The credit shall be
applied to the earliest year for which there is a tax liability. If there are
credits from more than one tax year that are available to offset a liability,
the earlier credit shall be applied first. (IITA Section 236(b)(4)) In the
case of an election under Section 100.7381, no credit to which the election
applies may be carried forward under IITA Section 236(b)(4) and this Section.
g) No credit shall be allowed with respect
to any Agreement for any taxable year ending after the noncompliance date.
1) Upon receiving notification by DCEO
of the noncompliance of a taxpayer with an Agreement, the Department shall
notify the taxpayer that no credit is allowed with respect to that Agreement
for any taxable year ending after the Noncompliance Date, as stated in such
notification.
2) If any credit has been allowed with
respect to an Agreement for a taxable year ending after the noncompliance date
for that Agreement, any refund paid to the taxpayer for that taxable year
shall, to the extent of that credit allowed, be an erroneous refund within the
meaning of IITA Section 912. (IITA Section 236(b)(5))
h) If, during any taxable year, a taxpayer
ceases operations at a project location that is the subject of that Agreement
with the intent to terminate operations in the State, the tax imposed under subsections
(a) and (b) of IITA Section 201 for such taxable year shall be increased
by the amount of any credit allowed under the Agreement for that project
location prior to the date the taxpayer ceases operations. (IITA Section
236(b)(5))
i) Partnerships and Subchapter S Corporations
1) If the taxpayer is a partnership or a
Subchapter S corporation, the credit is allowed to pass through to the partners
or shareholders in accordance with the determination of income and distributive
share of income under Sections 702 and 704 and subchapter S of the Internal
Revenue Code, or as otherwise agreed by the partners or shareholders, provided
that such agreement shall be executed in writing prior to the due date of the
return for the taxable year and meet such other requirements as the Department
may establish by rule. Partnership has the meaning prescribed in IITA
Section 1501(a)(16). (IITA Section 251)
2) The credit earned by a partnership or a
subchapter S corporation will be treated as earned by its owners as of the last
day of the taxable year of the partnership or subchapter S corporation in which
the tax credit certificate is issued by DCEO under Section 30 of the REV
Illinois Act.
3) The credit shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends and may be carried forward to the 5 succeeding
taxable years of the owner until used.
4) Any credit passed through to a partnership
or subchapter S corporation under this subsection shall pass through to its
partners or shareholders in the same manner as a credit earned by the
partnership or subchapter S corporation.
j) To claim the credit, a taxpayer shall
attach to its Illinois income tax return:
1) a copy of the tax credit certificate and
annual certification (if any) issued by DCEO; and
2) in the case of a partner in a partnership
or shareholder of a subchapter S corporation that earned the credit, a Schedule
K-1-P or other written statement from the partnership or subchapter S
corporation stating:
A) the portion of the total credit shown on the
tax credit certificate that is allowed to that partner or shareholder; and
B) the taxable year of the partnership or
subchapter S corporation in which the tax credit certificate was issued.
k) For purposes of this Section, the terms "Agreement,"
"incremental income tax," "new employee," "noncompliance
date," "retained employee," "REV Construction Jobs Credit,"
"REV Illinois Credit," and "training costs" shall have the
same meaning as when used in the REV Illinois Act.
l) This credit is exempt from the sunset
provisions of IITA Section 250. (IITA Section 236(a))
(Source:
Added at 49 Ill. Reg. 3115, effective February 26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2112 MICRO TAX CREDIT (IITA SECTION 238)
Section 100.2112 MICRO Tax
Credit (IITA Section 238)
a) For tax years beginning on or after
January 1, 2025, a taxpayer who has entered into an Agreement with the
Department of Commerce and Economic Opportunity (DCEO) under the
Manufacturing Illinois Chips for Real Opportunity (MICRO) Act [35 ILCS 45]
(MICRO Act) is entitled to a credit against the taxes imposed under the
Illinois Income Tax Act (IITA) Section 201 (a) and (b) in an amount to be
determined in the Agreement. (IITA Section 238(a))
b) The credit may be in the form of a MICRO
Illinois Credit, a MICRO Construction Jobs Credit, or both. (IITA Section
238(b)(1))
c) Instead of
claiming the credit against the taxes imposed under IITA Section 201(a) and
(b), with respect to the portion of a MICRO Illinois Credit that is calculated
based on the incremental income tax attributable to new employees and retained
employees, the taxpayer may elect, in accordance with the MICRO Act, to claim
the credit, on or after January 1, 2025, against its obligation to pay over
withholding under IITA Section 704A. (IITA Section 238(b)(6)) (See Section
100.7382.)
d) The credit shall be computed as established
in this subsection.
1) The credit allowed shall not exceed the
percentage of incremental income tax and percentage of training costs permitted
in the MICRO Act and in the Agreement with respect to the project.
(IITA Section 238(b)(1))
2) The amount of the credit allowed during
a tax year plus the sum of all amounts allowed in prior tax years shall not
exceed the maximum amount of credit established in the Agreement. (IITA
Section 238(b)(2))
3) The amount of the credit shall be
determined on an annual basis.
4) The credit may not be applied against
any State income tax liability in more than 15 taxable years, except as applied
in a carryover year as provided in subsection (f). (IITA Section 238(b)(3))
5) The credit may not exceed the amount of
taxes imposed pursuant to IITA Section 201(a) and (b). (IITA Section
238(b)(4))
6) In the case of an election under Section
100.7382, no credit shall be allowed under IITA Section 238 or this Section for
the taxable year of the election against the taxes
imposed under IITA Section 201(a) and (b). (IITA Section 238(b)(6))
e) The credit allowed under this Section shall
be taken in the taxable year that includes the date of the tax credit
certificate issued by DCEO under Section 110-30 of the MICRO Act, except that credits
awarded by DCEO prior to January 1, 2025, shall be taken in the first taxable
year beginning on or after January 1, 2025.
f) Any credit that is unused in the year
the credit is computed may be carried forward and applied to the tax liability
of the 5 taxable years following the excess credit year, or until it has
been fully utilized, whichever occurs first. The credit shall be applied to
the earliest year for which there is a tax liability. If there are credits from
more than one tax year that are available to offset a liability, the earlier
credit shall be applied first. (IITA Section 238(b)(4)) In the case of an
election under Section 100.7382, no credit to which the election applies may be
carried forward under IITA Section 238(b)(4) and this Section.
g) No credit shall be allowed with respect
to any Agreement for any taxable year ending after the noncompliance date.
1) Upon receiving notification by DCEO of
the noncompliance of a taxpayer with an Agreement, the Department shall notify
the taxpayer that no credit is allowed with respect to that Agreement for any
taxable year ending after the Noncompliance Date, as stated in such
notification.
2) If any credit has been allowed with
respect to an Agreement for a taxable year ending after the noncompliance date
for that Agreement, any refund paid to the taxpayer for that taxable year
shall, to the extent of that credit allowed, be an erroneous refund within the
meaning of IITA Section 912. (IITA Section 238(b)(5))
h) If, during any taxable year, a taxpayer
ceases operations at a project location that is the subject of that Agreement
with the intent to terminate operations in the State, the tax imposed under
subsections (a) and (b) of IITA Section 201 for such taxable year shall
be increased by the amount of any credit allowed under the Agreement for that
project location prior to the date the taxpayer ceases operations. (IITA Section
238(b)(5))
i) Partnerships and Subchapter S Corporations
1) If the taxpayer is a partnership or a
Subchapter S corporation, the credit is allowed to pass through to the partners
or shareholders in accordance with the determination of income and distributive
share of income under Sections 702 and 704 and subchapter S of the Internal
Revenue Code, or as otherwise agreed by the partners or shareholders, provided
that such agreement shall be executed in writing prior to the due date of the
return for the taxable year and meet such other requirements as the Department
may establish by rule. Partnership has the meaning prescribed in IITA Section
1501(a)(16). (IITA Section 251)
2) The credit earned by a partnership or a
subchapter S corporation will be treated as earned by its owners as of the last
day of the taxable year of the partnership or subchapter S corporation in which
the tax credit certificate is issued by DCEO under Section 110-30 of the MICRO
Act.
3) The credit shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends and may be carried forward to the 5 succeeding
taxable years of the owner until used.
4) Any credit passed through to a partnership
or subchapter S corporation under this subsection shall pass through to its
partners or shareholders in the same manner as a credit earned by the
partnership or subchapter S corporation.
j) To claim the credit, a taxpayer shall
attach to its Illinois income tax return:
1) a copy of the tax credit certificate and
annual certification (if any) issued by DCEO; and
2) in the case of a partner in a partnership
or shareholder of a subchapter S corporation that earned the credit, a Schedule
K-1-P or other written statement from the partnership or subchapter S
corporation stating:
A) the portion of the total credit shown on the
tax credit certificate that is allowed to that partner or shareholder; and
B) the taxable year of the partnership or
subchapter S corporation in which the tax credit certificate was issued.
k) For purposes of this Section, the terms
"Agreement," "incremental income tax," "new employee,"
"noncompliance date," "MICRO Construction Jobs Credit,"
"MICRO Illinois Credit," "retained employee," and
"training costs" shall have the same meaning as when used in the
MICRO Act.
l) This credit is exempt from the sunset provisions
of IITA Section 250. (IITA Section 238(a))
(Source:
Added at 49 Ill. Reg. 3115, effective February 26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2120 JOBS TAX CREDIT; ENTERPRISE ZONE, FOREIGN TRADE ZONE OR SUB-ZONE AND RIVER EDGE REDEVELOPMENT ZONE (IITA SECTION 201(G))
Section 100.2120 Jobs Tax
Credit; Enterprise Zone, Foreign Trade Zone or Sub-Zone and River Edge
Redevelopment Zone (IITA Section 201(g))
a) A taxpayer conducting a trade or business in an enterprise
zone, or a High Impact Business designated by the Department of Commerce and Economic
Opportunity conducting a trade or business in a federally designated foreign
trade zone or sub-zone, or in a river edge redevelopment zone established
pursuant to the River Edge Redevelopment Zone Act [65 ILCS 115] shall be
allowed a credit against the tax imposed by Section 201(a) and (b) of the
Illinois Income Tax Act in the amount of $500 per eligible employee hired to
work in the zone during the taxable year.
1) In general, the credit is available for eligible
employees hired on or after January 1, 1986, or for taxable years ending prior
to July 25, 2013, the effective date of PA 98-109, which repealed IITA Section
201(g).
2) The credit is not allowed for an eligible employee hired to
work in an enterprise zone in a taxable year ending on or after August 7, 2012,
the effective date of PA 97-905, which repealed the credit as it relates to
enterprise zones.
b) To
qualify for the credit:
1) The taxpayer must hire 5 or more eligible employees to work in
an enterprise zone or federally designated foreign trade zone or sub-zone or a
river edge redevelopment zone during the taxable year.
2) The taxpayer's total employment within the enterprise zone or
federally designated foreign trade zone or sub-zone or a river edge
redevelopment zone must increase by 5 or more full-time employees beyond the
total employed in that zone at the end of the previous tax year for which a
jobs tax credit under this Section was taken, or beyond the total employed by
the taxpayer as of December 31, 1985, whichever is later.
A) If a taxpayer was in business in 1985 at a location, has never
before taken the credit, and is located in an enterprise zone created before or
during 1985, the taxpayer would use 1985 as the base year.
B) If a taxpayer was in business in 1985 at a location, has never
before taken the credit, and is located in an enterprise zone created after
1985, the taxpayer's base year for calculating the increase in employment is
the total employed at the end of the calendar year in which the enterprise zone
was created. The law is clear that the credit is a reward for increasing
employment in enterprise zones. To use 1985 as a base year, even if no
enterprise zone was then in existence, is not consistent with this clear goal
of the law. In such a situation, a taxpayer would not always be able to show
that there was job creation in the enterprise zone. For example, while
employment may have increased over 1985 levels, there may not have been an
increase in employment from the end of the calendar year in which the zone was
created. Therefore, to accept 1985 as the base year no matter whether there was
an enterprise zone in existence at that time, could result in providing a
credit for job creation that did not occur in an enterprise zone. Such a
result would be contrary to law.
3) The eligible employees must be employed 180 consecutive days
in order to be deemed hired for purposes of this subsection (b)(3).
EXAMPLE: An
otherwise eligible employee is hired to work in an enterprise zone on August 1,
1987. The employer's tax year ends on December 31, 1987. The employee would
have worked 153 days during the 1987 tax year and, therefore, would not be
considered to be "deemed hired" in 1987. Even if all other
requirements were met, the employer would not be eligible for the jobs tax
credit for 1987. Once the employee has been employed for 180 consecutive days,
the employee is deemed hired. Therefore, in this instance the employee would
be "deemed hired" in 1988. If all other requirements were met, the
employer could claim the Jobs Tax Credit for this employee for the 1989 tax
year.
c) An
"eligible employee" means an employee who is:
1) certified by the Department of Commerce and Economic
Opportunity (DCEO) as "eligible for services" pursuant to regulations
promulgated in accordance with Title II of the Job Training Partnership Act,
Training Services for the Disadvantaged or Title III of the Job Training Partnership
Act, Employment and Training Assistance for Dislocated Workers Program.
Whenever an employee is certified, a voucher is completed by the applicant and
approved by DCEO. The vouchers are entitled "Illinois Department of
Commerce and Community Affairs, Enterprise Zone Program, Jobs Tax Credit
Certification Voucher." Taxpayers should request a copy of the voucher to
verify that the employee is DCEO certified. Taxpayers should maintain a copy of
the voucher in their files to document eligibility status of employees in the
event of an audit;
2) hired after the enterprise zone, federally designated foreign
trade zone or sub-zone, or a river edge redevelopment zone was designated or
the trade or business was located in that zone, whichever is later. The term
"hired" means hired by the particular employer claiming the credit.
Employees transferred from another facility of the employer to a facility
located in an enterprise zone, federally designated foreign trade zone or
sub-zone, or a river edge redevelopment zone are not deemed "hired"
upon transfer to a facility located in the enterprise zone, federally
designated foreign trade zone or sub-zone, or a river edge redevelopment zone;
3) employed in the enterprise zone, foreign trade zone or
sub-zone, or a river edge redevelopment zone. An employee is employed in an
enterprise zone, federally designated foreign trade zone or sub-zone, or a
river edge redevelopment zone if his or her services are rendered there or the
zone is the base of operations for the services performed; and
4) a
full-time employee working 30 or more hours per week.
d) For tax years ending on or after December 31, 1985, and prior
to December 31, 1988, the credit shall be allowed for the tax year in which the
eligible employees are hired. For tax years ending on or after December 31,
1988, the credit shall be allowed for the tax year immediately following the
tax year in which the eligible employees are hired. If the amount of the
credit exceeds the tax liability for that year, whether it exceeds the original
liability or the liability as later amended, such excess may be carried forward
and applied to the tax liability of the 5 taxable years following the excess
credit year. The credit shall be applied to the earliest year for which there
is a liability. If there is credit from more than one tax year that is available
to offset a liability, earlier credit shall be applied first.
(Source: Amended at 38 Ill.
Reg. 9550, effective April 21, 2014)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2130 INVESTMENT CREDIT; HIGH IMPACT BUSINESS (IITA 201(H))
Section 100.2130 Investment
Credit; High Impact Business (IITA 201(h))
a) Subject to the minimum investment requirements of Section 5.5
of the Illinois Enterprise Zone Act, a taxpayer shall be allowed a credit
against the tax imposed by IITA Sections 201(a) and (b) for investment in
qualified property which is placed in service in a federally designated Foreign
Trade Zone or Sub-Zone located in Illinois by a Department of Commerce and
Community Affairs designated High Impact Business. The credit is reported on
Schedules 1299 A, C or D. Recapture (see subsection (i) below) is computed on
Schedule 4255.
b) The
credit shall be .5% of the basis for such property.
c) The credit shall not be available until the minimum
investments in qualified and shall not be allowed to the extent that it would
reduce a taxpayer's liability for the tax imposed by IITA Sections 201(a) and
(b) to below zero. The credit applicable to such minimum investments shall be
taken in the taxable year in which such minimum investments have been
completed. The credit for additional investments beyond the minimum investment
by a designated high impact business shall be available only in the taxable
year in which the property is placed in service and shall not be allowed to the
extent that it would reduce a taxpayer's liability for the tax imposed by IITA
Sections 201(a) and (b) to below zero. The minimum investments required by
Section 5.5 of the Illinois Enterprise Zone Act are:
1) $12,000,000 which will be placed in service in qualified
property with an intention to create 500 full-time equivalent jobs at a designated
location in Illinois, or
2) $30,000,000 which will be placed in service in qualified
property with the intention to retain 1,500 full-time jobs at a designated
location in Illinois.
The Illinois
Department of Commerce and Community Affairs must certify that the minimum
investment requirements have been met.
d) For tax years ending on or after December 31, 1987, the credit
shall be allowed for the tax year in which the property is placed in service,
or, if the amount of the credit exceeds the tax liability for that year,
whether it exceeds the original liability or the liability as later amended,
such excess may be carried forward and applied to the tax liability of the 5
taxable years following the excess credit year. The credit shall be applied to
the earliest year for which there is a liability. If there is a credit from
more than one tax year that is available to offset a liability, the credit
accruing first in time shall be applied first.
e) The
term "qualified property" means property which is:
1) tangible, whether new or used;
A) Tangible property includes objects or things that are
physically capable of being touched and seen and over which a person may assert
rights of ownership.
B) Tangible property consists of personalty or realty and includes
such items as buildings, structural components of buildings, machinery,
equipment and vehicles.
C) Items such as stock certificates, bonds, notes and the like are
not tangible personal property. While the certificate or paper may be
tangible, the item itself, the share of ownership of a corporation or the
promise to pay is an intangible that is memorialized by the paper.
D) The terms "new or used" shall have their commonly
ascribed meanings.
2) depreciable pursuant to IRC Section 167, except that
"3-year property" as defined in IRC Section 168 is not eligible for
the credit provided by IITA Section 201(h);
A) Depreciable property is property used in the trade or business
of a taxpayer, or held for production of income, which is subject to wear and
tear, exhaustion, or obsolescence.
B) Property that is depreciated under the Modified Accelerated
Cost Recovery System (MARCS), as provided by IRC Section 168, is considered
depreciable pursuant to IRC Section 167 for purposes of the Enterprise Zone
Investment Credit.
C) Examples of tangible property that is not depreciable include
land, inventories or stock-in-trade, natural resources, and coin or currency.
D) The provisions of Internal Revenue Service regulation Section
1.167(a)-4 will be utilized in making determinations as to whether particular
leasehold improvements are depreciable.
3) acquired by purchase as defined in IRC Section 179(d); and
A) A purchase is any acquisition of property except:
i) an acquisition from a person whose relationship to the
acquiring person is such that a resulting loss would be disallowed under IRC
Sections 267 or 707(b);
ii) an acquisition by one component member of a controlled group
from another component member of the group;
iii) an acquisition of property if the basis of the property in
the hands of the person acquiring it is determined in whole or in part by its
adjusted basis in the hands of the person from whom the property was acquired;
or
iv) an acquisition of property, the basis of which is determined
under IRC Section 1014(a). IRC Section 1014(a) covers property received from a
decedent. Property acquired by bequest or demise is not acquired by purchase.
B) For purposes of determining whether property is acquired by
purchase as defined by IRC 179(d), the family of an individual includes only
his spouse and ancestral and lineal descendants of the individual and his
spouse.
C) For purposes of determining whether property is acquired by
purchase only, a controlled group has the same meaning as in IRC Section
1563(a), except stock ownership of only 50% or more is required (also see IRS
Regulation Section 1.179-4(f)).
D) Property that the taxpayer constructs, reconstructs or erects
is generally considered acquired by purchase.
4) not eligible for the Enterprise Zone Investment Credit
provided by IITA Section 201(f).
f) The basis of qualified property shall be the basis used to
compute the depreciation deduction for federal income tax purposes.
1) In computing the amount of credit available for a taxable
year, the credit rate will be applied to the total basis of all qualified
property that is placed in service by a high impact business located in a
foreign trade zone or sub-zone in Illinois during the taxable year, provided
the property continues to qualify on the last day of the taxable year.
2) If the basis of the property for federal income tax
depreciation purposes is increased after it has been placed in service in a
federally designated foreign trade zone or sub-zone located in Illinois by the
taxpayer, the amount of such increase shall be deemed property placed in
service on the date of such increase in basis.
3) Property that has been fully expensed under IRC Section 179
has no federal depreciable basis with which to compute the credit. Property
not fully expensed under IRC 179 can still qualify for the credit.
g) The term "placed in service" shall have the same
meaning as under IRC Section 46. (IITA Section 201(h)(5)) Property is
placed in service for purposes of the credit in the earlier of the following
years:
1) That in which, under the taxpayer's depreciation practice,
depreciation begins on the property; or
2) That in which the property is placed in a condition or state
of readiness and availability for a specifically assigned function.
h) If, during any taxable year ending on or before December 31,
1996, any property ceases to be qualified property in the hands of the taxpayer
within 48 months after being placed in service in a foreign trade zone or
sub-zone, or the situs of any qualified property is moved outside Illinois
within 48 months after being placed in service, the tax imposed under IITA
Section 201(a) and (b) of this Section for such taxable year shall be
increased.
1) Any property disposed of by the taxpayer within 48 months
after being placed in service ceases to qualify.
A) A taxpayer disposes of property when he sells the property,
exchanges or trades-in worn-out property for new property, abandons the
property or retires it from use.
B) Property destroyed by casualty, stolen, or transferred as a
gift is disposed of property.
C) Property that is mortgaged or used as security for a loan is
not disposed of property, provided that the taxpayer continues to use the
property in its business within a foreign trade zone or subzone located in
Illinois.
D) Property transferred to a trustee in bankruptcy is considered
disposed of property.
E) A
transfer of property by foreclosure is a disposition of property.
F) A reduction in the basis of qualified property resulting from
a redetermination of the purchase price of the property is a disposition of
property to the extent of such reduction in basis in the year in which the
reduction takes place. For example, this would occur when property is purchased
and placed in service in one year, and in a later year the taxpayer receives a
refund of a portion of the original purchase price.
2) Any
property converted to personal use ceases to qualify for the credit.
3) The
increase in tax shall be determined by:
A) recomputing the investment credit which would have been allowed
for the year in which credit for such property was originally allowed by
eliminating such property from such computation, and
B) subtracting such computed credit from the amount of credit
previously allowed. The difference between the recomputed credit and the
credit actually claimed is added to the income tax for year in which the
property ceased to qualify.
EXAMPLE: In
1990, High Impact Business A places qualifying property with a basis of $55,000
into service in Illinois and computes a credit for the year of $275 ($55,000 x
.5%). High Impact Business A's 1990 income tax is $275. After application of
the credit, High Impact Business A has no remaining income tax liability. In
the following year, High Impact Business A moved a qualifying asset having a
basis of $5,000 from Illinois to Missouri and is required to recapture a
portion of the credit applied against its 1990 income tax liability. The
credit applied against High Impact Business A's income tax must be recaptured
because the property was moved outside of Illinois and no longer qualifies for
the credit. In order to determine its additional income tax for 1991, High
Impact Business A must recompute its 1990 credit by eliminating the disqualified
property ($55,000 - $5,000 x .5% = $250). This recomputed credit is
subtracted from the credit actually used in 1990 against the income tax ($275 -
$250 = $25) and the difference is added to High Impact Business A's 1991 income
tax.
i) If, during any taxable year ending after December 31, 1996, a
taxpayer who has been allowed a credit under IITA Section 201(h) relocates its
entire facility in violation of the explicit terms and length of the contract
under Section 18-183 of the Property Tax Code, the tax imposed under
subsections (a) and (b) of this Section shall be increased for the taxable year
in which the taxpayer relocates that facility by an amount equal to the amount
of credit received by the taxpayer under this IITA Section 201(h) with respect
to qualified property placed in service at that facility.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2131 INVESTMENT CREDIT; ENTERPRISE ZONE AND RIVER EDGE REDEVELOPMENT ZONE (IITA SECTION 201(F))
Section 100.2131 Investment Credit; Enterprise Zone and
River Edge Redevelopment Zone (IITA Section 201(f))
a) A
taxpayer shall be allowed a credit against the tax imposed by IITA Section
201(a) and (b) for investment in qualified property placed in service in an
enterprise zone created pursuant to the Illinois Enterprise Zone Act [20 ILCS
655] or for qualified property placed in service on or after July 1, 2006 in a
river edge redevelopment zone established pursuant to the River Edge
Redevelopment Zone Act [65 ILCS 115].
b) For
partners in a partnership and shareholders of Subchapter S corporations, there
shall be allowed an enterprise zone or river edge redevelopment zone investment
credit to be determined in accordance with the determination of income and
distributive share of income under sections 702 and 704 and Subchapter S of the
Internal Revenue Code.
c) The
credit shall be 0.5% of the basis for property in a zone.
d) The
credit shall be available only in the taxable year in which the property is
placed in service in the enterprise zone or river edge redevelopment zone and
shall not be allowed to the extent that it would reduce a taxpayer's liability
for the tax imposed by IITA Section 201(a) and (b) below zero.
1) Qualifying
property shall be considered placed in service in an Illinois enterprise zone
or river edge redevelopment zone on the date on which the property is placed in
a condition or state of readiness and availability for a specifically assigned
function.
2) Property
that is disposed of, is moved out of the enterprise zone or river edge
redevelopment zone, or ceases to qualify for any other reason during the same
taxable year it was placed in service in an enterprise zone or river edge
redevelopment zone will not be considered in computing the credit for the
taxable year.
3) The
credit shall be allowed for the tax year in which the property is placed in
service, or, if the amount of the credit exceeds the original liability or the
liability as later amended, the excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess credit year.
4) The credit
shall be applied to the earliest year for which there is a liability.
5) If
there is credit for more than one tax year that is available to offset a
liability, the credit accruing first in time shall be applied first.
e) The
term "qualified property" means property that is:
1) tangible,
whether new or used. The terms "new" and "used" shall have
their commonly ascribed meanings. Buildings and structural components of
buildings may be qualified property. The term tangible property generally
includes:
A) objects
or things that are physically capable of being touched and seen and over which
a person may assert rights of ownership; and
B) personal
or real property, which may consist of such items as buildings, component parts
of buildings, machinery, equipment and vehicles.
C) Items
such as stock certificates, bonds, notes and the like are not tangible personal
property. While the certificate or paper may be tangible, the item itself, the
share of ownership of a corporation or the promise to pay, is an intangible
that is memorialized by the paper.
2) depreciable
pursuant to IRC section 167, except that 3-year property as defined in IRC
section 168(c)(2)(A) is not eligible for the credit.
A) Depreciable
property is property used in the trade or business of a taxpayer, or held for
production of income, that is subject to wear and tear, exhaustion, or
obsolescence.
B) Property
that is depreciated under the Modified Accelerated Cost Recovery System
(MACRS), as provided by IRC section 168, is considered depreciable pursuant to
IRC section 167 for purposes of the enterprise zone or river edge redevelopment
zone Investment Credit.
C) Examples
of tangible property that is not depreciable include land, inventories or
stock-in-trade, natural resources, and coin or currency.
D) The
provisions of 26 CFR 1.167(a)-4 will be utilized in making determinations as to
whether particular leasehold improvements are depreciable.
E) IRC
section 179 allows taxpayers, under certain circumstances, to expense a
designated dollar amount of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was equal to or less than the
amount specified under IRC section 179, the taxpayer has the option of
expensing the cost all in one year as a depreciation expense. While the
property does have a useful life of four or more years, since the election was
made to completely expense the cost of the property in one year, the property
has no federal depreciable basis and does not have a basis upon which to
compute the Illinois investment tax credit. Property not fully expensed under
section 179 would qualify for the credit based on the cost of the depreciable
property reduced by the section 179 deduction.
3) acquired
by purchase as defined in IRC section 179(d).
A) A
purchase is any acquisition of property except:
i) an
acquisition from a person whose relationship to the acquiring person is such
that a resulting loss would be disallowed under IRC section 267 or 707(b);
ii) an
acquisition by one component member of a controlled group from another
component member of the group;
iii) an
acquisition of property if the basis of the property in the hands of the person
acquiring it is determined in whole or in part by its adjusted basis in the
hands of the person from whom the property was acquired; or
iv) an
acquisition of property, the basis of which is determined under IRC section
1014(a). IRC section 1014(a) covers property received from a decedent.
Property acquired by bequest or demise is not acquired by purchase.
B) For
purposes of determining whether property is acquired by purchase as defined by
IRC section 179(d), the family of an individual includes only the individual's
spouse and the ancestral and lineal descendants of the individual and the
individual's spouse.
C) For
purposes of determining whether property is acquired by purchase only, a
controlled group has the same meaning as in IRC section 1563(a), except stock
ownership of only 50% or more is required (also see 26 CFR 1.179-4).
D) Property
that the taxpayer constructs, reconstructs or erects is generally considered
acquired by purchase.
4) used
in the enterprise zone or river edge redevelopment zone by the taxpayer.
A) The
term "used in an Illinois enterprise zone or river edge redevelopment
zone" means that the property for which the credit is being claimed is
physically located within the boundaries of an Illinois enterprise zone
certified by the Illinois Department of Commerce and Economic Opportunity or
river edge redevelopment zone established pursuant to the River Edge
Redevelopment Zone Act from the time it is placed in service and while it is
being utilized by the taxpayer claiming the credit in that taxpayer's business
operation.
i) Storage
of property in an enterprise zone or river edge redevelopment zone will not
constitute use. The taxpayer must make use of, convert to its service, avail
itself of, or employ the property in the enterprise zone or river edge
redevelopment zone in order to demonstrate use of the property in the
enterprise zone or river edge redevelopment zone.
ii) A
lessor may claim the credit for otherwise qualified property if the property is
physically located in an Illinois enterprise zone or river edge redevelopment
zone from the time it is placed in service and all other conditions of
eligibility for the credit are met.
iii) A
lessee of tangible property may never claim the credit because a lessee has not
acquired the property by purchase.
B) Mobile
property, such as vehicles, must be used predominantly in an Illinois
enterprise zone or river edge redevelopment zone in order to qualify for the
credit.
i) Removal
of such property from the enterprise zone or river edge redevelopment zone for
a temporary or transitory purpose will not disqualify the property so long as
it continues to be used predominantly in the enterprise zone or river
edge redevelopment zone.
ii) Mobile
property is considered to be predominantly used in an enterprise zone or river
edge redevelopment zone if usage in the enterprise zone or river edge
redevelopment zone exceeds usage outside of the enterprise zone or river edge
redevelopment zone.
5) not
property that has been previously used in Illinois in such a manner and by such
a person as would qualify for the credit.
A) Generally,
used property will not qualify for the credit if it was previously used in
Illinois in such a manner that it could have qualified for the credit.
B) However,
property that would otherwise qualify for the credit will not be disqualified
because it was previously used in Illinois in such a manner that it could have
qualified for the credit, if that use pre-dated the effective date of the law
that established the credit.
EXAMPLE 1: Corporation A
purchases a used pickup truck for use in its manufacturing business in Illinois
from an Illinois resident who used the truck for personal purposes in
Illinois. If the truck meets all other requirements for the credit, it will
not be disqualified because it has been previously used in Illinois for a
non-qualifying purpose.
EXAMPLE 2: Corporation A
purchases a used pickup truck from Corporation B. Corporation B used the truck
in its business in a qualifying manner and could have claimed the credit for
the truck, but did not. Corporation A may not claim the credit for the truck
because the truck has been previously used in Illinois in such a manner that it
could have qualified for the credit.
f) The
basis of qualified property shall be the basis used to compute the depreciation
deduction for federal income tax purposes, including any bonus depreciation
deduction allowed under IRC section 168(k). If the basis of the property for
federal income tax depreciation purposes is increased after it has been placed
in service in the enterprise zone or river edge redevelopment zone by the
taxpayer, the amount of the increase shall be deemed property placed in service
on the date of the increase in basis.
g) If,
during any taxable year, any property ceases to be qualified property in the
hands of the taxpayer within 48 months after being placed in service, or the
situs of any qualified property is moved outside the enterprise zone or river
edge redevelopment zone within 48 months after being placed in service, the tax
imposed under IITA Section 201(a) and (b) for the taxable year shall be
increased.
1) Any
property disposed of by the taxpayer within 48 months after being placed in
service ceases to qualify.
A) A
taxpayer disposes of property when he or she sells the property, exchanges or
trades-in worn-out property for new property, abandons the property or retires
it from use.
B) Property
destroyed by casualty, stolen, or transferred as a gift is disposed of
property.
C) Property
that is mortgaged or used as security for a loan is not disposed of property,
provided that the taxpayer continues to use the property in its business within
an Illinois enterprise zone or river edge redevelopment zone.
D) Property
transferred to a trustee in bankruptcy is considered disposed of property.
E) A
transfer of property by foreclosure is a disposition of property.
F) A
reduction in the basis of qualified property resulting from a redetermination
of the purchase price of the property is a disposition of property to the
extent of the reduction in basis in the year in which the reduction takes
place. For example, this would occur when property is purchased and placed in
service in one year, and in a later year the taxpayer receives a refund of a
portion of the original purchase price.
2) Any
property converted to personal use ceases to qualify for the credit.
3) The
increase in tax shall be determined by:
A) recomputing
the investment credit that would have been allowed for the year in which credit
for the property was originally allowed by eliminating the property from the
computation, and
B) subtracting
the computed credit from the amount of credit previously allowed. The
difference between the recomputed credit and the credit actually claimed is
added to the income tax for the year in which the property ceased to qualify or
was moved outside of the enterprise zone or river edge redevelopment zone.
EXAMPLE: In 2007, Corporation A
places qualifying property with a basis of $55,000 into service in an
enterprise zone or river edge redevelopment zone located in Illinois and
computes a Section 201(f) enterprise zone or river edge redevelopment zone
Investment Tax Credit of $275 ($55,000 x 0.5%). Corporation A's 2007 income
tax liability is $420. After the application of the credit, Corporation A has
remaining income tax liability of $145. In the following year, Corporation A
moved a qualifying asset having a basis in 2007 of $5,000 from the enterprise
zone or river edge redevelopment zone to another location in Illinois. As a
result, Corporation A is required to recapture a portion of the enterprise zone
or river edge redevelopment zone Investment Credit that was applied against its
2007 income tax liability. In order to determine its additional income tax for
2008, Corporation A must recompute its 2007 enterprise zone Investment Tax
Credit by eliminating the disqualified property ($55,000 - $5,000 x 0.5% =
$250). This recomputed credit is subtracted from the enterprise zone
Investment Tax Credit actually used in 2007 ($275 - $250 = $25), and the
difference is added to Corporation A's 2008 income tax after application of the
Investment Tax Credit.
h) Automatic
Sunset of Credit for River Edge Redevelopment Zone Property. IITA Section
250(a) provides that, if a reasonable and appropriate sunset date is not
specified in the Public Act that creates a credit, a taxpayer shall not be
entitled to take the credit for tax years beginning on or after 5 years after
the effective date of the Public Act creating the credit. IITA Section
250(b) provides that any credit scheduled to expire in 2011, 2012, or
2013 by operation of this Section shall be extended by 5 years. The credit
for property placed in service in a river edge redevelopment zone was created
by PA 94-1021, which had an effective date of July 12, 2006, and specified no
sunset date for the credit. Accordingly, no credit is allowed under this
Section for property placed in service in a river edge redevelopment zone for
any taxable year beginning on or after July 12, 2016.
(Source: Section 100.2131 renumbered
from Section 100.2110 and amended at 49 Ill. Reg. 3115, effective February 26,
2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2135 REV ILLINOIS INVESTMENT TAX CREDIT (IITA SECTION 237)
Section 100.2135 REV Illinois Investment Tax Credit
(IITA Section 237)
a) For
tax years beginning on or after November 16, 2021, a taxpayer shall be
allowed a credit against the tax imposed by IITA Section 201 (a) and (b)
for investment in qualified property which is placed in service at the site of
a REV Illinois Project subject to an agreement between the taxpayer and the
Department of Commerce and Economic Opportunity (DCEO) pursuant to the Reimagining Energy and Vehicles in Illinois Act [20
ILCS 686] (REV Illinois Act). (IITA Section 237(a))
b) For
the purposes of the REV Illinois investment tax credit, "Project" or
"REV Illinois Project" shall have the same meaning as when used in
Section 10 of the REV Illinois Act.
c) The
credit shall be 0.5% of the basis for such property. (IITA Section 237(a))
d) The
credit shall be available only in the taxable year in which the property is
placed in service and shall not be allowed to the extent that it would reduce a
taxpayer's liability for the tax imposed by IITA Section 201(a) and (b)
to less than zero. The credit shall be allowed for the tax year in which
the property is placed in service, or if the amount of the credit exceeds the
tax liability for that year, whether it exceeds the original liability or the
liability as later amended, such excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess credit year. The
credit shall be applied to the earliest year for which there is a liability. If
there is credit from more than one tax year that is available to offset a
liability, the earlier credit shall be applied first. (IITA Section
237(a))
e) The
credit allowed under this Section shall be taken in the taxable year that
includes the date of the tax credit certificate issued by DCEO under Section
100 of the REV Illinois Act.
f) The
term "qualified property" means property which:
1) is tangible,
whether new or used;
A) Tangible
property includes objects or things that are physically capable of being
touched and seen and over which a person may assert rights of ownership.
B) Tangible
property consists of personal or real property and includes such items as buildings,
structural components of buildings, machinery, equipment, and vehicles.
C) Items
such as stock certificates, bonds, notes and the like are not tangible personal
property. While the certificate or paper may be tangible, the item itself, the
share of ownership of a corporation or the promise to pay, is an intangible
that is memorialized by the paper.
D) The
terms "new or used" shall have their commonly ascribed meanings.
2) is
depreciable pursuant to Internal Revenue Code (IRC) Section 167, except
that "3-year property" as defined in IRC Section 168 is not
eligible for the credit provided by IITA Section 237;
A) Depreciable
property is property used in the trade or business of a taxpayer, or held for
production of income, which is subject to wear and tear, exhaustion, or
obsolescence.
B) Property
that is depreciated under the Modified Accelerated Cost Recovery System
(MACRS), as provided by IRC Section 168, is considered depreciable pursuant to
IRC Section 167 for purposes of this credit.
C) Examples
of tangible property that is not depreciable include land, inventories or
stock-in-trade, natural resources, and coin or currency.
D) The
provisions of Internal Revenue Service (IRS) Regulation Section 1.167(a)-4 will
be utilized in making determinations as to whether particular leasehold
improvements are depreciable.
E) IRC
Section 179 allows taxpayers, under certain circumstances, to expense a
designated dollar amount of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was equal to or less than the
amount specified under IRC Section 179, the taxpayer has the option of
expensing the cost all in one year as a depreciation expense. While the
property does have a useful life of four or more years, since the election was
made to completely expense the cost of the property in one year, the property
has no federal depreciable basis and does not have a basis upon which to
compute the REV Illinois investment tax credit. Property not fully expensed
under IRC Section 179 would qualify for the credit based on the cost of the
depreciable property reduced by the IRC Section 179 deduction.
3) is
acquired by purchase as defined in IRC Section 179(d);
A) A purchase is any acquisition
of property except:
i) an
acquisition from a person whose relationship to the acquiring person is such
that a resulting loss would be disallowed under IRC Sections 267 or 707(b),
ii) an
acquisition by one component member of a controlled group from another
component member of the same controlled group,
iii) an
acquisition of property if the basis of the property in the hands of the person
acquiring it is determined in whole or in part by its adjusted basis in the
hands of the person from whom the property was acquired, or
iv) an
acquisition of property, the basis of which is determined under IRC Section
1014(a). IRC Section 1014(a) covers property received from a decedent. Property
acquired by bequest or demise is not acquired by purchase.
B) For
purposes of determining whether property is acquired by purchase as defined by
IRC Section 179(d), the family of an individual includes only the individual's
spouse and the ancestral and lineal descendants of the individual and the
individual's spouse.
C) For
purposes of determining whether property is acquired by purchase only, a
controlled group has the same meaning as in IRC Section 1563(a), except stock
ownership of only 50% or more is required (also see 26 C.F.R. 1.179-4).
D) Property
that the taxpayer constructs, reconstructs or erects is generally considered
acquired by purchase.
E) A
lessee of tangible property may never claim the credit because a lessee has not
acquired the property by purchase.
4) is
used at the site of the REV Illinois Project by the taxpayer; and
A) The
term "used at the site of the REV Illinois Project" means that the
property for which the credit is being claimed is physically located within the
boundaries of a REV Illinois Project site certified by DCEO. Storage of
property in a REV Illinois Project site will not constitute use. The taxpayer
must make use of, convert to its service, avail itself of, or employ the
property in the REV Illinois Project site in order to demonstrate use of the
property.
B) Mobile
property, such as vehicles, must be used predominantly at the REV Illinois
Project site in order to qualify for the credit.
i) Removal
of such property from the REV Illinois Project site for a temporary or
transitory purpose will not disqualify the property so long as it continues to
be used predominantly in the Illinois operation of the taxpayer at the REV
Illinois Project site.
ii) Mobile
property is considered to be predominantly used at the REV Illinois Project
site if usage at the site exceeds usage outside the site. For example, if a
taxpayer sometimes uses its trucks based at a REV Illinois Project site to
deliver goods both in Illinois and out-of-state, then the temporary absence of
its trucks from the REV Illinois Project site does not disqualify them as
qualified property used at the site by the taxpayer.
C) A
lessor may claim the credit for otherwise qualified property if the property is
physically located in a REV Illinois Project site from the time it is placed in
service and all other conditions of eligibility for the credit are met.
5) has
not been previously used in Illinois in such a manner and by such a person as
would qualify for the credit provided by this Section. (IITA Section
237(b))
A) Generally,
used property will not qualify for the credit if it was previously used in
Illinois in such a manner and by such a person that it could have qualified for
the credit.
B) However,
property that would otherwise qualify for the credit will not be disqualified
because it was previously used in Illinois in such a manner and by such a
person that it could have qualified for the credit, if that use pre-dated the
effective date of the law (11/16/21) that established the credit.
EXAMPLE 1: Corporation A
purchases a used pickup truck for use at its REV Illinois Project site from an
Illinois resident who used the truck for personal purposes in Illinois. If the
truck meets all other requirements for the credit, it will not be disqualified
because it has been previously used in Illinois for a non-qualifying purpose.
EXAMPLE 2: Corporation A
purchases a used pickup truck from Corporation B. Corporation B used the truck
in its business in a qualifying manner and could have claimed the credit for
the truck, but did not. Corporation A may not claim the credit for the truck
because the truck has been previously used in Illinois in such a manner that it
could have qualified for the credit.
g) The
basis of qualified property shall be the basis used to compute the depreciation
deduction for federal income tax purposes. (IITA Section 237(c))
1) In
computing the amount of credit available for a taxable year, the credit rate
will be applied to the total basis of all qualified property that is placed in
service at the site of the REV Illinois Project during the taxable year,
provided the property continues to qualify on the last day of the taxable year.
2) If
the basis of the property for federal income tax depreciation purposes is
increased after it has been placed in service at the site of the REV Illinois
Project by the taxpayer, the amount of such increase shall be deemed property
placed in service on the date of such increase in basis. (IITA Section
237(d))
3) Property
that has been fully expensed under IRC Section 179 has no federal depreciable
basis with which to compute the credit. Property not fully expensed under IRC
Section 179 can still qualify for the credit.
h) The
term "placed in service" shall have the same meaning as under IRC
Section 46 (also see IRS Regulation Section 1.46-3). (IITA Section
237(e)) Property is placed in service for purposes of the credit in the earlier
of the following taxable years:
1) The
taxable year in which, under the taxpayer's depreciation practice, the period
for depreciation with respect to such property begins, or
2) The
taxable year in which the property is placed in a condition or state of
readiness and availability for a specifically assigned function.
i) If
during any taxable year, any property ceases to be qualified property in the
hands of the taxpayer within 48 months after being placed in service, or the
situs of any qualified property is moved from the REV Illinois Project site
within 48 months after being placed in service, the tax imposed under IITA Section
201(a) and (b) for such taxable year shall be increased. (IITA Section
237(f))
1) Any
property disposed of by the taxpayer within 48 months after being placed in
service ceases to qualify for the credit.
A) A
taxpayer disposes of property when the taxpayer sells the property, exchanges
or trades-in worn-out property for new property, abandons the property or
retires it from use.
B) Property
destroyed by casualty, stolen, or transferred as a gift is disposed of
property.
C) Property
that is mortgaged or used as security for a loan is not disposed of property,
provided that the taxpayer continues to use the property in its business at the
REV Illinois Project site.
D) Property
transferred to a trustee in bankruptcy is considered disposed of property in
the year the property is transferred to the trustee.
E) A
transfer of property by foreclosure is a disposition of property.
F) A
reduction of the basis of qualified property resulting from a redetermination
of the purchase price of the property is a disposition of qualified
property to the extent of such reduction in basis in the year in which the
reduction takes place. (IITA Section 237(F)) For example, this would occur
when property is purchased and placed in service in one year, and in a later
year the taxpayer receives a refund of a portion of the original purchase
price.
2) Any
property converted to personal use ceases to qualify for the credit.
3) The increase
in tax shall be determined by:
A) recomputing
the investment credit which would have been allowed for the year in which
credit for such property was originally allowed by eliminating such property
from such computation, and
B) subtracting
such recomputed credit from the amount of credit previously allowed. (IITA
Section 237(f)) The difference between the recomputed credit and the credit
actually claimed is added to the income tax for the year in which the property
ceased to qualify.
EXAMPLE: In 2021, taxpayer places
qualifying property with a basis of $55,000 into service at the site of a REV
Illinois Project and computes a credit for the year of $275 ($55,000 x 0.5%).
Taxpayer's 2021 income tax is $275. After application of the credit, taxpayer
has no remaining income tax liability. In the following year, taxpayer moved a
qualifying asset having a basis of $5,000 from Illinois to Missouri and is
required to recapture a portion of the credit applied against its 2021 income
tax liability. The credit applied against taxpayer's income tax must be
recaptured because the property was moved outside of Illinois and no longer
qualifies for the credit. In order to determine its additional income tax for
2022, taxpayer must recompute its 2021 credit by eliminating the disqualified
property (($55,000 - $5,000) x 0.5% = $250). This recomputed credit is
subtracted from the credit actually used in 2021 against the income tax ($275 -
$250 = $25) and the difference is added to taxpayer's 2022 income tax.
j) Partnerships
and Subchapter S Corporations
1) For taxable years ending before December 31, 2023, for partners, shareholders of Subchapter
S corporations, and owners of limited liability companies, if the liability
company is treated as a partnership for purposes of federal and State income
taxation, there shall be allowed a credit under this Section to be determined
in accordance with the determination of income and distributive share of income
under Sections 702 and 704 and Subchapter S of the IRC. (IITA Section
237(a)) Partnership has the meaning prescribed in IITA Section 1501(a)(16). In
the case of a credit earned by a partnership or subchapter S corporation, the
credit passes through to the owner as provided in the partnership agreement
under IRC Section 704(a) or in proportion to their ownership of the stock of
the subchapter S corporation under IRC Section 1366(a).
2) For
taxable years ending on or after December 31, 2023, if the taxpayer is a
partnership or a Subchapter S corporation, then the credit is allowed to pass
through to the partners and shareholders in accordance with the determination of
income and distributive share of income under Sections 702 and 704 and
Subchapter S of the Internal Revenue Code, or as otherwise agreed by the
partners or shareholders, provided that such agreement shall be executed in
writing prior to the due date of the return for the taxable year and meet such
other requirements as the Department may establish by rule. Partnership has the
meaning prescribed in Section 1501(a)(16). (IITA Section 251)
3) The
credit earned by a partnership or a subchapter S corporation will be treated as
earned by its owners as of the last day of the taxable year of the partnership
or subchapter S corporation in which the tax credit certificate is issued by
DCEO under Section 100 of the REV Illinois Act.
4) The
credit shall be allowed to each owner in the taxable year of the owner in which
the taxable year of the partnership or subchapter S corporation ends and may be
carried forward to the 5 succeeding taxable years of the owner until used.
5) Any
credit passed through to a partnership or subchapter S corporation under this
subsection shall pass through to its partners or shareholders in the same
manner as a credit earned by the partnership or subchapter S corporation.
k) To claim the credit, a
taxpayer shall attach to its Illinois income tax return:
1) a
copy of the tax credit certificate and annual certification (if any) issued by
DCEO; and
2) in
the case of a partner in a partnership or shareholder of a subchapter S
corporation that earned the credit, a Schedule K-1-P or other written statement
from the partnership or subchapter S corporation stating:
A) the
portion of the total credit shown on the tax credit certificate that is allowed
to that partner or shareholder; and
B) the
taxable year of the partnership or subchapter S corporation in which the tax
credit certificate was issued.
l) Any
taxpayer qualifying for the REV Illinois Investment Tax Credit shall not be
eligible for the investment tax credits in Section 201(e), (f), or (h) of
the IITA. (20 ILCS 686/100)
(Source:
Amended at 49 Ill. Reg. 3115, effective February 26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2136 MICRO INVESTMENT TAX CREDIT (IITA SECTION 239)
Section 100.2136 MICRO Investment Tax Credit (IITA
Section 239)
a) For
tax years beginning on or after January 1, 2025, a taxpayer shall be allowed a
credit against the tax imposed by IITA Section 201(a) and (b) for
investment in qualified property which is placed in service at the site of a
project that is subject to an agreement between the taxpayer and the Department
of Commerce and Economic Opportunity (DCEO) pursuant to the
Manufacturing Illinois Chips for Real Opportunity (MICRO) Act [35 ILCS 45]
(MICRO Act). (IITA Section 239(a))
b) For
the purposes of the MICRO Investment Tax Credit, "Project" or "MICRO
Illinois Project" shall have the same meaning as when used in Section
110-10 of the MICRO Act.
c) The
credit shall be 0.5% of the basis for such property. (IITA Section 239(a))
d) The
credit shall be available only in the taxable year in which the property is
placed in service and shall not be allowed to the extent that it would reduce a
taxpayer's liability for the tax imposed by IITA Section 201(a) and (b)
to less than zero. The credit shall be allowed for the tax year in which
the property is placed in service, or if the amount of the credit exceeds the
tax liability for that year, whether it exceeds the original liability or the
liability as later amended, such excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess credit year. The
credit shall be applied to the earliest year for which there is a liability.
If there is credit from more than one tax year that is available to offset a
liability, the earlier credit shall be applied first. (IITA Section
239(a))
e) The
credit allowed under this Section shall be taken in the taxable year that
includes the date of the tax credit certificate issued by DCEO under Section
110-100 of the MICRO Act.
f) The
term "qualified property" means property which:
1) is
tangible, whether new or used;
A) Tangible
property includes objects or things that are physically capable of being touched
and seen and over which a person may assert rights of ownership.
B) Tangible
property consists of personal or real property and includes such items as buildings,
structural components of buildings, machinery, equipment, and vehicles.
C) Items
such as stock certificates, bonds, notes and the like are not tangible personal
property. While the certificate or paper may be tangible, the item itself, the
share of ownership of a corporation or the promise to pay, is an intangible
that is memorialized by the paper.
D) The
terms "new or used" shall have their commonly ascribed meanings.
2) is
depreciable pursuant to Internal Revenue Code (IRC) Section 167, except
that "3-year property" as defined in IRC Section 168 is not
eligible for the credit provided by IITA Section 239;
A) Depreciable
property is property used in the trade or business of a taxpayer, or held for
production of income, which is subject to wear and tear, exhaustion, or
obsolescence.
B) Property
that is depreciated under the Modified Accelerated Cost Recovery System
(MACRS), as provided by IRC Section 168, is considered depreciable pursuant to
IRC Section 167 for purposes of this credit.
C) Examples
of tangible property that is not depreciable include land, inventories or
stock-in-trade, natural resources, and coin or currency.
D) The
provisions of Internal Revenue Service (IRS) Regulation Section 1.167(a)-4 will
be utilized in making determinations as to whether particular leasehold
improvements are depreciable.
E) IRC
Section 179 allows taxpayers, under certain circumstances, to expense a
designated dollar amount of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was equal to or less than the
amount specified under IRC Section 179, the taxpayer has the option of
expensing the cost all in one year as a depreciation expense. While the
property does have a useful life of four or more years, since the election was
made to completely expense the cost of the property in one year, the property
has no federal depreciable basis and does not have a basis upon which to
compute the MICRO Investment Tax Credit. Property not fully expensed under IRC
Section 179 would qualify for the credit based on the cost of the depreciable
property reduced by the IRC Section 179 deduction.
3) is
acquired by purchase as defined in IRC Section 179(d);
A) A
purchase is any acquisition of property except:
i) an
acquisition from a person whose relationship to the acquiring person is such
that a resulting loss would be disallowed under IRC Sections 267 or 707(b);
ii) an
acquisition by one component member of a controlled group from another
component member of the same controlled group;
iii) an
acquisition of property if the basis of the property in the hands of the person
acquiring it is determined in whole or in part by its adjusted basis in the
hands of the person from whom the property was acquired; or
iv) an
acquisition of property, the basis of which is determined under IRC Section
1014(a). IRC Section 1014(a) covers property received from a decedent. Property
acquired by bequest or demise is not acquired by purchase.
B) For
purposes of determining whether property is acquired by purchase as defined by
IRC Section 179(d), the family of an individual includes only the individual's
spouse and the ancestral and lineal descendants of the individual and the
individual's spouse.
C) For
purposes of determining whether property is acquired by purchase only, a
controlled group has the same meaning as in IRC Section 1563(a), except stock
ownership of only 50% or more is required (also see 26 C.F.R. 1.179-4).
D) Property
that the taxpayer constructs, reconstructs or erects is generally considered
acquired by purchase.
E) A
lessee of tangible property may never claim the credit because a lessee has not
acquired the property by purchase.
4) is
used at the site of the MICRO Illinois Project by the taxpayer; and
A) The
term "used at the site of the MICRO Illinois Project" means that the
property for which the credit is being claimed is physically located within the
boundaries of a MICRO Illinois Project site certified by DCEO. Storage of
property in a MICRO Illinois Project site will not constitute use. The
taxpayer must make use of, convert to its service, avail itself of, or employ
the property in the MICRO Illinois Project site in order to demonstrate use of
the property.
B) Mobile
property, such as vehicles, must be used predominantly at the MICRO Illinois
Project site in order to qualify for the credit.
i) Removal
of such property from the MICRO Illinois Project site for a temporary or
transitory purpose will not disqualify the property so long as it continues to
be used predominantly in the Illinois operation of the taxpayer at the MICRO
Illinois Project site.
ii) Mobile
property is considered to be predominantly used at the MICRO Illinois Project
site if usage at the site exceeds usage outside the site. For example, if a
taxpayer sometimes uses its trucks based at a MICRO Illinois Project site to
deliver goods both in Illinois and out-of-state, then the temporary absence of
its trucks from the MICRO Illinois Project site does not disqualify them as
qualified property used at the site by the taxpayer.
C) A
lessor may claim the credit for otherwise qualified property if the property is
physically located in a MICRO Illinois Project site from the time it is placed
in service and all other conditions of eligibility for the credit are met.
5) has
not been previously used in Illinois in such a manner and by such a person as
would qualify for the credit provided by this Section. (IITA Section
239(b))
A) Generally,
used property will not qualify for the credit if it was previously used in
Illinois in such a manner and by such a person that it could have qualified for
the credit.
B) However,
property that would otherwise qualify for the credit will not be disqualified
because it was previously used in Illinois in such a manner and by such a
person that it could have qualified for the credit, if that use pre-dated the
effective date of the law that established the credit.
EXAMPLE 1: Corporation A
purchases a used pickup truck for use at its MICRO Illinois Project site from
an Illinois resident who used the truck for personal purposes in Illinois. If
the truck meets all other requirements for the credit, it will not be
disqualified because it has been previously used in Illinois for a
non-qualifying purpose.
EXAMPLE 2: Corporation A
purchases a used pickup truck from Corporation B. Corporation B used the truck
in its business in a qualifying manner and could have claimed the credit for
the truck, but did not. Corporation A may not claim the credit for the truck
because the truck has been previously used in Illinois in such a manner that it
could have qualified for the credit.
g) The
basis of qualified property shall be the basis used to compute the depreciation
deduction for federal income tax purposes. (IITA Section 239(c))
1) In
computing the amount of credit available for a taxable year, the credit rate
will be applied to the total basis of all qualified property that is placed in
service at the site of the MICRO Illinois Project during the taxable year,
provided the property continues to qualify on the last day of the taxable year.
2) If
the basis of the property for federal income tax depreciation purposes is
increased after it has been placed in service at the site of the project by the
taxpayer, the amount of such increase shall be deemed property placed in
service on the date of such increase in basis. (IITA Section 239(d))
3) Property
that has been fully expensed under IRC Section 179 has no federal depreciable
basis with which to compute the credit. Property not fully expensed under IRC
Section 179 can still qualify for the credit.
h) The
term "placed in service" shall have the same meaning as under IRC
Section 46 (also see IRS Regulation Section 1.46-3). (IITA Section
239(e)) Property is placed in service for purposes of the credit in the earlier
of the following taxable years:
1) The
taxable year in which, under the taxpayer's depreciation practice, the period
for depreciation with respect to such property begins, or
2) The
taxable year in which the property is placed in a condition or state of
readiness and availability for a specifically assigned function.
i) If
during any taxable year, any property ceases to be qualified property in the
hands of the taxpayer within 48 months after being placed in service, or the
situs of any qualified property is moved from the project site within 48 months
after being placed in service, the tax imposed under IITA Section 201(a)
and (b) for such taxable year shall be increased.
1) Any
property disposed of by the taxpayer within 48 months after being placed in
service ceases to qualify for the credit.
A) A
taxpayer disposes of property when the taxpayer sells the property, exchanges
or trades-in worn-out property for new property, abandons the property or
retires it from use.
B) Property
destroyed by casualty, stolen, or transferred as a gift is disposed of
property.
C) Property
that is mortgaged or used as security for a loan is not disposed of property,
provided that the taxpayer continues to use the property in its business at the
MICRO Illinois Project site.
D) Property
transferred to a trustee in bankruptcy is considered disposed of property in
the year the property is transferred to the trustee.
E) A
transfer of property by foreclosure is a disposition of property.
F) A
reduction of the basis of qualified property resulting from a redetermination of
the purchase price of the property is a disposition of qualified
property to the extent of such reduction in basis in the year in which the
reduction takes place. (IITA Section 239(f)) For example, this would occur when
property is purchased and placed in service in one year, and in a later year
the taxpayer receives a refund of a portion of the original purchase price.
2) Any
property converted to personal use ceases to qualify for the credit.
3) The increase
in tax shall be determined by:
A) recomputing
the investment credit which would have been allowed for the year in which
credit for such property was originally allowed by eliminating such property
from such computation; and
B) subtracting
such recomputed credit from the amount of credit previously allowed. (IITA
Section 239(f)) The difference between the recomputed credit and the credit
actually claimed is added to the income tax for the year in which the property
ceased to qualify.
EXAMPLE: In 2025, taxpayer places
qualifying property with a basis of $65,000 into service at the site of a MICRO
Illinois Project and computes a credit for the year of $325 ($65,000 x 0.5%).
Taxpayer's 2025 income tax is $325. After application of the credit, taxpayer
has no remaining income tax liability. In the following year, taxpayer moved a
qualifying asset having a basis of $5,000 from Illinois to Missouri and is
required to recapture a portion of the credit applied against its 2025 income
tax liability. The credit applied against taxpayer's income tax must be
recaptured because the property was moved outside of Illinois and no longer
qualifies for the credit. In order to determine its additional income tax for
2026, taxpayer must recompute its 2025 credit by eliminating the
disqualified property (($65,000 - $5,000) x 0.5% =$300). This recomputed credit
is subtracted from the credit actually used in 2025 against the income tax
($325 - $300 = $25) and the difference is added to taxpayer's 2026 income tax.
j) Partnerships
and Subchapter S Corporations
1) If
the taxpayer is a partnership or a Subchapter S corporation, the credit shall
be allowed to the partners or shareholders in accordance with the determination
of income and distributive share of income under Sections 702 and 704 and
subchapter S of the IRC, or as otherwise agreed by the partners or
shareholders, provided that such agreement shall be executed in writing prior
to the due date of the return for the taxable year and meet such other
requirements as the Department may establish by rule. Partnership has the
meaning prescribed in IITA Section 1501(a)(16). (IITA Section 251)
2) The
credit earned by a partnership or a subchapter S corporation will be treated as
earned by its owners as of the last day of the taxable year of the partnership
or subchapter S corporation in which the tax credit certificate is issued by
DCEO under Section 110-100 of the MICRO Act.
3) The
credit shall be allowed to each owner in the taxable year of the owner in which
the taxable year of the partnership or subchapter S corporation ends and may be
carried forward to the 5 succeeding taxable years of the owner until used.
4) Any
credit passed through to a partnership or subchapter S corporation under this
subsection shall pass through to its partners or shareholders in the same
manner as a credit earned by the partnership or subchapter S corporation.
k) To
claim the credit, a taxpayer shall attach to its Illinois income tax return:
1) a
copy of the tax credit certificate and annual certification (if any) issued by
DCEO; and
2) in
the case of a partner in a partnership or shareholder of a subchapter S
corporation that earned the credit, a Schedule K-1-P or other written statement
from the partnership or subchapter S corporation stating:
A) the
portion of the total credit shown on the tax credit certificate that is allowed
to that partner or shareholder; and
B) the
taxable year of the partnership or subchapter S corporation in which the tax
credit certificate was issued.
l) Any
taxpayer qualifying for the MICRO Investment Tax Credit shall not be
eligible for the investment tax credits in Section 201(e), (f), or (h) of
the IITA. (35 ILCS 45/110-100)
(Source: Added
at 48 Ill. Reg. 10281, effective June 25, 2024)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2140 CREDIT AGAINST INCOME TAX FOR REPLACEMENT TAX (IITA 201(I))
Section 100.2140 Credit
Against Income Tax for Replacement Tax (IITA 201(i))
a) Section 201(c) imposes the Personal Property Tax Replacement
Income Tax. This tax is measured by net income of every corporation (including
Sub-chapter S corporations), partnership and trust, for each taxable year. The
tax is imposed on the privilege of earning or receiving income in this State.
The tax is in addition to the income tax imposed under IITA Sections 201(a) and
(b). IITA Section 201(d) lists the tax rates for the Personal Property Tax
Replacement Income Tax.
b) For tax years ending prior to December 31, 2003, a credit is
allowed against the Income Tax for Personal Property Tax Replacement Income
Tax.
1) For tax years ending before January 1, 1989, the credit is
computed by multiplying the tax imposed by IITA Sections 201(c) and (d) by the
apportionment percentage (or by 1 if the entity is non-apportioning). The
result is further multiplied by the tax rate imposed by IITA Sections 201(a)
and (b).
2) For tax years ending on or after January 1, 1989, the credit
is computed by multiplying the tax imposed by IITA Sections 201(c) and (d) by a
fraction, the numerator of which is base income allocable to Illinois and the
denominator of which is Illinois base income. The result is further multiplied
by the tax rate imposed by IITA Sections 201(a) and (b).
c) Any credit earned on or after December 31, 1986, under this
subsection which is unused in the year the credit is computed because it
exceeds the tax liability imposed under IITA Sections 201(a) and (b) for that
year (whether it exceeds the original liability or the liability as later
amended) may be carried forward and applied to the tax liability imposed by
IITA Sections 201(a) and (b) for the 5 taxable years following the excess
credit year, provided that no credit may be carried forward to any year ending
on or after December 31, 2003. The credit shall be applied first to the
earliest year for which there is a liability. If there is a credit for more
than one tax year that is available to offset a liability, the earliest credit
shall be applied first.
d) If, during any taxable year, the tax imposed by IITA Sections
201(c) and (d) for which a taxpayer has claimed the credit is reduced, the
amount of credit for such tax shall also be reduced. Such reduction shall be
determined by recomputing the credit to take into account the reduced tax
imposed by IITA Sections 201(c) and (d). If any portion of the reduced amount
of credit has been carried forward to a different taxable year, an amended
return shall be filed for such taxable year to reduce the amount of credit
claimed.
(Source: Amended at 29 Ill.
Reg. 20516, effective December 2, 2005)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2150 TRAINING EXPENSE CREDIT (IITA 201(J))
Section 100.2150 Training
Expense Credit (IITA 201(j))
a) Beginning with tax years ending on or after December 31, 1986
and prior to December 31, 2003, a taxpayer shall be allowed a credit against
the tax imposed by IITA Sections 201(a) and (b) for all amounts paid or
accrued, on behalf of all persons employed by the taxpayer in Illinois, or
Illinois residents employed outside of Illinois by a taxpayer, for educational
or vocational training in semi-technical or technical fields or semi-skilled or
skilled fields, which were deducted from gross income in the computation of
taxable income (IITA Section 201(j)).
b) The credit against the tax imposed by IITA Sections 201(a)
and (b) shall be 1.6% of eligible training expenses (IITA Section 201(j)).
c) All amounts paid for educational or vocational training in
semi-technical or technical fields or semi-skilled or skilled fields are
eligible for the credit. No particular fields of employment are presumptively
eligible or ineligible for the credit.
1) The Training Expense Credit was originally enacted into law as
a training expense deduction by P.A. 83-650, the Prairie State 2000 Authority
Act, and was later converted into the current Training Expense Credit by P.A.
84-1405. The Illinois General Assembly found that there existed a large
surplus of workers throughout the State who are ready, willing and able to work
but who lack the appropriate skills to perform the specialized tasks for modern
business and industry....The General Assembly found that a substantial
impediment to attracting new businesses and encouraging the modernization of
existing businesses has been the shortage of workers who can perform the
specialized tasks required by the new technologies of modern business. [20
ILCS 4020/2]
2) The credit is for the amounts paid or accrued for educational
or vocational training in semi-technical or technical or semi-skilled or
skilled fields.
A) The terms "semi-technical or technical fields or
semi-skilled or skilled fields" do not refer to any particular occupation.
This statutory language authorizes the credit for the costs of training of an
employee to improve that employee's job skills within the scope of his or her
employment.
B) The credit will be authorized for the costs of job-linked
training that offers special skills for career advancement or that is
preparatory for, and leads to, a job with definite career potential.
C) The credit will be authorized for amounts expended for training
necessary to implement Total Quality Management or improvement systems within
the workplace.
D) The credit will be authorized for training related to machinery
or equipment.
E) The credit will be authorized for job-linked basic skills,
which may include English as a second language and remedial training,
necessary for employees to function effectively and safely in the workplace, or
as a prerequisite for other training.
EXAMPLES:
Training of a machine operator in skills necessary to operate a
computer-assisted manufacturing machine would qualify for the credit.
Training of the employees of a retailer in the operation of a cash register
system that is designed to aid the retailer by resulting in faster sales and
greater inventory control because of centralized linkage of the system to the
retailer's headquarters would, assuming all other requirements are met, qualify
for the credit. A course in how to supervise employees required of supervisors
because of the installation of a computer system at the business with terminals
in the homes of that supervisor's subordinates that allows those subordinates
to work from their homes would qualify for the credit.
F) Training does not have to occur in a classroom. Training may
be given by an employer to his or her employees, an employer may contract with
a third party to provide the training, or an employer may reimburse an employee
for the costs of training purchased by an employee. Eligible training may
include self-study courses. Self-study courses will qualify if the employer
demonstrates that the self-study coursework is training in semi-technical or
technical or semi-skilled or skilled fields. Self-study training must be
contrasted with the type "down time" reading which, as stated in
subsection (d)(2)(B), below, does not qualify for the credit.
G) Training does not have to occur on the premises of the
employer. Training does not have to occur in the State of Illinois. However, in
order to claim costs of employee travel and lodging, an employer must document
that the costs of travel were related to the training and were deducted in
determining the employer's federal taxable income.
H) A training expense that would otherwise not qualify for the
credit will not be deemed to qualify for the credit because of a designation of
an employee as a probationary employee, a trainee, or a similar designation of
that nature.
d) Only amounts expended for eligible training will qualify as eligible
training expenses. Such costs may or may not constitute "direct
expenses" as that term is used in normal accounting parlance. Capitalized
costs will not qualify for the credit. However, as noted below, depreciation
expenses associated with capital expenditures may qualify for the credit. The
term "compensation" used in this Section is defined in IITA Section
1501(a)(3).
1) The following costs qualify as eligible training expenses:
A) Compensation of employees for time spent in training others in
in-house training will qualify as eligible training expenses, but the
compensation must be prorated based on the amount of time actually spent in
conducting the training.
B) Compensation of an employee for time spent in preparing for
in-house training as or for an instructor will qualify because such
compensation is an expense of the training.
C) Compensation of an employee for time spent in training will
qualify for the credit.
D) The cost of materials (i.e., slides, hand-outs, etc.) for
in-house training will qualify for the credit because such costs are expenses
of the training.
E) Pro-rata rent of a training facility is an expense eligible for
the credit. Similarly, depreciation expenses for a training facility owned by
a taxpayer or for equipment used for training are eligible expenses.
F) Costs of registration (including allocable wages of employees
performing the registration) with state, federal or industry authorities may be
eligible expenses, if such costs are related to eligible training.
G) Tuition reimbursement is an eligible expense provided that the
tuition amounts were deducted in determining the employer's federal taxable
income.
H) Costs of travel and lodging for eligible training provided that
the costs were deducted in determining the employer's federal taxable income.
2) The following costs do not qualify as eligible training
expenses:
A) The cost of the training facility and equipment is not an
eligible expense. Capital costs are not eligible for the credit. However, as
noted above, depreciation expense is eligible.
B) Compensation of an employee for "down time" spent
informally training (i.e., a mechanic with no machinery on which to work
reading about new equipment, or a mechanic reading about specifications of
equipment never before encountered) is not an eligible expense.
C) Compensation of an employee for time spent supervising another
employee is not an eligible expense. For instance, a supervisor spending an
hour a day reviewing and discussing a new employee's progress and planning the
new employee's future work schedule would not be an eligible expense.
D) Cost of a meal (breakfast or lunch) provided in the course of a
brief training session is not an eligible expense. Similarly, the cost of
meals provided to an employee during an all-day training session is not an
eligible expense.
3) Employers must maintain records sufficient to document that
the training is eligible training. Employers must maintain records that
document the amounts expended for eligible training expenses. An employer may
maintain documentation as required for the Industrial Training Program of the
Illinois Department of Commerce and Community Affairs (see 56 Ill. Adm. Code
2650.120), or as maintained by employers in compliance with the requirements of
the Illinois Secretary of State's Workplace Literacy Program (see 23 Ill. Adm.
Code 3040.220 and 3040.240) for purposes of documentation for the Training
Expense Credit. Employers may claim the credit based upon average or standard
costs of training each employee. The documentation of amounts expended for
eligible training expenses, or documentation maintained to claim the credit
based upon average or standard costs, must be sufficient to demonstrate that
the training for which the credit is claimed is on behalf of persons employed
by the taxpayer in Illinois, or Illinois residents employed outside of Illinois
by the taxpayer, the training qualifies for the credit under the standards of
subsection (b) of this Section above, and the expenditures are eligible
training expenses under the standards of subsection (d)(1) above. In the event
an employer claims the credit based upon average or standard costs, this
documentation must include detailed information concerning the methodology
utilized in determining the average or standard costs.
e) For purposes of the training expense credit and this rule, the
term "persons employed by the taxpayer in Illinois" shall include
both employees whose compensation is subject to withholding under IITA Section
701 (including employees who are exempt from withholding pursuant to IITA
Section 701(d)). A person is employed in Illinois by the taxpayer if that
person has "compensation paid in this State" as that term is defined
in IITA Section 304(a)(2)(B). Sole proprietors, partners of partnerships,
shareholders of corporations, beneficiaries of trusts or estates, or other
individuals who own an interest in the employer are not employees for purposes
of this credit, unless in the case of shareholders or beneficiaries, they are
able to demonstrate that, separate and apart from their ownership status, they
are also employees of the concern.
f) For partners and shareholders of subchapter S corporations,
there shall be allowed a credit under IITA Section 201(j) to be determined in
accordance with the determination of income and distributive share of income
under Sections 702 and 704 and subchapter S of the Internal Revenue Code
(IITA Section 201(j)).
g) Any credit allowed under this subsection which is unused in
the year the credit is earned may be carried forward to each of the 5 taxable
years following the year for which the credit is computed until it is used.
This credit shall be applied first to the earliest year for which there is a
liability. If there is a credit under this subsection from more than one tax
year that is available to offset a liability, the earliest credit arising under
this subsection shall be applied first. No carryforward credit may be
claimed in any tax year ending on or after December 31, 2003. (IITA Section
201(j))
(Source: Amended at 29 Ill.
Reg. 20516, effective December 2, 2005)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2160 RESEARCH AND DEVELOPMENT CREDIT (IITA SECTION 201(K))
Section 100.2160 Research
and Development Credit (IITA Section 201(k))
a) For tax years ending after July 1, 1990 and prior to
December 31, 2003, and tax years ending on or after December 31, 2004 and prior
to January 1, 2027, each taxpayer shall be allowed a credit against the tax
imposed by IITA Section 201(a) and (b) for increasing research activities in
this State. It is the intent of the General Assembly that the research and
development credit under IITA Section 201(k) applies continuously for all tax
years ending on or after December 31, 2004 and ending prior to January 1, 2032, including, but not limited to, the
period beginning on January 1, 2016, the date on which the credit expired
prior to enactment of PA 100-22, and ending on July 6, 2017, the
effective date of PA 100-22. All actions taken in reliance on the continuation
of the credit under IITA Section 201(k) by any taxpayer are hereby validated.
(IITA 201(k))
b) The credit allowed shall be equal to 6½% of the qualifying
expenditures for increasing research activities in this State. (IITA
Section 201(k))
c) Not all "research" will qualify for the credit. Nor
will every expenditure associated with research qualify for the credit.
Qualified research is defined in IRC section 41(d). Qualifying expenditures
means the qualifying expenditures as defined for the federal credit for
increasing research activities which would be allowable under IRC section 41
and which are conducted in this State.
1) IRC section 41(b) defines "qualifying research
expenses" as the sum of the in-house research expenses and the contract
research expenses paid or incurred by the taxpayer during the taxable year in
carrying on any trade or business of the taxpayer.
2) Qualifying expenditures also include basic research payments.
Basic research payments are defined in IRC section 41(e).
d) Qualifying expenditures for increasing research activities in
this State means the excess of qualifying expenditures for the taxable year in
which incurred over qualifying expenditures for the base period. Qualifying
expenditures for the base period means the average of the qualifying
expenditures for each year in the base period.
e) Base
period means the 3 taxable years immediately preceding the taxable year for
which the determination is being made. For
purposes of computing the average qualifying expenditures for the base period:
1) For taxable years after a taxpayer has
succeeded to the tax items of a corporation under IITA Section 405(a),
qualifying expenditures incurred by the corporation during the base period
shall be deemed to be qualifying expenditures of the taxpayer.
2) If the taxpayer incurred no qualifying
expenditures during a base period year, the qualifying expenditures for that
year are zero, even if the taxpayer was not in existence or conducting any
business in this State during that year.
3) If the taxpayer was doing business in
this State for only part of a base period year, the qualifying expenditures for
that year shall be equal to the qualifying expenditures actually incurred,
multiplied by 365 and divided by the number of days in the portion of the
taxable year during which the taxpayer was doing business in this State.
4) Qualifying expenditures incurred in
taxable years in which the taxpayer did not qualify for the credit, including
taxable years ending on or after December 31, 2003 and prior to December 31,
2004 must be included in the computation of qualifying expenditures for the
base period.
f) Any credit in excess of the tax liability for the taxable
year may be carried forward to offset the income tax liability of the taxpayer
for the next 5 years or until it has been fully utilized, whichever occurs
first (IITA Section 201(k)), provided that no credit earned in a tax year
ending prior to December 31, 2003 may be carried forward to any year ending on
or after December 31, 2003. If an unused credit is carried forward to a given
year from 2 or more earlier years, that credit arising in the earliest year is
applied first. If a tax liability for the given year remains, the credit from
the next earliest year is applied. Any remaining unused credit or credits can
be carried forward to the next following year in which a tax liability exists.
However, the credit can only be carried forward 5 years from the year in which
the taxpayer incurred the expense for which the credit was given. Any unused
credit is then forfeited.
g) Combined Returns. In the case of taxpayers filing combined
returns, Section 100.5270(d) details the manner in which the credit is
determined.
h) Pass-through of Credits to Partners and Subchapter S Corporation
Shareholders
1) For tax years beginning on and after January 1, 1999, partners
and shareholders of subchapter S corporations shall be allowed a credit
under this Section to be determined in accordance with the determination of
income and distributive share of income under IRC sections 702 and 704 and subchapter
S of the Internal Revenue Code. (IITA Section 201(k)) No inference
shall be drawn from the enactment of PA 91-644, which expressly allows this
pass-through of credits, in construing IITA Section 201(k) for tax years beginning
prior to January 1, 1999.
2) Repeal and re-enactment of the
credit. Due to the repeal of the credit for taxable years ending on or after
December 31, 2003, and the re-enactment of the credit for taxable years ending
on or after December 31, 2004:
A) A partner or shareholder may not claim
a credit passed through from a partnership or subchapter S corporation for any
taxable year of the partner or shareholder ending on or after December 31, 2003
and prior to December 31, 2004, even if the credit was earned in a taxable year
of the partnership or subchapter S corporation ending prior to December 31,
2003.
B) No credit may be earned by a
partnership or subchapter S corporation for a taxable year ending on or after
December 31, 2003 and prior to December 31, 2004, and passed through to a
partner or shareholder, even if the partner or shareholder would have reported
the credit for a taxable year ending on or after December 31, 2004.
(Source: Amended at 49 Ill.
Reg. 1295, effective January 15, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2161 QUANTUM COMPUTING CAMPUSES TAX CREDIT (IITA SECTION 241)
Section 100.2161 Quantum Computing Campuses Tax Credit (IITA Section 241)
a) For tax years ending on or after June 26,
2024 (the effective date of Public Act 103-0595), each taxpayer who has been
awarded a credit by the Department of Commerce and
Economic Opportunity (DCEO) is allowed a credit against the taxes
imposed under IITA Section 201(a) and (b) in an amount equal to 20% of
the wages paid by the taxpayer during the taxable year to a full-time or
part-time employee of a construction contractor employed in the construction of
an eligible facility located on a quantum computing campus. (IITA Section
241(a))
b) For purposes of this Section, the term
"quantum computing campus" shall have the same meaning as when used
in Section 605-1115(a) of the Civil Administrative Code
of Illinois ((Department of Commerce and Economic Opportunity Law) (DCEO Law))
[20 ILCS 605].
c) An "eligible facility" means a
building used primarily to house one or more of the following:
1) A
quantum computer operator;
2) A
research facility;
3) A
data center (as defined in Section 605-1115(a) of the DCEO Law);
4) A manufacturer and assembler of quantum
computers and component parts;
5) A
cryogenic or refrigeration facility; or
6) Any other facility determined, by
industry and academic leaders, to be fundamental to the research and
development of quantum computing for practical solutions. (IITA Section
241(e))
d) The
amount of the credit shall be determined by DCEO and shall be the amount shown
on the tax credit certificate issued by DCEO to the taxpayer.
e) In
no event shall a credit under IITA
Section 241 reduce the taxpayer's liability to less than zero. If the amount
of the credit exceeds the tax liability for the year, the excess may be carried
forward and applied to the tax liability of the 5 taxable years following the
excess credit year. The tax credit shall be applied to the earliest year for
which there is a tax liability. If there are credits for more than one year
that are available to offset a liability, the earlier credit shall be applied
first. (IITA Section 241(b))
f) Partnerships
and Subchapter S Corporations
1) If the taxpayer is a partnership or a
Subchapter S corporation, the credit shall be allowed to the partners or
shareholders in accordance with the determination of income and distributive
share of income under Sections 702 and 704 and subchapter S of the Internal
Revenue Code, or as otherwise agreed by the partners or shareholders, provided
that such agreement shall be executed in writing prior to the due date of the
return for the taxable year and meet such other requirements as the Department
may establish by rule. Partnership has the meaning prescribed in IITA Section
1501(a)(16). (IITA Section 251)
2) The credit earned by a partnership or a
subchapter S corporation will be treated as earned by its owners as of the last
day of the taxable year of the partnership or subchapter S corporation in which
the tax credit certificate is issued by DCEO under Section 605-1115(c) of the
DCEO Law.
3) The credit shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends and may be carried forward to the 5 succeeding
taxable years of the owner until used.
4) Any credit passed through to a partnership
or subchapter S corporation under this subsection shall pass through to its partners
or shareholders in the same manner as a credit earned by the partnership or
subchapter S corporation.
g) To claim the credit, a taxpayer shall
attach to its Illinois income tax return for the taxable year:
1) a copy of the tax credit certificate
and annual certification (if any) issued by DCEO; and
2) in the case of a partner in a partnership
or shareholder of a subchapter S corporation that earned the credit, a Schedule
K-1-P or other written statement from the partnership or subchapter S corporation
stating:
A) the portion of the total credit shown on the
tax credit certificate that is allowed to that partner or shareholder; and
B) the taxable year of the partnership or
subchapter S corporation in which the tax credit certificate was issued. (IITA
Section 241(c))
h) The
credit may not be transferred or sold.
i) This credit is exempt from the sunset
provisions of IITA Section 250. (IITA Section 241(f))
(Source: Added at 49 Ill. Reg. 1861, effective January
31, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2163 ENVIRONMENTAL REMEDIATION CREDIT (IITA 201(L))
Section 100.2163
Environmental Remediation Credit (IITA 201(l))
a) For tax years ending after December 31, 1997, and on or
before December 31, 2001, a taxpayer shall be allowed a credit against the tax
imposed by IITA Section 201(a) and (b) for unreimbursed environmental
remediation costs incurred. [IITA Section 201(l)]
b) The credit allowed shall be equal to 25% of the
unreimbursed remediation costs incurred and approved by the Illinois
Environmental Protection Agency in excess of $100,000 per cleanup site. The
$100,000 deductible does not apply if the remediation site is within an
enterprise zone. [IITA Section 201(l)]
c) The credit is earned in the year the Illinois Environmental
Protection Agency issues a No Further Remediation Letter with respect to the
site and may not exceed $150,000 per site. The credit shall not exceed $40,000
per year and the credit may not reduce the taxpayer's liability for the tax
imposed by IITA Section 201(a) and (b) below zero. [IITA Section 201(l)]
d) The credit is not allowed to a person who is responsible
for the pollution of the remediation site or who is related to the responsible
person. A person is related to a responsible person if deductions for
losses incurred on transactions between them would be disallowed under IRC
Section 267(b), (c), or (f)(1). [IITA Section 201(l)]
e) Any credit in excess of either the tax liability for the
taxable year or the $40,000 per year limitation may be carried forward to
offset the income tax liability of the taxpayer for the next 5 years or until
it has been fully utilized, whichever occurs first. Credit in excess of the
$150,000 per site limitation may not be carried over to another year. If a
credit from more than one year is carried forward to a particular tax year, the
credit arising in the earliest tax year is applied first.
f) If the site is sold, any unused credit passes to the
purchaser, unless the purchaser is disqualified under subsection (d) of this
Section.
g) In the case of a credit earned by a partnership or Subchapter
S corporation, the credit passes through to the owners for use against their
regular income tax liabilities in the same proportion as other items of the
taxpayer are passed through to its owners for federal income tax purposes.
h) A taxpayer claiming the credit who has deducted any of the
expenses on which the credit is based for federal income tax purposes must add
those expenses back in computing base income.
(Source: Added at 26 Ill.
Reg. 192, effective December 20, 2001)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2164 DATA CENTER CONSTRUCTION EMPLOYMENT TAX CREDIT (IITA SECTION 229)
Section 100.2164 Data
Center Construction Employment Tax Credit
(IITA Section 229)
a) For taxable years beginning on or after
January 1, 2019, a taxpayer who has been awarded a credit by the Department
of Commerce and Economic Opportunity (DCEO) under Section 605-1025(b)
of the Department of Commerce and Economic Opportunity Law of the Civil
Administrative Code of Illinois [20 ILCS 605] (DCEO
Law) is entitled to a credit against the taxes imposed under IITA Section
201 (a) and (b). (IITA Section 229(a))
b) Data Center. For the purposes of the data
center construction employment tax credit, "data
center" shall have the same meaning as when used in Section 605-1025(c) of
the DCEO Law.
c) The credit shall be computed as established
in this subsection. The amount of the credit shall be 20% of the wages paid
during the taxable year to a full-time or part-time employee of a construction
contractor employed by a certified data center if those wages are paid for the
construction of a new data center in a geographic area that meets any one of
the following criteria:
1) the area has a poverty rate of at least
20%, according to the U.S. Census Bureau American Community Survey 5-year
Estimates;
2) 75% or more of the children in the area participate
in the federal free lunch program, according to reported statistics from the
State Board of Education;
3) 20% or more of the households in the
area receive assistance under the Supplemental Nutrition Assistance Program
(SNAP), according to data from the U.S. Census Bureau American Community Survey
5-year Estimates; or
4) the area has an average unemployment
rate, as determined by the Department of Employment Security, that is more than
120% of the national unemployment average, as determined by the U.S. Department
of Labor, for a period of at least 2 consecutive calendar years preceding the
date of the application. (IITA Section 229(a))
d) Year in Which Credit is Taken. The credit
allowed under this Section shall be taken in the taxable year that includes the
date of the tax credit certificate issued by DCEO under Section 605-1025(b) of
the DCEO Law.
e) Partnerships and Subchapter S Corporations
1) For taxable years ending before December
31, 2023, if the taxpayer is a partnership, a Subchapter S corporation, or a
limited liability company that has elected partnership tax treatment, the
credit shall be allowed to the partners, shareholders, or members in accordance
with the determination of income and distributive share of income under
Sections 702 and 704 and subchapter S of the Internal Revenue Code, as
applicable. (IITA Section 229(a)) Partnership has the meaning
prescribed in IITA Section 1501(a)(16). In the case of a credit earned
by a partnership or subchapter S corporation, the credit passes through to the
owners as provided in the partnership agreement under IRC section 704(a) or in
proportion to their ownership of the stock of the subchapter S corporation
under IRC section 1366(a).
2) For taxable years ending on or after
December 31, 2023, if the taxpayer is a partnership or a Subchapter S
corporation, then the credit is allowed to pass through to the partners and
shareholders in accordance with the determination of income and distributive
share of income under Sections 702 and 704 and Subchapter S of the Internal
Revenue Code, or as otherwise agreed by the partners or shareholders, provided
that such agreement shall be executed in writing prior to the due date of the
return for the taxable year and meet such other requirements as the Department
may establish by rule. Partnership has the meaning prescribed in IITA Section
1501(a)(16). (IITA Section 251)
3) The credit earned by a partnership or
subchapter S corporation will be treated as earned by its owners as of the last
day of the taxable year of the partnership or subchapter S corporation in which
the tax credit certificate was issued by DCEO under Section 605-1025(b) of the
DCEO Law.
4) The credit shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends and may be carried forward to the 5 succeeding
taxable years of the owner until used.
5) Any credit passed through to a partnership
or subchapter S corporation under this subsection shall pass through to its
partners or shareholders in the same manner as a credit earned by the
partnership or subchapter S corporation.
f) In no event shall a credit under this
Section reduce the taxpayer's liability to less than zero. If the amount of the
credit exceeds the tax liability for the year, the excess may be carried
forward and applied to the tax liability of the 5 taxable years following the
excess credit year. The tax credit shall be applied to the earliest year for
which there is a tax liability. If there are credits for more than one year
that are available to offset a liability, the earlier credit shall be applied
first. (IITA Section 229(b))
g) Revocation. No credit shall be allowed
with respect to any certification for any taxable year ending after the
revocation of the certification by DCEO. Upon receiving notification by DCEO
of the revocation of certification, the Department shall notify the taxpayer
that no credit is allowed for any taxable year ending after the revocation
date, as stated in the notification. (IITA Section
229(c))
h) If any credit has been allowed with
respect to a certification for a taxable year ending after the revocation date,
any refund paid to the taxpayer for that taxable year shall be, to the extent
of that credit allowed, an erroneous refund within the meaning of IITA Section
912. (IITA Section 229(c))
i) Documentation of the Credit. A claimant
shall attach to its Illinois income tax return:
1) a copy of the Tax Credit Certificate and
annual certification (if any) issued by DCEO; and
2) in the case of a partner in a partnership
or shareholder of a subchapter S corporation that earned the credit, a Schedule
K-1-P or other written statement from the partnership or subchapter S
corporation stating:
A) the portion of the total credit shown on the
Tax Credit Certificate that is allowed to that partner or shareholder; and
B) the taxable year of the partnership or subchapter
S corporation in which the Tax Credit Certificate was issued.
j) This Section is exempt from the
automatic sunset provisions of IITA Section 250. (IITA Section 229(a))
(Source: Amended at 49 Ill. Reg. 3115, effective February
26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2165 EDUCATION EXPENSE CREDIT (IITA 201(M))
Section 100.2165 Education
Expense Credit (IITA 201(m))
a) Beginning with tax years ending after December 31, 1999, a
taxpayer who is the custodian of one or more qualifying pupils shall be allowed
a credit against the tax imposed by IITA Section 201(a) and (b) for qualified
education expenses incurred on behalf of the qualifying pupils (the
"education expense credit"). The education expense credit shall
be equal to 25% of qualified education expenses, but the maximum education
expense credit allowed to a family that is the custodian of qualifying pupils
shall not exceed $500 in any tax year ending prior to December 31, 2017, or
$750 for any tax year ending on or after December 31, 2017, regardless of
the number of qualifying pupils. The education expense credit taken shall not
reduce a taxpayer's liability under the Act to less than zero. Notwithstanding
any other provision of law, for taxable years beginning on or after January 1,
2017, if the taxpayer's adjusted gross income for the taxable year exceeds
$500,000, in the case of spouses filing a joint federal tax return or $250,000,
in the case of all other taxpayers, the credit allowed under this Section
shall be zero. (IITA Section 201(m)) For purposes of this
provision, each spouse is a separate taxpayer. No part of the education expense
credit is refundable to the custodian in the event the custodian's tax
liability is reduced to zero.
b) For a taxpayer to claim the education expense credit, the
taxpayer must be the custodian of one or more qualifying pupils and have
incurred qualified education expenses on behalf of the qualifying pupils.
1) Qualifying Pupils
A) "Qualifying pupils" shall mean individuals who
are:
i) residents of the State of Illinois;
ii) under the age of 21 at the close of the school year for
which a credit is sought; and
iii) full time pupils enrolled in a kindergarten through
twelfth grade education program at any school during the school year for which
a credit is sought. (IITA Section 201(m))
B) An individual under the age of 21 and graduating from the
twelfth grade during a school year shall be considered a qualifying pupil for
the year but only to the extent of qualified education expenses incurred by the
custodian due to the qualifying pupil's enrollment in the twelfth grade.
2) "Custodian" of qualifying pupils shall mean an
Illinois resident(s) who is a parent, the parents, a legal guardian, or the
legal guardians of the qualifying pupils. (IITA Section 201(m))
A) A foster parent, or the foster parents, or an adoptive parent,
or the adoptive parents shall be included within the meaning of parent or legal
guardian for purposes of determining the custodian of qualifying pupils.
B) Custodian shall not include a parent or the parents of qualifying
pupils whose parental rights over the qualifying pupils have been legally
terminated.
C) A custodian incurring qualified education expenses on behalf of
qualifying pupils may claim the education expense credit only to the extent of
qualified education expenses actually paid for by that custodian.
D) The education expense credit claimed shall not exceed the applicable
$500 or $750 credit limit allowable to a family that is the custodian of
qualifying pupils. Therefore, the divorced or unmarried parents of qualifying
pupils, each of whom is the custodian of the qualifying pupils and each of whom
incurs education expenses on behalf of such pupils, shall be considered the
family of such qualifying pupils for purposes of the applicable $500 or $750 credit
limit.
3) "School", for purposes of the education expense
credit, means any public or nonpublic elementary or secondary school in
Illinois that is in compliance with Title VI of the Civil Rights Act of 1964
and attendance at which satisfies the requirements of Section 26-1 of the
School Code [105 ILCS 5/26-1], except that nothing shall be construed to
require a child to attend any particular public or nonpublic school in order to
qualify for the education expense credit (IITA Section 201(m)). Schools that
are not required to be in compliance with the Title VI of the Civil Rights Act
of 1964 but attendance at which meets the compulsory education requirements of
Section 26-1 of the School Code are included within the meaning of
"school" for purposes of the education expense credit. Private
schools providing educational instruction in the home, attendance at which
meets the compulsory education requirements of Section 26-1 of the School Code,
are included within the meaning of "school" for purposes of the education
expense credit. For school years prior to the 2014-2015 school year, Section
26-1 of the School Code required attendance beginning with 7-year-olds, who
were required to attend first grade or higher. A school that provided
kindergarten, but not first grade or higher, did not qualify as a school for
which the credit is allowed under this Section. PA 98-544 amended Section 26-1
of the School Code to require attendance in kindergarten or higher for
6-year-olds, starting with the 2014-2015 school year. Accordingly, beginning
with the 2014-2015 school year, a school providing kindergarten may qualify,
even if it does not provide first grade or higher.
4) Qualified Education Expenses
A) "Qualified education expenses" shall mean amounts
incurred on behalf of a qualifying pupil in excess of $250 for tuition, book
fees, and lab fees at the school in which the qualifying pupil is enrolled
during the regular school year. (IITA Section 201(m)) Amounts incurred for
tuition, book fees and lab fees by a family that is the custodian of more than
one qualifying pupil may aggregate all tuition, book fees and lab fees incurred
by the family in arriving at qualified education expenses eligible for the
credit.
i) Tuition is the amount paid to a school as a condition of
enrollment for a quarter, semester or year term in a kindergarten through
twelfth grade education program of the school. Enrollment in an education
program shall mean admission to the full and regular schedule of classroom
instruction of the school during the designated period. Tuition also includes
amounts paid as a condition of enrollment on behalf of a school to cover costs
of implementing and administering an education program.
ii) Book fees are amounts paid for the use of books that are
essential to a qualifying pupil's participation in the education program of the
school. A book is essential when the school or an instructor of the school
requires its use by the qualifying pupil in order to participate in and
complete a course of the education program.
iii) Lab fees are amounts paid for the use of supplies, equipment,
materials or instruments that are essential to a qualifying pupil's
participation in a lab course of the school's education program. Supplies,
equipment, materials or instruments are essential when the school or an
instructor of the school requires their use by the qualifying pupil in order to
participate in and complete a lab course of the education program. Lab courses
include those courses that, in addition to classroom instruction by a teacher,
provide an environment of organized activity involving observation,
experimentation or practice in a course of study. Lab courses of study include
those courses with a scientific, musical, artistic, technical or language skill
content. Lab fees may be in the nature of a rental fee for supplies,
equipment, materials or instruments that are used in the lab course. Fees
incurred for the purchase of supplies, equipment, materials or instruments used
in a lab course and which are substantially consumed by the assignments and
activities of the lab are also considered qualifying lab fees.
B) Any amount paid for the purchase of items that would be
considered qualified education expenses but for the fact that the items are not
substantially consumed during the school year and will remain the tangible
personal property of a qualifying pupil or a custodian at the conclusion of the
school year shall not be considered qualified education expenses. For purposes
of this Section, an item is substantially consumed when, during the school
year, the item is used to the extent that its fair market value has been
reduced to a de minimis amount.
c) Examples. Calculation of the education expense credit may be
illustrated by the following examples. For each example, it is assumed that
the taxpayer's adjusted gross income for the taxable year is not greater than
$500,000 (in the case of each spouse filing a joint federal income tax return)
or $250,000 (in the case of all other taxpayers).
EXAMPLE 1.
Family A is the custodian of 2 qualifying pupils. Family A incurs a total of
$6,000 in tuition, book fees and lab fees for the education of both pupils
during the calendar year. The first $250 incurred for tuition, book fees and
lab fees is not included as a qualified education expense. The balance of
$5,750 ($6,000 - $250) multiplied by 25% equals $1,437.50. Family A may only
claim the maximum tax credit allowable of $500 (for taxable years ending prior
to December 31, 2017) or $750 (for taxable years ending on or after December
31, 2017).
EXAMPLE 2.
Family B is the custodian of one qualifying pupil. Family B incurs a total of
$2,250 in tuition, book fees and lab fees for the education of the qualifying
pupil during the calendar year. Family B also incurs $200 for the purchase of
a musical instrument used by the qualifying pupil while participating in the school
band. The $200 incurred for the purchase of a musical instrument is an expense
that does not qualify for the credit. The first $250 incurred for tuition,
book fees and lab fees is not included as a qualified education expense. The
balance of $2,000 ($2,250-$250) multiplied by 25% equals $500. Family B may
claim a credit for the entire $500.
EXAMPLE 3.
Family C is the custodian of 4 qualifying pupils. Family C incurs a total of
$1,000 in book fees and lab fees for the education of all 4 qualifying pupils
during the calendar year. Family C also incurs a total of $50 for the purchase
of books used in completing book reports required by the school. The $50
incurred for the purchase of books is an expense that does not qualify for the
credit. The first $250 incurred for book fees and lab fees is not included as a
qualified education expense. The balance of $750 ($1,000 - $250) multiplied by
25% equals $187.50. Family C may claim a tax credit of $187.50.
d) To aid a custodian in claiming the education expense credit, a
school should provide to the custodian a written receipt documenting education
expenses paid to the school by the custodian on behalf of qualifying pupils
during the calendar year. The written receipt should be provided to the custodian
on or before January 31 of the succeeding calendar year. When a school provides
a written receipt to a custodian, it should use the form prescribed by the
Department and include the following information:
1) the designated calendar year during which the education
expenses were paid;
2) the
name and address of the school;
3) the
name and address of the custodian;
4) the name and social security number of the qualifying pupil or
pupils;
5) a list of education expense amounts paid for tuition, book
fees and lab fees during the calendar year; and
6) the total of all such education expenses paid during the
calendar year. All information contained on the written receipt provided by a
school is deemed confidential information for use as supporting documentation
of the education expense credit claimed and shall not be used for any other
purpose.
e) A custodian filing a return claiming the education expense
credit shall maintain records of proof as to the education expenses paid for by
the custodian. The custodian shall maintain the records for a period of not
less than 3 years after the date the return on which the custodian claimed the
education expense credit was filed. Records maintained by the custodian shall
be subject to inspection by the Department and its duly authorized agents and
employees.
f) The education expense credit for qualified education expenses
incurred must be claimed for the tax year in which the qualified education
expenses are actually paid. Any part of the education expense credit not
claimed or allowed in a given tax year shall not be carried forward or back to
any other tax year. Likewise, where qualified education expenses are incurred
in excess of the allowable education expense credit for any given tax year, the
excess of qualified education expenses shall not be used in claiming the
education expense credit for any other tax year.
g) This Section is exempt from automatic sunset under IITA
Section 250.
(Source: Amended at 44 Ill.
Reg. 2845, effective January 30, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2170 TAX CREDITS FOR COAL RESEARCH AND COAL UTILIZATION EQUIPMENT (IITA 206)
Section 100.2170 Tax
Credits for Coal Research and Coal Utilization Equipment (IITA 206)
a) Until January 1, 2005, each corporation subject to
the Illinois Income Tax Act shall be entitled to a credit against the tax
imposed under IITA Sections 201(a) and (b) in an amount equal to 20% of the
amount donated to the Illinois Center for Research on Sulfur in Coal (IITA
Section 206).
b) Until January 1, 2005, each corporation subject to
the Illinois Income Tax Act shall be entitled to a credit against the tax
imposed under IITA Sections 201(a) and (b) in an amount equal to 5% of the
amount spent during the taxable year by the corporation on equipment purchased
for the purpose of maintaining or increasing the use of Illinois coal at any
Illinois facility owned, leased or operated by the corporation.
1) Such equipment shall be limited to direct coal combustion
equipment and pollution control equipment necessary thereto.
2) For purposes of this credit, the amount spent on qualifying
equipment shall be defined as the basis of the equipment used to compute the
depreciation deduction for federal income tax purposes. This amount spent is
the adjusted basis of each item of equipment as determined pursuant to IRC
167(g). Generally, the adjusted basis will be the purchase price of the
property plus any capital expenditures less any rebates (IITA Section 206).
3) In order to show that the equipment was purchased with the
intent to maintain or increase the use of Illinois coal at any Illinois facility
owned, leased or operated by the taxpayer, the taxpayer must demonstrate that
the equipment was used for the combustion of Illinois coal during the taxable
year or could reasonably have been so used but was not due to circumstances
beyond the taxpayer's control.
c) The credit shall be allowed for the tax year in which the
amount is donated or the equipment purchased is placed in service, or, if the
amount of the credit exceeds the tax liability for that year, whether it
exceeds the original liability or the liability as later amended, such excess
may be carried forward and applied to the tax liability of the 5 taxable years
following the excess credit years. The credit may not reduce a taxpayer's
liability below zero, nor may excess credit be carried to another year for
years ending prior to December 31, 1987. The credit shall be applied to the
earliest year for which there is a liability. If there is credit from more
than one tax year that is available to offset a liability, the earlier credit
shall be applied first.
(Source: Amended at 26 Ill.
Reg. 1274, effective January 15, 2002)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2171 ANGEL INVESTMENT CREDIT (IITA 220)
Section 100.2171 Angel Investment Credit (IITA 220)
a) For
taxable years beginning on and after January 1, 2011, and ending on or before December
31, 2026, a claimant (as defined under 14 Ill. Adm. Code 531.20) may claim a
credit against the tax imposed under IITA Sections 201(a) and (b) in an amount
equal to 25% of the Angel Investment (as defined under 14 Ill. Adm. Code
531.20) made by the claimant and that is shown on the Tax Credit Certificate
issued by the Department of Commerce and Economic Opportunity (DCEO) under 14
Ill. Adm. Code 531.70. A claimant may not sell or otherwise transfer a
credit awarded under this Section to another person. (IITA Section
220(g))
b) Year
in Which Credit is Taken. The credit allowed under this Section shall be taken
in the taxable year that includes the date of the Tax Credit Certificate issued
by DCEO under 14 Ill. Adm. Code 531.70.
c) In
the case of a credit earned by a partnership or subchapter S corporation, the
credit passes through to the owners as provided in the partnership agreement
under IRC section 704(a) or in proportion to their ownership of the stock of
the subchapter S corporation under IRC section 1366(a). The credit earned by a
partnership or subchapter S corporation will be treated as earned by its owners
as of the last day of the taxable year of the partnership or subchapter S
corporation in which the Tax Credit Certificate is issued by DCEO under 14 Ill.
Adm. Code 531.70, and shall be allowed to each owner in the taxable year of the
owner in which the taxable year of the partnership or subchapter S corporation
ends.
d) The
credit under this Section may not exceed the taxpayer's Illinois income tax
liability under IITA Section 201(a) and (b) for the taxable year. If the amount
of the credit exceeds the tax liability for the year, the excess may be carried
forward and applied to the tax liability of the 5 taxable years following the
excess credit year. The credit shall be applied to the earliest year for which
there is a tax liability. If there are credits from more than one tax year that
are available to offset a liability, the earlier credit shall be applied first.
(IITA Section 220(b))
e) Recapture.
If, as determined by DCEO, an investment for which a claimant is
allowed a credit under this Section is held by the claimant for less than 3
years, or, if within that period of time the qualified new business venture is
moved from the State, the claimant shall pay to the Department of Revenue, on
forms prescribed by the Department of Revenue, the amount of the
credit that the claimant received related to the investment. DCEO shall
annually certify that the claimant's investment has been made and remains in
the qualified new business venture for no less than 3 years. (IITA Section
220(d))
f) Documentation
of the Credit. A claimant shall attach to its Illinois income tax return a copy
of the Tax Credit Certificate and/or annual certification (if any) issued by
DCEO and, in the case of a partner in a partnership or shareholder of a subchapter
S corporation that earned the credit, a Schedule K-1-P or other written
statement from the partnership or subchapter S corporation stating the portion
of the total credit shown on the Tax Credit Certificate that is allowed to that
partner or shareholder and the taxable year of the partnership or subchapter S
corporation in which the Tax Credit Certificate was issued.
(Source: Amended at 46 Ill. Reg. 14550,
effective August 2, 2022)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2175 INVEST IN KIDS CREDIT (IITA 224)
Section 100.2175 Invest in Kids Credit (IITA 224)
a) For
taxable years beginning on and after January 1, 2018, and ending before January
1, 2023, a taxpayer may claim a credit against the income tax imposed under
IITA Section 201(a) and (b) in an amount equal to 75% of the qualified
contribution amount awarded under the Invest in Kids Act that is shown on the
Certificate of Receipt issued by an approved scholarship granting organization
under 86 Ill. Adm. Code 1000.500. The credit may not be applied against the
personal property replacement tax imposed under IITA Section 201(c) and (d).
b) The
credit allowed under this Section may be taken in the taxable year that
includes the date of the Certificate of Receipt issued by an approved
scholarship granting organization under 86 Ill. Adm. Code 1000.500. The credit
may not be transferred. The credit may not be carried back and may not
reduce the taxpayer's liability to less than zero. If the amount of the credit
exceeds the tax liability for the year, the excess may be carried forward and
applied to the tax liability of the 5 taxable years following the excess credit
year. The credit shall be applied to the earliest year for which there is a
tax liability. If there are credits from more than one tax year that are
available to offset a liability, the earlier credit shall be applied first.
(IITA Section 224(c))
c) In
the case of a credit earned by a partnership or subchapter S corporation, the
credit passes through to the owners as provided in the partnership agreement
under IRC section 704(a) or in proportion to their ownership of the stock of
the subchapter S corporation under IRC section 1366(a). The credit earned by a
partnership or subchapter S corporation will be treated as earned by its owners
as of the last day of the taxable year of the partnership or subchapter S
corporation in which the Certificate of Receipt is issued by an approved
scholarship granting organization under 86 Ill. Adm. Code 1000.500, and shall
be allowed to each owner in the taxable year of the owner in which the taxable
year of the partnership or subchapter S corporation ends.
d) A
credit awarded under the Invest in Kids Act may not be claimed for any
qualified contribution for which the taxpayer claims a federal income tax
deduction. (IITA Section 224(d))
e) A
taxpayer shall retain and provide at the request of the Department the
Certificate of Receipt issued by an approved scholarship granting organization
and, in the case of a partner in a partnership or shareholder of a subchapter S
corporation that earned the credit, a Schedule K-1-P or other written statement
from the partnership or subchapter S corporation stating the portion of the
total credit shown on the Certificate of Receipt that is allowed to that
partner or shareholder and the taxable year of the partnership or subchapter S
corporation in which the Certificate of Receipt was issued.
f) EXAMPLE
1: Individual A contributes $5,000 to an approved scholarship granting
organization on January 25, 2018. Individual A receives a Certificate of
Receipt in the amount of $5,000. On April 1, 2019, Individual A files a 2018 U.S.
Form 1040 with Schedule A Itemized Deductions. Individual A does not include
any part of the $5,000 contribution under Gifts to Charity on Schedule A.
Individual A is entitled to claim an Invest in Kids tax credit in the amount of
$3,750 on Individual A's 2018 Form IL-1040, Schedule 1299-C.
EXAMPLE 2: Individual B
contributes $5,000 to an approved scholarship granting organization on January
25, 2018. Individual B receives a Certificate of Receipt in the amount of
$5,000. On April 1, 2019, Individual B files a 2018 U.S. Form 1040 with
Schedule A Itemized Deductions. Individual B includes $1,250 (25% of the
qualified contribution) under Gifts to Charity on Schedule A. Individual B is
not entitled to claim any Invest in Kids tax credit on Individual B's 2018 Form
IL-1040, Schedule 1299-C.
EXAMPLE 3: Corporation C
contributes $1 million to an approved scholarship granting organization on
January 5, 2018. Corporation C receives a Certificate of Receipt in the amount
of $1 million. On October 15, 2019, Corporation C files a 2018 U.S. Form 1120
and excludes the $1 million from the charitable contributions line of the
return. Corporation C is entitled to claim an Invest in Kids tax credit in the
amount of $750,000 on Corporation C's 2018 Form IL-1120, Schedule 1299-D.
EXAMPLE 4: Corporation D
contributes $5 million to an approved scholarship granting organization on
January 5, 2018. Corporation D receives a Certificate of Receipt in the amount
of $1,333,333 (the maximum qualified contribution). On October 15, 2019,
Corporation D files a 2018 U.S. Form 1120 and includes $3,666,667 ($5 million
less the maximum qualified contribution) on the charitable contributions line
of the return. Corporation D is entitled to claim an Invest in Kids tax credit
in the amount of $1 million on Corporation D's 2018 Form IL-1120, Schedule
1299-D.
(Source: Added at 42 Ill. Reg. 4953,
effective February 28, 2018)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2179 VOLUNTEER EMERGENCY WORKER CREDIT (IITA SECTION 234)
Section 100.2179 Volunteer
Emergency Worker Credit (IITA Section 234)
a) For taxable years beginning on or after
January 1, 2023, and beginning before January 1, 2028, a taxpayer shall be
allowed a credit against the tax imposed by subsections (a) and (b) of Section
201 of the Illinois Income Tax Act in the amount of $500 if the taxpayer:
1) Served as a volunteer emergency worker for
at least nine months during the taxable year,
2) Did not receive more than $5,000 in
compensation for serving as a volunteer emergency worker during the taxable
year, and
3) Is registered with the Office of the State
Fire Marshal (OSFM) as having met criteria (1) and (2), or is reported to the
Illinois Emergency Management Agency and Office of Homeland Security (IEMA-OHS)
by local emergency services and disaster agencies as having met criteria (1)
and (2) and served at least 100 hours during the taxable year, by January 12 of
the following calendar year.
If
the taxpayer described in subsection (a) is a volunteer member of a county
emergency services and disaster agency under the Illinois Emergency Management
Agency Act, or is a volunteer member
of a municipality enrolled with a county emergency services and disaster
agency, then the taxpayer must serve as a volunteer emergency worker with
the county or municipal emergency services and disaster agency for at least 100
hours during the taxable year. (IITA Section 234(a))
b) Beginning on February 1 of each year,
taxpayers meeting the criteria in subsection (a) shall submit an application
for volunteer emergency worker income tax credit through the Department's
website. After verifying the application against the information provided
pursuant to subsections (c) and (d), the Department shall issue to the taxpayer
a volunteer emergency worker credit certificate. If the application does not
match the information provided pursuant to subsection (c) or (d), the
Department will contact the taxpayer by telephone or email to request
additional support, and the Department will work with the taxpayer and OSFM or
IEMA-OHS during the next ten business to resolve any verification issues. If
eligibility has not been verified after 10 business days, the Department will
send the taxpayer an email indicating that the application has been denied.
c) For volunteer emergency workers other than volunteer
members of a county or municipal emergency services and disaster agency, the
chief of the fire department, fire protection district, or fire protection
association shall be responsible for notifying the OSFM by January 12 of each
year of the volunteer emergency workers who met the criteria in subsection
(a)(1) and (2) during the preceding calendar year. By January 24 of each year,
the OSFM shall provide the Department with an electronic file containing the
name, address, State Fire Marshal identification number and fire department
identification number for the individuals who have been reported to the OSFM by
the chief of the fire department, fire protection district, or fire protection
association as meeting the criteria in subsection (a)(1) and (2) and who meet
the criteria of subsection (a)(3).
d) For volunteer members of a county or
municipal emergency services and disaster agency, the coordinator of the
emergency services and disaster agency shall be responsible for notifying the
IEMA-OHS by January 12, 2025, and January 12 of each succeeding year of the
volunteer emergency workers who met the criteria in subsections (a)(1) and (2)
and served at least 100 hours during the preceding calendar year. By January
24, 2025, and January 24 of each succeeding year, IEMA-OHS shall provide the
Department with an electronic file containing the name, address, and assigned
identification number for the individuals who have been reported to IEMA-OHS by
the coordinator of the emergency services and disaster agency as meeting the
criteria in subsections (a)(1) and (2), and having served at least 100 hours
during the taxable year.
e) Volunteer emergency worker credit
certificates shall be awarded on a first-come, first-served basis in accordance
with the receipt of applications, and they shall not exceed $5,000,000 in the
aggregate. Taxpayers may not claim the volunteer emergency worker credit on any
income tax return unless they receive a valid certificate number from the
Department.
f) A credit awarded under this Section
shall not reduce a taxpayer's liability to less than zero.
g) As used in this Section, "volunteer
emergency worker" means a person who serves as a member, other than on a
full-time career basis, of a fire department, fire protection district, or fire
protection association that has a Fire Department Identification Number issued
by the Office of the State Fire Marshal and who does not serve as a member on a
full-time fire service career basis for another fire department, fire
protection district, fire protection association, or governmental entity. For
taxable years beginning on or after January 1, 2024, "volunteer emergency
worker" also means a person who is a volunteer member of a county
emergency services and disaster agency pursuant to the Illinois Emergency
Management Agency Act or is a volunteer member of a municipality enrolled
with a county emergency services and disaster agency. (IITA Section 234(d))
(Source:
Amended at 49 Ill. Reg. 6621, effective April 22, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2180 CREDIT FOR RESIDENTIAL REAL PROPERTY TAXES (IITA 208)
Section 100.2180 Credit for
Residential Real Property Taxes (IITA 208)
a) Beginning with tax years ending on or after December 31,
1991, every individual taxpayer shall be entitled to a tax credit equal to 5%
of real property taxes paid by the taxpayer during the taxable year on the
principal residence of the taxpayer. 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 that is attributable to the principal
residence.
1) Notwithstanding any other provision of law, for taxable
years beginning on or after January 1, 2017, no taxpayer is allowed a credit
under this Section if the taxpayer's adjusted gross income for the taxable year
exceeds:
A) $500,000, in the case of spouses filing a joint federal tax
return; or
B) $250,000, in the case of all other taxpayers. (IITA
Section 208)
2) For purposes of this provision, each spouse is a separate
taxpayer.
b) A
taxpayer will qualify for the property tax credit if:
1) the taxpayer's principal residence during the year preceding
the tax year at issue was in Illinois; and
2) the
taxpayer owned the residence; and
3) the property tax billed in the tax year at issue has been
paid. This is the amount paid after factoring in any applicable exemptions.
c) Basis
of the Credit
1) The credit may be based on the entire property tax bill if:
A) the taxpayer lived in the same residence during all of the year
preceding the tax year at issue; and
B) the tax bill included property used only for the taxpayer's
personal residence, yard, garage, or other structure used for personal
purposes. If the property tax bill included not only taxpayer's personal
residence, but also business, rental, or farm property, that credit may be
calculated only on that portion of the property tax bill that is for the
personal residence.
2) The credit may not be taken for a vacation home.
3) Credit may not be taken for mobile home privilege tax.
d) If taxpayer sold a principal residence in the year preceding
the tax year at issue, he or she may not take a credit for the tax year at
issue. In this situation, taxpayer will not have paid property taxes during
the taxable year on that principal residence. Property taxes in Illinois are
assessed on a property in one year and paid in the next year. In other words,
in 1994 taxpayers pay 1993 taxes. In order to qualify for the credit granted
by IITA Section 208 during 1994, a taxpayer must have ownership of an
Illinois principal residence during 1993. An amount representing property
taxes for the period of ownership of the taxpayer in the year preceding the tax
year at issue will have been paid to the buyer of the taxpayer's former
residence. Therefore, taxpayer will be authorized to take an additional amount
of credit for property taxes paid to buyer upon sale of the residence in the
year preceding the tax year at issue, but will have no credit in the subsequent
year.
EXAMPLE:
Taxpayer A sells his or her principal residence to B on July 1, 1991. Taxpayer
A owned and resided in the principal residence for all of 1990, and for the
first 6 months of 1991. Taxpayer A is entitled to a credit for residential real
property taxes on his or her 1991 return in an amount equal to the amount of
1990 taxes paid in 1991. In addition, Taxpayer A is entitled to a credit for
6 months of the 1991 taxes that were paid over to B upon sale of the principal
residence on July 1, 1991. Taxpayer A is not entitled to a credit for property
taxes paid on this property on his or her 1992 return because no taxes were
paid on this residence in 1992. However, if Taxpayer A bought another residence
in 1991, Taxpayer A may calculate a credit for that portion of 1991 during
which he or she owned and lived at the new property.
(Source: Amended at 44 Ill. Reg. 2845,
effective January 30, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2181 CREDIT FOR INSTRUCTIONAL MATERIALS AND SUPPLIES. (IITA SECTION 225)
Section 100.2181 Credit
for Instructional Materials and Supplies. (IITA Section 225)
a) For taxable years beginning on and after
January 1, 2017, a taxpayer shall be allowed a credit in the amount paid by the
taxpayer during the taxable year for instructional materials and supplies with
respect to classroom based instruction in a qualified school, or $250,
whichever is less, provided that the taxpayer is a teacher, instructor,
counselor, principal or aide in a qualified school for at least 900 hours
during a school year. The credit may not be carried back and may not reduce the
taxpayer's liability to less than zero. If the amount of the credit exceeds the
tax liability for the year, the excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess credit year. The
tax credit carried forward is applied to the earliest year for which there is a
tax liability. If credits for more than one year are available to offset a
liability, the earlier credit shall be applied first. (IITA Section 225)
b) For
purposes of this Section:
1) The term "qualified school"
means a public school or non-public school located in Illinois. (IITA
Section 225) IITA Section 102 provides that, except as otherwise expressly
provided or clearly appearing from the context, any term used in the Act has
the same meaning as when used in a comparable context in the IRC or any
successor law or laws relating to federal income taxes and other provisions of federal
statutes relating to federal income taxes, as that Code, laws and statutes are
in effect for the taxable year. Accordingly, "school" means a
school that provides elementary education or secondary education (kindergarten
through grade 12), as provided in the federal income tax deduction allowed to
teachers for classroom supplies under IRC section 62(a)(2)(D) and (d)(1).
2) The term "materials and
supplies" means amounts paid for instructional materials or supplies that
are designated for classroom use in any qualified school. (IITA Section
225) Expenses qualifying for the federal income tax deduction for classroom
books, supplies, equipment and other materials under IRC section 62(a)(2)(D)
also qualify for this credit, except that the express provision in IRC section
62(a)(2)(D)(ii) that nonathletic supplies for courses of instruction in health
or physical education do not qualify, does not apply for purposes of this
credit.
3) A "school year" includes any
summer school conducted in the summer immediately following the end of the spring
term of the school year.
c) This Section is exempt from automatic
sunset under IITA Section 250. (IITA Section 225)
(Source: Added at 44 Ill. Reg. 2845, effective January
30, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2185 FILM PRODUCTION SERVICES CREDIT (IITA SECTION 213)
Section 100.2185 Film Production
Services Credit (IITA Section 213)
a) For taxable years
beginning on or after January 1, 2004, and prior to January 1, 2027, a person
awarded a credit under the Film Production Services Tax Credit Act of 2008 [35
ILCS 16] is entitled to a credit against the taxes imposed under IITA
Section 201(a) and (b) in an amount determined by the Department of Commerce
and Economic Opportunity. (IITA Section 213) The amount of the credit
shall be the amount shown on the Tax Credit Certificate issued by the
Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.70
or the Certificate of Transfer issued by the Department of Commerce and
Economic Opportunity under 14 Ill. Adm. Code 528.85.
b) Year in which Credit is
Taken. The credit allowed under this Section shall be taken in the taxable
year that includes the date of the Tax Credit Certificate issued by the
Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.70.
c) In the case of a credit
earned by a partnership or subchapter S corporation, the credit passes through
to the owners as provided in the partnership agreement under IRC section 704(a)
or in proportion to their ownership of the stock of the subchapter S
corporation under IRC section 1366(a). The credit earned by a partnership or subchapter
S corporation will be treated as earned by its owners as of the last day of the
taxable year of the partnership or subchapter S corporation in which the Tax
Credit Certificate is issued by the Department of Commerce and Economic
Opportunity under 14 Ill. Adm. Code 528.70 and shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends.
d) For tax years ending
prior to July 11, 2005 (the effective date of PA 94-171), the credit may not
be carried forward or back. For tax years ending on or after July
11, 2005, if
the amount of the credit exceeds the tax liability for the year, the excess may
be carried forward and applied to the tax liability of the 5 taxable years
following the excess credit year. The credit shall be applied to the earliest
year for which there is a tax liability. If there are credits from more than
one tax year that are available to offset a liability, the earlier credit shall
be applied first. In
no event shall a credit under this Section reduce the taxpayer's liability to
less than zero.
(IITA Section 213)
e) Transfer of Credit. A transfer of this credit may be
made by the person earning the credit within one year after the credit is
awarded in accordance with rules adopted by the Department of Commerce and
Economic Opportunity.
(IITA Section 213)
1) Transfers shall be made
pursuant to 14 Ill. Adm. Code 528.85.
2) A credit may be
transferred to a partnership or subchapter S corporation, in which case the
partners or shareholders of the transferee shall be entitled to the transferred
credit in the amounts determined under subsection (c).
3) A credit may be
transferred after the end of the taxable year of the transferee in which the
credit is to be taken under subsection (b). If the transferee has already
filed its return for that taxable year, it will need to file a corrected or
amended return, for that taxable year, claiming the credit.
f) Documentation of the
Credit. A person claiming the credit allowed under this Section shall attach
to its Illinois income tax return a copy of the Tax Credit Certificate or the
Certificate of Transfer issued by the Department of Commerce and Economic
Opportunity and, in the case of a partner in a partnership or a shareholder of
a subchapter S corporation that earned the credit, a Schedule K-1-P or other
written statement from the partnership or subchapter S corporation stating the
portion of the total credit shown on the Tax Credit Certificate or Certificate
of Transfer that is allowed to that partner or shareholder and the taxable year
of the partnership or subchapter S corporation in which the Tax Credit
Certificate was issued.
(Source: Amended at 44 Ill. Reg. 2845,
effective January 30, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2190 TAX CREDIT FOR AFFORDABLE HOUSING DONATIONS (IITA SECTION 214)
Section
100.2190 Tax Credit for Affordable Housing Donations (IITA Section 214)
a) For tax years ending on
or after December 31, 2001 and on or before December 31, 2026, a taxpayer who
makes a donation under Section 7.28 of the Illinois Housing Development Act [20
ILCS 3805/7.28] is entitled to a credit under IITA Section 214.
b) The credit shall be
equal to 50% of the value of the donation, but in no event shall exceed the
amount reserved by the administrative housing agency for that project pursuant
to Section 7.28 of the Illinois Housing Development Act and 47 Ill. Adm. Code
355.209.
c) Year in which credit is
taken. At the election of the taxpayer, the credit shall be taken:
1) in the tax year in which
the donation is made; provided that such election may not be made for any tax
year ending after December 31, 2016;
2) in the tax year in which
the reservation letter is issued by the administrative housing agency under 47
Ill. Adm. Code 355.209, provided that the credit may not be claimed until the
donation is made and, if the donation is not made before the taxpayer files its
Illinois income tax return for the tax year in which the effective date occurs,
the credit may not be claimed on the original return, but rather must be
claimed on an amended return or claim for refund after the donation is made; or
3) in the tax year in which
the credit is transferred to the taxpayer; provided that, if the taxpayer
elects under this subsection (c)(3) to take the credit in any tax year after
the tax year in which the donation was made, the 5-year carryforward period
allowed to the taxpayer in subsection (d) shall be reduced by the number of tax
years of the taxpayer that ended on or after the date of the donation and on or
before the date of the transfer to the taxpayer. The election shall be made in
the manner directed by the Department and, once made, shall be irrevocable.
EXAMPLE:
The administrative housing agency issues a reservation letter for a qualifying
project in December 2003. A calendar-year donor makes a qualifying donation in
January 2004. Under this subsection (c), the donor may elect to take the
credit in 2003 or 2004. If, in 2008, the donor transfers any unused credit to
a calendar-year taxpayer, the taxpayer may also elect to claim the transferred
amount as a credit in 2003 or 2004. However, because the statute of
limitations might prevent the taxpayer from deriving any benefit from claiming
the credit in 2003 or 2004, subsection (c)(3) allows the taxpayer to claim the
credit in 2008, the year of the transfer. If the taxpayer elects to claim the
credit in 2008, it may carry forward any credit in excess of its liability only
until 2009, 5 years after the year of the donation.
d) If the amount of the
credit exceeds the tax liability for the year, the excess may be carried
forward and applied to the tax liability of the 5 taxable years following the
excess credit year. The tax credit shall be applied to the earliest year for
which there is a tax liability. If there are credits for more than one year
that are available to offset a liability, the earlier credit shall be applied
first. (IITA Section 214(b))
e) Transfer of Credit
1) Under IITA Section
214(c), the credit allowed under this Section may be transferred:
A) to the purchaser of
land that has been designated solely for affordable housing projects in
accordance with the Illinois Housing Development Act; or
B) to another donor who
has also made a donation in accordance with Section 7.28 of the Illinois
Housing Development Act.
2) Persons or entities
not subject to the tax imposed by IITA Section 201(a) and (b) and who make a
donation under Section 7.28 of the Illinois Housing Development Act are entitled
to a credit as described in this Section and may transfer that credit as
provided in this subsection (e). (IITA Section 214(a))
3) Transfer of the credit
shall be made pursuant to 47 Ill. Adm. Code 355.309.
4) Transfer may be made of
all or of any portion of the credit allowable to the transferor. However, any
portion of a credit that has already been used to reduce the tax of a
transferor may not be transferred.
f) In the case of a credit
earned by or transferred to a partnership or Subchapter S corporation, the
credit passes through to the owners for use against their regular income tax
liabilities in the same proportion as other items of the taxpayer are passed
through to its owners for federal income tax purposes. (See IITA Section
214(a).) The partners and shareholders shall be treated for all purposes as if
their shares of the credit had been earned by or transferred to them directly,
except that the election under subsection (c) of the tax year in which to take
the credit shall be made by the partnership or Subchapter S corporation. Any
credit passed through to a partner or shareholder under this subsection (f) may
be used in the taxable year of the partner or shareholder in which ends the
taxable year of the pass-through entity in which the entity would be allowed to
claim the credit under subsection (c). In the case where the pass-through
entity is the donor, the credit may be carried forward to the five succeeding
taxable years of the partner or shareholder in the manner provided in subsection
(d) until used. In the case where the pass-through entity is a transferee, the
partner or shareholder shall be entitled to use the credit in the same number
of taxable years as the pass-through entity would have been allowed to use the
credit under subsection (c)(3).
g) Documentation of the
credit. A taxpayer claiming the credit provided by this Section must
maintain and record any information that the Department may require by
regulation regarding the affordable housing project for which the credit is
claimed. (IITA Section 214(d)) When claiming the credit provided by this
Section, the taxpayer must provide the following information regarding the
taxpayer's donation to the development of affordable housing under the Illinois
Housing Development Act.
1) For the taxable year for
which the credit is allowed under subsection (c), a donor (or a partner or
Subchapter S corporation shareholder of the donor) claiming the credit shall
attach to its Illinois income tax return a copy of the reservation letter
issued by the administrative housing agency stating the amount of credit
allocated to the affordable housing project under 47 Ill. Adm. Code 355.209.
2) For the taxable year in
which a credit is transferred, the transferee (or a partner or Subchapter S
corporation shareholder of the transferee) shall attach to its Illinois income
tax return a copy of the certificate showing the names of the original donor
and of the transferee, as provided in 47 Ill. Adm. Code 355.309.
h) For purposes of this
credit, the terms "administrative housing agency", "affordable
housing project" and "certificate" shall have the meanings given
to those terms in Section 7.28 of the Illinois Housing Development Act and 47
Ill. Adm. Code 355.
(Source:
Amended at 46 Ill. Reg. 14550, effective August 2, 2022)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2193 STUDENT-ASSISTANCE CONTRIBUTIONS CREDIT (IITA 218)
Section 100.2193 Student-Assistance Contributions Credit
(IITA 218)
a) For
taxable years ending on or after December 31, 2009 and on or before December
31, 2029, each taxpayer is allowed a credit against the taxes imposed under
IITA Section 201(a) and (b) in an amount equal to 25% of each matching
contribution made by the taxpayer during the taxable year. (See IITA Section
218(a).)
b) Matching
Contribution. For purposes of this Section, the term "matching
contribution" means the total amount paid by the taxpayer during the
taxable year to an individual Illinois College Savings Pool account or Illinois
Prepaid Tuition Trust Fund account for the benefit of a designated beneficiary,
to the extent the amount paid does not exceed the total contributions made by
an employee of the taxpayer during the taxpayer's taxable year to the same
account for the benefit of the same designated beneficiary.
c) Limitation.
The maximum credit allowed under IITA Section 218 and this Section with respect
to any contributing employee shall not exceed $500 per taxable year.
EXAMPLE: Taxpayer is a calendar
year taxpayer. Employee A is an employee of Taxpayer for the entire 2009
calendar year. During 2009, Employee A makes contributions totaling $6,000 each
to three separate College Savings Pool accounts established for the benefit of
each of Employee A's three children. During 2009, Taxpayer makes payments
totaling $2,000 each to the same three accounts. Under subsection (a) of this
Section, Taxpayer would be allowed a $500 credit for each of the three $2,000
matching contributions made during the taxable year, for a total credit of
$1,500. However, under this subsection (c), Taxpayer may claim a maximum credit
of only $500 in respect of the total of its contributions that match
contributions made by Employee A. Therefore, the allowable credit is reduced
from $1,500 to $500.
d) In
the case of a partnership or subchapter S corporation, the credit passes
through to the owners as provided in the partnership agreement under IRC
Section 704(a) or in proportion to their ownership of the stock of the subchapter
S corporation under IRC Section 1366(a). (See IITA Section 218(b).) The credit
earned by a partnership or subchapter S corporation shall be treated as earned
by its owners as of the last day of the taxable year of the partnership or subchapter
S corporation in which the matching contribution is made, and shall be allowed
to the owner in the taxable year of the owner in which the taxable year of the
partnership or subchapter S corporation ends.
e) In no
event shall a credit under this Section reduce the taxpayer's liability to less
than zero. If the amount of the credit exceeds the tax liability for the
year, the excess may be carried forward and applied to the tax liability of the
5 taxable years following the excess credit year. The tax credit shall be
applied to the earliest year for which there is a tax liability. If there are
credits for more than one year that are available to offset a liability, the
earlier credit shall be applied first. (IITA Section 218(c))
f) Documentation
of the Credit. A taxpayer claiming the credit allowed under IITA Section 218
and this Section must maintain records sufficient to document the date and
amount of each payment made to an individual College Savings Pool account or
Illinois Prepaid Tuition Trust Fund account, as well as documentation regarding
the contribution the payment matches. (See IITA Section 218(d).) Documentation
regarding the contribution the payment matches must include the employee's
name, the account, and the amount and date of the employee's contribution.
(Source: Amended at 49 Ill.
Reg. 1295, effective January 15, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2195 DEPENDENT CARE ASSISTANCE PROGRAM TAX CREDIT (IITA 210)
Section 100.2195 Dependent
Care Assistance Program Tax Credit (IITA 210)
a) Beginning with tax years ending on or after June 30, 1995,
each taxpayer who is primarily engaged in manufacturing is entitled to a credit
against the tax imposed by subsections (a) and (b) of Section 201 of the Act in
an amount equal to 5% of the amount of expenditures by the taxpayer in the tax
year for which the credit is claimed, reported pursuant to Section 129(d)(7) of
the Internal Revenue Code, to provide in the Illinois premises of the
taxpayer's workplace an on-site facility dependent care assistance program
under Section 129 of the Internal Revenue Code (see IITA Section 210(a)).
b) The term manufacturing is defined, for purposes of this
credit, in the same manner as that term is defined for purposes of the
Replacement Tax Investment Credit (see IITA Section 201(e)(3)). Manufacturing
is the material staging and production of tangible personal property by
procedures commonly regarded as manufacturing, processing, fabrication or
assembling which changes some existing material into new shapes, new qualities,
or new combinations. It is not necessary that such procedures result in a
finished consumer product. Procedures commonly regarded as manufacturing,
processing, fabrication or assembling are those so regarded by the general
public.
c) A taxpayer is primarily engaged in manufacturing if more than
50% of the gross receipts of the taxpayer are received from the sale of items
manufactured by the taxpayer.
d) Any credit allowed under this Section which is
unused in the year the credit is earned may be carried forward to each of the 2
taxable years following the year for which the credit is computed until it is
used.
1) This credit shall be applied first to the earliest year for
which there is a liability. If there is a credit under this Section from
more than one tax year that is available to offset a liability, the earliest
credit arising under this Section shall be applied first [35 ILCS
5/210(b)].
2) If a taxpayer has a Dependent Care Assistance Program Credit
and credit(s) under any other provision of the Illinois Income Tax Act with a 5
year carryforward, the taxpayer may apply the Dependent Care Assistance Program
Credit to tax otherwise due for a particular tax year, prior to applying the
credit with the 5 year carryforward.
e) In determining the amount of the credit claimed by the
employer, the employer shall claim the same fair market value of dependent care
assistance in the form of on-site day care facility services, as is determined
by the employer for federal purposes under the terms of Cumulative Bulletin
Notice 89-11, 1989-2 CB 449. For this purpose fair market value of on-site
dependent care assistance shall mean the employer's estimate of the fair market
value of in-kind dependent care assistance provided to employees which shall be
125 percent of reasonably estimated direct costs. For this purpose, direct
costs are food, expendable materials and supplies, transportation, staff
training, special or additional insurance directly attributable to the day care
facility, periodic consulting or management fees directly related to the
operation of the day care facility, and the cost of labor for personnel whose
services relating to the facility are performed primarily on the premises of
the day care facility.
f) A taxpayer claiming the credit provided by Section 210 of the
IITA needs to maintain records sufficient to document the costs associated with
the provision of an on-site facility dependent care assistance program under
Section 129 of the Internal Revenue Code. To the extent that the taxpayer
determines the cost of the on-site facility for federal purposes in a manner
different from that set forth in subsection (e) above, the taxpayer shall
maintain books and records in a form sufficient to document all costs claimed
under subsection (e).
(Source: Added at 22 Ill.
Reg. 2234, effective January 9, 1998)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2196 EMPLOYEE CHILD CARE ASSISTANCE PROGRAM TAX CREDIT (IITA SECTION 210.5)
Section
100.2196 Employee Child Care Assistance Program Tax Credit (IITA Section
210.5)
a) Eligibility for Credit
1) Beginning with tax years
ending on or after December 31, 2000, each corporate taxpayer is entitled to a
credit against the tax imposed by subsections (a) and (b) of Section 201 of the
Act in:
A) an amount equal to 30%
of the start-up costs expended by the corporate taxpayer to provide a child
care facility for the children of its employees; plus
B) 5% of the annual
amount paid by the corporate taxpayer in providing the child care facility for
the children of its employees. (IITA Section 210.5(a))
2) The 30% credit for
start-up costs is allowed only for tax years ending on or before December 31,
2004, and on or after December 31, 2007. The 5% credit for annual expenses is
allowed for all years ending on or after December 31, 2000. Both parts of the
credit are exempt from the sunset provisions of IITA Section 250.
b) To receive the tax
credit under IITA Section 210.5, a corporate taxpayer must either independently
provide and operate a child care facility for the children of its employees or
join in a partnership with one or more other corporations to jointly provide
and operate a child care facility for the children of employees of the
corporations in the partnership. (IITA Section 210.5(a)) Amounts paid to
a child care facility that is not operated by the taxpayer or by such a
partnership do not qualify for the credit. For purposes of this credit, a "child
care facility" is limited to a child care facility located in Illinois. (IITA Section 210.5(c))
c) For purposes of this
credit, the term "start-up costs" qualifying for the 30% credit means
the cost of planning, site-preparation, construction, renovation, or
acquisition of a child care facility. (IITA Section 210.5(c)) Such costs
are the capital expenditures incurred in creating a new facility or expanding
an existing facility, both tangible and intangible. In the case of a
capitalized asset, the 30% credit is allowed in the year the asset is placed in
service in the child care facility.
1) Uncapitalized expenses
incurred in connection with the child care facility prior to commencing
operations are start-up costs. For example, salaries paid prior to the opening
of the facility to the employees hired to operate the facility are start-up
costs. Such expenses qualify for the 30% credit in the tax year expensed, even
if the facility is not in operation by the end of the tax year.
2) Capital expenditures
that are expensed rather than depreciated under IRC section 179 qualify as
start-up costs in the same manner as expenditures that are actually capitalized
and amortized.
3) In the case of property
previously acquired by the taxpayer and later converted to use in the child
care facility, the start-up cost shall be the adjusted basis of such property
at the time of conversion, plus any capital costs of renovation or modification
to make the property ready for use in the child care facility.
4) Any expenditure that qualifies
for the federal employer-provided child care credit as an amount paid or
incurred to acquire, construct, rehabilitate or expand property to be used in a
new or expanded child care facility under the provisions of IRC section 45F(c)(1)(A)(i)
shall qualify for the 30% credit, even if the requirements of IRC section
45F(c)(1)(A)(i)(II) or (III) are not met and provided that the facility is
operated by the employer corporation or a partnership described in subsection
(b).
EXAMPLE:
An employer acquires a building to be used as a child care facility and the
land on which the building is located. The cost of the building qualifies for
the federal credit, but the cost of the land does not qualify because IRC section
45F(c)(1)(A)(i)(II) provides that only depreciable property may qualify for the
federal credit. The cost of both the building and the land will qualify for
the credit allowed under this IITA Section 210.5.
d) The annual amount
paid by the employer qualifying for the 5% credit shall include all
expenses (including depreciation and amortization) incurred in connection with
the operation of the child care facility that are deducted during the taxable
year. Depreciation and amortization of capitalized items and IRC section 179
deductions qualify for the credit whenever the original expenditure qualified
as a start-up cost for the 30% credit, provided that the asset continues to be
used in the operation of the child care facility. In the year the facility
commences operations, only expenses deductible in the period after the
commencement of operations qualify for the 5% credit. Expenses of the facility
deducted prior to the commencement of operations qualify only for the 30%
credit as start-up costs. Any expense qualifying for the federal
employer-provided child care credit under IRC section 45F(c)(1)(A)(ii) for a
tax year shall also qualify for the 5% credit in the same tax year. Any
expense for which the employer claims the 5% credit authorized under this Section
cannot qualify for the 5% Dependent Care Assistance Program Credit under IITA
Section 210. (See IITA Section 210.5(a))
e) Any credit allowed under
this Section that is unused in the year the credit is earned may be carried
forward and applied to the tax liability of the 5 taxable years following the
excess credit year until it is used. (IITA Section 210.5(b)) Any 30%
credit earned in tax years ending on or before the December
31, 2004 sunset date may be carried forward to tax years ending after that
date. The credit must be applied to the earliest year for which there is a
tax liability. If there are credits from more than one tax year that are
available to offset a liability, then the earlier credit must be applied first.
(IITA Section 210(b))
f) A corporate taxpayer
claiming the credit provided by IITA Section 210.5 needs to maintain records
sufficient to document the costs associated with the provision of a child care
facility and the "start-up costs" expended to provide a child care
facility. Documentation must take the form of vouchers paid, cancelled checks
or other proof of payment. Should the expenditure not be solely for child
care, the documentation should explain how the amount allocated for child care
was determined. If the child care provided includes care for non-employee
children, the costs must be allocated between employee children and
non-employee children. The method of allocation used must be reasonable and
documented.
g) The credit is allowed
only to corporations subject to tax under IITA Section 201(a) and (b). Neither
subchapter S corporations nor shareholders of subchapter S corporations are
allowed to claim the credit.
(Source:
Amended at 32 Ill. Reg. 13223, effective July 24, 2008)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2197 FOREIGN TAX CREDIT (IITA SECTION 601(B)(3))
Section 100.2197 Foreign Tax
Credit (IITA Section 601(b)(3))
a) IITA Section 601(b)(3) provides that the aggregate amount
of tax which is imposed upon or measured by income and which is paid by a
resident for a taxable year to another state or states on income which is also
subject to the tax imposed by IITA Section 201(a) and (b) shall be credited
against the tax imposed by IITA Section 201(a) and (b) otherwise due under the
IITA for that taxable year. (IITA Section 601(b)(3))
b) Definitions
applicable to this Section.
1) Tax qualifying for the credit. A tax qualifies for the credit
only if it is imposed upon or measured by income and is paid by an
Illinois resident to another state on income which is also subject to
Illinois income tax.
A) A tax "imposed upon or measured by income" shall mean
an income tax or tax on profits imposed by a state and deductible under IRC
section 164(a)(3). The term shall not include penalties or interest imposed
with respect to the tax.
B) A tax is "paid by an Illinois resident" to another
state "on income which is also subject to Illinois income tax" only
to the extent the income included in the tax base of the other state is also
included in base income computed under IITA Section 203 during a period in
which the taxpayer is an Illinois resident. Thus, for example, income tax paid
to another state on retirement income excluded from base income under IITA
Section 203(a)(2)(F) does not qualify for the credit, nor would income derived
from a partnership or Subchapter S corporation whose tax year ends during a
period in which the taxpayer is not an Illinois resident. See IRC section
706(a) and IRC section 1366(a)(1). If tax is paid to another state on income
that is not included in base income or on income attributable to a period when
the taxpayer was not a resident of Illinois, as well as on income that is
included in base income and attributable to a period in which the taxpayer was
a resident of Illinois, the amount of tax qualifying for the credit shall be
determined by multiplying the tax paid by a fraction equal to the income taxed
by the other state that is included in base income and attributable to a period
in which the taxpayer was a resident of Illinois divided by the total tax base
on which the other state's tax was computed.
2) For purposes of IITA Section 601(b)(3), "state" means
any state of the United States, the District of Columbia, the Commonwealth of
Puerto Rico, and any territory or possession of the United States, or any
political subdivision of any of the foregoing. (IITA Section 1501(a)(22))
This definition is effective for tax years ending on or after December 31,
1989. The term "state" does not include foreign countries or any
political subdivision of a foreign country.
3) "Resident" is defined at IITA Section 1501(a)(20)
and in Section 100.3020.
4) Base income subject to tax both by another state and by
this State or "double-taxed income" means items of income minus
items deducted or excluded in computing the tax for which credit is claimed, to
the extent those items of income, deduction or exclusion are taken into account
in the computation of base income under IITA Section 203 for the person
claiming the credit. However, under IITA Section 601(b)(3), as in effect prior
to January 1, 2006 (the effective date of Public Act 94-247), no
compensation received by a resident which qualifies as compensation paid in
this State as determined under IITA Section 304(a)(2)(B) shall be considered
income subject to tax by another state or states.
A) Under IITA Section 203(a), base income of an individual is
computed without allowing the standard deduction allowed in computing federal
taxable income, and without allowing the exemptions provided in IITA Section
204. Double-taxed income is therefore computed without reduction for any
standard deductions or exemptions allowed by the other state.
B) An item of income is not included in double-taxed income to the
extent it is excluded or deducted in computing the tax for which the credit is
claimed. For example, State X allows a deduction or exclusion equal to 60% of
long-term capital gains and for 100% of winnings from the State X lottery.
Only 40% of long-term capital gains is subject to tax in that state.
Similarly, an individual subject to the Washington, D.C. unincorporated
business tax is allowed to deduct from taxable income a reasonable allowance
for compensation for personal services rendered. This deduction is in fact an
exclusion for the "personal income" of the individual, which Congress
has forbidden Washington, D.C. to tax except in the case of residents.
Accordingly, double-taxed income is net of this deduction.
C) An item of income that is excluded, subtracted or deducted in
the computation of base income under IITA Section 203 cannot be included in
double-taxed income. For example, IITA Section 203(a)(2)(L) allows a
subtraction for federally-taxed Social Security and Railroad Retirement
benefits, while dividends received from a Subchapter S corporation are excluded
from federal gross income and therefore from base income. Accordingly, even if
another state taxes those benefits or dividends, these amounts are not included
in double-taxed income.
D) An item of expense is deducted or subtracted in computing
double-taxed income only to the extent that item is deducted or subtracted in
computing the tax base in the other state and in computing base income under
IITA Section 203. For example, State Y allows deductions for federal itemized
deductions and for individual federal income taxes paid. No deduction for
federal income taxes is allowed in computing base income under IITA Section
203, and so that deduction is not taken into account in computing base income
subject to tax in State Y. Also, IITA Section 203(a) generally does not allow
a deduction for federal itemized deductions, and so federal itemized deductions
are generally not taken into account in computing base income subject to tax in
State Y. However, IITA Section 203(a)(2)(V) allows self-employed individuals a
subtraction modification for health insurance premiums, which can be taken as
an itemized deduction in computing federal taxable income in some taxable years.
Accordingly, in the case of a self-employed individual eligible for the
Illinois subtraction, any itemized deduction for health insurance premiums
taken into account in computing the State Y tax base is also taken into account
in computing double-taxed income.
E) For taxable years beginning
prior to January 1, 2006, compensation paid in Illinois under IITA
Section 304(a)(2)(B), as further explained in Section 100.3120 as in effect for
the taxable year, is not included in double-taxed income, even if another state
taxes that compensation. For example, an Illinois resident whose base of
operations is in Illinois during 2005, but whose employment requires him or her
to work in Illinois and for a substantial period of time in State Z, must treat
all compensation from his or her employment as paid in Illinois under IITA
Section 304(a)(2)(B)(iii) as in effect for 2006. None of that compensation may
be included in double-taxed income, even if State Z actually taxes the
compensation earned for periods during which the resident was working in State
Z. Public Act 94-247 (effective January 1,
2006) repealed the provision in IITA Section 601(b)(3) that stated compensation
paid in Illinois may not be included in double-taxed income, and so
compensation paid in Illinois may be included in double-taxed income in taxable
years beginning on or after January 1, 2006.
F) Some states impose an alternative minimum tax similar to the
tax imposed by IRC section 55, under which a taxpayer computes a regular
taxable income and also computes an alternative minimum taxable income by
reducing some exclusions or deductions, and eliminating other exclusions and
deductions entirely. The taxpayer applies different rate structures to regular
taxable income and to alternative minimum taxable income, and is liable for the
higher of the two taxes so computed. An item of income included in a state's
alternative minimum taxable income but not in the regular taxable income of
that state is not included in base income subject to tax in that state unless
the taxpayer is actually liable for alternative minimum tax in that state. For
example, a state allows a 60% capital gains exclusion for regular tax purposes,
but includes 100% of the capital gains in its alternative minimum taxable
income. If a taxpayer incurs alternative minimum tax liability in that state,
100% of the capital gains is included in double-taxed income. If only regular
tax liability is incurred, only 40% of capital gains is included in
double-taxed income.
G) Some states compute the tax liability of a nonresident by first
computing the tax on all income of the nonresident from whatever source
derived, and then multiplying the resulting amount by a percentage equal to
in-state sources of income divided by total sources of income or by allowing a
credit based on the percentage of total income from sources outside the state.
Other states determine the tax base of a nonresident by computing the tax base
as if the person were a resident and multiplying the result by the percentage
equal to in-state sources of income divided by total sources of income. The
use of either of these methods of computing tax does not mean that income from
all sources is included in double-taxed income. (See Comptroller of the
Treasury v. Hickey, 114 Md. App. 388, 689 A.2d 1316 (1997); Chin v. Director,
Division of Taxation, 14 N.J. Tax 304 (T.C. N.J. 1994)). When a state uses
either of these methods of computation, double-taxed income shall be the base
income of the taxpayer from all sources subject to tax in that state, as
computed in accordance with the rest of this subsection (b)(4), multiplied by
the percentage of income from sources in that state, as computed under that
state's law; provided, however, that no compensation paid in Illinois under
IITA Section 304(a)(2)(B) shall be treated as income from sources in that state
in computing that percentage in any taxable
year beginning prior to January 1, 2006.
EXAMPLE 1:
Individual, an Illinois resident, has federal adjusted gross income of $80,000
in Year 1, comprised of $75,000 in wages, $1,000 in taxable interest and $4,000
in net rental income. Taxable interest includes $200 in interest on federal
government obligations and excludes $500 in municipal bond interest. The
rental income is from property in State X. Individual is subject to $6,000 in
federal income tax in Year 1.
Individual's
Illinois base income is $80,300: his $80,000 in adjusted gross income, plus
$500 in municipal bond interest, minus $200 in federal government obligation
interest.
State X
computes Individual's income subject to its tax by starting with the $4,000 in
net rental income included in his federal adjusted gross income, and requiring
him to add back $3,000 in depreciation allowed on his rental property under IRC
Section 168 in excess of straight-line depreciation, and subtracting the
portion of his federal income tax liability allocable to his State X income.
State X also allows Individual an exemption of $1,000.
Double-taxed
income in this case is $7,000: the $4,000 in net rental income plus the $3,000
addition modification for excess depreciation. The $3,000 addition modification
for excess depreciation is a deduction allowed by Illinois but not by State X,
and only the amount of depreciation deductible in both states is taken into
account. The subtraction for federal income tax and the exemption are not
taken into account in computing base income under IITA Section 203(a), and
therefore are not taken into account in computing double-taxed income.
EXAMPLE 2:
Assume the same facts as in Example 1, except that State X requires Individual
to compute income tax as if he were a resident of State X, and then multiply
the result by a fraction equal to his federal adjusted gross income from State
X sources divided by total federal adjusted gross income. Under this method,
Individual has State X taxable income of $76,300 ($80,000 in federal adjusted
gross income, plus $500 in municipal bond interest and $3,000 in excess
depreciation, minus $200 in federal government obligation interest, $6,000 in
federal income taxes, and the $1,000 exemption). The fraction actually taxed
by State X is 5% (the $4,000 in rental income divided by $80,000 in federal
adjusted gross income).
Under
subsection (b)(4)(G), double-taxed income is $4,165, computed as follows.
First, State X taxable income is computed using only those items of income and
deduction taken into account by both State X and Illinois. Accordingly, the
$6,000 in federal income taxes and the $1,000 exemption are not taken into
account. The State X taxable income so computed is $83,300 ($80,000 federal
adjusted gross income plus $3,000 in excess depreciation and $500 in municipal
bond interest minus $200 in federal government obligation interest).
Multiplying that amount by the 5% fraction used by State X yields double-taxed
income of $4,165.
EXAMPLE 3:
Assume the same facts as in Example 2, except that State X deems $10,000 of
Individual's wages to be earned in State X. Under IITA Section
304(a)(2)(B)(iii), all of Individual's wages are considered "compensation
paid in this State", even though Individual performs services in State X,
because Individual's base of operations is in Illinois. Accordingly, Individual's
State X taxable income is $76,300, just as in Example 2, but his fraction
allocated to State X is 17.5% ($10,000 in wages plus $4,000 in net rental
income, the total divided by $80,000 in federal adjusted gross income).
For taxable years beginning prior to January 1, 2006, Individual's
double-taxed income is $4,165, the same as in Example 2. Because compensation
deemed "paid in this State" cannot be treated as double-taxed income,
the State X fraction must be computed under subsection (b)(4)(G) without
treating the $10,000 in wages as allocable to State X. Accordingly, double-taxed income is the $83,300 total of all items taxed
by both states minus deductions allowed by both states, times 5% (the $4,000 in
net rental income divided by the $80,000 in federal adjusted gross income).
For taxable years beginning on or after January
1, 2006, Individual's double-taxed income is $14,578, which is the $83,300
total of all items taxed by both states minus deductions allowed by both
states, times 17.5% (the $10,000 in wages taxed by both states plus the $4,000
in net rental income, divided by the $80,000 in federal adjusted gross income).
c) Amount of the credit. Subject to limitations described in subsections
(d) and (e), the amount of the credit for a taxable year is the aggregate
amount of tax paid by a resident for the taxable year. (IITA Section
601(b)(3)) Because the credit is allowed for taxes paid for the taxable year,
rather than for taxes paid in or during the taxable year:
1) The amount of tax withheld for another state, estimated
payments made to that state and overpayments from prior years applied against
the current liability to that state are not relevant to the computation of the
credit.
2) Any credit (including a credit for taxes paid to Illinois or
another state, but not including a credit that is allowed for an actual payment
of tax, such as a credit for income taxes withheld, for estimated taxes paid or
for an overpayment of income tax in another taxable year) that is taken into
account in determining the amount of tax actually paid or payable to another
state shall reduce the amount of credit to which the taxpayer is entitled under this Section. In a case in which the
taxpayer claims a transferable credit purchased by the taxpayer on the other
state's return, the amount of the credit allowed is treated as an actual
payment of tax, and does not reduce the amount of credit to which the taxpayer
is entitled under this Section.
3) Any increase or decrease in the amount of tax paid to another
state for a taxable year, as the result of an audit, claim for refund, or other
change, shall increase or decrease the amount of credit for that taxable year,
not for the taxable year in which the increase or decrease is paid or credited.
d) Limitations on the amount of credit allowed for taxable years
ending prior to December 31, 2009. The aggregate credit allowed under IITA
Section 601(b)(3) shall not exceed that amount which bears the same ratio to
the tax imposed by IITA Section 201(a) and (b) otherwise due as the amount the
taxpayer's base income subject to tax both by that other state or states and by
this State bears to his total base income subject to tax by this State for the
taxable year. (IITA Section 601(b)(3)) The credit allowed under this
Section for taxable years ending prior to December 31, 2009 is therefore the
smaller of either the total amount of taxes paid to other states for the year
or the product of Illinois income tax otherwise due (before taking into account
any Article 2 credit or the foreign tax credit allowed under IITA Section
601(b)(3)) multiplied by a fraction equal to the aggregate amount of the
taxpayer's double-taxed income, divided by the taxpayer's Illinois base income.
1) In computing the aggregate amount of the taxpayer's
double-taxed income, any item of income or deduction taken into account in more
than one state shall be taken into account only once. For example, an
individual subject to tax on his or her compensation by both State X and by a
city in State X shall include the amount of that compensation only once in
computing the aggregate amount of double-taxed income.
2) Because base income subject to tax both in another state and
in Illinois cannot exceed 100% of base income, the credit cannot exceed 100% of
the tax otherwise due under IITA Section 201(a) and (b).
3) No carryover of any amount in excess of this limitation is
allowed by the IITA.
e) Limitations
on the amount of credit allowed for taxable years ending on or after December
31, 2009.
1) The credit allowed under IITA Section 601(b)(3) for tax paid to other states shall not exceed that amount
which bears the same ratio to the tax imposed by IITA Section 201(a) and (b)
otherwise due under the IITA as the amount of the taxpayer's base income that
would be allocated or apportioned to other states if all other states had
adopted the provisions in Article 3 of the IITA bears to the taxpayer's total
base income subject to tax by this State for the taxable year. (IITA Section 601(b)(3)) The credit allowed under
this Section for taxable years ending on or after December 31, 2009 is
therefore the smaller of either the total amount of taxes paid to other states
for the year or the product of Illinois income tax otherwise due (before taking
into account any Article 2 credit or the foreign tax credit allowed under IITA
Section 601(b)(3)) multiplied by a fraction equal to the amount of the
taxpayer's base income that is sourced outside Illinois using the allocation
and apportionment provisions of Article 3 of the IITA, divided by the
taxpayer's Illinois base income.
2) For
purposes of this subsection (e), the 30-day threshold in IITA Section
304(a)(2)(B)(iii) (as in effect for taxable years ending on or after December
31, 2020) and Section 100.3120(a)(1)(E) does not apply in determining the
number of working days in which services are performed in another state during
the year. (See IITA Section 601(b)(3).) However, the provisions for employees
providing services in this State during a disaster period in IITA Section
304(a)(2)(B)(iii)(c) and Section 100.3120(a)(1)(E)(ii) of this Part do apply.
EXAMPLE 4: Individual is an
Illinois resident whose only income is employee compensation. Individual's
employment requires him or her to spend a substantial amount of time each year
working in other states, but Individual's base of operations under IITA Section
304(a)(2)(B)(iii) is in Illinois. For taxable years ending prior to December
31, 2020, because all of Individual's base income is employee compensation that
is sourced to Illinois under IITA Section 304(a)(2)(B)(iii) as in effect for
that period, the limitation under this subsection (e) on Individual's credit
for taxes paid to other states will be zero, even if some or all of the
employee compensation is actually taxed by another state. For taxable years
ending on or after December 31, 2020, the amount of Individual's compensation
allocated to other states is determined by using the working days formula under
IITA Section 304(a)(2)(B)(iii), as in effect for the taxable year, and the
number of working days Individual performed services in other states, without
regard to whether Individual actually owed tax to any of those states or to the
provision in IITA Section 304(a)(2)(B)(iii) that the working days formula
applies only if the employee performs services in this State for more than 30
working days during the taxable year. However, working days during which
Individual performed services in other states do not include any working day to
which the disaster period provisions in IITA Section 304(a)(2)(B)(iii)(c) and
Section 100.3120(a)(1)(E)(ii) of this Part would apply if the other states had
adopted those provisions.
EXAMPLE 5: Individual is an
Illinois resident whose only income is employee compensation. Individual's
employment requires him or her to spend a substantial amount of time each year
working in several states, but Individual's base of operations under IITA
Section 304(a)(2)(B) is in a state that imposes no personal income tax. For
taxable years ending prior to December 31, 2020, because all of Individual's
base income is employee compensation that is sourced outside Illinois under
IITA Section 304(a)(2)(B), his or her credit for taxes paid to other states may
offset 100% of his or her Illinois income tax liability, even if some of his or
her employee compensation is not actually taxed by another state. For taxable
years ending on or after December 31, 2020, the amount of Individual's
compensation allocated to other states is determined by using the working days
formula under IITA Section 304(a)(2)(B)(iii), as in effect for the taxable
year, and the number of working days Individual performed services in other
states, without regard to whether Individual actually owed tax to any of those
states or to the provision in IITA Section 304(a)(2)(B)(iii) that the working
days formula applies only if the employee performs services in this State for
more than 30 working days during the taxable year. However, working days
during which Individual performed services in other states do not include any
working day to which the disaster period provisions in IITA Section 304(a)(2)(B)(iii)(c)
and Section 100.3120(a)(1)(E)(ii) of this Part would apply if the other states
had adopted those provisions.
EXAMPLE 6: Individual is an
Illinois resident partner in a partnership engaged in multistate business
activities, and his or her only income is business income derived from the
partnership. The partnership apportions 25% of its business income to Illinois
under IITA Section 304(a). Individual's credit may offset 75% of his or her
Illinois income tax liability, regardless of how much of his or her income from
the partnership is actually taxed by other states.
f) Disallowance of credit for taxes deducted in computing base
income. The credit provided by IITA Section 601(b)(3) shall not be allowed
if any creditable tax was deducted in determining base income for the taxable
year. (IITA Section 601(b)(3)) A trust that has deducted the amount of a
state tax imposed upon or measured by net income may include that tax in the
computation of the credit allowed under this Section, but IITA Section
203(c)(2)(F) requires that trust to add back to its federal taxable income an
amount equal to the tax deducted pursuant to IRC section 164 if the trust or
estate is claiming the same tax for purposes of the Illinois foreign tax
credit. The amount that must be added back for a taxable year shall be the
amount of tax deducted for that taxable year on the trust's federal income tax
return. Because no similar provision is made for individuals, an individual
who has deducted taxes paid to another state in computing his or her federal
adjusted gross income may not claim a credit for those taxes on his or her
Illinois tax return.
g) Credit for taxes paid on behalf of the taxpayer. An Illinois
resident individual who is a shareholder or partner claiming a foreign tax
credit for the shareholder's or partner's share of personal income taxes paid
to a foreign state on his or her behalf by a Subchapter S corporation or a
partnership, respectively, must attach to his or her Illinois return a written
statement from the Subchapter S corporation or partnership containing the name
and federal employee identification number of the Subchapter S corporation or
partnership and clearly showing the paid amount of foreign tax attributable to
the shareholder or partner, respectively. Additionally, for taxable years
ending prior to December 31, 2009, the statement must include the shareholder's
or partner's share of the Subchapter S corporation's or partnership's items of
income, deduction and exclusion in sufficient detail to allow computation of
the amount of base income subject to tax under subsection (b)(4) of this
Section. Taxes imposed directly on the Subchapter S corporation or the
partnership are not eligible for the credit.
h) Documentation required to support claims for credit. Any
person claiming the credit under IITA Section 601(b)(3) shall attach a
statement in support thereof and shall notify the Director of any refund or
reductions in the amount of tax claimed as a credit under IITA Section
601(b)(3) all in the manner and at the time as the Department shall by
regulations prescribe. For taxable years ending on or after December 31,
2009, the documentation required to be provided with the taxpayer's return in
order to support the credit shall be as stated in the forms or instructions.
For taxable years ending prior to December 31, 2009, no credit shall be allowed
under this Section for any tax paid to another state nor shall any item of
income be included in base income subject to tax in that state except to the
extent the amount of the tax and income is evidenced by the following
documentation attached to the taxpayer's return (or, in the case of an
electronically-filed return, to the taxpayer's Form IL-8453, Illinois Individual
Income Tax Electronic Filing Declaration), amended return or claim for refund:
1) Unless otherwise provided in this subsection (h), a taxpayer
claiming the credit must attach a copy of the tax return filed for taxes paid
to the other state or states to the taxpayer's Illinois income tax return, Form
IL-8453, amended return or claim for refund.
2) If the tax owed to the other state is satisfied by withholding
of the tax from payments due to the taxpayer without the necessity of a return
filing by the taxpayer, the taxpayer must attach a copy of the statement
provided by the payor evidencing the amount of tax withheld and the amount of
income subject to withholding.
3) A taxpayer claiming a credit for taxes paid by a Subchapter S
corporation or partnership on the taxpayer's behalf must attach a copy of the
statement provided to the taxpayer by the Subchapter S corporation or
partnership pursuant to subsection (g), showing the taxpayer's share of the
taxes paid and the income of the taxpayer on which the taxes were paid.
(Source: Amended at 44 Ill.
Reg. 10907, effective June 10, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2198 ECONOMIC DEVELOPMENT FOR A GROWING ECONOMY CREDIT (IITA 211) (RENUMBERED)
Section 100.2198 Economic Development for a Growing
Economy Credit (IITA 211) (Renumbered)
(Source:
Section 100.2198 renumbered to Section 100.2110 at 49 Ill. Reg. 3115, effective
February 26, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2199 ILLINOIS EARNED INCOME TAX CREDIT (IITA SECTION 212)
Section 100.2199 Illinois
Earned Income Tax Credit (IITA Section 212)
a) With respect to the federal earned income tax credit
allowed for the taxable year under Section 32 of the federal Internal Revenue
Code, each individual taxpayer shall be allowed a credit against the tax
imposed by IITA Section 201(a) and (b). (IITA Section 212(a)) The
amount of the credit allowed shall be equal to:
1) 5%
of the federal tax credit for each taxable year beginning on or after January
1, 2000 and ending prior to December 31, 2012;
2) 7.5%
of the federal tax credit for each taxable year beginning on or after January
1, 2012 and ending prior to December 31, 2013;
3) 10%
of the federal tax credit for each taxable year beginning on or after January
1, 2013 and beginning prior to January 1, 2017;
4) 14%
of the federal tax credit for each taxable year beginning on or after January
1, 2017 and beginning prior to January 1, 2018;
5) 18%
of the federal tax credit for each taxable year beginning on or after January
1, 2018 and beginning prior to January 1, 2023; and
6) 20% of the federal tax credit for
each taxable year beginning on or after January 1, 2023. (IITA Section 212(a))
b) Credit in Excess of Liability
1) For tax years beginning before January 1, 2003, the credit
allowed for the taxable year may not reduce the taxpayer's liability under the
IITA to less than zero. Therefore, no part of the credit is refundable in the
event the tax liability of the taxpayer is reduced to zero. (IITA Section
212(b))
2) For
tax years beginning on or after January 1, 2003 and ending prior to August 21,
2007 (the effective date of PA 95-333), if the amount of the credit exceeds
the income tax liability for the applicable tax year, then the excess credit
shall be refunded to the taxpayer. (IITA Section 212(b))
3) For
tax years ending on or after August 21, 2007, if the amount of the credit
exceeds the income tax liability for the applicable tax year, then the excess
credit shall be refunded to the taxpayer. (IITA Section 212(b))
4) Excess credit may not be carried over to other tax years.
c) In the case of a nonresident or part-year resident, the
Illinois earned income tax credit shall be equal to the applicable fraction
under subsection (a) of that portion of the federal earned income tax credit
allowed pursuant to Section 32 of the federal Internal Revenue Code that
bears the same ratio as the taxpayer's base income allocable to Illinois bears
to the taxpayer's base income everywhere. (See IITA Section 212(a))
d) For taxable years beginning on or after January 1, 2023,
each individual taxpayer who has attained the age of 18 during the taxable year
but has not yet attained the age of 25 is entitled to the credit under subsection
(a) based on the federal tax credit for which the taxpayer would have been
eligible without regard to any age requirements that would otherwise apply to
individuals without a qualifying child in Section 32(c)(1)(A)(ii) of the
federal Internal Revenue Code. (IITA Section 212(b-5)) Taxpayers will need
to complete a pro forma U.S. Form 1040, Line 27 as if they had a qualifying
child in order to compute the allowable amount of federal tax credit.
e) For taxable years beginning on or after January 1, 2023,
each individual taxpayer who has attained the age of 65 during the taxable year
is entitled to the credit under subsection (a) based on the federal tax
credit for which the taxpayer would have been eligible without regard to any
age requirements that would otherwise apply to individuals without a qualifying
child in Section 32(c)(1)(A)(ii) of the federal Internal Revenue Code. (IITA
Section 212(b-10)) Taxpayers will need to complete a pro forma U.S. Form 1040,
Line 27 as if they had a qualifying child in order to compute the allowable
amount of federal tax credit.
f) For taxable years beginning on or after January 1, 2023,
each individual taxpayer filing a return using an individual taxpayer
identification number (ITIN) as prescribed under Section 6109 of the Internal
Revenue Code, other than a Social Security number issued pursuant to Section
205(c)(2)(A) of the Social Security Act, is entitled to the credit under subsection
(a) based on the federal tax credit for which the taxpayer would have
been eligible without applying the restrictions regarding Social Security
numbers in Section 32(m) of the federal Internal Revenue Code. (IITA
Section 212(b-15)) Taxpayers will need to complete a pro forma U.S. Form
1040, Line 27 as if they had a Social Security number in order to compute the
allowable amount of federal tax credit.
(Source: Amended at 48 Ill.
Reg. 1677, effective January 10, 2024)
SUBPART C: NET OPERATING LOSSES OF UNITARY BUSINESS GROUPS OCCURRING PRIOR TO DECEMBER 31, 1986
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2200 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP.(IITA SECTION 202) - SCOPE
Section 100.2200 Net
Operating Losses Occurring Prior to December 31, 1986, of Unitary Business
Groups: Treatment by Members of the Unitary Business Group.(IITA Section
202) - Scope
a) This section states rules for the allocation of net operating
losses that were incurred in taxable years ending prior to December 31, 1986.
These rules apply to various situations in which the combined method of
apportionment has been employed by the corporation incurring the loss either in
the year of the loss, or in the year to which the loss is carried back or
forward. For rules applicable to net operating losses occurring on or after
December 31, 1986, see Sections 100.2300 through 100.2350.
b) The rules are equally applicable to situations involving the
combined apportionment method:
1) as it existed prior to Public Act 82-1029 (which applies to
taxable years ending on or after December 31,1982, and which provides the
Illinois statutory definition for unitary business group), and
2) as it exists after Public Act 82-1029, but before Public Act
84-1042 (which applies to taxable years ending on or after December 31, 1986,
and which provides for Illinois net losses and Illinois net loss deductions).
(Source: Amended at 11 Ill.
Reg. 11782, effective October 16, 1987)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2210 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP (IITA SECTION 202) -- DEFINITIONS
Section 100.2210 Net
Operating Losses Occurring Prior to December
31, 1986, of Unitary Business Groups: Treatment by Members of the
Unitary Business Group (IITA Section 202) -- Definitions
Federal taxable income for Illinois income tax purposes and Federal NOL for Illinois income tax purposes mean:
a) in the case of a corporation that files its own
(unconsolidated) federal income tax return for the year, the amount of taxable
income or NOL reflected on such return or if altered by IRS audit or amended
return, as finally determined for federal income tax purposes within the
meaning of IITA Section 506(b) increased in any case by the amount of any net
operating loss deduction (for carryback or carryforward of net operating losses
from other years) actually reflected by the corporation on that federal return.
b) in the case of a corporation that is a member of an affiliated
group filing a consolidated federal income tax return for the year, the amount
of taxable income or NOL which such corporation would have had it 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, such
calculation being made as if the elections of 26 USC 243(b)(2) and 172(b)(3)(C)
had been in effect for all such years, the amount calculated hereunder being
increased in any case by the amount of any net operating loss deduction (for
carryback or carryforward of any net operating losses from other years) to
which the corporation would otherwise be entitled under this subsection.
c) in the case of the corporation that is not required to file
a federal income tax return for the year, the equivalent federal taxable income
which it computes under IITA Section 203(e); increased in any case by the
amount of any net operating loss deduction (for carryback or carryforward of
net operating losses from other years) to which the corporation would otherwise
be entitled under that section.
(Source: Amended at 26 Ill.
Reg. 13237, effective August 23, 2002)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2220 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP. (IITA SECTION 202) CURRENT NET OPERATING LOSSES: OFFSETS BETWEEN MEMBERS
Section 100.2220 Net
Operating Losses Occurring Prior to December 31, 1986, of Unitary Business
Groups: Treatment by Members of the Unitary Business Group. (IITA Section
202) – Current Net Operating Losses: Offsets Between Members
The computation of combined
federal taxable income of a unitary business group may include federal NOLs for
Illinois income tax purposes of various members of the group. These federal
NOLs for Illinois income tax purposes of group members will be used in the year
they occur to offset federal taxable incomes for Illinois income tax purposes
of other members of the group in arriving at combined federal taxable income.
EXAMPLE: Corporations A, B, C
and D are members of a unitary business group. Corporations A, B and C had
1982 federal taxable incomes for Illinois income tax purposes of $100,000,
$200,000, and $300,000, respectively. Corporation D had a 1982 federal net
operating loss for Illinois income tax purposes of $150,000. The group's 1982
combined federal taxable income is $450,000.
(Source: Amended at 11 Ill.
Reg. 17782, effective October 16, 1987)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2230 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP. (IITA SECTION 202) CARRYBACKS AND CARRYFORWARDS
Section 100.2230 Net
Operating Losses Occurring Prior to December 31, 1986, of Unitary Business
Groups: Treatment by Members of the Unitary Business Group. (IITA Section 202) –
Carrybacks and Carryforwards
a) The Illinois income tax treatment of net operating loss carrybacks
and carryforwards will generally follow that of the Internal Revenue Code. However,
to the extent that a federal net operating loss for Illinois income tax
purposes of a member is absorbed in the computation of combined federal taxable
income in the year that it arose, no carryback or carryforward of that loss will
be allowed. This prohibition is mandated by IITA Section 203(g) which precludes
deducting the same item more than once.
EXAMPLE: Corporations
A, B, C and D are members of a unitary business group for calendar year 1982.In
that year, Corporations A, B and C had federal taxable incomes for Illinois
income tax purposes of $200,000, $300,000 and $500,000, respectively, while
Corporation D had a federal net operating loss for Illinois income tax purposes
of $250,000. Since Corporation D's 1982 federal net operating loss for Illinois
income tax purposes is used to offset the 1982 federal taxable incomes for Illinois
income tax purposes of the other group members in the computation of 1982 combined
federal taxable income, Corporation D will not be able to carry back to 1979 or
carry forward to 1983 or later years any portion of its 1982 federal net
operating loss for Illinois income tax purposes. In these circumstances,Corporation
D would not be entitled to a refund of 1979 Illinois income tax based on a net
operating loss carryback from 1982 even if it received a refund of its 1979 federal
income tax on that basis. In addition, if Corporation D carried forward the 1982
net operating loss to 1983 or later years in computing federal taxable income
for federal income tax purposes, it is obligated to adjust that figure upward
by those carryforward amounts in calculating its federal taxable income for Illinois
income tax purposes for those carryforward years.
b) In the event that the group members' federal taxable incomes
for Illinois income tax purposes and federal net operating losses for Illinois
income tax purposes result in a combined federal net operating loss, this loss
will be divided among those group members which incur federal net operating
losses for Illinois income tax purposes. This division will be made pro rata
based on the relative size of the federal net operating losses for Illinois income
tax purposes of the members having such losses. The members will then
individually carryback or carryforward their respective shares of the combined federal
net operating loss in conformity with the applicable provisions of 26 U.S.C.
Section 172, i.e. generally 3 year carryback and 15 year carryforward; for
financial institutions, 10 year carryback and a 5 year carryforward; for real
estate investment trusts, no carryback and a 15 year carryforward, etc.
However, the amount of the loss that the individual member (hereinafter sometimes
referred to as the "loss member") can carryback or forward to any
year shall be limited to the lesser of the following amounts computed with
respect to the carryback or carryforward year.
1) (hereinafter sometimes referred to as Limitation No. 1) The
sum of the federal taxable incomes and federal net operating losses for
Illinois income tax purposes in that year for the loss member and any other person
that was a member of the same unitary business group as the loss member in that
year and in the year that the loss was incurred by the loss member.
2) (hereinafter sometimes referred to as Limitation No. 2) The
combined federal taxable income for that year of any unitary business group to
which the loss member belonged.
c) This means that a member of a unitary business group will not be
permitted to carry a loss to a year in which it belonged to a unitary business
group that had a combined federal net operating loss for Illinois income tax purposes
or zero combined federal taxable income for Illinois income tax purposes. In
addition, a member of a unitary business group will not be permitted to carry a
loss to a year in which it and other common members – persons that were members
of its unitary business group in both the loss year and the carryback or
carryforward year – had an aggregate federal net operating loss or zero taxable
income among themselves for Illinois income tax purposes. In the case of losses
arising in non-unitary years (years in which a unitary return was not filed),
members will be permitted to carry such non-unitary losses to their unitary
years (other conditions being met), but the maximum amount of non-unitary loss
that any member may carry to a unitary year shall be limited to that member's
federal taxable income for Illinois income tax purposes in that year
(Limitation No. 1), and by the combined federal taxable income for that year of
the unitary group to which the member belongs (Limitation No. 2) whichever is
less.
d) When two or more persons carry losses back or forward to the same
taxable year and both (all) were members of the same unitary business group in
the carryback or carryforward year, the limitations described in the previous paragraph
subsection will be applied as follows. First, if the persons were both subject
to Limitation No. 1 relative to the same common members in the carryback or carryforward
year and if their losses, when added together, exceed Limitation No. 1, then
each of the persons is deemed to have used a proportionate share of its loss in
the carryback or carryforward year, based on the size of its loss as compared
to the total of the losses of the persons subject to the same Limitation No. 1.
Second, if the total combined loss of the persons, otherwise eligible to be used
in the carryback or carryforward year, exceeds Limitation No. 2, each of the persons
is deemed to have used a proportionate share of its loss, based on the size of
its loss, otherwise eligible for use, as compared to the total combined loss of
the persons, otherwise eligible for use. (See Examples 4 and 5 below.)
e) When losses are carried back or forward from two or more loss years
against the combined federal taxable income of a unitary business group for a particular
taxable year, losses originating in the earliest year shall be used first. Appropriate
adjustments shall be made to Limitation No. 1 and Limitation No. 2 in
determining the amounts of losses that may be used in that particular year from
later loss years.
1) EXAMPLE 1:
A) FACTS:
i) In 1983, Corporations X, Y, Z, and Q are members of a unitary
business group with federal taxable incomes (NOL) for Illinois tax purposes as
follows:
Corporation X $10 million
Corporation Y $10 million
Corporation Z $10 million
Corporation Q ($40 million)
ii) As a consequence, there is a $10 million unabsorbed net
operating loss originating in 1983.
iii) In 1980, Corporations X, Y, Z, Q, and R were members of a unitary
business group with federal taxable incomes (NOL) for Illinois income tax
purposes as follows:
Corporation R $10 million
Corporation Z($5 million)
Corporation Y($5 million)
Corporation Q $10 million
Corporation X($5 million)
iv) As a consequence, the unitary business group X, Y, Z, Q and R
had a combined federal taxable income in 1980 of $5 million.
B) ANALYSIS AND CONCLUSION: As a result of Limitation No. 1, the
$10 million unabsorbed loss of Corporation Q, originating in 1983, cannot be used
to any extent in computing the liabilities of Corporations Q, X, Y, Z, or R for
1980. The entire $10 million unabsorbed loss of Corporation Q originating in
1983 may be tested against 1981 income and loss figures of Corporation Q and
other members of its unitary business group in that year.
2) EXAMPLE 2:
A) FACTS:
i) Corporations A, B, C, D and E are members of a unitary
business group in 1981, 1982, and 1983. In 1983, they have federal taxable
incomes (NOL) for Illinois income tax purposes as follows:
Corporation A $30,000
Corporation B $60,000
Corporation C $70,000
Corporation D ($150,000)
Corporation E ($50,000)
ii) The group's combined federal net operating loss is ($40,000)
which will be divided between Corporations D and E for purposes of carryback
and carryforward:
Corp. D: $150,000/$200,000 x ($40,000) = ($10,000)
Corp. E: $50,000/$200,000 x ($40,000) = ($10,000)
iii) In 1980 Corporations A, D, E and F were members of a unitary business
group with federal taxable incomes (NOL) for Illinois income tax purposes as
follows:
Corporation A $6,000
Corporation D $7,000
Corporation E $7,000
Corporation F 30,000
iv) As a consequence, the unitary business group A, D, E, and F had
combined federal taxable income for 1980 of $50,000.
B) ANALYSIS AND CONCLUSION: Under Limitation No. 1, no more than $20,000
of the net operating loss of Corporations D and E originating in 1983 may be
used in computing 1980 liabilities. Of the $20,000 in 1983 net operating losses
that may be used in 1980, Corporation D is deemed to have provided $15,000 and
Corporation E is deemed to have provided $5,000, this being the ratio indicated
by the relative amounts of their respective net operating losses originating in
1983. As a consequence, Corporation D will have an unabsorbed loss of $15,000, which
it may test against its income figures and those of other members of its unitary
business group for 1981; Corporation E will have the same opportunity with
respect to its $5,000 of unabsorbed loss.
3) EXAMPLE 3:
A) Same facts as Example 2, except Corporation F had a $25,000 net
operating loss in 1982 and Corporation E had a $3,000 net operating loss in
1982. Neither Corporations F nor E were members of unitary business groups in
1982; both had zero taxable income in 1979, and neither was a member of a unitary
business group in 1979.
B) ANALYSIS AND CONCLUSION: The entire $25,000 net operating loss
of Corporation F originating in 1982 may be used in computing the liabilities of
all four members of the unitary business groups for 1980. Also, the entire $3,000
net operating loss of Corporation E originating in 1982 may be used in computing
the 1980 liabilities of all four members of the unitary business group. As a result
of the application of Corporation E's 1982 net operating loss to the group's income
in 1980, Limitation No. 1, as it applies to the net operating losses of
Corporations D and E originating in 1983 is $17,000, i.e., the 1980 federal
taxable income for Illinois income tax purposes less absorption of the 1982
loss for Corporation A is $6,000, for Corporation D is $7,000, for Corporation E
is $4,000. The $17,000 of 1983 net operating loss will be divided between
Corporations D and E in accordance with the 3 to 1 ratio in which they incurred
losses in 1983, with the result that $12,750 of Corporation D's 1983 net
operating loss will be used in 1980 and $4,250 of Corporation E's net operating
loss will be used in 1980 with the remaining unabsorbed amounts potentially
available for application to 1981 and later years.
4) EXAMPLE 4:
A) FACTS:
i) Corporations A, B, C and D are members of a unitary business group
in 1983. In that year, they have federal taxable income (NOL) for Illinois income
tax purposes as follows:
A – $20,000
B – $40,000
C – $40,000
D – ($150,000)
ii) As a consequence, there is a $50,000 unabsorbed loss for Corporation
D originating in 1983.
iii) Corporations W, X, Y and Z are members of a different unitary
business group in 1983 and have the following amounts of federal taxable income
(NOL) for Illinois income tax purposes in that year.
W – $20,000
X – $40,000
Y – $40,000
Z – ($150,000)
iv) As a consequence, there is a $50,000 unabsorbed loss for Corporation
Z originating in 1983.
v) In 1980 Corporations A, B, C, D, V, X, Y and Z were all
members of the same unitary business group with the following amounts of federal
taxable income (NOL) for Illinois income tax purposes.
A – $10,000
B – $10,000
C – $10,000
D – $5,000
V – ($40,000)
X – $15,000
Y – $15,000
Z – $15,000
vi) As a consequence, the combined federal taxable income of the
unitary business group, A, B, C, D, V, X, Y and Z in 1980 was $40,000.
B) ANALYSIS AND CONCLUSION:
i) Limitation No. 2 against which the loss carrybacks relating
to both Corporations D and Z must be tested is $40,000. Limitation No. 1 for
the loss carryback of Corporation D is $35,000 (the 1980 federal taxable incomes
for Illinois income tax purposes of Corporations A, B, C and D) and Limitation
No. 1 for the loss carryback of Corporation Z is $45,000 (the 1980 federal
taxable incomes for Illinois income tax purposes of Corporations X, Y and Z). Even
though Corporations D and Z had identical $50,000 unabsorbed net operating losses
originating in 1983, different amounts of those losses will be absorbed in
1980. In D's case, $17,500 will be absorbed in 1980, computed as follows:
ii) Corp. D's Limitation No. 1 for 1980/Limitation No. 2 x
Combined Limitation No. 1 for 1980 of corporations D and Z
35,000/80,000 x 40,000 = 17,500
iii) and $32,500 will be available for use in other years. In Z's case
$22,500 will be absorbed in 1980, computed as follows:
iv) Corp. Z's Limitation No. 1 for 1980/Limitation No. 2 x
Combined Limitation No. 1 for 1980 of Corporations Z and D
45,000/80,000 x 40,000 = 22,500
and $27,500 will available for use in future years.
5) EXAMPLE
5:
A) FACTS:
i) Corporations A, B, C and D are members of a unitary business group
in 1983. In that year, they have federal taxable income (NOL) for Illinois income
tax purposes as follows:
Corporation A – $20,000
Corporation B – $40,000
Corporation C – $40,000
Corporation D – ($150,000)
ii) As a consequence, there is a $50,000 unabsorbed loss for Corporation
D originating in 1983. Corporations W, X, Y and Z are members of a different
unitary business group in 1983 and have the following amounts of federal
taxable income (NOL) for Illinois income tax purposes in that year:
Corporation W – $20,000
Corporation X – $10,000
Corporation Y – $30,000
Corporation Z – ($140,000)
iii) As a consequence, there is an $80,000 unabsorbed loss for Corporation
Z originating in 1983. In 1980, Corporations A, B, C, D, V, X, Y and Z were all
members of the same unitary business group with the following amounts of
federal taxable income (NOL) for Illinois income tax purposes:
Corporation A – $10,000
Corporation B – $10,000
Corporation C – $10,000
Corporation D – ( $5,000)
Corporation V – ($25,000)
Corporation X – $50,000
Corporation Y – $10,000
Corporation Z – ($30,000)
iv) As a consequence, the combined federal taxable income of the
unitary business group A, B, C, D, V, X, Y and Z in 1980 was $30,000.
B) ANALYSIS AND CONCLUSION:
i) Limitation No. 2 against which the loss carrybacks relating
to both Corporations D and Z must be tested is $30,000. Limitation No. 1 for
the loss carryback of Corporation D is $25,000 (the 1980 federal taxable incomes
and net operating losses for Illinois income tax purposes of Corporations A, B,
C and D). Limitations No. 1 for the loss carryback of Corporation Z is $30,000 (the
1980 federal taxable incomes and net operating losses for Illinois income tax
purposes of Corporations X, Y and Z).
ii) Corporation D will be deemed to have used $13,636 of its net
operating loss in 1980, computed as follows:
Corp. D's Limitation No. 1/Limitation No. 1 of Corps. D and Z x
Limitation No. 2
25,000/55,000 x 30,000
iii) and $36,364 will be available for use in other years. Corporation
Z will be deemed to have used $16,364 of its net operating loss in 1980 computed
as follows:
Corp. Z's Limitation No. 1/Limitation No. 1 of Corps. Z and D x
Limitation No. 2
30,000/55,000 x 30,000
iv) and will have $63,636 of its net operating loss available for use
in future years.
f) Application
of the loss in the carryback and/or carryforward year.
1) Limitations Nos. 1 and 2 do not obviate the necessity for determining
the amount of federal taxable income remaining to each group member in the carryback
or carryforward year after application of the loss. This computation is
necessary so that the limitation on loss carried from other years can be
determined.
2) When the total loss allowed to be carried back or forward is less
than the total federal taxable income of the common group members in the
carryback or carryforward year, each loss member's share of the total loss shall
be used first to offset its own income in the carryback or carryforward year. Any
remaining loss (up to the limitation) shall be attributed to each of the common
members having federal taxable income in the carry over year pro rata based on
each member's income over the total income of the common group members.
3) EXAMPLE:
A) FACTS:
i) In 1983, Corporations A, B, C, D and G are members of the unitary
business group with federal taxable incomes (NOL) for Illinois income tax
purposes as follows:
Corporation A – ($10,000)
Corporation B – $30,000
Corporation C – $5,000
Corporation D – ($60,000)
Corporation G – $5,000
ii) As a consequence, there is a $30,000 unabsorbed net operating
loss originating in 1983 which will be divided between Corporation A and
Corporation D for carry back or carry forward purposes as follows:
Corp. A: $10,000/$70,000 x ($30,000) = ($4,286)
Corp. D: $60,000/$70,000 x ($30,000) = ($25,714)
iii) In 1980, Corporations A, B, D and F were members of a unitary
business group with federal taxable incomes (NOL) for Illinois income tax
purposes as follows:
Corporation A – $15,000
Corporation B – $10,000
Corporation D – $16,000
Corporation F – $20,000
iv) As a consequence, the unitary business group A, B, D and F had
combined federal taxable income for 1980 of $61,000.
B) ANALYSIS AND CONCLUSION:
i) As a result of the Limitation No. 1, Corporation A and Corporation
D can carryback the entire amount of unabsorbed federal net operating loss
originating in 1983 to offset their 1980 income as well as the 1980 income of the
other common group member, Corporation B. After application of this 1983
carryback, the unitary business group consisting of Corporations A, B, D and F
will have a combined federal taxable income in 1980 of $31,000, i.e., the original
1980 combined federal taxable income of $61,000 less the loss carried back from
1983 to $30,000.
ii) The $30,000 loss carried back from 1983 will be attributed to
each of the common group members in 1980 in the following manner. Corporation D
will use $16,000 of the $25,714 1983 unabsorbed loss assigned to it to reduce
its 1980 federal taxable income to zero. Corporation A will use the entire amount
of its 1983 loss of $4,286 against its 1980 federal taxable income of $15,000 resulting
in a balance of $10,714. Corporation A and Corporation B will share D's
remaining loss between them based on their income in 1980. Thus, Corporation A
will be allowed to use $5,828 of Corporation D's remaining loss, resulting in a
balance of federal taxable income in 1980 of $4,886. Corporation B will be allowed
to use $3,886 of Corporation D's remaining loss against its 1980 federal taxable
income of $10,000, resulting in a balance of federal taxable income in 1980 of
$6,114.
iii) Corporation A and Corporation's B share of Corporation D's remaining
loss carryback from 1983 is computed as follows:
Corp. A: $15,000/$25,000 x ($9,714) = ($5,828)
Corp. B: $10,000/$25,000 x ($9,714) = ($3,886)
g) A further additional complication arises where a member of a
unitary business group filing an Illinois income tax return is also a member of
an affiliated group filing a consolidated return for federal income purposes. In
any such case, the member having a federal net operating loss for Illinois income
tax purposes which contributes to the combined federal net operating loss will
be required to carry forward (may not carryback) its pro rata share of that
combined net operating loss (see IITA Section 203(e)(2)(E)).
h) A schedule shall be attached to the pro form a U.S. 1120
showing the computation of the amount of the carryforward and its derivation,
i.e., original federal net operating loss for Illinois income tax purposes less
amounts absorbed in the loss year and in previous carryforward years. The taxpayer
shall also provide any other documentation required by the Department to support
the amount of the carryforward. As indicated with respect to carrybacks, per
Limitation No. 1 and Limitation No. 2, the maximum amount of pro rata share of combined
federal net operating loss that can be individually carried forward to any year
by a member shall be limited to the lesser of the aggregate total of federal
taxable incomes and federal net operating losses for Illinois income tax purposes
of the loss member and other common members of the unitary business group in
the carryforward year or the entire unitary business group's combined federal taxable
income in the carryforward year. This means that a member of a unitary business
group will not be permitted to carry a loss forward to a year in which the
group's combined federal taxable income (without the loss carryforward) is
already zero or less nor may it carry a loss forward to a year in which the
group had combined federal taxable income if its federal taxable income or
federal net operating loss for Illinois income tax purposes in the carryforward
year, when added to comparable figures for other common members, did not exceed
zero. Unabsorbed losses may be saved for use as appropriate in future years up to
the maximum number of years permitted under IRC Section 172.
1) EXAMPLE 1:
A) FACTS:
i) In 1983, Corporations A, B, C and D are members of a unitary business
group with federal taxable incomes (NOL) for Illinois income tax purposes as
follows:
Corporation A – $100,000
Corporation B – 40,000
Corporation C – 40,000
Corporation D – (200,000)
ii) As a consequence, there is a $20,000 unabsorbed loss for Corporation
D originating in 1983. All four corporations are members of an affiliated group
filing a consolidated federal income tax return for 1983.
iii) In 1984, Corporation D is an unaffiliated corporation filing
an unconsolidated federal income tax return. In filing its own unconsolidated
federal income tax return for 1984, Corporation D reflected a federal taxable income
of $100,000, being $200,000 taxable income less a federal net operating loss
deduction carryforward of $100,000. Corporation D's federal taxable income for
Illinois income tax purposes is $200,000, computed by adding to its federal
taxable income on its unconsolidated federal income tax return of $100,000 the amount
of its net operating loss deduction of $100,000. In 1984, Corporation D was a member
of the same unitary business group as in 1983, with federal taxable incomes
(NOL) for Illinois income tax purposes as follows:
Corporation A – $ 30,000
Corporation B – 30,000
Corporation C – 30,000
Corporation D – 200,000
iv) As a consequence, there is a $290,000 combined federal taxable
income for the group for 1984, prior to any net operating loss carryforward
under these rules.
B) ANALYSIS AND CONCLUSION: Because it was a member of an affiliated
group filing a consolidated federal income tax return in 1983, Corporation D
could not carryback any part of its unabsorbed $20,000 loss for Illinois income
tax purposes. The entire amount of that loss can be carried forward to 1984 to reduce
the combined federal taxable income of the unitary business group A, B, C and D
to $270,000, since neither Limitation No.1 or Limitation No. 2 applies.
2) EXAMPLE 2:
A) FACTS: Same facts as Example6 in subsection (f)(3) above except
that in 1984 Corporations A, B, C and D are members of a unitary business group
with Corporation E and the five corporations have federal taxable income (NOL)
for Illinois income tax purposes as follows:
Corporation A – $ 40,000
Corporation B – 40,000
Corporation C – 40,000
Corporation D – (130,000)
Corporation E – 40,000
B) ANALYSIS AND CONCLUSION: No part of Corporation D's $20,000 unabsorbed
loss originating in 1983 may be used in 1984 since Limitation No. 1 against
which this loss must be tested is ($10,000), the aggregate total of the federal
taxable income for Illinois income tax purposes of Corporations A, B and C and
the federal Net operating loss for Illinois income tax purposes of Corporation
D.
(Source: Amended at 11 Ill.
Reg. 17782, effective October 16, 1987)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2240 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP: (IITA SECTION 202) EFFECT OF COMBINED NET OPERATING LOSS IN COMPUTING ILLINOIS BASE INCOME
Section 100.2240 Net
Operating Losses Occurring Prior to December 31, 1986, of Unitary Business Groups:
Treatment by Members of the Unitary Business Group: (IITA Section 202) – Effect
of Combined Net Operating Loss in Computing Illinois Base Income
a) For purposes of computing the group's combined Illinois base
income or equivalent, the group's combined net operating loss (after giving effect
to inter member eliminations) can be used to offset the group's combined excess
addition modifications. This combined net operating loss (after giving effect
to inter member eliminations) can be used to offset the group's combined excess
addition modifications. The group's combined excess addition modifications is
defined as the total of all addition modifications required by IITA Section 203
(except that prescribed by IITA Section 203(b)(2)(E) and Section 203(c)(2)(E))
for all members of the group, less the total of all subtraction modifications
required by IITA Section 203 for all members of the group.
b) However, each group member allowed to carryback or forward a portion
of the group's combined federal net operating loss from a year in which that
combined federal net operating loss was used to offset any portion of the
group's combined excess addition modifications, must take as an addition
modification in the carryback and carryforward year its respective share of the
NOL addition modification required by IITA Section 203(b)(2)(E) and (c)(2)(E). These
respective shares shall be determined in the same manner that the share of the
combined federal net operating loss of each member was determined under Section
100.2230(b) of this Part. The amount of the NOL addition modification actually required
to be shown in the carryback or carryforward year by any member of the group
shall, however, be limited to the amount of loss actually carried to such year
by the group member.
1) EXAMPLE 1:
A) FACTS:
i) For 1981, Corporation A filed a separate federal income tax return
showing a federal taxable income of $35,000 and an Illinois income tax return
reflecting Illinois liability calculated from the $35,000 federal taxable
income on a non-combined apportionment basis. For 1984, Corporation A filed a
separate federal income tax return showing a net operating loss of $100,000 and
an Illinois income tax return reflecting that Corporation A was a member of the
same unitary business group as three other corporations – B, C and D – each of
which was formed on the first day of the 1984 taxable year. The federal taxable
incomes (NOL) for the Illinois income tax purposes and the addition and subtraction
modifications of Corporations A, B, C and D for 1984 are as follows:
|
Fed. Taxable Income (NOL) For
Ill. Income Tax Purposes
|
|
Total
Addition Modifications
|
|
Total Subtraction
Modifications
|
|
Excess Addition Modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
A
|
(100,000)
|
|
65,000
|
|
40,000
|
|
25,000
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
B
|
60,000
|
|
20,000
|
|
5,000
|
|
15,000
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
C
|
(30,000)
|
|
0
|
|
15,000
|
|
(15,000)
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
D
|
|
20,000
|
|
0
|
|
0
|
|
0
|
|
|
Total
|
(50,000)
|
|
85,000
|
|
60,000
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ii) Shortly after filing its 1984 return, Corporation A filed an
amended federal income tax return for 1981 claiming on appropriate refund based
on the carryback of the $100,000 NOL from 1984 against the 1981 taxable income.
The refund was paid shortly after the claim was filed and Corporation A is now
engaged in preparing an appropriate parallel claim for refund of Illinois
income tax liability under 86 Ill. Adm. Code 100.2200.
B) ANALYSIS AND CONCLUSION:
i) The group's combined federal net operating loss for 1984 is (50,000)
which will be divided between Corporations A and C (the loss members) for
purposes of carryback and carryforward:
Corp. A: $100/$130 x ($50,000) = ($38,462)
Corp. C: $30/$130 x ($50,000) = ($11,538)
ii) The group's excess addition modifications for 1984 will be
divided between the loss members in the same proportion as the group's combined
federal net operating loss:
Corp. A: $100/$130
x $25,000 = ($19,230)
Corp. C: $30/$130
x $25,000 = ($5,770)
iii) Corporation A's claim for refund of Illinois income tax for
1981 is premised on the NOL carryback of $38,462 from 1984. The amended return
which embodies that claim must also reflect an addition modification of
$19,230.
2) EXAMPLE 2:
A) FACTS:
i) Same facts as in Example 1 except that Corporation A has a
federal net operating loss in 1984 of $65,000 instead of $100,000. Therefore, the
federal taxable incomes (NOL) for Illinois income tax purposes and the addition
and subtraction modifications of Corporations A, B, C and D for 1984 are as
follows:
|
Fed. Taxable Income (NOL) For
Ill. Income Tax Purposes
|
|
Total Addition
Modifications
|
|
Total Subtraction
Modifications
|
|
Excess Addition Modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
A
|
(65,000)
|
|
65,000
|
|
40,000
|
|
25,000
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
B
|
60,000
|
|
20,000
|
|
5,000
|
|
15,000
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
C
|
(30,000)
|
|
0
|
|
15,000
|
|
(15,000)
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
D
|
|
20,000
|
|
0
|
|
0
|
|
0
|
|
|
Total
|
(15,000)
|
|
85,000
|
|
60,000
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ii) Shortly after filing its 1984 return, Corporation A filed an
amended federal income tax return for 1981 claiming an appropriate refund based
on the carryback of the $65,000 NOL from 1984 against the 1981 taxable income. The
refund was paid shortly after the claim was filed and Corporation A is now
engaged in preparing an appropriate amended Illinois income tax return for 1981
under Section 100.2200 of this Part.
B) ANALYSIS AND CONCLUSION:
i) The group's combined federal net operating loss for 1984 is ($15,000)
and the group's excess addition modifications equal $25,000, resulting in a
combined 1984 Illinois base income of $10,000, i.e., (15,000) plus $25,000. The
group's combined federal net operating loss for 1984 will be divided between Corporations
A and C (the loss members) for purposes of carryback and carryforward of
Illinois net operating loss:
Corp. A: $65/$95
x ($15,000) = ($10,263)
Corp. C: $30/$95
x ($15,000) = ($4,737)
ii) The amount of the group's excess addition modifications for 1984
that were offset by the group's combined federal net operating loss for 1984
will be divided between the loss members in the same proportion as the group's
combined federal net operating loss is divided to compute each loss member's
respective share of the 1981 NOL addition modification required by IITA Section
203(b)(2) namely:
Corp. A: $65/$95
x $15,000 = $10,263
Corp. C: $30/$95
x $15,000 = $4,737
iii) Corporation A's amended Illinois income tax for 1981 would reflect
an NOL carryback of $10,263 from 1984 and an addition modification of $10,263.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2250 NET OPERATING LOSSES OCCURRING PRIOR TO DECEMBER 31, 1986, OF UNITARY BUSINESS GROUPS: TREATMENT BY MEMBERS OF THE UNITARY BUSINESS GROUP: (IITA SECTION 202) DEADLINE FOR FILING CLAIMS BASED ON NET OPERATING LOSSES CARRIED BACK FROM A COMBINED APPORTIONMENT YEAR
Section 100.2250 Net
Operating Losses Occurring Prior to December 31, 1986, of Unitary Business
Groups: Treatment by Members of the Unitary Business Group: (IITA Section
202) – Deadline for Filing Claims Based on Net Operating Losses Carried Back From
a Combined Apportionment Year
A claim for refund based upon
the carryback of a share of a combined federal net operating loss may be filed
at any time within the period stated by IITA Section 911(b). This section
generally requires that such a claim be filed no later than 2 years and 20 days
after the date the "federal change" was finalized by IRS payment to
the taxpayer. If taxpayer does not have occasion to receive an IRS refund on
the NOL because it was absorbed for federal income tax purposes by incomes of
other members of the federal affiliated groups, or because the refund was a
consolidated refund for federal purposes, then the period of limitation for
filing the Illinois claim is as stated in Section 100.5030 of this Part.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
SUBPART D: ILLINOIS NET LOSS DEDUCTIONS FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2300 ILLINOIS NET LOSS DEDUCTION FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986 (IITA 207)
Section 100.2300 Illinois
Net Loss Deduction for Losses Occurring On or After December 31, 1986 (IITA
207)
a) In General - For taxable years ending on or after
December 31, 1986, IITA Section 207 provides for computation of Illinois
net losses for corporations (including Subchapter S Corporations), trusts,
estates and partnerships. If, after applying all of the modifications
provided for in IITA Sections 203(b)(2), 203(c)(2) or 203(d)(2) and the
allocation and apportionment provisions of IITA Article 3, the taxpayer's
net income results in an Illinois net loss, such loss shall be allowed as a
carryback or carryover deduction in the manner allowed under Section 172 of
the Internal Revenue Code, as in effect during the loss year for tax years
ending prior to December 31, 1999. For losses incurred in tax years ending on
or after December 31, 1999, the Illinois net loss is allowed as a carryback to
the 2 preceding taxable years and as a carryforward to the 20 succeeding tax
years. The rules for members of a unitary business group are set out in
Sections 100.2340 and 100.2350. Sections 100.2200 through 100.2250 which also
relate to net operating losses of unitary business groups are only applicable
to losses incurred in taxable years ending prior to December 31, 1986. Section
100.9410(f) sets forth the statute of limitations for reporting an Illinois
net loss carryback. An Illinois net loss deduction is not available for
individuals. Losses incurred by individuals are recognized for Illinois tax
purposes in the computation of adjusted gross income for federal tax
purposes.
b) Definitions
1) "Illinois net loss" means the amount of loss
determined under IITA Section 207. That is, it is the amount of loss, if
any, after applying the modifications and allocation and apportionment
provisions of the Act, as calculated for tax years occurring on or after
December 31, 1986.
2) "Illinois net loss deduction" means the deduction
which may be carried pursuant to IITA Section 207.
3) "Net operating loss" means either: The amount of
net operating loss determined for federal tax purposes; or for losses
occurring prior to December 31, 1986, the amount recognized for Illinois
tax purposes.
4) "Net operating loss deduction" means either: The
amount of deduction recognized for federal tax purposes; or for losses
occurring prior to December 31, 1986, the amount recognized for Illinois
tax purposes.
5) The following terms have the following meanings: NOL - Net
Operating Loss NOLD - Net Operating Loss Deduction corp. - corporation
Treas. - Treasury Reg. - Regulation Sec. - Section Apport. - Apportionment
Ill. - Illinois sep. - separate comb. - combined
c) Treatment of capital losses of corporations. The treatment of
capital losses is separate and apart from the rules governing Illinois net
losses and Illinois net loss deductions. Capital losses will continue to be
governed by federal provisions. For federal purposes, capital losses are
permitted only to the extent of capital gains and the carryback of capital losses
is permitted only to the extent of capital gains in the carryback year. Since
the federal carryback of capital losses changes federal taxable income,
Illinois claims for refund based on such a federal change are permitted
pursuant to IITA Section 506(b). A change in federal taxable income resulting
from a federal capital loss carryback would be given effect before applying an
Illinois net loss deduction to the same year.
(Source: Amended at 24 Ill.
Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2310 COMPUTATION OF THE ILLINOIS NET LOSS DEDUCTION FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986 (IITA 207)
Section 100.2310 Computation
of the Illinois Net Loss Deduction for Losses Occurring On or After December
31, 1986 (IITA 207)
a) The amount of the Illinois net loss deduction allowed by IITA
Section 207 for any taxable year is the aggregate of the Illinois net loss
carryovers and Illinois net loss carrybacks to that taxable year. The steps to
be taken in determining the amount of the deduction are as follows:
1) Compute the Illinois net loss in accordance with Section
100.2320 (adjusted as may be required under subsection (c) of this Section) for
any preceding or succeeding taxable year from which a net loss may be carried.
2) Compute the Illinois net loss carryovers and carrybacks from the
preceding or succeeding taxable years in accordance with Section 100.2330
(adjusted as may be required under subsection (c) of this Section).
3) Add the Illinois net loss carryovers and carrybacks.
b) Every taxpayer claiming an Illinois net loss deduction for any
taxable year shall file, in accordance with the tax return instructions for that
year, a concise statement in such form as the Department shall require setting
forth the amount of the net loss deduction claimed and all material and
pertinent facts required by the instructions. The Illinois net loss for any
taxable year shall be determined under the law applicable to that year.
c) Adjustment in the Case of
Discharge of Indebtedness Income. Under IRC section 108(a), income from
discharge of indebtedness may be excluded from gross income in certain
circumstances. When discharge of indebtedness income is excluded under this
provision, IRC section 108(b) requires the taxpayer to reduce certain "tax
attributes", including net operating losses incurred in the year of the
discharge or carried over to that year, basis in assets, and net capital losses
incurred in the year of discharge or carried over to that year. These
reductions generally have the effect of including the discharge of indebtedness
income in gross income at some later time. This effective inclusion of the
discharge of indebtedness income in gross income automatically causes the
discharge of indebtedness income to be included in base income, except in the
case of reductions in net operating losses incurred in taxable years ending on
or after December 31, 1986, by taxpayers other than individuals. In those
cases, the taxpayer would never include the discharge of indebtedness income in
its base income because the IITA did not allow deduction of federal net
operating losses, but instead provided for computation and carryover of
Illinois net losses under IITA Section 207 and, prior to the enactment of
Public Act 95-0233, that Section had no provision for reduction of net losses
when a taxpayer had discharge of indebtedness income. IITA Section 207(c)
provides that a taxpayer required to reduce a federal net operating loss or
federal net operating loss carryover under IRC section 108(b)(2)(A), on account
of discharge of indebtedness income excluded from gross income under IRC section
108(a) with respect to a taxable year ending on or after December 31, 2008,
must reduce its Illinois net loss incurred in the year of the discharge or any
Illinois net losses carried over to that year, to the extent provided in this
subsection.
1) Amount of Reduction
A) Illinois Net Loss. A taxpayer must
reduce any Illinois net loss incurred in a taxable year under Section 100.2320
by an amount equal to the amount of the reduction to the taxpayer's federal net
operating loss under IRC section 108(b)(2)(A) for the same taxable year that is
allocable to Illinois.
B) Illinois Net Loss Carryover. A
taxpayer must reduce any Illinois net loss carryover to a taxable year under
Section 100.2330 by an amount equal to the amount of the reduction to the
taxpayer's federal net operating loss carryover under IRC section 108(b)(2)(A)
for the same taxable year that is allocable to Illinois.
C) The Illinois net losses or net loss
carryovers may not be reduced below zero.
2) Attribute Reduction Allocable to
Illinois. For purposes of subsection (c)(1), the portion of the reduction to a
federal net operating loss or federal net operating loss carryover allocable to
Illinois shall be determined by multiplying the reduction required to that loss
or loss carryover under IRC section 108(b)(2)(A) by a fraction, the numerator
of which is the amount of income excluded from gross income for the taxable
year under IRC section 108(a) that would have been allocated to Illinois and
the denominator of which is the total income excluded from gross income under
IRC section 108(a) for the taxable year. The amount of income excluded from
gross income under IRC section 108(a) that would have been allocated to
Illinois shall be determined by applying the provisions of Article 3 of the
IITA as if that income had not been excluded from gross income.
3) Ordering Rules
A) Reduction Required after
Determination of Tax. The reduction required under this subsection (c) shall be
made after the determination of the tax imposed under the IITA for the taxable
year of the discharge. Accordingly, any Illinois net loss carryover available
for the taxable year in which income is excluded under IRC section 108(a) is
taken into account in computing the Illinois net loss deduction for that
taxable year under subsection (a), and only the amount of the loss remaining to
carry forward to the next taxable year, if any, is reduced under this
subsection (c).
B) Any reduction required under this
subsection (c) to Illinois net loss carryovers shall be made first to the net
loss carryover whose carryforward period will expire first, then to the
carryover that will expire next, and so forth, until the entire reduction is
made or until all carryforwards are reduced to zero.
4) Partnerships and Subchapter S Corporations.
Under IRC section 108(d)(6), the provisions of IRC section 108(a), (b), (c) and
(g) are applied at the partner level. Accordingly, a partnership does not
exclude discharge of indebtedness income and is not required to make any
reduction under this subsection (c). Under IRC section 108(d)(7), the
provisions of IRC section 108(a), (b), (c) and (g) are applied at the corporate
level in the case of a Subchapter S corporation, including by treating any loss
or deduction that is disallowed for the taxable year of the discharge under IRC
section 1366(d)(1) as a net operating loss for that taxable year. Accordingly,
a Subchapter S corporation may be required to make a reduction under this
subsection (c).
5) Examples. The provisions of this
subsection may be illustrated by the following examples.
A) EXAMPLE 1. For its taxable year
ending December 31, 2008, Taxpayer has $50,000 of discharge of indebtedness
income excluded from gross income under IRC section 108(a). Under Article 3 of
the IITA, but for the exclusion the entire $50,000 would have been included in
the Taxpayer's business income and a total of $10,000 of the income would have
been apportioned to Illinois. The Taxpayer has a federal net operating loss of
$40,000 for its December 31, 2008 taxable year, and an Illinois net loss of
$8,000. Under IRC section 108(b)(2)(A), Taxpayer is required to reduce its
federal net operating loss from $40,000 to $0. Under this subsection, Taxpayer
is required to reduce its Illinois net loss from $8,000 to $0 ($8,000 - [$40,000
× ($10,000/$50,000)]).
B) EXAMPLE 2. Assume the same facts as
Example 1, except that the Taxpayer makes an election under IRC section
108(b)(5) to reduce its basis in depreciable property, with the result that no
reduction is made to the taxpayer's federal net operating loss. No reduction is
required under this subsection (c) to the Taxpayer's Illinois net loss.
C) EXAMPLE 3. For its taxable year
ending December 31, 2009, Taxpayer has $200,000 of discharge of indebtedness
income excluded from gross income under IRC section 108(a). Under Article 3 of
the IITA, but for the exclusion the entire $200,000 would have been included in
the Taxpayer's business income and a total of $100,000 of that income would
have been apportioned to Illinois. The Taxpayer has $50,000 of federal taxable
income for its December 31, 2009 taxable year before application of a federal
net operating loss carryover in the amount of $75,000 from its December 31,
2006 taxable year, leaving $25,000 of that loss to carry forward to 2010. In
addition, the Taxpayer has an Illinois net loss for its December 31, 2009
taxable year of $10,000, but no Illinois net loss carryovers to that year. Under
IRC section 108(b)(4)(A) and (b)(2)(A), the Taxpayer is required to reduce its
2006 federal net operating loss remaining to carry forward to 2010 from $25,000
to $0. Since no reduction is made to a federal net operating loss incurred in
2009 under IRC section 108(b)(2)(A), no reduction is required to be made to the
Taxpayer's 2009 Illinois net loss under this subsection (c).
D) EXAMPLE 4. Assume the same facts as
in Example 3, except that the Taxpayer has $25,000 of Illinois net income for
its December 31, 2009 taxable year and has Illinois net loss carryovers of
$20,000 from its December 31, 2007 taxable year and $20,000 from its December
31, 2008 taxable year. Under subsection (c)(3)(B), the $20,000 Illinois net
loss carryover from 2007 and $5,000 of the 2008 Illinois net loss carryover are
first applied to reduce Taxpayer's Illinois net income to $0 for its December
31, 2009 taxable year. The remaining $15,000 Illinois net loss carryover from
2008 is reduced under this subsection to $2,500 ($15,000 - [$25,000 ×
($100,000/$200,000)]). Reduction is required even though the Taxpayer's federal
net operating loss carryover relates to its December 31, 2006 taxable year
while the Illinois net loss carryover is from Taxpayer's December 31, 2008
taxable year.
E) EXAMPLE 5. For its taxable year
ending December 31, 2009, Taxpayer has $200,000 of discharge of indebtedness
income excluded from gross income under IRC section 108(a). Under Article 3 of
the IITA, but for the exclusion the entire $200,000 would have been included in
the Taxpayer's business income and a total of $100,000 of that income would
have been apportioned to Illinois. The Taxpayer has a $50,000 federal net
operating loss for the 2009 taxable year and federal net operating loss
carryovers of $25,000 from its December 31, 2006 taxable year and $75,000 from
its December 31, 2007 taxable year. Taxpayer has an Illinois net loss of
$25,000 for its December 31, 2009 taxable year, and Illinois net loss
carryovers of $6,000 from its December 31, 2006 taxable year and $30,000 from its
December 31, 2007 taxable year. Under IRC section 108(b)(2)(A), Taxpayer's
$50,000 federal net operating loss for 2009 and $25,000 net operating loss
carryover from 2006 are each reduced to $0. In addition, the $75,000 net
operating loss carryover from 2007 is reduced to $50,000. Under this
subsection, the Taxpayer's Illinois net loss is reduced to $0 ($25,000 - [$50,000
× ($100,000/$200,000)]). In addition, the Taxpayer's Illinois net loss
carryover from 2006 is reduced to $0, and its Illinois net loss carryover from
2007 is reduced to $11,000 Under subsection (c)(3)(B), the $25,000 reduction to
the Taxpayer's Illinois net loss carryover is first applied to reduce the
carryover from 2006 from $6,000 to $0, and the remaining reduction is applied
to reduce the carryover from 2007 from $30,000 to $11,000.
(Source: Amended at 33 Ill.
Reg. 1195, effective December 31, 2008)
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2320 DETERMINATION OF THE AMOUNT OF ILLINOIS NET LOSS FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986
Section 100.2320
Determination of the Amount of Illinois Net Loss for Losses Occurring On or
After December 31, 1986
a) Add back of federal net operating loss deduction. The
starting point in calculating Illinois net income or loss is taxable income.
IITA Section 203(e)(1) provides that taxable income shall mean the amount of
taxable income properly reportable for federal income tax purposes, and that
taxable income may be less than zero. The IITA requires that certain addition
and subtraction modifications be made to taxable income to arrive at base
income. In order to avoid the recognition of a federal net operating loss in
more than one taxable year, IITA Sections 203(b)(2)(E) and 203(c)(2)(E) require
an addition modification for corporations, trusts and estates. Thus, the
amount of any federal net operating loss deduction (arising from a loss
incurred in a taxable year ending on or after December 31, 1986), taken in
arriving at federal taxable income must be added back in the computation of
Illinois base income. Since partnership and S corporations are not allowed a
net operating loss deduction for federal purposes, this type of add back does
not apply to them. The add back is illustrated by the following Example.
EXAMPLE: In
1986, Corporation A reported a ($100) federal net operating loss. Corporation
A carried this loss back for federal purposes and claimed a federal NOL
deduction in 1983 of $100.On its Illinois amended return for 1983, since the
federal NOL deduction taken on its amended 1983 U.S. return relates to an NOL
incurred in a tax year ending on or after December 31, 1986, the $100 federal
NOLD must be treated as an addition modification on Corporation A's amended
1983 Illinois return.
b) Other modifications, allocation and apportionment. The other
addition and subtraction modifications provided in IITA Sections
203(b)(2), 203(c)(2), and 203(d)(2) must be taken into account before an
Illinois net loss can be determined. Also, the allocation ad apportionment
provisions of IITA Article 3 must be applied before an Illinois net loss can be
determined. This is illustrated in the following Example.
EXAMPLE: In
1987, Corporation A has federal taxable income of $200, less a $100 federal
NOLD relating to a NOL incurred in 1986. In 1987, Corporation A also has $300
of Illinois addition modifications relating to income from State obligations,
$200 of subtraction modifications relating to income from U.S. obligations,
$400 of nonbusiness loss allocable to Illinois, and a 50% apportionment
factor in Illinois. Corporation A would compute its 1987 Illinois net loss as
follows:
|
Line 1
|
–
|
taxable income
|
100
|
|
Plus
|
–
|
addition modification for
federal NOLD relating to 1986 loss
|
100
|
|
Plus
|
–
|
other addition modification
|
300
|
|
Minus
|
–
|
subtraction modification
|
(200)
|
|
Equals
|
–
|
base income
|
$300
|
|
Minus
|
–
|
nonbusiness loss
|
(400)
|
|
Equals
|
–
|
business income
|
700
|
|
Times
|
–
|
50% apportionment factor
|
350
|
|
Plus
|
–
|
nonbusiness loss allocable to
Illinois
|
(400)
|
|
Equals
|
–
|
Illinois net loss
|
( 50)
|
c) Net operating losses occurring prior to December 31, 1986,
carried into tax years ending on or after December 31, 1986
1) Effect on taxable income in the carryforward year. Any federal
net operating losses occurring prior to December 31, 1986 and carried into
tax years ending on or after December 31, 1986, will be treated as an
adjustment to federal taxable income (an adjustment before apportionment),
and any such federal net operating loss deduction will not be required
to be added back in computing Illinois base income unless such loss has
already been used for Illinois purposes (see paragraph 3, below).
2) Effect on excess addition modifications in the carryforward
year. Furthermore, IITA Section 203(e)(1), as amended by P.A. 84-1400,
permits net operating loss carryforwards from pre- December 31,1986, tax
years to tax years ending on or after December 31, 1986, to offset the
excess of Illinois addition modifications over subtraction modifications in
such years. This is illustrated in the following Example.
EXAMPLE:
Corporation A had a $1,000 federal net operating loss in 1985. The loss could
not be carried back to a prior year and none of it was absorbed in 1986.In
1987, Corporation A had federal taxable income before special deductions of
$200, and it had $100 of excess Illinois addition modifications over
subtraction modifications. As a result, the $1,000 federal net operating loss
will offset the $200 of taxable income before special deductions and the $100
of excess addition modifications. For Illinois income tax purposes, Illinois
base income and Illinois net income will be zero for 1987, and there will
remain a $700 federal net operating loss carryforward for 1988 and later
years.
3) NOL addition modification in carryforward years. For taxable
years in which a net operating loss carryforward from a taxable year ending
prior to December 31, 1986, is an element of taxable income, IITA Sections
203(b)(2)(F) and 203(c)(2)(F) provide a special addition modification if that
loss carryforward originated in a loss year in which it was used to offset
excess Illinois addition modifications in calculating Illinois base income.
See Schedule NL or NL-1 (for members of unitary business groups) of the IL-1120.
(Source: Added at 11 Ill.
Reg. 17782, effective October 16, 1987)
|
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2330 ILLINOIS NET LOSS CARRYBACKS AND NET LOSS CARRYOVERS FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986 (IITA SECTION 207)
Section 100.2330 Illinois
Net Loss Carrybacks and Net Loss Carryovers for Losses Occurring On or After
December 31, 1986 (IITA Section 207)
a) IITA Section 207(a) provides for carryover deductions of any
losses that result after applying all of the modifications provided for in
Section 203(b)(2), (c)(2) and (d)(2) and the allocation and apportionment
provisions of Article 3 of the Act.
b) Years to Which Illinois Net Losses May be Carried
1) In General. Under IITA Section 207(a)(2), an Illinois net loss
incurred in a tax year ending on or after December 31, 1999 and prior to
December 31, 2003 may be carried back to the two preceding tax years or carried
forward to the 20 succeeding tax years. Under IITA Section 207(a)(3)-(4), for
any taxable year ending on or after December 31, 2003 and prior to December 31,
2021, the loss is allowed as a carryover to each of the 12 taxable years
following the taxable year of the loss, provided that any such loss not having
yet expired as of November 16, 2021, the effective date of Public Act 102-0669,
shall be allowed as a carryover to each of the 20 taxable years following the
taxable year of the loss. For any taxable year ending on or after December 31,
2021, the loss is allowed as a carryover to each of the 20 taxable years
following the taxable year of the loss. For tax years ending prior to December
31, 1999, IITA Section 207(a)(1) provides that a carryback or carryover
deduction is allowed in the manner allowed under Internal Revenue Code section 172.
The federal rules concerning the years to which a loss may be carried are
contained in IRC section 172(b) and in Treas. Reg. Sec. 1.172-4(a)(1). These
rules, as now in effect or hereafter amended, are followed for Illinois income
tax purposes and apply to corporations, partnerships, trusts and estates. In
general, for Illinois net losses incurred in tax years beginning prior to
August 6, 1997, the net loss is first carried back to the three preceding
taxable years and then is carried over to the 15 succeeding taxable years. For
Illinois net losses incurred in tax years beginning on or after August 6, 1997
and ending prior to December 31, 1999, the loss generally is first carried back
to the two preceding tax years and then is carried forward to the 20 succeeding
tax years. In taxable years ending prior to December 31, 1999, special
provisions applied to regulated transportation companies, financial
institutions, product liability losses and other entities or situations, and
the provisions in IRC section 172(b) and the related Treasury Regulations
relating to the years to which a loss incurred in one of those years may be
carried are followed.
2) Specific Rules for Losses Incurred in Taxable Years Ending
Prior to December 31, 1999. IITA Section 207(a)(1) provides that, for losses
incurred in any taxable year ending prior to December 31, 1999, the loss is
allowed as a carryover or carryback deduction in the manner allowed under IRC
section 172. Pursuant to this provision:
A) For losses incurred in taxable years beginning prior to August
6, 1997, a loss generally is first carried back to each of the 3 taxable years
preceding the taxable year in which the loss was incurred and then to each of
the 15 taxable years following the taxable year in which the loss was incurred.
(From IRC section 172(b)(1)(A), as in effect prior to enactment of P.L.
105-34.)
B) For losses incurred in taxable years beginning after August 5,
1997, a loss generally is first carried back to each of the 2 taxable years
preceding the taxable year in which the loss was incurred and then to each of
the 20 taxable years following the taxable year in which the loss was incurred.
(From IRC section 172(b)(1)(A), as in effect after enactment of P.L. 105-34.)
C) Special carryover periods allowed under IRC section 172(b) for
specific kinds of losses or taxpayers also apply. For example:
i) "Specified liability losses" may be carried back to
each of the 10 taxable years preceding the taxable year in which the loss was
incurred. (From IRC section 172(b)(1)(C).)
ii) For losses incurred in taxable years beginning after December
31, 1986, and ending before January 1, 1994, bad debt losses of commercial
banks may be carried back to each of the 10 taxable years preceding the taxable
year in which the loss was incurred and to each of the 5 taxable years
following the taxable year in which the loss was incurred. (From IRC section
172(b)(1)(D).)
c) Election
to Forgo Carryback Period
1) For losses incurred in tax years ending prior to December 31,
2003, IITA Section 207(a-5)(A) allows the taxpayer to elect to relinquish
the entire carryback period with respect to the loss. The election is made
on the taxpayer's return for the taxable year in which the loss is incurred.
The election may be made only on or before the due date (including extensions
of time) for filing the return. If an election is made, the loss is carried
forward and deducted only in years subsequent to the taxable year in which the
loss was incurred. The election, once made, is irrevocable. (IITA
Section 207(a-5)(A))
2) If the election is made on any combined return filed in
accordance with IITA Section 502(e), the election will be considered to be in
effect for all eligible members of the combined group filing the return for the
taxable year for which the election is made.
3) If
the timely return for the taxable year reflects Illinois income and:
A) a finalized federal change eliminates Illinois income thereby
creating an Illinois net loss for the year, the taxpayer may make the election
to relinquish the entire carryback period for the Illinois net loss on an
amended return or form prescribed by the Department within the 120 day time
period prescribed by IITA Section 506(b); or
B) an Illinois audit or other Illinois change eliminates Illinois
income thereby creating an Illinois net loss for the year, the taxpayer may
make the election to relinquish the entire carryback period for the Illinois
net loss on forms prescribed by the Department at the time the loss is first
reported to Illinois.
d) Portion of Illinois Net Loss That Is a Carryback or a
Carryover to the Taxable Year in Issue. Pursuant to IITA Section 207(a-5)(B), the
entire amount of a loss is carried to the earliest taxable year to which the
loss may be carried. The amount of the loss, which is carried to each of the
other taxable years, is the excess, if any, of the amount of the loss over the
sum of the deductions for carryback or carryover of the loss allowable for each
of the prior taxable years to which the loss may be carried. This is
illustrated in the following Example.
EXAMPLE: A
taxpayer that makes its return on the calendar year basis has an Illinois net
loss for 1986. Under the provisions of IRC section 172(b) as in effect in that
year, the entire net loss for 1986 may be carried back to 1983. The amount of
the carryback to 1984 is the excess of the 1986 loss over the net income for
1983. The amount of the carryback to 1985 is the excess of the 1986 loss over
the aggregate of the net incomes for 1983 and 1984. The amount of the
carryover to 1987 is the excess of the 1986 loss over the aggregate of the net
incomes for 1983, 1984, and 1985, etc.
e) Carryover of Pre-12/31/86 Losses and Post-12/30/86 Losses. Net
operating losses incurred prior to December 31, 1986, can be carried over into
years in which Illinois net losses (incurred on or after December 31, 1986) are
also carried. In these cases, the losses incurred in tax years ending prior to
December 31, 1986 are treated as an adjustment to taxable income (i.e., before
apportionment) while the losses incurred in tax years ending after December 30,
1986 are subtracted in computing Illinois net income (i.e., after
apportionment). This is illustrated in the following Example.
EXAMPLE:
Corporation A is a calendar year taxpayer. It has no partnership income and no
nonbusiness income. In 1985, it reported a federal net operating loss of $1,000,
and on its Illinois return for 1986, it reported an Illinois net loss of $50,
neither of which could be carried back to prior years due to losses existing in
those years. In 1987, A had federal taxable income (before special deductions)
of $200, and Illinois addition modifications of $100. Corporation A would
compute its Illinois net income in 1987 as follows: The $1,000 net operating
loss from 1985 would offset the $200 of 1987 federal taxable income and would
offset the $100 of 1987 Illinois addition modifications. In 1988, Corporation
A would have remaining $700 of net operating loss carryover from 1985 and $50
of Illinois net loss carryover from 1986.
f) Special
Rules
1) IITA Section 207(b) provides that any loss determined under
subsection (a) of this Section is carried back or carried forward in the same
manner for purposes of both the regular income tax imposed by IITA Section
201(a) and (b) and the personal property replacement income tax imposed under
IITA Section 201(c) and (d).
2) For the carryforward of losses incurred prior to certain
corporate or partnership reorganizations or acquisitions, see Section 100.4500.
3) IITA Section 207(a) provides that losses that may be carried
over and deducted in other years are those losses that result after the
modifications of IITA Section 203(b)(2), (c)(2) and (d)(2) are made, and after
the allocation and apportionment rules of IITA Article 3 are applied.
Accordingly:
A) No exemption allowed under IITA Section 204 is taken into
account in computing a loss that may be carried over and deducted under IITA
Section 207; and
B) No deduction for any loss carried over pursuant to IITA Section
207 is taken into account in computing a loss that may be carried to and
deducted in another taxable year under IITA Section 207.
4) Subchapter S Corporations and Partnerships
A) IITA Section 207(a) allows the carryover of losses that result
after the modifications of IITA Section 203(b)(2) and (d)(2) are made. IITA
Section 203(b) applies to subchapter S corporations and IITA Section 203(d)
applies to partnerships. Accordingly, IITA Section 207 allows subchapter S
corporations and partnerships carryover deductions for losses incurred.
B) Neither IITA Section 207 nor IRC section 172 distinguishes
between subchapter S corporations and corporations governed by subchapter C of
the Internal Revenue Code. IRC section 1363(b)(2) provides that no net
operating deduction allowable under IRC section 172 is allowed in the
computation of taxable income of a subchapter S corporation and IRC section
1371(b) prohibits any carryforward or carryback between a taxable year in which
a corporation is a subchapter S corporation and a taxable year in which it is
not. Neither IRC section 1363 nor IRC section 1371 is applicable to the
carryover and deduction of losses under IITA Section 207. Accordingly, subject
to the other provisions of this Section, a loss incurred in a taxable year in
which a corporation is a subchapter S corporation shall be carried to and
deducted in any taxable year in which it is not a subchapter S corporation in
the same manner as if the corporation were a subchapter S corporation in that
year, and a loss incurred in a taxable year in which a corporation is not a subchapter
S corporation may likewise be carried to and deducted in any taxable year in
which it is a subchapter S corporation.
EXAMPLE: X
Corporation is a subchapter S corporation throughout the calendar year 1998.
Effective for 1999, X Corporation's subchapter S election is terminated. In
2000, X Corporation incurs an Illinois loss. Unless X Corporation elects to
carry the loss forward only, the loss is first carried back and deducted in 1998
and only the amount of loss in excess of 1998 taxable income is carried to 1999
and subsequent years.
C) Losses carried over pursuant to IITA Section 207 are deductible
only under that Section, and that Section allows the deduction only of losses
that result when the taxpayer's own taxable income is less than zero.
Accordingly, no loss carried over and deducted by a partnership or subchapter S
corporation in a taxable year may reduce the taxable income of any partner or
shareholder of the taxpayer in that taxable year.
5) Suspension of Illinois Net Loss Deductions. In the case of
a corporation (other than a subchapter S corporation),
A) no carryover deduction shall be allowed under IITA
Section 207 for any taxable year ending after December 31, 2010 and prior to
December 31, 2012;
B) no carryover deduction shall exceed $100,000 for any taxable
year ending on or after December 31, 2012 and prior to December 31, 2014, and
for any taxable year ending on or after December 31, 2021 and prior to December
31, 2024; and
C) no carryover deduction shall exceed $500,000 for any taxable
year ending on or after December 31, 2024 and prior to December 31, 2027,
For the
purposes of determining the taxable years to which a net loss may be carried
under IITA Section 207(a), any taxable year for which a deduction is
disallowed under this subsection (f)(5), or for which the deduction would
exceed $100,000 or $500,000, as applicable, if not for this subsection (f)(5),
is not counted. (IITA Section 207(d))
EXAMPLE: Pursuant to this
subsection (f)(5), in determining the taxable years to which a loss incurred by
C Corporation in its taxable year ending December 31, 2009 may be carried:
A) the
taxable year ending December 31, 2011 is not counted even if C Corporation's
net income for the year is a negative;
B) the
taxable year ending December 31, 2012 is not counted if C Corporation's net
income (before any net loss deduction) is greater than $100,000; and
C) the
taxable year ending December 31, 2012 is counted if C Corporation's net income
(before any net loss deduction) is $100,000 or less or is negative.
6) Holders of Residual Interests in Real Estate Mortgage
Investment Companies (REMICs)
A) Under IRC
section 860E(a)(1), the taxable income of a holder of a residual interest in a
REMIC may not be less than
the amount of "excess inclusion" income from the REMIC for that
taxable year. If the residual interest holder's federal net income would
otherwise be less than the excess inclusion amount, the residual interest
holder carries over the excess of its actual federal taxable income over the
amount of its federal taxable income computed without regard to IRC section 860E(a)(1)
as a net operating loss under IRC section 172.
B) IITA Prior to PA 97-507.
Under IITA Section 207, the net loss of a taxpayer (other than an
individual) for a taxable year is its taxable income for the year, as properly
reportable for federal income tax purposes, after modifications in IITA Section
203(b)(2), (c)(2) and (d)(2). Under IITA Section 203(b)(2)(D) and (c)(2)(D),
corporations, trusts and estates add back to their taxable income any net
operating loss deduction claimed under IRC section 172 for a loss incurred in a
taxable year ending on or after December 31, 1986. As a result, a corporation,
trust or estate whose excess inclusion amount exceeded its federal taxable
income computed without regard to IRC section 860E(a)(1) for a taxable year would
receive no tax benefit from the deductions or losses that caused the excess,
because those deductions or losses could not reduce its federal taxable income
in the year incurred and any resulting IRC section 172 carryover deduction
would need to be added back to taxable income in the carryover years under IITA
Section 203(b)(2)(D) or (c)(2)(D).
C) In
order to allow a corporation the benefit of deductions otherwise disallowed by IRC
section 860E(a)(1) and IITA Section 203(b)(2)(D) and (c)(2)(D), PA 97-507 added
subsection (e) to IITA Section 207 to allow a residual interest holder an
Illinois net loss carryover computed in the same manner as the federal net
operating loss carryover allowed under IRC section 860E. IITA Section 207(e)
provides that, in the case of a residual interest holder in a REMIC subject
to IRC section 860E, the net loss in IITA Section 207(a) is equal to:
i) the
amount computed under IITA Section 207(a), without regard to IITA
Section 207(e) or, if that amount is positive, zero;
ii) minus
an amount equal to the amount computed under IITA Section 207(a), without
regard to IITA Section 207(e), minus the amount that would be computed
under IITA Section 207(a) if the taxpayer's federal taxable income were
computed without regard to IRC section 860E and without regard to IITA
Section 207(e).
D) IITA Section 207(e) applies
to all taxable years and is exempt from automatic sunset under IITA Section
250.
(Source: Amended at 49 Ill.
Reg. 1295, effective January 15, 2025)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2340 ILLINOIS NET LOSSES AND ILLINOIS NET LOSS DEDUCTIONS FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986, OF CORPORATIONS THAT ARE MEMBERS OF A UNITARY BUSINESS GROUP: SEPARATE UNITARY VERSUS COMBINED UNITARY RETURNS
Section 100.2340 Illinois Net
Losses and Illinois Net Loss Deductions for Losses Occurring On or After
December 31, 1986, of Corporations that are Members of a Unitary Business
Group: Separate Unitary Versus Combined Unitary Returns
a) In general. IITA Section 502(f) allows corporations (other than
Subchapter S corporations) that are members of the same unitary business group
to elect to be treated as one taxpayer for certain purposes including the
filing of returns (combined returns) and the determination of the group's tax liability.
Consequently, if an election under Section 502(f) is in effect, any Illinois
net loss and Illinois net loss deduction of the unitary business group shall be
determined as if the group were one taxpayer. If such an election is not in
effect, any Illinois net loss and Illinois net loss deduction shall be
determined separately on the facts shown on the separate corporate returns of
each member of the group. In general, the Section 502(f) election will not affect
total amount of net loss or net loss deduction that is available, but it may affect
how quickly the loss is absorbed. In general, if an election is in effect, net
losses are absorbed more quickly. The rules for determining a net loss or net
loss deduction set forth in Sections 100.2310 through 100.2330 apply in the
same manner whether or not such an election is in effect. If the business
income of a unitary business group results in a loss, the amount of that loss
will be the same whether or not a combined return is filed. If a combined
return is not filed, any such loss will be apportioned among all members of the
group based on each member's apportionment factors in Illinois as compared to
their combined apportionment factors everywhere. This is illustrated by the following
Example:
EXAMPLE: Assume
that Corporation A and Corporation B constitute a unitary business group and there
is no nonbusiness income or loss. Under the facts given below, if A and B file
separate returns in 1986, using combined apportionment, A will have an Illinois
net loss of $100 and B will have an Illinois net loss of $400, and if a combined
return is filed, the group will report a combined Illinois net loss of $500.
|
|
Corp A.
|
Corp. B
|
Combined
|
|
Base Income (loss)
|
200
|
(1,200)
|
(1,000)
|
|
Business Income
|
|
|
(1,000)
|
|
Apport. % (sep. Ill./comb. everywhere)
|
10%
|
40%
|
|
|
Apport. % (comb. Ill./comb. everywhere)
|
|
|
50%
|
|
Apportioned income (loss)
|
(100)
|
(400)
|
(500)
|
|
Illinois Net Income (loss)
|
(100)
|
(400)
|
(500)
|
b) Determination of the amount of Illinois net loss. The election
provided under IITA Section 502(f) may affect whether or not an Illinois net loss
is incurred by particular members of the unitary business group if some members
have nonunitary income or loss. This is illustrated in the following Example.
EXAMPLE: Assume
that Corporation A and Corporation B constitute a unitary business group in 1986.
Under the facts given below, if A and B file separate returns in 1986, using the
combined apportionment method, A will have an Illinois net loss of $170 and B
will report Illinois net income of $520. If a combined return is filed, the group
will report combined Illinois net income of $350.
|
|
Corp. A
|
Corp. B
|
Combined
|
|
Base income
|
|
|
1,000
|
|
Nonbusiness loss
|
(300)
|
|
(300)
|
|
Business income
|
|
|
1,300
|
|
Apport. % (sep.Ill./comb. everywhere)
|
|
10%
|
40%
|
|
Apport. % (comb. Ill./comb. everywhere
|
|
|
50%
|
|
Apportioned income
|
130
|
520
|
650
|
|
Nonbusiness loss allocable to Illinois
|
(300)
|
|
(300)
|
|
Illinois Net income (loss)
|
(170)
|
520
|
350
|
c) Illinois net loss carrybacks and carryovers. The election
provided in IITA Section 502(f) may affect the amount of Illinois net loss
deduction that can be absorbed in a particular year. If a combined return is filed,
any Illinois net loss deductions are combined and subtracted from combined Illinois
net income, whereas if a separate return is filed, the Illinois net loss
deduction of that member only would be subtracted from that member's separate
Illinois net income. This is illustrated in the following Example.
EXAMPLE: Assume
that Corporation A and Corporation B constitute a unitary business group, that in
1986 there is a $170 Illinois net loss entirely attributable to Corporation A because
Corporation B had no property, payroll, or sales in Illinois, and that the loss
must be carried forward because of losses in prior years. Assume further that
in 1987 both A and B have property, payroll and sales in Illinois. The separate
and combined absorption of the loss in 1987 is illustrated below. Under the
facts given, if A and B file separate returns, the $170 Illinois net loss
deduction will be recognized on A's return only, and A will have a $70 net loss
carryover to 1988. B will have to pay tax on net income of $400. If a combined
return is filed in 1987, the $170 Illinois net loss from 1986 will be fully
absorbed in 1987, and the combined group will pay tax on combined net income of
$330.
|
|
Corp. A
|
Corp. B
|
Combined
|
|
Base income
|
|
|
1,000
|
|
Business income
|
|
|
1,000
|
|
Apport. % (sep. Ill./comb.
everywhere
|
|
10%
|
40%
|
|
Apport. % (comb. Ill./comb.
everywhere)
|
|
|
50%
|
|
Apportioned income
|
100
|
400
|
500
|
|
Net loss deduction
|
(170)
|
|
(170)
|
|
Net income (loss)
|
(70)
|
400
|
330
|
(Source: Added at 11 Ill. Reg.
17782, effective October 16, 1987)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2350 ILLINOIS NET LOSSES AND ILLINOIS NET LOSS DEDUCTIONS, FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986, OF CORPORATIONS THAT ARE MEMBERS OF A UNITARY BUSINESS GROUP: CHANGES IN MEMBERSHIP
Section 100.2350 Illinois
Net Losses and Illinois Net Loss Deductions, for Losses
Occurring On or After December 31, 1986, of Corporations that are Members
of a Unitary Business Group: Changes in Membership
a) Member entering the group from a separate return year. IITA
Section 207 provides that the amount of Illinois net loss that is available as
a carryback or carryover is determined after applying the allocation and
apportionment provisions of Article 3. That Section does not limit the amount
of Illinois net loss that may be carried into a given year. As a consequence,
no such limitation shall apply.
1) Example 1:
A) In 1986, Corporation A was not a member of a unitary business,
and it reported a $170 Illinois net loss on a separate return. The loss could
not be carried back. Also in 1986, Corporation B and Corporation constituted a
unitary business group, and they reported Illinois net income. On January
1, 1987, B purchased the stock of A, and due to their operations A became part
of the unitary business group with B and C. The following facts apply for
1987:
|
|
Corp. A
|
Corp. B
|
Corp. C
|
Combined
|
|
Base
Income
|
|
|
|
1,000
|
|
Business
Income
|
|
|
|
1,000
|
|
Apportionment
Percentage
|
10%
|
15%
|
25%
|
50%
|
|
Apportionment
Income
|
100
|
150
|
250
|
500
|
|
Illinois
net loss
deduction
|
(170)
|
---
|
---
|
(170)
|
|
Illinois
net
income
|
---
|
150
|
250
|
330
|
|
Loss
Carryover
|
(70)
|
|
|
|
B) If A, B, and C file separate returns using the combined
apportionment method, A's $170 Illinois net loss deduction will be applied
against A's income for that year, and A will have a $70 Illinois net loss
carryover to 1988.B and C will report $150 and $250 of Illinois net income,
respectively. If A, B, and C file a combined return, A's $170 Illinois net
loss deduction will be applied against the group's combined income, and the
combined group will report $330 of combined Illinois net income.
2) Example 2:
A) Same facts as Example 1 except that in 1986 A reported Illinois
net income instead of an Illinois net loss, and B and C reported Illinois net
losses of $200 and $400, respectively, which could not be carried back.
Consequently, the following facts apply for 1987:
|
|
Corp. A
|
Corp. B
|
Corp. C
|
Combined
|
|
Base
Income
|
|
|
|
1,000
|
|
Business
Income
|
|
|
|
1,000
|
|
Apportionment
Percentage
|
10%
|
15%
|
25%
|
50%
|
|
Apportionment
Income
|
100
|
150
|
250
|
500
|
|
Net loss
deduction
|
---
|
(200)
|
(400)
|
(600)
|
|
Illinois
net
income
(loss)
|
100
|
(50)
|
(150)
|
(100)
|
|
|
|
|
|
|
B) If A, B and C file separate returns in 1987, A will report $100
of Illinois net income, and B and C will have Illinois net losses of $50 and
$150, respectively. If A, B and C file a combined return in 1987, the group
will have a combined net loss of $100.
b) Member leaving the group during a separate or combined return
year. If a corporation ceases to be a member of a unitary business group
during the year, regardless of whether it filed a separate or combined return,
the amount of net loss attributable to that member for that portion of the tax
year prior to leaving shall be determined in accordance with Section 100.5270(f)(2)
of this Part.
c) Carryover
and Carryback of Combined Net Losses to Separate Return Years
1) This subsection applies to unitary members that have made an
election to file a combined return under IITA Section 502(f). If a combined
Illinois net loss (as defined in Section 100.5270(b)(3) of this Part) can be
carried under the principles of Section 172(b) to a separate return year of a
corporation (or could have been so carried if such corporation were in
existence) which was a member of a unitary business group in the year in which
such loss arose, then the portion of such combined Illinois net loss
attributable to such corporation (as determined under subsection (c)(3) below)
shall be assigned to such corporation and shall be an Illinois net loss
carryover or carryback to such separate return year; accordingly, such portion
shall not be included in the combined Illinois net loss carryovers or
carrybacks to the equivalent combined return year. Thus, for example, if a
member filed a separate return for the third year preceding a combined return
year in which a combined Illinois net loss was sustained and if any portion of
such loss is assigned to such member for such separate return year, such
portion may not be carried back by the group to its third year preceding such
combined return year.
2) Nonassignment to certain members not in existence.
Notwithstanding subsection (c)(1), the portion of a combined Illinois net loss
attributable to a member shall not be assigned to a prior separate return year
for which such member was not in existence and shall be included in the
combined Illinois net loss carrybacks to the equivalent combined return year of
the group (or, if such equivalent year is a separate return year, then to such
separate return year), provided that such member was a member of the unitary
business group immediately after its organization.
3) Portion of combined Illinois net loss attributable to a
member. The portion of a combined Illinois net loss attributable to a member
of a group is an amount equal to the combined Illinois net loss of the group
multiplied by a fraction, the numerator of which is what would have been the
separate Illinois net loss of such corporation had a combined return not been
filed, and the denominator of which is the sum of what would have been the
separate Illinois net losses of all members of the group in such year having
such losses. The separate Illinois net loss of a member of the group shall be
determined pursuant to Sections 100.2320 and 100.2340 above.
4) Examples. The provisions of this subsection (c) may be
illustrated by the following examples:
A) Example 1:
i) In 1986, Corporations A and B were not members of a unitary
business group and each filed separate Illinois returns. Both A and B reported
net income in 1986 and prior years. On January
1, 1987, B purchased all the stock of A, and due to their operations A became
part of the unitary business group with B. In 1987 A and B file a combined
return and the following facts apply:
|
|
Corp. A
|
Corp. B
|
Combined
|
|
Base Income
|
|
|
(200)
|
|
Business Income
|
|
|
(200)
|
|
Apport. %
|
10%
|
20%
|
30%
|
|
Aport. Income
|
(20)
|
(40)
|
(60)
|
|
Illinois Net Loss
|
(20)
|
(40)
|
(60)
|
ii) The portion of the 1987 $60 combined Illinois net loss which
will be attributable to A and B will be as follows:
|
Corp. A
|
60 x 20/60 = 20
|
|
|
|
|
Corp. B
|
60 x 40/60 = 40
|
iii) It should be noted that where a combined net loss such as in
this Example results entirely from a unitary business loss (i.e. there are no
nonbusiness or separate apportionment partnership items of income or loss), and
where there are no prior year losses being carried over (compare to Example 2),
then each member's portion of the combined net loss can also be calculated by
multiplying the combined business loss by each member's separate apportionment
percentage (i.e. based on each member's factors in Illinois as compared to the
group's combined factors everywhere). This is illustrated by the following
calculations:
|
Corp. A
|
200 x 10% = 20
|
|
|
|
|
Corp. B
|
200 x 20% =
|
B) Example 2:
i) In 1986, Corporation A and Corporation B were not members of
a unitary business group and each filed separate Illinois returns. A reported
a $100 Illinois net loss in 1986 and B reported net income. Corporation A's
net loss could not be carried back because of losses in prior years. On January
1, 1987, B purchased all the stock of A, and due to their operations A became
part of the unitary business group with B. In 1987 A and B file a combined
return and the following facts apply:
|
|
Corp. A
|
Corp. B
|
Combined
|
|
Base Income
|
|
|
200
|
|
Business
Income
|
|
|
200
|
|
Apport. %
|
10%
|
20%
|
30%
|
|
Apport.
Income
|
20
|
40
|
60
|
|
Illinois
Net Loss
Deduction
|
(100)
|
|
(100)
|
|
Illinois
Net
Income/Loss
|
(80)
|
40
|
(40)
|
ii) If A and B file separate returns in 1988, the portion of the
1987 $40 combined Illinois net loss which will be attributable to A and B in
1988 will be as follows:
|
Corp. A
|
40 x 100/100 = 40
|
|
|
|
|
Corp. B
|
40 x 0/100 = 0
|
C) Example 3:
i) Corporation P was formed on January
1, 1986. P filed a separate return for the calendar year 1986. On March
15, 1987, P formed Corporation S. P and S filed a combined return for 1987.
On January 1, 1988, P purchased all the stock of Corporation T, which had been
formed in 1987 and had filed a separate return for its taxable year nding December 31, 1987.
ii) P, S, and T join in the filing of a combined return for 1988,
which return reflects a combined Illinois net loss of $11,000. $2,000 of such
combined net loss is attributable to P, $3,000 to S, and $6,000 to T. Such
attribution of the combined net loss was made on the basis of the separate net
losses of each member as determined under subsection (c) (3).
iii) $5,000 of the 1988 combined Illinois net loss can be carried
back to P's separate return for 1986. Such amount is the portion of the
combined net loss attributable to P and S. Even though S was not in existence
in 986, the portion attributable to S can be carried back to P's separate
return year, since S (unlike T) was a member of the group immediately after its
organization. The 1988 combined net loss can be carried back against the
group's income in 1987 except to the extent (i.e., $6,000) that it is apportioned
to T for its 1987 separate return year and to the extent that it was absorbed
in P's 1986 separate return year. The portion of the 1988 combined net loss
attributable to T ($6,000) is a net loss carryback to its 1987 separate return.
D) Example 4:
i) Assume the same facts as in Example 3. Assume further that
on June 15, 1989, P sells all the stock of T to an outsider, that and S file
a combined return for 1989 (which includes the income of T for the period
January 1 through June 5), and that T files a separate return for the period
June 16 through December 31, 1989.
ii) The 1988 combined Illinois net loss, to the extent not
absorbed in prior years, must first be carried to the short period ending June
15, 1989. Any portion of the $6,000 amount attributable to T which is not
absorbed in T's 1987 separate return year or in the short combined period ending
June 15, 1989, shall then be carried to T's separate short return year ending
December 31, 1989.
(Source: Amended at 26 Ill.
Reg. 13237, effective August 23, 2002)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2360 ILLINOIS NET LOSSES AND ILLINOIS NET LOSS DEDUCTIONS FOR LOSSES OF COOPERATIVES OCCURRING ON OR AFTER DECEMBER 31, 1986 (IITA SECTION 203(E)(2)(F))
Section 100.2360 Illinois Net Losses and Illinois Net
Loss Deductions for Losses of Cooperatives Occurring On or After December 31,
1986 (IITA Section 203(e)(2)(F))
a) Under
Internal Revenue Code section 1382(b), cooperatives are allowed to deduct distributions
of profits made to their members, or "patronage dividends". The
deduction may only be taken against a cooperative's taxable income from
transactions with its members, or "patronage income". If patronage
income is negative, the cooperative may not offset that "patronage
loss" against its income from transactions with nonmembers, or
"nonpatronage income", but instead carries the patronage loss over as
a net operating loss under IRC section 172 to offset patronage income in the
carryover year. (See Farm Service Cooperative v. Commissioner, 615 F.2d 1235
(8th Cir. 1980).)
b) IITA
Prior to PA 96-932. Under IITA Section 203(b), the base income of a
cooperative for a taxable year is its taxable income for the year, as properly
reportable for federal income tax purposes, after modifications in IITA Section
203(b)(2). IITA Section 203(b)(2)(D) requires a cooperative to add back to its
taxable income any net operating loss deduction claimed under IRC section 172
for a loss incurred in a taxable year ending on or after December 31, 1986. As
a result, a cooperative that incurred a patronage loss in the same year it had
positive nonpatronage income would receive no tax benefit from the deductions
or losses that caused the patronage loss, because the patronage loss could not
offset its nonpatronage income in the year it was incurred and any deduction of
a carryover of the loss would be added back to taxable income in the carryover
years under IITA Section 203(b)(2)(D).
c) PA
96-932 amended IITA Section 203(e)(2)(F) to provide that the taxable income of a cooperative is determined in
accordance with the provisions of IRC sections 1381 through 1388, but without
regard to the prohibition against offsetting losses from patronage activities
against income from nonpatronage activities, However, IITA Section
203(e)(2)(F) provides that a cooperative may make
an election to follow its federal income tax treatment of patronage losses and
nonpatronage losses. In the event the election is made, the losses are computed
and carried over in a manner consistent with IITA Section 207(a) and
apportioned by the apportionment factor reported by the cooperative on its
Illinois income tax return filed for the taxable year in which the losses are
incurred. PA 96-932 provided that it is
declaratory of existing law.
d) Making
the Election. The election to follow the federal income tax treatment of
patronage losses is made by the cooperative checking the appropriate box on
Schedule INL, Illinois Net Loss Adjustment for Cooperatives and REMIC Owners,
on its original return for its first taxable year ending on or after December
31, 2010 to which it intends the election to apply. The election may be made
for years ending prior to December 31, 2010 by filing an amended return for any
open year, claiming a deduction under IITA Section 207 for any patronage loss
carryover to that year, as allowed under PA 96-932 for those making the
election.
1) Effect
of Making the Election. If an election has been made, patronage losses carried
forward under subsection (c) may be used to offset only patronage income, and
nonpatronage losses carried forward under subsection (c) may be used to offset
only nonpatronage income. The election is effective for all taxable years, with original
returns due on or after the date of the election. Once made, the election may only
be revoked upon approval of the Director. (IITA Section 203(e)(2)(F)) Requests
for approval of a revocation of the election are made by asking for a private
letter ruling approving the revocation under 2 Ill. Adm. Code 1200.110. The
request shall give the reasons for the request and state the first taxable year
to which the election will no longer apply. The request will be granted or
denied by private letter ruling. If a request is denied, the taxpayer may
challenge the denial by filing a return in accordance with the election and
then filing an amended return that does not apply the election and claiming a
refund for overpayment.
2) Effect
of Revoking an Election. If an election is revoked, patronage and nonpatronage
losses incurred in taxable years to which the election applied under subsection
(c), and that are otherwise available to carry over, may be used to offset both
patronage and nonpatronage income in taxable years ending on or after the date
stated in the private letter ruling request. A cooperative that has revoked an
election under this subsection (d) may again make the election for any taxable
year after the first taxable year to which the revocation applied. If a
subsequent election is made under this subsection (d)(2), any patronage or
nonpatronage loss carryover under subsection (c) from a taxable year to which
the earlier election applied may be used only to offset patronage or
nonpatronage income, respectively, in any taxable year to which the new
election applies.
(Source: Added at 42 Ill. Reg. 17852,
effective September 24, 2018)
SUBPART E: ADDITIONS TO AND SUBTRACTIONS FROM TAXABLE INCOME OF INDIVIDUALS, CORPORATIONS, TRUSTS AND ESTATES AND PARTNERSHIPS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2405 GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE INCOME AND BASE INCOME DEFINED; DOUBLE DEDUCTIONS PROHIBITED; LEGISLATIVE INTENTION (IITA SECTION 203(E), (G) AND (H))
Section 100.2405 Gross Income, Adjusted Gross Income, Taxable Income and Base Income Defined;
Double Deductions Prohibited; Legislative Intention (IITA Section 203(e), (g)
and (h))
a) General Definitions. For the purposes of
IITA Sections 203 and 803(e), and subject to the exceptions discussed in this
Section, a taxpayer's gross income, adjusted gross income or taxable income
for the taxable year 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. (IITA
Section 203(e)(1))
b) Taxable Income Less than Zero. Taxable
income may be less than zero. (IITA Section 203(e)(1)) Accordingly, when
the computation of a taxpayer's base income begins with its taxable income and
its taxable income is negative, it may offset that negative amount against any
addition modifications required to be made under IITA Section 203, consistent
with the provisions of this subsection (b).
1) Taxable Years Ending On or After December
31, 1986. For taxable years ending on or after December
31, 1986, net operating loss carry-forwards 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 for the taxable year. (IITA Section 203(e)(1))
EXAMPLE:
In its taxable year ending December
31, 1986, Corporation A properly reports a federal net operating loss (FNOL) of
$100,000, all of which is available to carry forward to its taxable years
ending on or after December 31, 1987 for federal income tax purposes.
Corporation A has addition modifications for its taxable year ending December 31, 1986 that exceed its subtraction modifications for that year by $5,000. For Illinois income tax purposes, the federal net operating loss available to carry forward is
$95,000 (the $100,000 federal net operating loss minus the $5,000 in excess
addition modifications). In its taxable year ending December
31, 1987, Corporation A deducts $97,000 of the federal net operating loss.
The remainder is deducted in its taxable year ending December 31, 1988. For
purposes of IITA Section 203, Corporation A's taxable income for the taxable
year ending December 31, 1987 is computed without allowing $2,000 of the
federal net operating loss deduction taken in that year and its taxable income
for December 31, 1988 is computed without allowing any of the $3,000 federal
net operating deduction. In order to avoid a double benefit, Corporation A adds
back the ineligible $2,000 and $3,000 of FNOL for Illinois purposes on its Illinois return for 1987 and 1988, respectively.
2) Taxable Years Ending Before December 31, 1986
A) 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 Internal Revenue Code section 172(c)
and (d), 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 IITA Section 203(b)(2)(E) or (c)(2)(E) for trusts
and estates, exceed subtraction modifications, an addition modification is made
under those subsections for any other taxable year to which taxable
income less than zero (net operating loss) is applied under IRC section 172 or
IITA Section 203(e)(2)(E) in conjunction with IRC section 172. (IITA Section
203(e)(1))
B) For application of this provision, see Sections
100.2230 and 100.2410.
3) Pre- and post-1986 net losses are discussed
in detail in Sections 100.2200 through 100.2250 and individual net losses are
specifically discussed at Section 100.2410.
c) Special Rules Regarding Certain Taxpayers. Many
taxpaying entities do not calculate federal taxable income on a federal taxable
return or use a special variation of federal taxable income. For these
taxpayers, IITA Section 203(e)(2) defines federal taxable income. Thus, for
purposes of IITA Section 203, the taxable income properly reportable by the
following taxpayers for federal income tax purposes means:
1) Certain Life Insurance Companies – for
life insurance companies taxable under IRC section 801, life insurance company
taxable income, plus the amount of distribution from pre-1984 policyholder
surplus accounts as calculated under IRC section 815a. (IITA Section
203(e)(2)(A));
2) Mutual Insurance Companies – for mutual
insurance companies taxable under IRC section 831, insurance company taxable
income. (IITA Section 203(e)(2)(B));
3) Regulated Investment Companies (RICs) – for
RICs taxable under IRC section 852, investment company taxable income.
(IITA Section 203(e)(2)(C));
4) Real Estate Investment Trusts (REITs) – for
REITs taxable under IRC section 857, REIT taxable income. (IITA Section
203(e)(2)(D));
5) Consolidated Corporations – for a
corporation that is a member of an affiliated group of corporations
filing a federal consolidated income tax return for the taxable year, taxable
income determined as if that corporation had filed a separate return federally
for the taxable year and for each preceding taxable year for which it was a
member of an affiliated group and also determined as if the election provided
under IRC section 243(b)(2) had been in effect for all years. (IITA
Section 203(e)(2)(E)). However, for purposes of computing the combined taxable
income and combined base income of a unitary business group for purposes of
IITA Sections 304(e) and 502(e), Section 100.5270 provides that the unitary
business group generally applies the federal consolidated return regulations;
6) Cooperatives – for cooperative
corporations or associations, taxable income of such organization determined in
accordance with IRC sections 1381 through 1388, inclusive, but without
regard to the prohibition against offsetting losses from patronage activities
against income from nonpatronage activities; except that a cooperative
corporation or association may make an election to follow its federal income
tax treatment of patronage losses and nonpatronage losses. In the event the
election is made, patronage losses and nonpatronage losses are computed and
carried over in a manner consistent with IITA Section 207(a) and apportioned by
the apportionment factor reported by the cooperative on its Illinois income tax
return filed for the taxable year in which the losses are incurred. (IITA
Section 203(e)(2)(F)) (see PA 96-932). (See Section 100.2360 for more
guidance.);
7) Subchapter S Corporations – Subchapter S
corporations are not generally subject to federal income tax but instead act as
conduits through which items of gain, loss, income and deduction flow to their
owners. Accordingly, a special rule for computing "taxable income" is
necessary to enable them to compute their Illinois base income for purposes of
determining their Illinois Personal Property Tax Replacement Income Tax
liability under IITA Section 201(c) and (d).
A) Election in Effect. For subchapter S
corporations for which there is in effect an election for the taxable year
under IRC section 1362, "taxable income" means taxable income
determined in accordance with IRC section 1363(b), except that taxable income takes
into account those items that are separately stated under IRC section
1363(b)(1). (IITA Section 203(e)(2)(G)(i))
B) Items that are separately stated under IRC section
1363(b)(1), as listed in 26 CFR 1.1366-1(a)(2), include:
i) The corporation's combined net amount of
gains and losses from sales or exchanges of capital assets;
ii) The corporation's combined net amount of
gains and losses from sales or exchanges of property used in the trade or
business and involuntary conversions;
iii) Charitable contributions paid by the
corporation within the taxable year of the corporation;
iv) The taxes described in IRC section 901 that
have been paid (or accrued) by the corporation to foreign countries or to
possessions of the United States;
v) Each of the corporation's separate items
involved in the determination of credits against tax allowable under IRC part
IV, subchapter A (section 21 et seq.), except for any credit allowed under IRC section
34 (relating to certain uses of gasoline and special fuels);
vi) Each of the corporation's separate items of
gains and losses from wagering transactions (IRC section 165(d)); soil and
water conservation expenditures (IRC section 175); deduction under an election
to expense certain depreciable business expenses (IRC section 179); medical,
dental, etc., expenses (IRC section 213); the additional itemized deductions
for individuals provided in part VII of subchapter B of the Internal Revenue
Code (IRC section 212 et seq.); and any other itemized deductions for which the
limitations on itemized deductions under IRC section 67 or IRC section 68
applies;
vii) Any of the corporation's items of portfolio
income or loss, and related expenses, as defined in 26 CFR 1.469-0 through 11
(2007) under IRC section 469;
viii) The corporation's tax-exempt income. For
purposes of subchapter S, tax-exempt income is income that is permanently
excludible from gross income in all circumstances in which the applicable
provision of the Internal Revenue Code applies. For example, income that is
excludible from gross income under IRC section 101 (certain death benefits) or IRC
section 103 (interest on state and local bonds) is tax-exempt income, while
income that is excludible from gross income under IRC section 108 (income from
discharge of indebtedness) or IRC section 109 (improvements by lessee on
lessor's property) is not tax-exempt income; and
ix) Any other item identified in guidance
(including forms and instructions) issued by the Commissioner of Internal
Revenue as an item required to be separately stated.
C) Treatment of Items That Are Separately
Stated Under IRC Section 1363(b)(1). Many items are separately stated because
their deduction is limited by the taxable income or adjusted gross income of
the taxpayer, and this limitation is determined by each shareholder rather than
by the subchapter S corporation. IITA Section 203(e)(2)(G) permits the
deduction of these items without imposing the limitations that could apply to
the shareholder. For example, charitable deductions that are separately stated
are deductible by a subchapter S corporation without regard to the limitations
under IRC section 170(b).
D) Items that are not separately stated under IRC
section 1363(b), and that are not taken into account in computing "taxable
income" for purposes of IITA Section 203, include:
i) IRC section 199(d)(1)(A) provides that the
deduction under IRC section 199 for the domestic production activities income
of a subchapter S corporation are taken at the shareholder level, rather than
by the corporation. Because these deductions are separately stated under this
provision and not under IRC section 1363(b)(1), a subchapter S corporation shall
not take these deductions in computing its taxable income for purposes of IITA
Section 203.
ii) IRC section 613A(c)(11) provides that
percentage depletion deductions for oil and gas property of a subchapter S
corporation are computed separately for each shareholder. Because these
deductions are separately stated under this provision and not under IRC section
1363(b)(1), a subchapter S corporation shall not take these deductions in
computing its taxable income for purposes of IITA Section 203. However, in the
case of any subchapter S corporation that deducted percentage depletion on oil
and gas properties on any return filed prior to March
31, 2008 in reliance on the return instructions for the Form IL-1120-ST, any
increase in Illinois income tax liability that would result from disallowing
the percentage depletion deduction for oil and gas property for that year is
abated under Section 4(c) of the Taxpayers' Bill of Rights Act [20 ILCS
2520/4(c)].
E) Election Not in Effect. For subchapter S
corporations for which there is in effect an election to opt out of the
provisions of the Subchapter S Revision Act of 1982 and that have
applied instead the prior federal subchapter S rules as in effect on July
1, 1982, "taxable income" means the taxable income of such
corporation determined in accordance with the federal subchapter S rules as in
effect on July 1, 1982. (IITA Section 203(e)(2)(G)(ii));
8) Partnerships – Partnerships are not
generally subject to federal income tax, but instead act as conduits through
which items of gain, loss, income and deduction flow to their owners.
Accordingly, a special rule for computing "taxable income" is
necessary to enable partnerships to compute their Illinois base income for
purposes of determining their Illinois Personal Property Tax Replacement Income
Tax liability under IITA Section 201(c) and (d). For partnerships, "taxable
income" is taxable income determined in accordance with IRC section
703, except that taxable income shall take into account those items that are separately
stated under IRC section 703(a)(1), but would be taken into account by an
individual in calculating his or her taxable income. (IITA Section
203(e)(2)(H))
A) Items That Are Separately Stated Under IRC Section
703(a)(1). IRC section 703(a)(1) provides that items listed in IRC section
702(a) are separately stated. These items are:
i) gains
and losses from sales or exchanges of capital assets held for not more than 1 year;
ii) gains and losses from sales or exchanges
of capital assets held for more than 1 year;
iii) gains and losses from sales or exchanges
of property described in IRC section 1231 (relating to certain property used in a
trade or business and involuntary conversions);
iv) charitable contributions (as defined in IRC section
170(c));
v) dividends entitled to capital gains
treatment under IRC section 1(h)(11) or to the corporate
dividends-received deduction under part VIII of subchapter B of the Internal
Revenue Code;
vi) taxes
for which the foreign tax credit may be allowed under IRC section 901,
paid or accrued to foreign countries and to possessions of the United States;
and
vii) other items of income, gain, loss,
deduction or credit to the extent provided by regulations prescribed by the
Secretary of the Treasury (see 26 CFR 1.702-1).
B) Treatment of Items That Are Separately
Stated Under IRC Section 703(a)(1). Many items are separately stated because
their deduction is limited by the taxable income or adjusted gross income of
the taxpayer, and this limitation is determined by each partner rather than by
the partnership. IITA Section 203(e)(2)(H) permits the deduction of these
items without imposing the limitations that could apply to the partner. For
example, charitable deductions that are separately stated are deductible by a
partnership without regard to the limitations under IRC section 170(b).
C) Items not separately stated under IRC section
703(a)(1), and that are not taken into account in computing "taxable
income" for purposes of IITA Section 203, include:
i) IRC section 199(d)(1)(A) provides that the
deduction under IRC section 199 for the domestic production activities income
of a partnership is taken at the partner level, rather than by the
partnership. Because these deductions are separately stated under this provision
and not under IRC section 703(a)(1), a partnership does not take these
deductions in computing its taxable income for purposes of IITA Section 203;
ii) IRC section 613A(c)(11) provides that
percentage depletion deductions for oil and gas property of a partnership is
computed separately for each partner. Because these deductions are separately
stated under this provision and not under IRC section 703(a)(1), a partnership does
not take these deductions in computing its taxable income for purposes of IITA Section
203. However, in the case of any partnership that deducted percentage
depletion on oil and gas properties on any return filed prior to March
31, 2008 in reliance on the return instructions for the Form IL-1065, any
increase in Illinois income tax liability that would result from disallowing
the percentage depletion deduction for oil and gas property for that year is
abated under Section 4(c) of the Taxpayers' Bill of Rights Act [20 ILCS
2520/4(c)]; and
iii) IRC section 108(a) provides that a
taxpayer in bankruptcy or that is insolvent does not recognize income from
discharge of indebtedness. IRC section 108(d)(6) provides that, when
indebtedness of a partnership is discharged, this exemption applies only at the
partner level. Accordingly, the exemption in IRC section 108(a) does not apply
in determining the taxable income of a partnership;
9) Electing Small Business Trust (ESBT). An
ESBT that owns both stock in one or more subchapter S corporations and other
property is treated as two separate trusts under IRC section 641. However, the
IRS practice is to require the ESBT to file a single return and pay tax on the
income from both sources. In these cases, the income of the ESBT derived by
the ESBT from investments in subchapter S corporations is not reported, but
rather the tax liability attributable to that income is computed separately and
added to the tax liability computed for the other property of the ESBT. In
order to allow the ESBT to file a single Illinois income tax return, an ESBT
that owns both stock in subchapter S corporations and other property shall
include income from both sources in its taxable income for purposes of IITA
Section 203.
d) Special Rule Regarding Recapture of
Business Expenses on Disposition of Asset or Business. Notwithstanding any
other law to the contrary, if in prior years income from an asset or business
has been classified as business income and in a later year is demonstrated to
be non-business income, then all expenses, without limitation, deducted in such
later year and in the two immediately preceding taxable years related to that
asset or business that generated the non-business income, are added back and
recaptured as business income in the year of the disposition of the asset or
business. The amount of the add-back is apportioned to Illinois using the
greater of the apportionment fraction computed for the business under IITA
Section 304 for the taxable year or the average of the apportionment fractions
computed for the business under IITA Section 304 for the taxable year and for
the two immediately preceding taxable years. (IITA Section 203(e)(3)) This
provision is effective for tax years ending on or after July
30, 2004 (the effective date of PA 93-840).
1) IITA Section 203(e)(3) requires recapture
of expenses treated as business expenses in a taxable year for which the
taxpayer has made an election under IITA Section 1501(a)(1) to treat all of its
income (other than employee compensation) as business income whenever, in a
subsequent year, the taxpayer fails to make that election, so that income from
an asset is treated as business income in the earlier year and as nonbusiness
income in the subsequent year.
2) IITA Section 203(e)(3) does not require
recapture of business expenses passed through to a partner in any taxable year
by a partnership that qualifies as an investment partnership under IITA Section
1501(a)(11.5) in a subsequent taxable year, causing all income of the
partnership to be characterized as nonbusiness income under IITA Section
305(c-5).
3) IITA Section 203(e)(3) does not require
recapture of business expenses passed through to a partner, a shareholder in a
subchapter S corporation, or a beneficiary of a trust or estate by the
partnership, subchapter S corporation, trust or estate for a taxable year
merely because nonbusiness income is passed through the partnership, subchapter
S corporation, trust or estate in a subsequent year. However, recapture of
those business expenses passed through in a taxable year shall be required by
the partner, shareholder or beneficiary if the partnership, subchapter S
corporation, trust or estate is required to recapture business expenses for
that taxable year or if the business expenses were passed through in the same
year that the partnership, subchapter S corporation, trust or estate also
passed through nonbusiness income that the partner, shareholder or beneficiary
elected to treat as business income under IITA Section 1501(a)(1) and the
partner, shareholder or beneficiary fails to make that election with respect to
nonbusiness income passed through by the partnership, subchapter S corporation,
trust or estate in a subsequent year.
e) Illinois Base Income Defined. "Illinois base income" is the amount determined by applying addition and subtraction
modifications specifically authorized under the IITA to either federal adjusted
gross income (in the case of individuals) or federal taxable income (in the
case of all other taxpayers). An item taken into account on the federal income
tax return after the computation of federal taxable income or federal adjusted
gross income is not taken into account on the corresponding Illinois income or
replacement income tax return unless specifically authorized in the IITA. For
example, itemized deductions, which are taken on Schedule A to the U.S.
1040 after federal adjusted gross income has already been calculated, are not
reflected in Illinois base income.
f) Double Deductions Prohibited. No item of
deduction may be taken into account twice in the calculation of Illinois base income unless specifically authorized under the IITA. If a subtraction
modification applies to an item that is already excluded or deducted in
computing adjusted gross income or federal taxable income, or to which another
subtraction applies, it will be disallowed. (See IITA Section 203(g).)
g) Legislative Intention. IITA Section 203(h)
provides that, unless specifically authorized under the IITA Section 203, no
modifications or limitations on the amounts of income, gain, loss or deduction are
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 Illinois base income and
net income (defined at Section 100.2050) for the taxable year, whether
in respect of property values as of August
1, 1969 or otherwise.
(Source:
Amended at 42 Ill. Reg. 17852, effective September 24, 2018)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2410 NET OPERATING LOSS CARRYOVERS FOR INDIVIDUALS, AND CAPITAL LOSS AND OTHER CARRYOVERS FOR ALL TAXPAYERS (IITA SECTION 203)
Section 100.2410 Net
Operating Loss Carryovers for Individuals, and Capital Loss and Other
Carryovers for All Taxpayers (IITA Section 203)
a) Scope. IITA Section 203 requires all
taxpayers other than individuals to add back to their base income any carryover
deduction taken in computing federal taxable income for a net operating loss
incurred in a tax year ending prior to December 31, 1986. IITA Section 203(e)
provides for adjustments to taxable income of taxpayers, other than individuals,
related to deductions of net operating losses incurred in tax years ending
prior to December 31, 1986. IITA Section 203(h) provides that, except as
expressly provided by that subsection, 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. Accordingly,
no taxpayer shall make any adjustment to, or otherwise increase or decrease,
the amount properly allowed in computing adjusted gross income (for
individuals) or taxable income (for all other taxpayers) on the taxpayer's
federal income tax return for:
1) in the case of an individual, any net
operating loss deduction carried over under IRC section 172; provided that
(notwithstanding the amount of the federal net operating deduction claimed by
the individual or allowed by the Internal Revenue Service), in order to prevent
the double deduction of the same carryover as required by IITA Section 203(g)
and Madison Park Bank v. Zagel, 97 Ill.App.3d 743 (1981), aff'd 91 Ill.2d 231
(1982), the deduction properly allowed in computing federal adjusted gross
income in a taxable year may not exceed the amount that reduces the taxpayer's
taxable income for that year to zero, after making the modifications specified
in IRC section 172(b)(2)(A), and therefore shall not include any amount
available to carry over to other taxable years under IRC section 172(b)(2);
2) capital losses carried over under IRC section
1212;
3) deductions allowed to a partner under IRC section
704(d) for his distributive share of a partnership loss that exceeded the
adjusted basis in his partnership interest as of the end of the tax year in
which the loss was incurred;
4) deductions allowed to a shareholder under
IRC section 1366(d)(2) for his share of a loss or deduction of a Subchapter S
corporation that exceeded his adjusted basis in the stock or indebtedness of
the Subchapter S corporation in the year the loss or deduction was incurred;
5) passive activity losses allocated to tax
years subsequent to the year in which the loss was incurred under IRC section
469(b);
6) deductions for losses in excess of amounts
at risk allocated to years subsequent to the year incurred under IRC section
465(a)(2); and
7) losses recognized as the result of
adjustment events subsequent to a transaction governed by IRC section 338 and
carried back pursuant to Treas. Reg. § 1.338(b)-3T(h)(2)(ii)(B).
b) Allocation and Apportionment of Deductions.
1) Deductions described in subsection (a) of
this Section that are taken into account in a taxable year shall be allocated
and apportioned according to the facts and circumstances of that taxable year.
A taxpayer may request alternative apportionment of business losses or
deductions by filing a petition pursuant to Section 100.3390 of this Part.
Example
1: An individual incurs a federal net operating loss in 1995, when he is a
nonresident. None of the individual's 1995 income is allocated or apportioned
to Illinois. At the beginning of 1996, the individual moves to Illinois and
becomes a resident. Any net operating loss carried forward from 1995 and
deducted in computing the individual's 1996 federal adjusted gross income is
allocated to Illinois pursuant to IITA Section 301(a), which in the case of a
resident allocates to Illinois all items of income or deduction which were
taken into account in the computation of base income for the taxable year.
Example
2: A nonresident individual conducts a business as a sole proprietorship.
During 1998, the individual apportions 20% of his business income from the
proprietorship to Illinois pursuant to IITA Section 304(a). In 2000, the
business is conducted entirely outside Illinois and has no Illinois
apportionment factor. If the individual incurs net operating loss in 2000 from
the sole proprietorship and carries the loss back to 1998, 20% of the loss will
be apportioned to Illinois.
Example
3: In 1999, a resident individual incurs a passive activity loss from rental
of real estate located in Indiana. The individual's income from the property
is nonbusiness income. At the beginning of 2000, the individual moves away
from Illinois and becomes a nonresident. For federal income tax purposes, the
individual is allowed to deduct the loss in 2000. Because the individual is
not a resident, the deduction allowed in 2000 is allocated to Indiana under IITA
Section 303(c)(1).
Example
4: A nonresident individual incurs a federal net operating loss in 1995 from
his investment in Partnership A. Partnership A has only business income. For
1995, Partnership A's Illinois apportionment factor under IITA Section 304 is
50%. For federal income tax purposes, the individual carries the net operating
loss back to 1992. Partnership A's Illinois apportionment factor under IITA
Section 304 is 25% for 1992. Accordingly, 25% of the individual's 1992 net
operating loss is apportioned to Illinois.
2) Deductions arising in the same taxable year
and subject to apportionment or allocation under different rules. When two or
more deductions to which this Section applies arise in the same taxable year,
but are apportioned or allocated under different rules, the amount of each such
deduction carried over from that year shall be in proportion to the total of
all such deductions arising in that year, and the amount of each such deduction
allowed in a carryover year shall be in proportion to the total amount of such
deductions carried over to that year from the same taxable year.
Example
5: In 2000, Corporation A engages in three capital transactions. In the
first, it realizes $700 in capital gain, which is characterized as business
income. In the second, it incurs $400 in capital loss, which is characterized
as business income from the same business as the gain in the first
transaction. In the third, it incurs $600 in capital loss on real property
located in Illinois, which is characterized as nonbusiness income allocable
entirely to Illinois. Corporation A's apportionment factor in 2000 is 20%.
On
its federal income tax return for 2000, Corporation A reports net capital gain
of zero, because corporations are not allowed to deduct capital losses in
excess of capital gains. In actuality, it is allowed to deduct $700 in capital
losses and carry over $300 to be deducted in another year.
In
2000, Corporation A is treated as deducting $280 in business loss from the
second transaction ($400 in loss, divided by the $1,000 in total capital
losses, multiplied by the $700 capital loss deduction allowed) and $420 in
nonbusiness capital loss ($600 in loss, divided by $1,000, and multiplied by
$700). The $280 in business loss would be combined with Corporation A's other
business income, and 20% would be apportioned to Illinois. The entire $420 in
nonbusiness capital loss will be allocated to Illinois.
If
Corporation A carries the $300 excess loss back to offset $200 in capital gains
realized in 1997, $80 of the 1997 deduction will be business loss (the $120
excess loss attributable to the business transaction, divided by the entire
$300 in excess loss, times $200) and $120 will be nonbusiness loss ($180
divided by $300, times $200). The $80 of business loss will be combined with
Corporation A's other business income from 1997 and apportioned according to
Corporation A's 1997 apportionment factor. The entire $120 in nonbusiness loss
will be allocated to Illinois.
Example
6: Assume the same facts as in Example 5, except that the $600 nonbusiness
capital loss was incurred on the sale of an intangible asset, and so is
allocated to the commercial domicile of Corporation A. At the time the loss
was realized in 2000, Corporation A's commercial domicile was in State X, so
the $420 in nonbusiness capital loss deducted in that year would be allocated
to State X. However, in 1997, Corporation A's commercial domicile was in
Illinois. The $120 in nonbusiness capital loss deducted in 1997 would be
allocated entirely to Illinois, because that is the commercial domicile of
Corporation A at the time the deduction is taken.
Example
7: In 2002, Taxpayer, a nonresident individual, has $20,000 in federal net
losses from Partnership A and $180,000 in net losses from Partnership B.
Taxpayer has $100,000 in income from other sources, and so Taxpayer's adjusted
gross income for 2002 is a net operating loss of $100,000. Taxpayer carries
the entire $100,000 loss back to 2000, when Partnership A's Illinois
apportionment factor is 30% and Partnership B's apportionment factor is zero.
In determining Taxpayer's Illinois net income for 2000, 10% of the federal net
operating loss carryback ($20,000 loss from Partnership A divided by $200,000
in total losses incurred from partnerships in 2002), $3,000 of the net
operating loss deduction in 2000 is apportioned to Illinois (Partnership A's
30% apportionment factor times the 10% of the $100,000 federal net operating
loss carryback attributable to Partnership A's loss). The remaining 90% of the
net operating loss deduction is from Partnership B, and none of that loss is
apportioned to Illinois.
c) Special Issues.
1) Taxpayers with taxable income (adjusted
gross income, in the case of an individual) that is less than zero for a
taxable year may offset such negative amount against any net addition
modifications for the taxable year, but only to the extent the negative income
has not been carried back to and deducted in any prior taxable year as a loss
or deduction governed by this Section. (See IITA Section 203(g) (prohibiting
double deductions) and Madison Park Bank v. Zagel, 97 Ill.App.3d 743 (1981),
aff'd 91 Ill.2d 231 (1982).) The sum of carryover deductions taken in all
years, plus the net addition modifications offset against the loss in the year
incurred, may not exceed the amount of the loss. Notwithstanding subsection
(a) of this Section, whenever a carryover deduction taken in any year plus the
net addition modifications offset against a loss in the year incurred plus all
carryover deductions of that loss allowed in prior years exceeds the loss
incurred, such excess must be added back.
Example
8: In 1996, an individual's adjusted gross income is a loss of $10,000, $5,000
of which the taxpayer carries back to prior years as federal net operating loss
deductions. The individual's 1996 addition modifications exceed his
subtraction modifications by $7,000. The individual's base income for 1996 is
$2,000 (negative $10,000 in adjusted gross income, reduced by the $5,000
carried back to prior years, plus $7,000 in net addition modifications). The
taxpayer has used up all of the loss and, for Illinois income tax purposes, may
not carry any of the loss forward. Any carryforward deduction claimed for the
1996 loss in a subsequent year must be added back.
2) Any change in federal taxable income
(adjusted gross income, in the case of an individual) that results from a
deduction or change in the amount of a deduction of an item governed by this Section
is a federal change subject to the reporting requirements of IITA Section
506(b).
3) Net loss carryforwards under IITA Section
207. The allocation of losses under this Section can result in a nonresident's
net income being less than zero. Under IITA Section 207, a taxpayer (other than
an individual, to whom IITA Section 207 does not apply) may carry over any
Illinois net loss resulting from the allocation of losses under this Section to
other taxable years.
Example
9: For federal income tax purposes, a corporation partially offsets a $100,000
nonbusiness capital gain allocated to Missouri with a $70,000 nonbusiness
capital loss carryforward allocated to Illinois. If the corporation has no
other income and no Illinois modifications, it would have base income of
$30,000, but would allocate a $70,000 loss to Illinois. The resulting negative
net income computed under IITA Section 207 may be carried over pursuant to that
provision.
Example
10: For federal income tax purposes, a nonresident individual has positive
adjusted gross income for a taxable year. For that year, the individual has
$200,000 in base income from sources outside Illinois and a $20,000 loss, all
of which is allocable to Illinois. The individual's Illinois net income for
the year is therefore less than zero. Because IITA Section 207 does not apply
to individuals, and there is no other provision for carryovers of losses or
deductions, the individual may not carry that negative amount over to any other
taxable year.
(Source:
Added at 28 Ill. Reg. 1378, effective January 12, 2004)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2430 ADDITION AND SUBTRACTION MODIFICATIONS FOR TRANSACTIONS WITH 80/20 AND NONCOMBINATION RULE COMPANIES
Section 100.2430 Addition and Subtraction Modifications
for Transactions with 80/20 and Noncombination Rule Companies
a) For
taxable years ending on or after December 31, 2004, IITA Section 203 requires a
taxpayer, in computing base income, to add back deductions allowed in computing
federal taxable income or adjusted gross income for interest expenses and
intangible expenses incurred in transactions with a person who would be a
member of a unitary business group with the taxpayer, if not for the 80/20
test. These provisions were expanded by Public Act 95-233 and Public Act
95-707 to also require the add-back of deductions for interest expenses,
intangible expenses and insurance premium expenses when incurred in taxable
years ending on or after December 31, 2008, in transactions with a person who
would be a member of a unitary business group with a taxpayer if not for the prohibition
in IITA Section 1501(a)(27) against including in a single unitary business
group taxpayers who use different apportionment formulas under IITA Section 304
(the "noncombination rule"). The noncombination rule was repealed by
Public Act 100-22, so that the expansions of the add-back provisions in Public
Act 95-233 and Public Act 95-707 have no application for taxable years ending
on or after December 31, 2017. Taxpayers are also allowed subtraction
modifications that would ensure that the addition modifications do not result
in double taxation. Exceptions are provided for instances in which requiring
the addition modifications would not be appropriate.
b) Definitions
1) Dividend
Included in Base Income. "Dividend" means any item defined as a dividend
under 26 USC 316 and any other item of income characterized or treated as a
dividend under the Internal Revenue Code, and includes any item included in
gross income under Sections 951 through 964 of the Internal Revenue Code and
amounts included in gross income under Section 78 of the Internal Revenue Code.
(IITA Section 203(a)(2)(D-17), (D-18) and (D-19), (b)(2)(E-12), (E-13) and
(E-14), (c)(2)(G-12), (G-13) and (G-14), and (d)(2)(D-7), (D-8) and (D-9)) A
dividend is included in base income of a taxpayer only to the extent the
dividend is neither deducted in computing the federal taxable or adjusted gross
income of the taxpayer nor subtracted from federal taxable income or adjusted
gross income under IITA Section 203.
2) Foreign
Person. A "foreign person" is any person who would be included in a
unitary business group with the taxpayer if not for the fact that 80% or
more of that person's business activities are conducted outside the United
States. (IITA Section 1501(a)(30))
3) Interest.
"Interest" means "compensation for the use or forbearance of
money". (See Deputy v. du Pont, 308 U.S. 488, 498 (1940).) Interest
includes the amortization of any discount at which an obligation is purchased
and is net of the amortization of any premium at which an obligation is
purchased.
4) Intangible
Expense. "Intangible expense" includes expenses, losses, and
costs for, or related to, the direct or indirect acquisition, use, maintenance
or management, ownership, sale, exchange, or any other disposition of
intangible property; losses incurred, directly or indirectly, from factoring
transactions or discounting transactions; royalty, patent, technical, and
copyright fees; licensing fees; and other similar expenses and costs. (IITA
Section 203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8))
5) Intangible
Income. "Intangible income" means the income received or accrued by
a person from a transaction that generates intangible expense for the other
party to the transaction.
6) Intangible
Property. "Intangible property" includes patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works,
trade secrets, and similar types of intangible assets. (IITA Section
203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8))
7) Related
Party. "Related parties" means persons disallowed a deduction for
losses by section 267(b), (c) and (f) of the Internal Revenue Code, as well as
a partner and its partnership and each of the other partners in that
partnership.
8) Noncombination
Rule Company. "Noncombination rule company" means any person who
would be a member of a unitary business group with a taxpayer if not for the
prohibition in IITA Section 1501(a)(27) against including in a single unitary
business group persons who use different apportionment formulas under IITA
Section 304.
9) Insurance
Premiums. "Insurance premiums" means the total amount paid or
accrued during the taxable year, net of refunds or abatements, for coverage
against any risk under a policy issued by an entity that is required to
apportion its business income under the provisions of IITA Section 304(b) or
that would be required to do so if it were subject to Illinois income taxation.
10) Federal
Deduction Allowed for Interest Paid to a Foreign Person
A) Under
26 USC 163(j), for taxable years beginning after December 31, 2017, a taxpayer's
federal income tax deduction for business interest paid is limited to an amount
equal to the sum of the taxpayer's business interest income plus 30% of its adjusted
taxable income plus its floor plan financing interest. Business interest in
excess of that limitation is carried forward under 26 USC 163(j)(2) and treated
as interest paid in the following taxable year. For purposes of this Section,
in the case of a taxpayer whose federal income tax deduction for business
interest expense for a taxable year beginning after December 31, 2017 is
subject to limitation by 26 USC 163(j):
i) the
deduction allowed in computing federal taxable income for business interest
paid to a foreign person for that taxable year equals the business interest
paid to that foreign person for that taxable year (including any amount of
business interest paid to that foreign person in the preceding taxable year and
carried forward from the preceding taxable year under 26 USC 163(j)(2)) times a
fraction equal to the deduction allowed under 26 USC 163(j) in computing
federal taxable income for business interest paid for that taxable year divided
by the total business interest paid for that taxable year (including any amount
of business interest paid in the preceding taxable year and carried forward
from the preceding taxable year under 26 USC 163(j)(2)); and
ii) the
amount of business interest paid to a foreign person for a taxable year and
carried forward to the next taxable year under 26 USC 163(j)(2) equals the
business interest paid to that foreign person for that taxable year (including
any amount of business interest carried forward from the preceding taxable year
under 26 USC 163(j)(2)) times a fraction equal to the total amount of business
interest to be carried forward to the next taxable year under 26 USC 163(j)(2)
divided by the total business interest paid for that taxable year (including
any amount of business interest carried forward from the preceding taxable year
and carried forward to that taxable year under 26 USC 163(j)(2)).
B) EXAMPLE:
i) In
Year 1, Taxpayer paid $100 in business interest to Foreign Person and $1,000 in
total business interest. There was no carryforward under 26 USC 163(j)(2) from
the prior year. Under 26 USC 163(j), Taxpayer's federal income tax deduction
for business interest in Year 1 was limited to $800. In Year 2, Taxpayer paid
$130 in business interest to Foreign Person and $1,800 in total business
interest. Taxpayer's federal income tax deduction for business interest in Year
2 was limited under 26 USC 163(j) to $1,200.
ii) For
purposes of this Section, the federal income tax deduction allowed to Taxpayer
for interest paid to Foreign Person in Year 1 equals $80: the $100 actually
paid multiplied by 80% (the $800 federal income tax deduction allowed for
business interest divided by the $1,000 in total business interest paid). The
carryforward of interest paid to Foreign Person in Year 1 to Year 2 equals $20:
the $100 actually paid to Foreign Person multiplied by 20% (the $200
carryforward to Year 2 divided by the $1,000 in total business interest paid in
Year 1).
iii) For
purposes of this Section, the federal income tax deduction allowed to Taxpayer
for interest paid to Foreign Person in Year 2 equals $90: the $130 in interest
actually paid to Foreign Person in Year 2 plus the $20 paid to Foreign Person
in Year 1 and carried forward to Year 2, or $150, multiplied by 60% (the $1,200
federal income tax deduction allowed for business interest divided by the
$2,000 in total business interest for Year 2, which equals the $1,800 actually
paid plus the $200 carryover from Year 1). The carryforward of interest paid
to Foreign Person in Year 2 to Year 3 equals $60: the $150 paid to Foreign
Person in Year 2 or carried forward from Year 1, multiplied by 40% (the $800
carryforward to Year 3 divided by the $2,000 in total business interest paid in
Year 2 or carried forward from Year 1).
c) Addition Modifications
1) Interest.
Except as otherwise provided in this subsection (c)(1), every taxpayer must add
back to its base income any deduction otherwise allowed in the taxable year for
interest paid to a foreign person or (for taxable years ending on or after
December 31, 2008 and prior to December 31, 2017) to a noncombination rule
company, to the extent the interest exceeds the amount of dividends received
from the foreign person or noncombination rule company by the taxpayer and
included in base income for the same taxable year. (See IITA Section
203(a)(2)(D-17), (b)(2)(E-12), (c)(2)(G-12) and (d)(2)(D-7).) This addition
modification shall not apply to an item of interest expense if:
A) The
foreign person or noncombination rule company is subject in a foreign country
or state, other than a state that requires mandatory unitary reporting by
the taxpayer and the foreign person or noncombination rule company, to a tax on
or measured by net income with respect to the interest. The foreign person or
noncombination rule company is subject to a tax on or measured by net income
with respect to the interest if the interest is included in its tax base, even
if the tax base is offset in whole or in part by deductions for expenses
incurred in the production of income or by generally-applicable exemptions, or
if the tax imposed by the foreign country or state is offset in whole or in
part by credits that are not contingent on the receipt of the interest. If the
foreign person or noncombination rule company is a partnership, subchapter S
corporation or trust, the foreign person or noncombination rule company is
subject to a tax on or measured by net income with respect to the interest to
the extent that the interest is included in the tax base of a partner,
shareholder or beneficiary who is subject to a tax on or measured by net income
in a foreign country or state. For purposes of this subsection (c)(1)(A), it
is irrelevant that, under the laws of the foreign country or state, the
interest is included in the tax base in a period other than the taxable year in
which the deduction is otherwise allowable.
B) The
taxpayer can establish, based on a preponderance of the evidence, both of the
following:
i) the
foreign person or noncombination rule company (during the same taxable year in
which the taxpayer paid the interest) paid, accrued, or incurred the interest
to a person that is not a related party; and
ii) the
transaction giving rise to the interest expense between the taxpayer and the
foreign person or noncombination rule company did not have as a principal
purpose the avoidance of Illinois income tax, and interest is paid pursuant to
a contract or agreement that reflects an arms-length interest rate and terms.
C) The
taxpayer can establish, based on clear and convincing evidence, that the item
of interest relates to a contract or agreement entered into at arms-length
rates and terms and the principal purpose for the payment is not federal or Illinois tax avoidance.
D) The
taxpayer establishes by clear and convincing evidence that the adjustment would
be unreasonable.
E) The
taxpayer has received permission under Section 100.3390 to use an alternative
method of apportionment allowing the deduction of the item.
2) Intangible
Expenses. Except as otherwise provided in this subsection (c)(2), every
taxpayer must add back to its base income any deduction otherwise allowed in
the taxable year for intangible expenses incurred with respect to transactions
with a foreign person or (for taxable years ending on or after December 31,
2008 and prior to December 31, 2017) with a noncombination rule company, to the
extent the intangible expenses exceed the amount of dividends received from the
foreign person or noncombination rule company by the taxpayer and included in
base income for the same taxable year. If a taxpayer incurs both interest and
intangible expenses with the same foreign person or noncombination rule
company, any dividends received from that foreign person or noncombination rule
company shall be applied first against interest under subsection (c)(1) and
only the excess (if any) of the dividends over the interest expenses shall be applied
against intangible expenses under this subsection (c)(2). (See IITA Section
203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8).) This addition
modification shall not apply to an item of intangible expense if:
A) The
item arises from a transaction with a foreign person or noncombination rule
company who is subject in a foreign country or state, other than a state that
requires mandatory unitary reporting by the taxpayer and the foreign
person or noncombination rule company, to a tax on or measured by net income
with respect to the intangible income related to the item. The foreign person
or noncombination rule company is subject to a tax on, or measured by net
income with respect to, the intangible income if the intangible income is
included in its tax base, even if the tax base is offset in whole or in part by
deductions for expenses incurred in the production of income or by
generally-applicable exemptions or if the tax imposed by the foreign country or
state is offset in whole or in part by credits that are not contingent on the
receipt of the intangible income. If the foreign person or noncombination rule
company is a partnership, subchapter S corporation or trust, the foreign person
or noncombination rule company is subject to a tax on or measured by net income
with respect to the intangible income to the extent that the intangible income
is included in the tax base of a partner, shareholder or beneficiary who is
subject to a tax on or measured by net income in a foreign country or state. For
purposes of this subsection (c)(2)(A), it is irrelevant that, under the laws of
the foreign country or state, the intangible income is included in the tax base
in a period other than the taxable year in which the deduction for the
intangible expense is otherwise allowable.
B) The
taxpayer can establish, based on a preponderance of the evidence, both of the
following:
i) the
foreign person or noncombination rule company (during the same taxable year in
which the taxpayer paid the intangible expense) paid, accrued, or incurred the
intangible expense to a person that is not a related party; and
ii) the
transaction giving rise to the intangible expense between the taxpayer and the
foreign person or noncombination rule company did not have as a principal
purpose the avoidance of Illinois income tax, and is paid pursuant to a
contract or agreement that reflects arms-length terms.
C) If the
taxpayer establishes, by clear and convincing evidence, that the adjustments
are unreasonable.
D) The
taxpayer has received permission under Section 100.3390 to use an alternative
method of apportionment, allowing the deduction of the item.
3) Insurance
Premiums. For taxable years ending on or after December 31, 2008 and prior to
December 31, 2017, every taxpayer must add back to its base income any
deduction otherwise allowed in the taxable year for insurance premiums paid to
a noncombination rule company, to the extent the insurance premium expense
exceeds the amount of dividends received from the noncombination rule company
by the taxpayer and included in base income for the same taxable year. If a
taxpayer incurs both interest or intangible expenses and insurance premium
expenses with the same noncombination rule company, any dividends received from
that noncombination rule company shall be applied first against interest under
subsection (c)(1), then against intangibles expenses under subsection (c)(2),
and only the excess (if any) of the dividends over the interest expenses and
intangible expenses shall be applied against insurance premium expenses under
this subsection (c)(3). (See IITA Section 203(a)(2)(D-19), (b)(2)(E-14), (c)(2)(G-14)
and (d)(2)(D-9).)
d) Subtraction
Modifications
1) Interest
Income of a Foreign Person or Noncombination Rule Company. If interest paid to
a foreign person or noncombination rule company is added back by a taxpayer
under subsection (c)(1), the foreign person or noncombination rule company is
allowed a subtraction for the amount of that interest included in its base
income for the taxable year, net of deductions allocable to that income. The
subtraction allowed under this subsection (d)(1) shall not exceed the amount of
the corresponding addition under subsection (c)(1). (See IITA Section
203(a)(2)(CC), (b)(2)(V), (c)(2)(T) and (d)(2)(Q).)
2) Intangible
Income of a Foreign Person or Noncombination Rule Company. If intangible
expense incurred in a transaction with a foreign person or noncombination rule
company is added back by a taxpayer under subsection (c)(2), the foreign person
or noncombination rule company is allowed a subtraction for the amount of the
intangible income from that transaction included in its base income for the
taxable year, net of deductions allocable to that income. The subtraction
allowed under this subsection (d)(2) shall not exceed the amount of the
corresponding addition under subsection (c)(2). (See IITA Section
203(a)(2)(CC), (b)(2)(V), (c)(2)(T) and (d)(2)(Q).)
3) Interest
Income from a Foreign Person or Noncombination Rule Company. A taxpayer who
receives interest income from a foreign person or noncombination rule company
is allowed a subtraction for the amount of that interest income, net of
deductions allocable to that income. The subtraction allowed in this
subsection (d)(3) for a taxable year may not exceed the amount of the addition
modification for the taxable year under subsection (c)(1) for interest paid by
the taxpayer to the foreign person or noncombination rule company. (See IITA
Section 203(a)(2)(DD), (b)(2)(W), (c)(2)(U) and (d)(2)(R).)
4) Intangible
Income from a Foreign Person or Noncombination Rule Company. A taxpayer who
receives intangible income from a transaction with a foreign person or
noncombination rule company is allowed a subtraction for the amount of the
intangible income, net of deductions allocable to that income. The subtraction
allowed in this subsection (d)(4) for the taxable year may not exceed the
amount of the addition modification for the taxable year under subsection
(c)(2) for intangible expenses incurred by the taxpayer in transactions with
the foreign person or noncombination rule company. (See IITA Section 203(a)(2)(EE),
(b)(2)(X), (c)(2)(V) and (d)(2)(S).)
5) Insurance
Premium Income of a Noncombination Rule Company. If insurance premium expense
incurred in a transaction with a noncombination rule company is added back by a
taxpayer under subsection (c)(3), the noncombination rule company is allowed a
subtraction for the amount of the insurance premium income from that
transaction included in its base income for the taxable year, net of deductions
allocable to that income. The subtraction allowed under this subsection (d)(5)
shall not exceed the amount of the corresponding addition under subsection
(c)(3). (See IITA Section 203(b)(2)(V).)
6) Insurance
Paid by a Noncombination Rule Company. For taxable years ending on or after
December 31, 2011, in the case of a taxpayer who added back any insurance
premiums under subsection (c)(3), the taxpayer may elect to subtract that part
of a reimbursement received from the insurance company to which the premiums
were paid equal to the amount of the expense or loss (including expenses
incurred by the insurance company) that would have been taken into account as a
deduction for federal income tax purposes if the expense or loss had not been
insured by the policy for which the premiums were paid. If a taxpayer makes the
election provided for by this subsection (d)(6), the insurer to which the
premiums were paid must (if required to file an Illinois income tax return) add
back to its taxable income the amount subtracted by the taxpayer under this
subsection (d)(6). (See IITA Section 203(a)(2)(GG), (b)(2)(Y) (c)(2)(Y) and
(d)(2)(T).)
e) Unitary
Business Groups. The provisions of this Section apply both to persons who are
members of a unitary business group and to persons who are not members of a
unitary business group because of the application of the 80/20 rule or (for
taxable years ending on or after December 31, 2008 and prior to December 31,
2017) because of the prohibition in IITA Section 1501(a)(27) against including
in a single unitary business group taxpayers using different apportionment
formulas under IITA Section 304(a) through (d). In applying the provisions of
this Section in the case of a unitary business group, any reference to the
"taxpayer" in this Section shall be deemed to refer to the unitary
business group.
(Source: Amended at 44 Ill.
Reg. 10907, effective June 10, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2435 ADDITION MODIFICATION FOR STUDENT-ASSISTANCE CONTRIBUTION CREDIT (IITA SECTIONS 203(A)(2)(D-23), (B)(2)(E-16), (C)(2)(G-15), (D)(2)(D-10))
Section 100.2435 Addition Modification for
Student-Assistance Contribution Credit (IITA Sections 203(a)(2)(D-23),
(b)(2)(E-16), (c)(2)(G-15), (d)(2)(D-10))
a) For
taxable years ending on or after December 31, 2009, IITA Section 203 requires a
taxpayer to make an addition modification in computing base income equal to the
credit allowable to the taxpayer under IITA Section 218(a), determined without
regard to IITA Section 218(c). (IITA Section 203(a)(2)(D-23), (b)(2)(E-16),
(c)(2)(G-15), (d)(2)(D-10)) IITA Section 218 allows a credit for certain
amounts paid by an employer to an Illinois qualified tuition program. (See
Section 100.2510 of this Part.)
b) For
purposes of IITA Section 203 and this Section, the "credit allowable to
the taxpayer" that must be added to base income is the amount of the
credit under IITA Section 218 eligible to be claimed by the taxpayer for a
taxable year on a return filed with the Department, without reduction for any
part of the credit that must be carried forward to taxable years following the
credit year because the credit exceeds the taxpayer's liability. (See IITA
Section 203(a)(2)(D-23), (b)(2)(E-16), (c)(2)(G-15), (d)(2)(D-10).)
(Source: Added at 35 Ill.
Reg. 15092, effective August 24, 2011)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2450 IIT REFUNDS (IITA SECTION 203(A)(2)(H), (B)(2)(F), (C)(2)(J) AND (D)(2)(F))
Section 100.2450 IIT
Refunds (IITA Section 203(a)(2)(H), (b)(2)(F), (c)(2)(J) and (d)(2)(F))
a) The "tax benefit rule" codified
in Internal Revenue Code section 111 applies when a taxpayer receives a tax
benefit from claiming a deduction for an expense in one year and recovers or is
compensated or reimbursed for the expense in a subsequent taxable year. Under
the tax benefit rule, the recovery or compensation for the expense is included
in income in the year it is received. Thus, when the taxpayer deducts State
income taxes paid in one taxable year and receives a refund of some or all of
the payment in a subsequent year, the tax benefit rule requires the taxpayer to
include the refund in federal taxable income or adjusted gross income for the
taxable year of the refund. If, however, the expense did not reduce the
taxpayer's federal income tax, the recovery or compensation is excluded from
income under Internal Revenue Code section 111(a).
b) The regular income tax imposed directly on
an individual is allowed only as an itemized deduction for federal income tax
purpose and so is not deducted in computing adjusted gross income. Because
Illinois does not allow itemized deductions, and any Personal Property Tax
Replacement Income Tax deducted in computing adjusted gross income because it
is passed through from a partnership, Subchapter S corporation, or trust is
added back under IITA Section 203(a)(2)(B), IITA Section 203(a)(2)(H) allows
individuals to subtract any such refund included in adjusted gross income. The
purpose of this subtraction and the addition of IITA Section 203(a)(2)(B) is to
render the payment of Illinois income tax and replacement income tax neutral in
the computation of adjusted gross income.
c) All other taxpayers are required to add
back any Illinois regular income tax or replacement tax deducted in computing
their federal taxable income. (See IITA Section 203(b)(2)(B) (corporations), (c)(2)(C)
(trusts and estates) and (d)(2)(B) (partnerships)). Because these taxpayers
receive no Illinois income tax benefit from these deductions, any refund of
Illinois regular income tax or replacement tax that is included in the
taxpayer's federal taxable income may be subtracted under IITA Section
203(b)(2)(F) (corporations), (c)(2)(J) (trusts and estates) and (d)(2)(F)
(partnerships).
(Source:
Added at 32 Ill. Reg. 3400, effective February 25, 2008)
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2455 SUBTRACTION MODIFICATION: FEDERALLY DISALLOWED DEDUCTIONS (IITA SECTIONS 203(A)(2)(M), 203(B)(2)(I), 203(C)(2)(L) AND 203(D)(2)(J))
Section 100.2455 Subtraction Modification: Federally
Disallowed Deductions (IITA Sections 203(a)(2)(M), 203(b)(2)(I), 203(c)(2)(L)
and 203(d)(2)(J))
a) Taxpayers
are entitled to subtract from taxable income (adjusted gross income, in the
case of an individual), 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, and all amounts of expenses allocable to interest and disallowed as
deductions by section 265(1) of the Internal Revenue Code of 1954, and, for
taxable years ending on or after August
13, 1999, sections 171(a)(2), 265, 280C, 291(a)(3) and 832(b)(5)(B)(i) of the
Internal Revenue Code. (IITA Section 203) In order to prevent double
deductions, no subtraction is allowed under these provisions for amounts
already subtracted because of an exemption from taxation by virtue of Illinois
law or the Illinois or U.S. Constitution, or by reason of U.S. treaties or
statutes (see Section 100.2470).
b) Section
171 of the Internal Revenue Code requires amortization of premiums paid for a
tax-exempt bond over the period between the purchase date and either the
maturity date or, if earlier, the first date on which the bond may be called.
Section 171(a)(2) of the Internal Revenue Code states that, when the interest
of a tax-exempt bond is excludable from gross income, there shall be no
deduction for the amortizable bond premium for the taxable year. The IITA
allows taxpayers to subtract the bond premium amortization required by section
171 of the Internal Revenue Code for that year to the extent the taxpayer was
prohibited from deducting the amortization by section 171(a)(2) of the Internal
Revenue Code. Illinois does not provide any adjustment to federal taxable
income (adjusted gross income in the case of an individual) related to gains or
losses on the sales of bonds. The only subtraction is for the amortization of
bond premium that is allocable to that particular tax year. If the bond is
called before maturity, then there is no subtraction for periods after the call
date.
c) Section
265 of the Internal Revenue Code provides that no deduction shall be allowed
from federal taxable income (adjusted gross income in the case of an
individual) for expenses relating to tax-exempt income (section 265(a)(1) of
the Internal Revenue Code), and for interest relating to tax-exempt income
(section 265(a)(2) of the Internal Revenue Code). These expense and interest
amounts, determined in a manner consistent with the provisions of the Internal
Revenue Code, are allowable subtractions for Illinois income tax purposes.
d) Section
280C(a) of the Internal Revenue Code provides that no deduction shall be
allowed for that portion of wages or salaries paid or incurred for the taxable
year that is equal to the sum of the credits determined for the taxable year
under sections 45A (the Indian Employment Credit), 51(a) (the Work Opportunity
Credit), 1396(a) (the Empowerment Zone Employment Credit), 1400P(b) (employer
provided housing for individuals affected by Hurricane Katrina), and 1400R
(employee retention by employers affected by hurricanes) of the Internal
Revenue Code. Section 280C(b) of the Internal Revenue Code provides that no
deduction shall be allowed for that portion of the qualified clinical testing
expenses for certain drugs for rare diseases or conditions otherwise allowable
as a deduction for the taxable year that is equal to the amount of the credit
allowable for the taxable year under section 45(C) of the Internal Revenue
Code. Section 280(C)(c) of the Internal Revenue Code provides that no
deduction or credit shall be allowed for that portion of the qualified research
expenses or basic research expenses otherwise allowable as a deduction or
credit for the taxable year that is equal to the amount of the credit
determined for such taxable year under section 41(a) of the Internal Revenue
Code.
e) Section
291(a)(3) of the Internal Revenue Code provides that the amount allowable as a
deduction with respect to certain financial institution preference items shall
be reduced by 20%. Illinois provides a subtraction modification for the
remaining 20% not deducted federally with respect to those financial
institution preference items.
f) Section
835(b)(5)(B)(i) of the Internal Revenue Code provides that the amount of
federal deduction for losses incurred on insurance company contracts shall be
reduced by an amount equal to 15% of the sum of tax-exempt interest received or
accrued during the taxable year. Illinois provides a subtraction modification
for the remaining 15% not deducted federally with respect to the tax-exempt
interest received or accrued during the taxable year from insurance company
contracts.
(Source: Added at 32 Ill. Reg. 10170,
effective June 30, 2008)
|
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2465 CLAIM OF RIGHT REPAYMENTS (IITA SECTION 203(A)(2)(P), (B)(2)(Q), (C)(2)(P) AND (D)(2)(M))
Section 100.2465 Claim of
Right Repayments (IITA Section 203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and
(d)(2)(M))
a) In computing base income, a taxpayer may subtract from federal
taxable income or adjusted gross income 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 IRC section 1341 or of any itemized deduction
taken from adjusted gross income in the computation of taxable income for
restoration of substantial amounts held under claim of right for the taxable
year. (IITA Section 203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and (d)(2)(M))
b) For federal income tax purposes, if a taxpayer is required to
include a receipt in taxable income under the "claim of right"
principle because the taxpayer had an unrestricted right to the item when received,
and is subsequently required to repay the item, the taxpayer must deduct the
repayment in the year of repayment, rather than exclude the receipt from
income. However, IRC section 1341 allows some
taxpayers to claim a credit against their federal income tax liability in the
year of repayment equal to the tax attributable to the inclusion of the receipt
in taxable income, in lieu of the deduction. In order to avoid taxing income
received under a claim of right that is subsequently repaid, IITA Section
203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and (d)(2)(M) allows a taxpayer who claimed
a credit under IRC section 1341 for a taxable year to subtract an amount equal
to the amount of the repayment that would otherwise have been deductible in
that taxable year.
c) In the case of an individual, the deduction allowed for
repayment of claim of right income is an itemized deduction taken from adjusted
gross income. Because, in the case of an individual, the computation of base
income begins with the taxpayer's adjusted gross income, an individual is
allowed no deduction for repayment of claim of right income unless expressly
provided in IITA Section 203. (See IITA Section 203(a)(1) and (h).) In 2011, Public
Act 97-0507 amended IITA Section 203(a)(2)(P) to allow individuals who had
claimed an itemized deduction for repayment of claim of right income to
subtract the amount of that deduction from their adjusted gross income. This
amendment is not, by its terms, required to be applied prospectively only, and
the subtraction will be allowed for any taxable year, subject to the statute of
limitations for claims for refund.
(Source: Added at 40 Ill. Reg. 14762,
effective October 12, 2016)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2470 SUBTRACTION OF AMOUNTS EXEMPT FROM TAXATION BY VIRTUE OF ILLINOIS LAW, THE ILLINOIS OR U.S. CONSTITUTIONS, OR BY REASON OF U.S. TREATIES OR STATUTES (IITA SECTIONS 203(A)(2)(N), 203(B)(2)(J), 203(C)(2)(K) AND 203(D)(2)(G))
Section 100.2470 Subtraction of Amounts Exempt from
Taxation by Virtue of Illinois Law, the Illinois or U.S. Constitutions, or by
Reason of U.S. Treaties or Statutes (IITA Sections 203(a)(2)(N), 203(b)(2)(J),
203(c)(2)(K) and 203(d)(2)(G))
a) In
calculating base income, taxpayers are entitled to subtract 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 (IITA
203(a)(2)(N)). There are also provisions of Illinois law that exempt the
income of certain obligations of state and local governments from Illinois
income taxation (see subsection (f)).
b) Interest
on obligations of the United States. A federal statute exempts stocks and
obligations of the United States Government, as well as the interest on the
obligations, from state income taxation (see 31 USC 3124(a)).
1) "Obligations
of the United States" are those obligations issued "to secure credit
to carry on the necessary functions of government." Smith v. Davis (1944)
323 U.S. 111, 119, 89 L. Ed. 107, 113, 65 S. Ct. 157, 161. The exemption is
aimed at protecting the "Borrowing" and "Supremacy" clauses
of the Constitution. Society for Savings v. Bowers (1955) 349 U.S. 143, 144,
99 L. Ed. 2d 950, 955, 75 S. Ct. 607, 608. Hibernia v. City and County of San
Francisco (1906) 200 U.S. 310, 313, 50 L. Ed. 495, 496, 26 S. Ct. 265, 266.
A) Tax-exempt
credit instruments possess the following characteristics:
i) they are written
documents;
ii) they bear interest;
iii) they
are binding promises by the United States to pay specified sums at specified
dates;
iv) they
have congressional authorization which also pledges the faith and credit of the
United States in support of the promise to pay. Smith v. Davis, supra.
B) A
governmental obligation that is secondary, indirect, or contingent, such as a
guaranty of a nongovernmental obligor's primary obligation to pay the principal
amount of and interest on a note, is not an obligation of the type exempted
under 31 USC Section 3124(a). Rockford Life Ins. Co. v. Department of Revenue,
107 S. Ct. 2312 (1987).
2) Based
on the above, the following types of income are exempt under 31 USC Section
3124(a):
A) Interest
on U.S. Treasury bonds, notes, bills, certificates, and savings bonds.
B) Income
from GSA Public Building Trust Participation Certificates: First Series,
Series A through E; Second Series, Series F; Third Series, Series G; Fourth
Series H and I.
c) Income
exempted by reason of other federal statutes. Federal statutes provide
exemption from state income taxation with respect to various specifically named
types of income. Following is a list (intended to be exhaustive) of exempt
income and the specific statutes to which each item relates:
1) Banks
for Cooperatives − Income from notes, debentures, and other obligations
issued by Banks for Cooperatives (12 USC 2134).
2) Commodity
Credit Corporation − Interest derived from bonds, notes, debentures, and
other similar obligations issued by Commodity Credit Corporation (15 USC
713a-5).
3) Farm
Credit System Financial Assistance Corporation (Financial Assistance
Corporation) − Income from notes, bonds, debentures, and other
obligations issued by the Financial Assistance Corporation (12 USC
2278b-10(b)).
4) Federal
Deposit Insurance Corporation − Interest derived from notes, debentures,
bonds, or other such obligations issued by Federal Deposit Insurance
Corporation (12 USC 1825).
5) Federal
Farm Credit Banks − Income from consolidated system-wide notes, bonds,
debentures, and other obligations issued jointly and severally under 12 USC
2153 by Banks of the Federal Farm Credit System (12 USC 2023; 12 USC 207; 12
USC 2098; and 12 USC 2134).
6) Federal
Home Loan Banks − Interest derived from notes, debentures, bonds, and
other such obligations issued by Federal Home Loan Banks and from consolidated
Federal Home Loan bonds and debentures (12 USC 1433).
7) Federal
Intermediate Credit Banks − Income from notes, debentures, bonds, and
other obligations issued by Federal Intermediate Credit Banks (12 USC 2079).
8) Federal
Land Banks and Federal Land Bank Association − Income from notes,
debentures, bonds, and other obligations issued by Federal Land Banks and
Federal Land Bank Associations (12 USC 2055).
9) Federal
Savings and Loan Insurance Corporation − Interest derived from notes,
bonds, debentures, and other such obligations issued by Federal Savings and
Loan Insurance Corporation (12 USC 1725(e)).
10) Financing
Corporation (FICO) − Income from obligations issued by the Financing
Corporation (12 USC 1441(e)(8)).
11) General
Insurance Fund
A) Interest
derived from debentures issued by General Insurance Fund under the War Housing
Insurance Law (12 USC 1739(d)); or
B) Interest
derived from debentures issued by General Insurance Fund to acquire rental
housing projects (12 USC 1747g(g)); or
C) Interest
derived from Armed Services Housing Mortgage Insurance Debentures issued by the
General Insurance Fund (12 USC Section 1748b(f)).
12) Guam
− Interest derived from bonds issued by the government of Guam (48 USC
1423a). This income is not presently included in federal taxable income.
Under Illinois law, it must be added back to federal taxable income and then
claimed as a subtraction on an Illinois income tax return.
13) Mutual
Mortgage Insurance Fund − Income from such debentures as are issued in
exchange for property covered by mortgages insured after February 3, 1988 (12
USC 1710(d)). This income is not presently included in federal taxable
income. Under Illinois law, it must be added back to federal taxable income
and then claimed as a subtraction on an Illinois income tax return.
14) National
Credit Union Administration Central Liquidity Facility − Income from the
notes, bonds, debentures, and other obligations issued on behalf of the Central
Liquidity Facility (12 USC 1795K(b)).
15) Production
Credit Association − Income from notes, debentures, and other obligations
issued by Production Credit Association (12 USC 2098).
16) Puerto
Rico − Interest derived from bonds issued by the Government of Puerto
Rico (48 USC 745). This income is not presently included in federal taxable
income. Under Illinois law, it must be added back to federal taxable income
and then claimed as a subtraction on an Illinois income tax return.
17) Railroad
Retirement Act − Annuity and supplemental annuity payments as qualified
under the Railroad Retirement Act of 1974 (45 USC 231m). Please be sure to use
the line specified on your Illinois return for this item.
18) Railroad
Unemployment Insurance Act − Unemployment benefits paid pursuant to the
Railroad Unemployment Insurance Act (45 USC 352(e)).
19) Resolution
Funding Corporation − Interest from obligations issued by the Resolution
Funding Corporation (12 USC 1441b(f)(7)(A)).
20) Special
Food Service Program − Assistance to children under the Special Food
Service Program (42 USC 1760(e)).
21) Student
Loan Marketing Association − Interest derived from obligations issued by
the Student Loan Marketing Association (20 USC 1087-2(h)(221)).
22) Tennessee
Valley Authority − Interest derived from bonds issued by the Tennessee
Valley Authority (16 USC 831n-4(d).
23) United
States Postal Service − Interest derived from obligations issued by the
United States Postal Service (39 USC 2005(d)(4)).
24) Virgin
Islands − Interest derived from bonds issued by the Government of the
Virgin Islands (48 USC 1574(b)(ii)(A)). This income is not presently included
in income taxable federally. Under Illinois law, it must be added back to
federal taxable income and then claimed as a subtraction on an Illinois income
tax return.
25) American
Samoa − Interest on bonds issued by the Government of American Samoa (48
USC 1670(b)).
26) Northern
Mariana Islands − Interest on bonds issued by the Government of the
Northern Mariana Islands (48 USC 1801 note).
d) Distributions
from money market trusts (mutual funds). Taxpayers may subtract income
received from any of the obligations listed in subsections (b) and (c), even if
the obligations are owned indirectly through owning shares in a mutual fund.
1) If
the fund invests exclusively in these state tax exempt obligations, the entire
amount of the distribution (income) from the fund may be subtracted.
2) If
the fund invests in both exempt and non-exempt obligations, the amount
represented by the percentage of the distribution that the mutual fund
identifies as exempt may be subtracted.
3) If
the mutual fund does not identify an exempt amount or percentage, taxpayers may
figure the subtraction by multiplying the distribution by the following
fraction: as the numerator, the amount invested by the fund in state-exempt
U.S. obligations; as the denominator, the fund's total investment. Use the
year-end amounts to figure the fraction if the percentage ratio has remained
constant throughout the year. If the percentage ratio has not remained
constant, take the average of the ratios from the fund's quarterly financial
reports.
e) Getting
a refund of tax you already paid. If you paid Illinois income tax on these
state tax exempt distributions, you may file an amended return to claim a
refund for any year still within the statute of limitations.
f) Interest
on obligations of state and local governments. Income from state and local
obligations is not exempt from Illinois income tax except where authorizing
legislation adopted after August 1, 1969, specifically provides for an
exemption. To date, authorizing legislation provides exemption for the income
from the securities listed below. Taxpayers must show income from these exempt
bonds as an addition and then as a subtraction on the Illinois income tax
return. Income from these bonds is not exempt if the bonds are owned indirectly
through owning shares in a mutual fund.
1) Notes
and bonds issued by the Illinois Housing Development Authority (except
housing-related commercial facilities notes and bonds) [20 ILCS 3805/31].
2) Bonds
authorized pursuant to the Export Development Act of 1983 (former Ill. Rev.
Stat. 1991, ch. 127, par. 2513, repealed by P.A. 87-860, effective July 1,
1992).
3) Bonds
issued by the Illinois Development Finance Authority pursuant to Sections 7.50
through 7.61 (venture fund and infrastructure bonds) [20 ILCS 3505/7.61],
(repealed by P.A. 93-205, effective January 1, 2004, which provides in 20 ILCS
3501/845-60 that bonds issued under this provision continue to be exempt from
taxation).
4) Bonds
and notes issued by the Quad Cities Regional Economic Development Authority, if
the Authority so determines [70 ILCS 510/11 and13 and 70 ILCS 515/11 and 12].
5) College
Savings Bonds issued under the General Obligation Bond Act in accordance with
the Baccalaureate Savings Act [110 ILCS 920/7].
6) Bonds
issued by the Illinois Sports Facilities Authority [70 ILCS 3205/15].
7) Bonds
issued on or after September 2, 1988, pursuant to the Higher Education Student
Assistance Act [110 ILCS 947/145] (transferred from 105 ILCS 5/30-15.18 by P.A.
87-997).
8) Bonds
issued by the Illinois Development Finance Authority or the Illinois Finance
Authority under the Asbestos Abatement Finance Act [20 ILCS 3510/8].
9) Bonds
and notes issued under the Rural Bond Bank Act [30 ILCS 360/3-12] (repealed by
P.A. 93-205, effective January 1, 2004, which provides in 20 ILCS 3501/845-60
that bonds issued under this provision continue to be exempt from taxation).
10) Bonds
issued pursuant to Sections 7.80 through 7.87 of the Illinois Development
Finance Authority Act [20 ILCS 3505/7-86] (repealed by P.A. 93-205, effective
January 1, 2004, which provides in 20 ILCS 3501/845-60 that bonds issued under
this provision continue to be exempt from taxation).
11) Bonds
issued by the Quad Cities Interstate Metropolitan Authority under the Quad
Cities Interstate Metropolitan Authority Act [45 ILCS 35/110].
12) Bonds
issued by the Southwestern Illinois Development Authority pursuant to the
Southwestern Illinois Development Authority Act [70 ILCS 520/7.5].
13) Bonds
issued by the Illinois Finance Authority under the Local Government Article and
the Financially Distressed City Program in the Illinois Finance Authority Act
[20 ILCS 3501/820-60 and 825-55].
14) Illinois
Power Agency bonds issued by the Illinois Finance Authority under the Other
Powers Article of the Illinois Finance Authority Act [20 ILCS 3501/825-90], if
the Authority so determines.
15) Bonds
issued by the Central Illinois Economic Development Authority under the Central
Illinois Economic Development Authority Act [70 ILCS 504/40], if the Authority
so determines.
16) Bonds
issued by the Eastern Illinois Economic Development Authority under the Eastern
Illinois Economic Development Authority Act [70 ILCS 506/40], if the Authority
so determines.
17) Bonds
issued by the Southeastern Illinois Economic Development Authority under the
Southeastern Illinois Economic Development Authority Act [70 ILCS 518/40], if
the Authority so determines.
18) Bonds
issued by the Southern Illinois Economic Development Authority under the
Southern Illinois Economic Development Authority Act [70 ILCS 519/5‑45],
if the Authority so determines.
19) Bonds
issued by the Upper Illinois River Valley Development Authority under the Upper
Illinois River Valley Development Authority Act [70 ILCS 530/7.1], if the
Authority so determines.
20) Bonds
issued by the Illinois Urban Development Authority under the Illinois Urban
Development Authority Act [70 ILCS 531/11], if the Authority so determines.
21) Bonds
issued by the Western Illinois Economic Development Authority under the Western
Illinois Economic Development Authority Act [70 ILCS 532/45], if the Authority
so determines.
22) Bonds
issued by the Downstate Illinois Sports Facilities Authority under the
Downstate Illinois Sports Facilities Authority Act [70 ILCS 3210/60], if the
Authority so determines.
23) Bonds
issued by the Will-Kankakee Regional Development Authority under the
Will-Kankakee Regional Development Authority Law [70 ILCS 535/14], if the
Authority so determines.
24) Bonds
issued by the Tri-County River Valley Development Authority under the
Tri-County River Valley Development Authority Law [70 ILCS 525/2007.1], if the
Authority so determines.
25) Bonds
issued by the New Harmony Bridge Authority under the New Harmony Bridge
Authority Act [45 ILCS 185/5-50]. This exemption is subject to sunset under
IITA Section 250, and does not apply to taxable years beginning on or after
August 19, 2023, the fifth anniversary of the effective date of P.A. 100-981.
26) Bonds
issued by the New Harmony Bridge Bi-State Commission under the New Harmony
Bridge Interstate Compact Act [45 ILCS 190/10-5]. This exemption is subject to
sunset under IITA Section 250, and does not apply to taxable years beginning on
or after August 19, 2023, the fifth anniversary of the effective date of P.A.
100-981.
g) Other income exempt from
Illinois income taxation by reason of Illinois statute:
1) Income
earned by certain trust accounts established under the Illinois Pre-Need
Cemetery Sales Act [815 ILCS 390/16] or the Illinois Funeral or Burial Funds
Act [225 ILCS 45/4a(c)]. Section 16(f) of the Illinois Pre-Need Cemetery Sales
Act and Section 4a(c) of the Illinois Funeral or Burial Funds Act provide
that: because it is not known at the time of deposit or at the time that
income is earned on the trust account to whom the principal and the accumulated
earnings will be distributed, for purposes of determining the Illinois Income
Tax due on these trust funds, the principal and any accrued earnings or losses
relating to each individual account shall be held in suspense until the final
determination is made as to whom the account shall be paid.
2) Income
in the form of education loan repayments made for health care providers who
agree to practice in designated shortage areas for a specified period of time
under the terms of the Family Practice Residency Act [110 ILCS 935/4.10].
3) Income
earned by nuclear decommissioning trusts established pursuant to Section
8-508.1 of the Public Utilities Act [220 ILCS 5/8-508.1]. The terms "Decommissioning
trust" or "trust" means a fiduciary account in a bank or other
financial institution established to hold the decommissioning funds provided
pursuant to Section 8-508.1(b)(2) of the Public Utilities Act for the
eventual purpose of paying decommissioning costs, which shall be separate from
all other accounts and assets of the public utility establishing the trust. [220
ILCS 5/8-508.1(a)(3)]
4) Income
from the Illinois prepaid tuition program, other than disbursements to
beneficiaries which are not used in accordance with the applicable prepaid
tuition contract under the Illinois Prepaid Tuition Act [110 ILCS 979]. The
Illinois prepaid tuition program was created in 1997 for the express purpose of
allowing savings for higher education to earn tax-exempt returns under IRC
section 529. If a prepaid tuition contract qualifies under IRC section 529,
earnings on contributions made to the Illinois Prepaid Tuition Trust Fund under
the contract are exempt from federal income taxation (and therefore Illinois
income taxation) until distributed. The legislative intent in creating the
Illinois prepaid tuition program does not guarantee that every prepaid tuition
contract will qualify under IRC section 529 and there is no guarantee that IRC
section 529 will continue in effect. However, Section 55 of the Illinois
Prepaid Tuition Act [110 ILCS 979/55] provides that assets of the Illinois
Prepaid Tuition Trust Fund and its income and operation shall be exempt from
all taxation by the State and that disbursements to a beneficiary shall
be similarly exempt from all taxation by the State of Illinois and any of its
subdivisions, so long as they are used for educational purposes in accordance
with the provisions of an Illinois prepaid tuition contract. Under this
provision, any undistributed earnings of the Illinois Prepaid Tuition Trust
which are included in a taxpayer's federal taxable income or adjusted gross
income because a prepaid tuition contract does not qualify under IRC section
529 may be subtracted in computing the taxpayer's base income, and all
disbursements included in a beneficiary's adjusted gross income may be
subtracted to the extent used in accordance with the Illinois prepaid tuition
contract under which the disbursements are made, regardless of whether the
prepaid tuition contract qualifies under IRC section 529.
5) Income
from the College Savings Pool, other than disbursements to beneficiaries that are
not used to pay qualified expenses under the State Treasurer Act [15 ILCS
505/16.5]. Under the State Treasurer Act, distributions from the College
Savings Pool must generally be used for qualified expenses, which are
defined to mean tuition, fees, and the costs of books, supplies, and
equipment required for enrollment or attendance at an eligible educational
institution and certain room and board expenses. Distributions made for
qualified expenses must be made directly to the eligible educational institution,
directly to a vendor, or in the form of a check payable to both the beneficiary
and the institution or vendor. The College Savings Pool was created in PA
91-607 for the express purpose of allowing savings for higher education to earn
tax-exempt returns under IRC section 529. If an investment in the College
Savings Pool qualifies under IRC section 529, earnings on that investment are
exempt from federal income taxation (and therefore Illinois income taxation)
until distributed. The legislative intent in creating the College Savings Pool
does not guarantee that investments will qualify under IRC section 529 and
there is no guarantee that IRC section 529 will continue in effect. However,
the State Treasurer Act [15 ILCS 505/16.5], as amended in PA 91-829, provides
that assets of the College Savings Pool and its income and operation shall
be exempt from all taxation by the State and that disbursements to a
beneficiary shall be similarly exempt from all taxation by the State of
Illinois and any of its subdivisions, so long as they are used for qualified
expenses. Under this provision, any undistributed earnings of the College
Savings Pool that are included in a taxpayer's federal taxable income or
adjusted gross income because a College Savings Pool investment does not
qualify under IRC section 529 may be subtracted in computing the taxpayer's
base income, and all disbursements included in a beneficiary's adjusted gross
income may be subtracted to the extent used to pay qualified expenses,
regardless of whether the College Savings Pool investment qualifies under IRC
section 529.
6) Income
earned on investments made pursuant to the Home Ownership Made Easy Program
[310 ILCS 55/5.1].
7) Up to
$2,000 of income derived by individuals from investments made in accordance
with College Savings Programs established under Section 75 of the Higher
Education Student Assistance Act [110 ILCS 947/75].
This subtraction is allowed only for taxable years ending prior to August 9,
2013, the effective date of PA 98-0251, which repealed Section 75 of the
Higher Education Student Assistance Act.
h) Income
not exempt from Illinois income taxation. The following types of income are
not exempt from Illinois income taxation:
1) Income
from securities commonly known as GNMA "Pass-Through Securities" and
also known as GNMA "Mortgage-Backed Securities" issued by approved
issuers under 12 USC 1721(g) and guaranteed by GNMA under 12 USCA 1721(g)
(Rockford Life Insurance Co. v. Department of Revenue, 112 Ill.2d 174, 492 N.E.
2d 1278 (1986), reh. den. June 2, 1986) and income from debentures, notes, and
bonds issued by the Federal National Mortgage Association including
mortgage-backed bonds issued under authority of 12 USCA 1719(d) and guaranteed
by GNMA under 12 USC 1721(g).
2) Accumulated
interest on Internal Revenue Service tax refunds. Illinois Department of
Revenue Letter Ruling No. 86-0640, dated July 11, 1986, citing Glidden Co. v.
Glander, 151 Ohio St. 344, 86 N.E. 2d 1, 9 A.L.R. 2d 515 (1949).
3) Income
from U.S. securities acquired by a taxpayer under a repurchase agreement
("repo") with a bank or similar financial organization. The
Department takes the position that, for income tax purposes, such agreements
are generally to be treated as loans. That is, the taxpayer "loans"
money to the bank and receives interest in return. The securities subject to
repurchase by the bank serve as collateral for the loan. The bank remains
legally entitled to receive the interest payments from the issuing authority
and remains the actual owner of the securities. Therefore, any tax benefit
attributable to the "exempt" income paid by the issuing authority
accrues to the bank and not to the investor.
4) Section
514(a) of the Employee Retirement Income Security Act of 1974 (ERISA, 29 USC
1144(a)) does not preempt the taxation of unrelated business income of an Employee
Benefit Plan governed by ERISA. Buono v. NYSA-ILA Medical and Clinical
Services Fund, 520 U.S. 806, 808 (1997). Taxpayers that relied upon the
Department's letter rulings IT 90-0073, IT 93-0017 and IT 93-0187, prior to
July 1, 2002, shall not incur liability for taxes or penalties pursuant to
Section 4(c) of the Taxpayers' Bill of Rights Act [20 ILCS 2520].
i) Method
for computing the subtraction of exempt income. The Department emphasizes that
before a taxpayer may subtract an item of exempt income, the taxpayer must be
sure that he or she has included the item in Illinois income. Some tax-exempt
items are "automatically" included in base income because they are
included in federal adjusted gross income, which is a part of base income.
Interest on U.S. Treasury notes is in this category. Other exempt items must
be included as an addition on the Illinois tax return in figuring base income.
In other words, the taxpayer must list certain tax-exempt items as additions
and then as subtractions in figuring base income. Interest on the state and
local government bonds described in subsection (f) is in this category.
(Source: Amended at 44 Ill.
Reg. 2845, effective January 30, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2480 ENTERPRISE ZONE AND RIVER EDGE REDEVELOPMENT ZONE DIVIDEND SUBTRACTION (IITA SECTIONS 203(A)(2)(J), 203(B)(2)(K), 203(C)(2)(M) AND 203(D)(2)(K))
Section 100.2480 Enterprise
Zone and River Edge Redevelopment Zone Dividend Subtraction (IITA Sections
203(a)(2)(J), 203(b)(2)(K), 203(c)(2)(M) and 203(d)(2)(K))
a) Taxpayers are entitled to subtract from taxable income
(adjusted gross income, in the case of an individual) an amount equal to
dividends paid by a corporation which conducts business operations in an enterprise
zone or zones created under the Illinois Enterprise Zone Act or in a river edge
redevelopment zone or zones created under the River Edge Redevelopment Zone Act,
and conducts all or substantially all of its operations in the enterprise zone
or zones or the river edge redevelopment zone or zones (IITA Section
203(a)(2)(J), 203(b)(2)(K), 203(c)(2)(M) and 203(d)(2)(K)).
1) Dividends received from a corporation that conducts all or
substantially all of its operations in a river edge redevelopment zone or zones
are eligible for subtraction under this Section only if received after July 12,
2006, the effective date of PA 94-1021, which enacted this subtraction.
2) Dividends received from a corporation that conducts all or
substantially all of its operations in an enterprise zone or zone are eligible
for subtraction under this Section only if received prior to August 7, 2012,
the effective date of PA 97-905, which repealed this subtraction.
b) A corporation conducts substantially all of its business
within an enterprise zone or river edge redevelopment zone when 95% or more of
its total business activity during a taxable year is operated within an enterprise
zone or river edge redevelopment zone. For the purpose of this Section,
business activity within an enterprise zone or river edge redevelopment zone shall
be measured by means of the factors ordinarily applicable to the corporation
under IITA Section 304 (a),(b),(c) or (d), except that, in the case of a
corporation ordinarily required to apportion business income under IITA Section
304(a), the corporation shall not use the sales factor in the computation. Thus,
for example, for taxable years ending on or after December 31, 2000, for
purposes of determining whether dividends may be subtracted under this Section,
a corporation that apportions its business income under IITA Section 304(a)
using only the sales factor in accordance with IITA Section (h) 304 must still
compute its property and payroll factors. In measuring the business activity
of a corporation within an enterprise zone or river edge redevelopment zone,
the apportionment factors of that corporation shall be determined without
regard to the factors or business activity of any other corporation and, in the
case of a corporation engaged in a unitary business with any other person, the
apportionment factors of that corporation shall be determined as if it were not
engaged in a unitary business with such other person.
1) Section 304(a) Corporations: A corporation using Section
304(a) to apportion business income to Illinois shall compare the corporation's
property and payroll within an enterprise zone or river edge redevelopment zone
to the corporation's property and payroll everywhere. The result of the
property and payroll factor computations shall be divided by 2 (by one if
either the property or payroll factor has a denominator of zero). If the
amount so computed is 95% or greater, the dividends paid by the corporation
shall qualify for this subtraction. In the case where a corporation does not
have any payroll or property within an enterprise zone or river edge
redevelopment zone, the corporation is not conducting any of its business
operations within an enterprise zone or river edge redevelopment zone for the
purpose of this Section.
2) All Other Corporations: A corporation using a 1-factor
apportionment formula under IITA Section 304(b),(c) or (d) shall determine
business activity conducted within an enterprise zone or river edge
redevelopment zone by comparing business income from sources within the enterprise
zone or river edge redevelopment zone and everywhere else pursuant to its
ordinarily applicable factor under IITA Section 304(b), (c) or (d). A
corporation using an alternative method of apportionment under Section 304(f)
shall petition the Department for approval of an appropriate method of
determining its qualification under this Section, and only upon the
Department's approval shall the corporation be allowed to use a method not
provided in this Section.
3) EXAMPLE: In the tax year ending December
31, 1995, Taxpayer received dividends from a bank holding company, whose sole
asset was the stock in a bank with which it was conducting a unitary business.
Both the bank holding company and the bank are headquartered in an enterprise
zone created under the Illinois Enterprise Zone Act. During 1995, the
operations of the bank consisted of accepting deposits, making loans and
purchasing investments. The bank conducted business in its branches located
throughout the State. However, the bank holding company's sole source of
income on a separate-company basis was the dividends it received from the bank,
and all of this income was received within the enterprise zone. In determining
its business income apportionable to Illinois in 1995, the bank holding company
and the bank used the apportionment formula under IITA Section 304(c) on a
combined basis. In order to determine whether 95% or more of its income is
from sources within the enterprise zone, the bank holding company is required
to use the same apportionment formula under IITA Section 304(c) as if it were
not engaged in a unitary business with the bank. Pursuant to the formula,
dividends which are received within this State are apportionable to Illinois. As a result, the bank holding company in this case must compute the percentage of
dividends which are received within the enterprise zone to determine income
apportionable to the enterprise zone. Since it received all of its business
income from sources within the enterprise zone, the bank holding company would
meet the 95% test.
c) Taxpayers are entitled to this subtraction in the taxable year
in which qualifying dividends are paid by corporations.
1) Corporations paying dividends shall be deemed to have started
business operations within an enterprise zone from the later of:
A) The date the enterprise zone in which the corporation paying
the dividends is located was officially designated by the Department of
Commerce and Economic Opportunity;
B) The date the corporation paying dividends commenced operations
in the enterprise zone; or
C) The effective date of the Public Act enacting this subtraction
(December 7, 1982).
2) Corporations paying dividends shall be deemed to have started
business operations within a river edge redevelopment zone from the later of:
A) The date the river edge redevelopment zone in which the
corporation paying the dividends is located was officially designated by the
Department of Commerce and Economic Opportunity;
B) The date the corporation paying dividends commenced operations
in the river edge redevelopment zone; or
C) July 12, 2006, the effective date of PA 94-1021, which enacted
this subtraction.
d) Limitations
1) This Section allows taxpayers to subtract distributions from a
corporation only to the extent:
A) such distributions are characterized as dividends;
B) such dividends are included in federal taxable income (in the
case of an individual, adjusted gross income) of the taxpayer; and
C) the taxpayer has not subtracted such dividends from federal
taxable income (in the case of an individual, adjusted gross income) under any
other provision of IITA Section 203.
2) EXAMPLE: Taxpayer, a Subchapter S corporation shareholder,
receives a distribution from an S corporation which conducts substantially all
of its business in an enterprise zone. Although the Subchapter S corporation
satisfies the 95% test, Taxpayer is not entitled to this subtraction
modification since a distribution by a Subchapter S corporation is generally
not characterized as a dividend. See section 1368 of the Internal Revenue Code.
3) EXAMPLE: Taxpayer, a corporation, receives a dividend from
another corporation that qualifies for the 70% dividends received deduction
under section 243(a)(1) of the Internal Revenue Code. Because only 30% of the
dividend is included in Taxpayer's federal taxable income, this Section allows
Taxpayer to subtract only 30% of the dividend from its federal taxable income.
(Source: Amended at 38 Ill.
Reg. 9550, effective April 21, 2014)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2490 FOREIGN TRADE ZONE/HIGH IMPACT BUSINESS DIVIDEND SUBTRACTION (IITA SECTIONS 203(A)(2)(K), 203(B)(2)(L), 203(C)(2)(O), 203(D)(2)(M))
Section 100.2490 Foreign
Trade Zone/High Impact Business Dividend Subtraction (IITA Sections
203(a)(2)(K), 203(b)(2)(L), 203(c)(2)(O), 203(d)(2)(M))
a) Taxpayers are entitled to subtract from
taxable income (adjusted gross income, in the case of an individual) an amount
equal to dividends paid by a corporation that:
1) conducts business operations in a federally
designated Foreign Trade Zone or Sub-Zone, and
2) is designated by the Department of Commerce
and Community Affairs as a High Impact Business located in Illinois.
However,
only dividends not eligible for the subtraction provided in Section 100.2480 of
this Part may be subtracted under this Section.
b) A corporation conducts business operations
in a federally designated Foreign Trade Zone or Sub-Zone when any portion of
its total business activity during a taxable year is operated within a
federally designated Foreign Trade Zone or Sub-Zone. For the purpose of this
Section, business activity within a federally designated Foreign Trade Zone or
Sub-Zone shall be measured by means of the factors ordinarily applicable to the
corporation under IITA Section 304(a), (b), (c) or (d); except that, in the
case of a corporation ordinarily required to apportion business income under
Section 304(a), such corporation shall not use the sales factor in the
computation. Thus, for example, for taxable years ending on or after December 31, 2000, for purposes of determining whether dividends may be subtracted under
this Section, a corporation that apportions its business income under Section
304(a) using only the sales factor in accordance with Section 304(h) must
still compute its property and payroll factors. In measuring the business
activity of a corporation within a federally designated Foreign Trade Zone or
Sub-Zone, the apportionment factors of that corporation shall be determined
without regard to the factors or business activity of any other corporation
and, in the case of a corporation engaged in a unitary business with any other
person, the apportionment factors of that corporation shall be determined as if
it were not engaged in a unitary business with such other person.
1) 304(a) Corporations. A corporation using
Section 304(a) to apportion business income to Illinois shall determine the
ratio of the corporation’s property and payroll within a federally designated
Foreign Trade Zone or Sub-Zone to the corporation’s property and payroll
everywhere. If the ratio so computed is greater than 0%, and the other
requirements of this Section are met, the dividends paid by the corporation
shall qualify for this subtraction. In the case where a corporation does not
have any property or payroll within a federally designated Foreign Trade Zone
or Sub-Zone, the corporation is not conducting any portion of its business
operations within a federally designated Foreign Trade Zone or Sub-Zone for the
purpose of this Section.
A) Example 1: In the tax year ending December 31, 1995, Taxpayer received dividends from X corporation (hereafter referred to
as "X"). X, a calendar year taxpayer, manufactures and sells widgets
at wholesale in Illinois and various other states. The widgets are manufactured
at X’s plant in Illinois, which is not located in a federally designated
Foreign Trade Zone or Sub-Zone. X does not have employees who perform any
services in a federally designated Foreign Trade Zone or Sub-Zone. X owns 100%
of the stock of A corporation (hereafter referred to as "A"), whose
sole business activity consists of the distribution of X’s widgets. A’s trucks
take delivery of the widgets at X’s plant, and then deliver the widgets to
customers of X, including customers located in a federally designated Foreign
Trade Zone. In determining its business income apportionable to Illinois
in 1995, X used the 3-factor formula of property, payroll, and sales under IITA
Section 304(a). Thus, in order to determine whether it conducts business
operations in a federally designated Foreign Trade Zone or Sub-Zone, X must
compute the ratio of its property and payroll in a federally designated Foreign
Trade Zone or Sub-Zone to its property and payroll everywhere. In making such
computation, it may not use its sales factor, nor may it consider the factors
or business activity of A. As a result, regardless of whether X is designated a
High Impact Business located in Illinois, Taxpayer may not subtract dividends
paid by X. Because X does not have any property or payroll within a federally
designated Foreign Trade Zone or Sub-Zone, it is not conducting any portion of
its business operations within a federally designated Foreign Trade Zone or
Sub-Zone as required by this Section.
B) Example 2: The facts are the same as in
Example 1, except that X rents a warehouse in which it maintains an inventory
of widgets pending shipment to customers. The warehouse is located in a
federally designated Foreign Trade Zone. Since the ratio of X’s property and
payroll within a federally designated Foreign Trade Zone or Sub-Zone to its
property and payroll everywhere is greater than 0%, X conducts a portion of its
business operations within a federally designated Foreign Trade Zone. Thus,
Taxpayer has met the requirement under this Section that it receive dividends
from a corporation that conducts business operations within a federally
designated Foreign Trade Zone or Sub-Zone.
2) All Other Corporations. A corporation
using a 1-factor apportionment formula under IITA Section 304(b), (c) or (d)
shall determine business activity conducted within a federally designated
Foreign Trade Zone or Sub-Zone by comparing business income from sources within
a federally designated Foreign Trade Zone or Sub-Zone and everywhere else
pursuant to its ordinarily applicable factor under Section 304(b), (c) or (d).
A corporation using an alternative method of apportionment under Section 304(f)
shall petition the Department for approval of an appropriate method of
determining its qualification under this Section, and only upon the
Department’s approval shall the corporation be allowed to use a method not
provided in this Section.
A) Example 3: In the tax year ending December 31, 1996, Taxpayer received dividends from Z Airlines, Inc (hereafter referred to
as "Z"). Z provides interstate transportation of passengers and
freight. Z’s corporate headquarters is located in a federally designated
Foreign Trade Zone in Illinois. Its hub is also located in Illinois, but not in
a federally designated Foreign Trade Zone or Sub-Zone. Z’s planes regularly
arrive and depart from its hub, and regularly fly over a federally designated
Foreign Trade Zone in route to various locations. Z owns 100% of the stock of B
corporation (hereafter referred to as "B"). B’s sole business
activity consists of transporting freight from Z’s planes to local destinations
in Illinois. B’s trucks take delivery of the freight at Z’s hub, and deliver
the freight to Z’s customers, including customers located in a federally
designated Foreign Trade Sub-Zone. In 1996, B delivered within the federally
designated Foreign Trade Sub-Zone at least 1 ton of freight the distance of one
mile for a consideration. In determining its business income apportionable to Illinois
in 1996, Z and B used the apportionment formula under IITA Section 304(d) on a
combined basis. In order to determine whether it conducts business operations
within a federally designated Foreign Trade Zone or Sub-Zone, Z is required to
use the same apportionment formula under IITA Section 304(d) as if it were not
engaged in a unitary business with B. As a result, regardless of whether Z is a
High Impact Business located in Illinois, Taxpayer may not subtract dividends
paid by Z. Because Z has no business income from sources within a federally
designated Foreign Trade Zone or Sub-Zone applying IITA Section 304(d), no
portion of Z’s business operations are conducted in a federally designated
Foreign Trade Zone or Sub-Zone as required by this Section.
B) Example 4: The facts are the same as in
Example 1, except that Z conducts the activities of B as a division. In
determining its business income apportionable to Illinois in 1997, Z used the
apportionment formula under IITA Section 304(d). In order to determine whether
it conducts business operations within a federally designated Foreign Trade
Zone or Sub-Zone, Z must use the same formula. Since Z has business income from
sources within a federally designated Foreign Trade Sub-Zone, it conducts a
portion of its business operations within a federally designated Foreign Trade
Zone or Sub-Zone. Thus, Taxpayer has met the requirement under this Section
that it receive dividends from a corporation that conducts business operations
within a federally designated Foreign Trade Zone or Sub-Zone.
c) Taxpayers are entitled to this subtraction
in the taxable year in which qualifying dividends are paid by corporations.
Dividends are qualifying dividends if paid by the corporation during a taxable
year of the corporation with respect to which the requirements of this Section
are met. Corporations paying dividends shall be deemed to have started business
operations within a federally designated Foreign Trade Zone or Sub-Zone from
the later of:
1) The date the Foreign Trade Zone or Sub-Zone
in which the corporation paying the dividends is located was officially
federally designated;
2) The date the corporation paying dividends
commenced operations in the federally designated Foreign Trade Zone or Sub-Zone
as a designated High Impact Business located in Illinois; or
3) The effective date of the Public Act
enacting this subtraction (January 1, 1986).
d) See 20 ILCS 655/5.5 regarding designation
by the Department of Commerce and Community Affairs as a High Impact Business.
e) Limitations.
1) This Section allows taxpayers to subtract
distributions from a corporation only to the extent:
A) The
distributions are characterized as dividends;
B) The dividends are included in federal
taxable income (in the case of an individual, adjusted gross income) of the
taxpayer;
C) The dividends are not eligible for the
subtraction provided in IITA Section 203(a)(2)(J), IITA Section 203(b)(2)(K),
IITA Section 203(c)(2)(M), or IITA Section 203(d)(2)(K) (regarding dividends
paid by a corporation that conducts all or substantially all of its operations
in an Illinois Enterprise Zone or Zones); and
D) The taxpayer has not subtracted the
dividends from federal taxable income (in the case of an individual, adjusted
gross income) under any other provision of Section 203 of the IITA.
2) Example 5: Taxpayer, an S corporation
shareholder, receives a distribution from an S corporation designated a High
Impact Business and that conducts business operations in a federally designated
Foreign Trade Zone. The Taxpayer is not entitled to the subtraction
modification provided under this Section since a distribution by an S
corporation is generally not characterized as a dividend. See Section 1368 of
the Internal Revenue Code.
3) Example 6: Taxpayer, a corporation,
receives a dividend from another corporation that qualifies for the 70%
dividends received deduction under Section 243(a)(1) of the Internal Revenue
Code. Because only 30% of the dividend is included in Taxpayer’s federal
taxable income, this Section allows Taxpayer to subtract only 30% of the
dividend from its federal taxable income.
(Source:
Added at 27 Ill. Reg. 13536, effective July
28, 2003)
SUBPART F: BASE INCOME OF INDIVIDUALS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2510 SUBTRACTION FOR CONTRIBUTIONS TO ILLINOIS QUALIFIED TUITION PROGRAMS (SECTION 529 PLANS) (IITA SECTION 203(A)(2)(Y))
Section 100.2510 Subtraction for Contributions to Illinois Qualified Tuition Programs (Section 529 Plans) (IITA Section 203(a)(2)(Y))
a) IITA
Section 203(a)(2)(Y) allows individuals a subtraction modification in the
computation of base income for taxable years beginning on and after January 1,
2002 equal to the amount contributed during the taxable year to an Illinois
qualified tuition program, subject to the limitation described in subsection
(b) of this Section. For purposes of this Section, "Illinois qualified
tuition program" means:
1) A
College Savings Pool Account under Section 16.5 of the State Treasurer Act [15
ILCS 505/16.5].
2) For
taxable years beginning on and after January 1, 2005, an Illinois Prepaid
Tuition Trust Fund under the Illinois Prepaid Tuition Act [110 ILCS 979].
b) For
taxable years beginning on or after January 1, 2005, the total subtraction
modification allowed a taxpayer under IITA Section 203(a)(2)(Y) and subsection
(a) of this Section shall not exceed $10,000 ($20,000 if married filing
jointly) per taxable year.
c) "Contribution"
Defined. For purposes of IITA Section 203(a)(2)(Y) and this Section, the term
"contribution" means any payment directly allocated to an account for
the benefit of a designated beneficiary or used to pay late fees or
administrative fees associated with the account. In the case of a College
Savings Pool Account, the contribution is the amount paid by the taxpayer to
the College Savings Pool. In the case of an Illinois prepaid tuition contract, the
contribution is the amount paid by the taxpayer for the contract under Section
45 of the Illinois Prepaid Tuition Act [110 ILCS 979/45].
1) Rollovers
A) From
an Out-of-State Plan. In the case of a rollover, as defined under IRC Section
529(c)(3)(C)(i), in which an amount is transferred from a qualified tuition
program established and maintained by another state to an Illinois qualified
tuition program, only the portion of the rollover that constituted investment
in the account for federal income tax purposes shall be considered a
contribution for purposes of IITA Section 203(a)(2)(Y) and this Section. (See
IITA Section 203(a)(2)(Y).)
B) From
an Illinois Plan. In the case of a rollover, as defined under IRC Section
529(c)(3)(C)(i), in which an amount is transferred from one Illinois qualified
tuition program to another Illinois qualified tuition program, no portion of
the rollover shall be considered a contribution for purposes of IITA Section
203(a)(2)(Y) and this Section. The purpose of the subtraction modification for
contributions to an Illinois qualified tuition program is to encourage and
better enable Illinois families to finance the costs of higher education by
increasing savings for higher education. A taxpayer's savings for higher
education is not increased when amounts are rolled over from one Illinois plan to another Illinois plan. In addition, IITA Section 203(g) prohibits
deduction of the same item more than once.
2) Change
in Beneficiaries. A change in the beneficiaries of an existing plan shall not
be considered a contribution for purposes of IITA Section 203(a)(2)(Y) and this
Section.
3) Employer
Contributions. For purposes of this subtraction, contributions made by an
employer on behalf of an employee under IITA Section 218 shall be
treated as made by the employee.
d) Limitations
on Subtraction Modification
1) The
subtraction modification under IITA Section 203(a)(2)(Y) is allowed only to
individuals. In the case of a contribution to a College Savings Pool Account,
the subtraction is allowed only to the account "participant" or
"donor" as defined in Section 16.5 of the State Treasurer Act. In the
case of a contribution to an Illinois prepaid tuition contract, the subtraction
is allowed only to the account "purchaser" as defined in Section 10
of the Illinois Prepaid Tuition Act.
2) The
subtraction modification is allowed only for contributions to either the
Illinois College Savings Pool or Illinois Prepaid Tuition Trust Fund. There is
no subtraction modification for contributions to a qualified tuition program
established and maintained by another state.
(Source: Added at 35 Ill.
Reg. 15092, effective August 24, 2011)
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2565 SUBTRACTION FOR RECOVERY OF ITEMIZED DEDUCTIONS (IITA SECTION 203(A)(2)(I))
Section 100.2565 Subtraction for Recovery of Itemized
Deductions (IITA Section 203(a)(2)(I))
a) In
computing base income, an individual is allowed to subtract from his or her
federal adjusted gross income an amount equal to all amounts included in
that total pursuant to the provisions of IRC section 111 as a recovery of items
previously deducted from adjusted gross income in the computation of taxable
income. (IITA Section 203(a)(2)(I))
b) Under
IRC section 111, a taxpayer who is allowed a deduction in computing federal
taxable income in one taxable year, and recovers the deductible expenditure in
a subsequent taxable year, includes the recovery in gross income in the year of
recovery. For example, an individual who claims an itemized deduction for
State income taxes paid in 2015 on his or her 2015 federal income tax return,
and in 2016 receives a refund of some of that tax, includes the refund in gross
income for 2016. This procedure prevents the taxpayer from receiving a tax
benefit for an expenditure that ultimately did not cost the taxpayer, without
requiring the filing of an amended return to remove the deduction from the
computation of taxable income in the year the deduction was taken.
c) Under
IITA Section 203(a)(1), the computation of an individual's base income begins
with his or her federal adjusted gross income, which is equal to taxable income
before itemized deductions, the standard deduction and personal exemptions are
taken into account. As a result, individuals receive no Illinois income tax
benefit from federal itemized deductions. Accordingly, recoveries of federal
itemized deductions do not need to be included in an individual's base income
to prevent the individual receiving a tax benefit for the item. IITA Section
203(a)(2)(I) therefore allows individuals to subtract recoveries of itemized
deductions that are included in their federal adjusted gross income.
d) IITA
Section 203(a)(2)(I) was enacted before the September 16, 1994 effective date
of PA 88-660, which enacted the automatic sunset provisions in IITA Section
250. The automatic sunset provisions therefore do not apply to this Section.
(Source: Added at 42 Ill. Reg. 17852,
effective September 24, 2018)
|
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2580 MEDICAL CARE SAVINGS ACCOUNTS (IITA SECTIONS 203(A)(2)(D-5), 203(A)(2)(S) AND 203(A)(2)(T))
Section 100.2580 Medical
Care Savings Accounts (IITA Sections 203(a)(2)(D-5), 203(a)(2)(S) and
203(a)(2)(T))
a) For the purposes of this Section, "Act" means the
Medical Care Savings Account Act [820 ILCS 152], repealed January 1, 2000, or
the Medical Care Savings Account Act of 2000 [820 ILCS 153], which re-enacted
the provisions of the repealed Act.
b) "Medical care savings account" or
"account" means an account established in this State pursuant to a
medical care savings account program to pay the eligible medical expenses of an
employee and his or her dependents. (Section 5 of the Act) An employer,
except as otherwise provided by statute, contract, or a collective bargaining
agreement, may offer a medical care savings account program to the employer's
employees.
c) A
medical care savings account program must include the following:
1) The purchase by an employer of a qualified higher
deductible health plan for the benefit of an employee and his or her
dependents. (Section 5 of the Act)
2) The contribution on behalf of an employee into a medical
care savings account by his or her employer of all or part of the premium
differential realized by the employer based on the purchase of a qualified
higher deductible health plan for the benefit of the employee. An employer
that did not previously provide a health coverage policy, certificate, or
contract for his or her employees may contribute all or part of the deductible
of the plan purchased pursuant to subsection (c)(1). For 1994, a contribution
under this Section may not exceed $6,000 for 2 taxpayers filing a joint return,
if each taxpayer has a medical care savings account but neither is covered by
the other's health coverage, or $3,000 in all other cases. These maximum
amounts shall be adjusted annually by the Department of Revenue to reflect
increases in the consumer price index for the United States as defined and
officially reported by the United States Department of Labor. (Section 5
of the Act)
A) The Department will announce adjustments in the maximum
amounts, as well as in the minimum higher deductible, by annual publication of
a Notice of Public Information in the Illinois Register.
B) The Consumer Price Index (CPI) annual average for all urban
consumers was 144.5 for calendar year 1993 and 148.2 for calendar year 1994.
Therefore, the thresholds established under the Act were adjusted upward by 2%
for 1995. Hence, for 1995, the minimum higher deductible is $1026, the maximum
higher deductible is $3078, the maximum contribution for 2 taxpayers filing a
joint return is $6156 and the maximum contribution for all others is $3078.
C) For the years 1994 through 2006, the thresholds are as follows:
|
Year
|
Minimum Higher Deductible
|
Maximum Higher Deductible
|
Maximum Contribution For Two
|
Maximum Contribution All Others
|
|
1994
|
$1,000
|
$3,000
|
$6,000
|
$3,000
|
|
1995
|
$1,026
|
$3,078
|
$6,156
|
$3,078
|
|
1996
|
$1,055
|
$3,164
|
$6,238
|
$3,164
|
|
1997
|
$1,086
|
$3,256
|
$6,512
|
$3,256
|
|
1998
|
$1,111
|
$3,331
|
$6,662
|
$3,331
|
|
1999
|
$1,129
|
$3,384
|
$6,768
|
$3,384
|
|
2000
|
$1,154
|
$3,458
|
$6,917
|
$3,458
|
|
2001
|
$1,193
|
$3,576
|
$7,152
|
$3,576
|
|
2002
|
$1,226
|
$3,676
|
$7,352
|
$3,676
|
|
2003
|
$1,246
|
$3,735
|
$7,470
|
$3,735
|
|
2004
|
$1,275
|
$3,821
|
$7,642
|
$3,821
|
|
2005
|
$1,309
|
$3,924
|
$7,848
|
$3,924
|
|
2006
|
$1,354
|
$4,057
|
$8,114
|
$4,057
|
3) An account administrator to administer the medical care
savings account from which payment of claims is made. Not more than 30 days
after an account administrator begins to administer an account, the
administrator shall notify in writing each employee on whose behalf the
administrator administers an account of the date of the last business day of
the administrator's business year. (Section 5 of the Act)
d) Section
5 of the Act contains a number of definitions:
1) "Account administrator" means any of the
following:
A) A national or state chartered bank, a federal or State
chartered savings and loan association, a federal or State chartered savings
bank, or a federal or State chartered credit union.
B) A
trust company authorized to act as a fiduciary.
C) An insurance company authorized to do business in this State
under the Illinois Insurance Code or a health maintenance organization
authorized to do business in this State under the Health Maintenance
Organization Act.
D) A dealer, salesperson, or investment adviser registered
under the Illinois Securities Law of 1953.
E) An administrator as defined in Section 511.101 of the
Illinois Insurance Code who is licensed under Article XXXI¼ of that Code.
F) A certified public accountant registered under the Illinois
Public Accounting Act.
G) An
attorney licensed to practice in this State.
H) An employer, if the employer has a self-insured health plan
under the federal Employee Retirement Income Security Act of 1974 (ERISA).
I) An employer that participates in the medical care savings
account program.
2) "Deductible" means the total deductible for an
employee and all the dependents of that employee for a calendar year.
3) "Dependent" means the spouse of the employee or a
child of the employee if the child is any of the following:
A) under 19 years of age, or under 23 years of age and enrolled
as a full-time student at an accredited college or university,
B) legally entitled to the provision of proper or necessary
subsistence, education, medical care, or other care necessary for his or her
health, guidance, or well-being and not otherwise emancipated, self-supporting,
married, or a member of the armed forces of the United States, or
C) mentally or physically incapacitated to the extent that he
or she is not self-sufficient.
4) "Domicile" means a place where an individual has
his or her true, fixed, and permanent home and principal establishment, to
which, whenever absent, he or she intends to return. Domicile continues until
another permanent home or principal establishment is established.
5) "Eligible medical expense" means an expense paid
by the taxpayer for medical care described in Section 213(d) of the Internal
Revenue Code.
6) "Employee" means the individual for whose benefit
or for the benefit of whose dependents a medical care savings account is
established. Employee includes a self-employed individual.
7) "Higher deductible" means a deductible of not
less than $1,000 and not more than $3,000 for 1994. This minimum and maximum
shall be adjusted annually by the Department of Revenue to reflect increases in
the consumer price index for the United States as defined and officially
reported by the United States Department of Labor.
8) "Qualified higher deductible health plan" means a
health coverage policy, certificate, or contract that provides for payments for
covered benefits that exceed the higher deductible and that is purchased by an
employer for the benefit of an employee for whom the employer makes deposits
into a medical care savings account.
e) Before making any contribution to an account, an employer
that offers a medical care savings account program shall inform all its
employees in writing of the federal tax status of contributions made.
(Section 10(b) of the Act) The contributions made pursuant to the Medical Care
Savings Account Act will be taxable federally unless and to the extent the
medical care savings account qualifies as a tax-favored medical savings account
under section 220 of the Internal Revenue Code (26 USC 220).
f) Use
of Account Moneys
1) The account administrator shall utilize the moneys held in
a medical care savings account solely for the purpose of paying the medical
expenses of the employee or his or her dependents or to purchase a health
coverage policy, certificate, or contract if the employee does not otherwise
have health insurance coverage. Moneys held in a medical care savings account
may not be used to cover medical expenses of the employee or his or her
dependents that are otherwise covered, including but not limited to medical
expenses covered pursuant to an automobile insurance policy, worker's
compensation insurance policy or self-insured plan, or another health coverage
policy, certificate, or contract. (Section 15(a) of the Act)
2) The employee may submit documentation of medical expenses
paid by the employee in the tax year to the account administrator, and the
account administrator shall reimburse the employee from the employee's account
for eligible medical expenses. (Section 15(b) of the Act)
3) If an employer makes contributions to a medical care
savings account program on a periodic installment basis, the employer may
advance to an employee, interest free, an amount necessary to cover medical
expenses incurred that exceed the amount in the employee's medical care savings
account when the expense is incurred if the employee agrees to repay the
advance from future installments or when he or she ceases to be an employee of
the employer. (Section 15(c) of the Act)
4) Upon the death of the employee, the account administrator
shall distribute the principal and accumulated interest of the medical care
savings account to the estate of the employee. (Section 20(d) of the Act)
g) Illinois
Income Tax Consequences
1) Except as provided in subsection (f)(2), principal contributed
to and interest earned on a medical care savings account and money reimbursed
to an employee for eligible medical expenses are exempt from taxation under the
Illinois Income Tax Act and shall be a modification decreasing federal adjusted
gross income in arriving at Illinois taxable income of the employee for the
taxable year.
2) Notwithstanding subsection (f)(3), and subject to
subsection (f)(4), an employee may withdraw money from his or her medical
care savings account for any purpose other than a purpose described in
subsection (f)(1) only on the last business day of the account administrator's
business year. Money withdrawn pursuant to this subsection (g)(2) shall
be a modification increasing federal adjusted gross income in arriving at
Illinois taxable income of the employee in the taxable year of the withdrawals.
(Section 20(a) of the Act)
3) If the employee withdraws money for any purpose other than
a purpose described in subsection (f)(1) at any other time, all of the
following apply:
A) The amount of the withdrawal shall be a modification
increasing federal adjusted gross income in arriving at Illinois taxable income
of the employee in the taxable year of the withdrawal.
B) The administrator shall withhold and on behalf of the
employee shall pay a penalty to the Department equal to 10% of the amount of
the withdrawal. (Section 20(a)(2) of the Act) The administrator must remit
the penalty to the Department along with a copy of Form IL-601 "Medical
Care Savings Account Penalty Payment."
C) Interest earned on the account during the taxable year in which
a withdrawal under this subsection is made shall be a modification increasing
federal adjusted gross income in arriving at Illinois taxable income of the
employee.
4) The amount of a disbursement of any assets of a medical
care savings account pursuant to a filing for protection under Title 11 of the
United States Code, 11 USC 101 to 1330, by an employee or person for whose
benefit the account was established is not considered a withdrawal for purposes
of this Section. The amount of a disbursement is not subject to taxation under
the Illinois Income Tax Act, and subsection (g)(3) does not apply.
(Section 20(c) of the Act)
5) In the event that all of the following occur:
A) an employee is no longer employed by an employer that
participates in a medical care savings account program,
B) the employee, not more than 60 days after his or her final
day of employment, transfers the account to a new account administrator or
requests in writing to the former employer's account administrator that the
account remain with that administrator, and
C) that account administrator agrees to retain the account,
then the money in the medical care savings account may be utilized for the
benefit of the employee or his or her dependents subject to this Act, remains
exempt from taxation, and shall be a modification decreasing federal adjusted
gross income in arriving at Illinois taxable income of the employee or his or
her dependents for the taxable year. Not more than 30 days after the
expiration of the 60 days, if an account administrator has not accepted the
former employee's account, the employer shall mail a check to the former
employee, at the employee's last known address, for an amount equal to the
amount in the account on that day, and that amount is subject to taxation
pursuant to subsection (g)(3)(A), and shall be a modification increasing
federal adjusted gross income in arriving at Illinois taxable income of the
employee but is not subject to the penalty under subsection (g)(3)(B). If
an employee becomes employed with a different employer that participates in a
medical care savings account program, the employee may transfer his or her
medical care savings account to that new employer's account administrator.
(Section 20(e) of the Act)
h) The
Act shall expire on 1/1/2010. As a result of repeal of the Act, for taxable
years beginning on and after January 1, 2010:
1) The
subtraction modification provided for in subsection (g)(1) of this Section and
IITA Section 203(a)(2)(S) and (T) for principal contributed to and interest earned
on a medical care savings account shall not apply;
2) The
subtraction modification provided for in subsection (g)(1) of this Section and
Section 10(c) of the Act for money reimbursed to an employee for eligible
medical expenses shall not apply;
3) The
addition modification provided for in subsection (g)(2) of this Section and
Section 20(a) of the Act for money withdrawn from a medical care savings
account for any purpose other than a purpose described in subsection (f)(1) of
this Section shall not apply;
4) The
addition modification provided for in subsection (g)(3) of this Section and
IITA Section 203(a)(2)(D-5) for the amount of a withdrawal for any purpose
other than a purpose described in subsection (f)(1) of this Section and for
interest earned on the account during the taxable year of the withdrawal shall
not apply;
5) The
penalty provided for in subsection (g)(3) of this Section and Section 20(c) of
the Act equal to 10% of the amount of a withdrawal for any purpose other than a
purpose described in subsection (f)(1) of this Section shall not apply.
(Source: Amended at 36 Ill.
Reg. 2363, effective January 25, 2012)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2590 TAXATION OF CERTAIN EMPLOYEES OF RAILROADS, MOTOR CARRIERS, AIR CARRIERS AND WATER CARRIERS
Section 100.2590 Taxation of
Certain Employees of Railroads, Motor Carriers, Air Carriers and Water Carriers
a) Federal law affects the authority of the State of Illinois to
subject certain employees of railroads, motor carriers, merchant mariners, and
air carriers to Illinois income taxation. By virtue of the provisions of
federal laws cited in this Section, compensation that would otherwise be
subject to Illinois income taxation and withholding by virtue of IITA Sections
302(a) and 304(a)(2)(B) is subtracted from adjusted gross income in determining
Illinois base income (and is not subject to Illinois income tax withholding) pursuant
to IITA Section 203(a)(2)(N), which provides a subtraction from adjusted gross
income for an amount equal to all amounts included in adjusted gross income
that are exempt from taxation by this State by reason of the statutes of the
United States.
1) Railroad Employees. 49 USC 11502(a) states that no part of
the compensation paid by a rail carrier subject to the jurisdiction of the Surface
Transportation Board to an employee who performs regularly assigned duties as
an employee on a railroad in more than one state shall be subject to the income
tax laws of any state or subdivision of that state, other than the state or
subdivision thereof of the employee's residence.
2) Motor Carrier Employees. 49 USC 14503(a)(1) states that no
part of the compensation paid by a motor carrier providing transportation
subject to the jurisdiction of the Surface Transportation Board or by a motor
private carrier to an employee who performs regularly assigned duties in 2 or
more states as an employee with respect to a motor vehicle shall be subject to
the income tax laws of any state or subdivision of that state, other than the
state or subdivision thereof of the employee's residence.
3) Merchant Mariner Employees. 46 USC 11108 states that no part
of the compensation paid by a merchant mariner to an employee who performs
regularly assigned duties in more than one state shall be subject to the income
tax laws of any state or subdivision of that state, other than the state or
subdivision of the employee's residence.
4) Air Carrier Employees. 49 USC 40116(f)(2) states that no part
of the compensation paid by an air carrier to an employee who performs
regularly assigned duties as an employee on an aircraft in more than one state,
shall be subject to the income tax laws of any state or its subdivision other
than the state or subdivision of the employee's residence and the state or
subdivision in which the employee's scheduled flight time would have been more
than 50% of the employee's total scheduled flight time for the calendar year.
b) Examples
1) EXAMPLE
1: A is a locomotive engineer employed by Interstate Railway. Interstate
operates a rail yard in Illinois. Interstate also operates in Missouri, where
it has a rail yard, as well as its administrative and payroll offices. A is a
resident of Missouri. A is assigned to, and primarily reports to, the Illinois
rail yard of Interstate and drives locomotives for Interstate on trips that go
throughout the United States. However, on occasion, A is required to report to
the Missouri rail yard of Interstate and drive locomotives on trips that
originate in Missouri. Pursuant to 49 USC 11502(a), Interstate may only
withhold the Missouri personal income tax on A's wages, and A is not subject to
Illinois income tax on the wages paid by Interstate.
2) EXAMPLE
2: A is an airline pilot for World-Wide Airlines. World-Wide provides
passenger and freight service to various destinations throughout the United
States from an airport in Missouri, as well as from an airport in Illinois. A
lives in Missouri, but A reports to and flies out of the World-Wide airport in
Illinois. A primarily flies to destinations outside of Illinois. Less than 50%
of A's compensation (as determined by flight time in Illinois versus flight
time everywhere) is earned within Illinois. Therefore, A is only subject to
Missouri income taxation on his or her compensation from World-Wide.
3) EXAMPLE 3: The facts are the same as in Example 2, except
that A pilots commuter planes between airports in Illinois. In this situation,
A will be subject to Illinois income taxation by virtue of the fact that A
earns more than 50% of his or her compensation within the State of Illinois.
(Source: Amended at 44 Ill. Reg. 10907, effective June 10, 2020)
SUBPART G: BASE INCOME OF CORPORATIONS
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2655 SUBTRACTION MODIFICATION FOR ENTERPRISE ZONE AND RIVER EDGE REDEVELOPMENT ZONE INTEREST (IITA SECTION 203(B)(2)(M))
Section 100.2655 Subtraction Modification for Enterprise
Zone and River Edge Redevelopment Zone Interest (IITA Section 203(b)(2)(M))
a) A
corporation that is a "financial organization" within the meaning of
IITA Section 304(c) may subtract an amount included in its taxable income 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 (IITA Section 203(b)(2)(M)) or the river
edge redevelopment zone investment credit under IITA Section 201(f). The
subtraction for interest from loans secured by property eligible for the
enterprise zone investment credit is allowed only for interest received or
accrued prior to August 7, 2012, the effective date of PA 97-905, which
repealed this subtraction.
b) Eligible
Property. For purposes of this Section, "Eligible Property" shall
mean:
1) for
tax years ending prior to June 8, 1984 (the effective date of PA 83-1114),
property for which the borrower had successfully claimed the credit under IITA
Section 201(h) (prior to recodification as IITA Section 201(f) by PA 85-731); and
2) for
tax years ending on or after June 8, 1984, property that is "qualified
property" as defined under IITA Section 203(f)(2) and Section 100.2131(e)
or that would have been qualified property under those provisions if placed in
service in an enterprise zone at the time it was new by a taxpayer otherwise
eligible to claim the credit under IITA Section 203(f).
c) Portion
of Loan Secured by Eligible Property. To determine the portion of a loan
that that is secured by Eligible Property, the entire principal amount of the
loan between the taxpayer and the borrower should be divided into the basis of
the Eligible Property which secures the loan, using for this purpose the
original basis of such property on the date it was placed in service in the
enterprise zone or the river edge redevelopment zone. The subtraction
modification available to the taxpayer in any year under this Section shall be
the 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. (IITA Section 203(b)(2)(M)) There is no limitation to the
length of time for which the subtraction may be taken with respect to a
particular loan.
d) Basis.
For purposes of the computation in subsection (c), the basis of Eligible
Property shall be its borrower's basis in the Eligible Property for federal
income tax purposes, including the costs of any improvements or repairs
included in that basis, but without adjustment for depreciation or IRC section 179
deductions claimed with respect to the property.
e) Examples.
This subsection provides examples of various fact situations and the
Department's interpretation of how this subtraction would apply:
1) EXAMPLE
1. Bank lends $1,000 to Borrower, secured by Eligible Property with a basis of
$900. The portion of the loan secured by Eligible Property is the $900 basis
of the borrower in Eligible Property divided by the $1,000 principal amount of
the loan, or 90%.
2) EXAMPLE
2. Bank lends $1,000 to Borrower, secured by Eligible Property with a basis of
$1,000 and by other property with a basis of $2,000. The portion of the loan
secured by Eligible Property is the $1,000 basis of the borrower in Eligible
Property divided by the $1,000 principal amount of the loan, or 100%. The
existence of other property securing the loan is irrelevant.
3) EXAMPLE
3. In 1996, ABC Company built a new warehouse in an enterprise zone at the
cost of $1,000,000 and is able to claim the enterprise zone investment credit
under IITA Section 201(f). ABC takes out a $2,000,000 loan at Bank A, which
then places a lien on the property. In 1999, when the warehouse had an
adjusted basis (after depreciation) of $900,000 and a fair market value of
$1,300,000, ABC refinanced the loan for the same principal amount, but at a
lower interest rate. For both loans, the portion of the loan secured by
Eligible Property is the $1,000,000 original basis in the warehouse divided by
the $2,000,000 principal. Neither the adjusted basis after depreciation nor
the fair market value are relevant to the computation for the refinanced
amount.
4) EXAMPLE
4. The facts are the same as in Example 3, except that, in 2001, ABC Company
again refinanced the loan, this time at Bank B (unrelated to Bank A). There
was no change in the principal amount. Bank B takes a lien on the warehouse to
secure the new loan. The portion of the Bank B loan that qualifies for the
subtraction modification is 50% because the principal amount of the loan and
ABC Company's original basis in the property remain unchanged.
5) EXAMPLE
5. Same facts as in Example 4, except that Bank B purchased the refinanced
loan from Bank A. The loan is not refinanced. ABC continues to pay the same
amount, but now pays Bank B rather than Bank A. Bank B does not qualify for
the subtraction modification, which is allowed only with respect to a loan
"made by such taxpayer to a borrower" and Bank B did not make the
loan.
6) EXAMPLE
6. X Corp., headquartered outside the river edge redevelopment zone, builds a
$100,000,000 warehouse in a river edge redevelopment zone in 2007 and claims
the river edge redevelopment zone credit. X takes out a 20-year loan at Bank A
in the principal amount of $1,000,000. In 2017, X takes out a new $1,750,000
loan at the same bank and uses $1,000,000 of the proceeds to pay off the old
loan and spends the remaining $750,000 to renovate its corporate headquarters
located outside the zone. Bank A takes a lien on the warehouse as security for
each loan. Because X Corp.'s $100,000,000 basis in the warehouse exceeds the
principal amount of each loan, Bank A is entitled to subtract the entire amount
of interest received from each loan. The portion of the loan whose interest
may be subtracted need not be reduced by the $750,000 portion not spent inside
the river edge redevelopment zone because use of the borrowed funds is not
relevant to the subtraction.
7) EXAMPLE
7. The F Church, located in an enterprise zone, decides to borrow $500,000 in
2003 from Bank A for roof repairs and a new addition. The church cannot claim
the enterprise zone credit because it did not have unrelated business taxable
income and was not required to file an IL-990-T for 2003. Bank A may claim the
subtraction modification. The loan is secured by property that is either
qualified property or could be qualified property, and the property has been
placed in service within an enterprise zone.
(Source: Amended at 49 Ill. Reg. 3115,
effective February 26, 2025)
|
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2657 SUBTRACTION MODIFICATION FOR HIGH IMPACT BUSINESS INTEREST (IITA SECTION 203(B)(2)(M-1))
Section 100.2657 Subtraction Modification for High
Impact Business Interest (IITA Section 203(b)(2)(M-1))
a) A
corporation that is a "financial organization" within the meaning of
IITA Section 304(c) may subtract an amount included in its taxable income 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 under IITA Section 201(h). (IITA
Section 203(b)(2)(M-1))
b) Coordination
with Subtraction for Enterprise Zone Interest. Notwithstanding subsection (a),
a taxpayer may not claim a subtraction modification under IITA Section
203(b)(2)(M-1) and this Section for any taxable year in which the taxpayer is
allowed to claim the subtraction modification under IITA Section 203(b)(2)(M)
and Section 100.2655 of this Part for interest on a loan secured by property
eligible for the enterprise zone investment credit or river edge redevelopment
zone investment credit. (IITA Section 203(b)(2)(M-1))
c) Eligible
Property. For purposes of this Section, "eligible property" shall
mean property that is "qualified property", as defined under IITA
Section 201(h) and Section 100.2130(e) of this Part, and that is placed in
service on or after the date the owner is designated as a high impact business
by the Department of Commerce and Economic Opportunity. To be considered
eligible property, it is not necessary that the property be placed in service
in a federally designated foreign trade zone or subzone.
d) Portion
of Loan Secured by Eligible Property. To determine the portion of a loan
that is secured by eligible property, the entire principal amount of the loan
between the taxpayer and the borrower should be divided into the basis of the
eligible property which secures the loan, using for this purpose the original
basis of such property on the date it was placed in service. The subtraction
modification available to the taxpayer in any year under IITA Section
203(b)(2)(M-1) 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. (IITA Section 203(b)(2)(M-1)) There is no
limitation to the length of time for which the subtraction may be taken with
respect to a particular loan.
e) Basis.
For purposes of the computation in subsection (d), the basis of eligible
property shall be its borrower's basis in the eligible property for federal
income tax purposes, including the costs of any improvements or repairs
included in that basis, but without adjustment for depreciation or IRC section
179 deductions claimed with respect to the property.
f) Examples.
The provisions of IITA Section 203(b)(2)(M-1) and this Section may be
illustrated by the following examples.
1) EXAMPLE
1. Bank lends $1,000 to Borrower, secured by eligible property with a basis of
$900. The portion of the loan secured by eligible property is the $900 basis of
the borrower in eligible property divided by the $1,000 principal amount of the
loan, or 90%.
2) EXAMPLE
2. Bank lends $1,000 to Borrower, secured by eligible property with a basis of
$1,000 and by other property with a basis of $2,000. The portion of the loan
secured by eligible property is the $1,000 basis of the borrower in eligible
property divided by the $1,000 principal amount of the loan, or 100%. The
existence of other property securing the loan is irrelevant.
3) EXAMPLE
3. In 2008, DCEO designated ABC Company a high impact business. In 2009, ABC
Company built a new warehouse at the cost of $1,000,000 and is able to claim
the high impact business investment credit under IITA Section 201(h) with
respect to the warehouse. ABC takes out a $2,000,000 loan at Bank A, which then
places a lien on the property. In 2010, when the warehouse had an adjusted
basis (after depreciation) of $900,000 and a fair market value of $1,300,000,
ABC refinanced the loan for the same principal amount, but at a lower interest
rate. For both loans, the portion of the loan secured by eligible property is
the $1,000,000 original basis in the warehouse divided by the $2,000,000
principal. Neither the adjusted basis after depreciation nor the fair market
value is relevant to the computation for the refinanced amount.
4) EXAMPLE
4. Assume the facts are the same as in Example 3, except that, in 2011, ABC
Company again refinanced the loan, this time at Bank B (unrelated to Bank A).
There was no change in the principal amount. Bank B takes a lien on the
warehouse to secure the new loan. The portion of the Bank B loan that qualifies
for the subtraction modification is 50% because the principal amount of the
loan and ABC Company's original basis in the property remain unchanged.
5) EXAMPLE
5. The facts are the same as in Example 4, except that Bank B purchased the
refinanced loan from Bank A. The loan is not refinanced. ABC continues to pay
the same amount, but now pays Bank B rather than Bank A. Bank B does not
qualify for the subtraction modification, which is allowed only with respect to
a loan "made by such taxpayer to a borrower" and Bank B did not make
the loan.
(Source: Added at 38 Ill.
Reg. 9550, effective April 21, 2014)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2665 SUBTRACTION FOR PAYMENTS TO AN ATTORNEY-IN-FACT (IITA SECTION 203(B)(2)(R))
Section 100.2665 Subtraction for Payments to an
Attorney-in-Fact (IITA Section 203(b)(2)(R))
a) Under an
interinsurance or reciprocal insurance arrangement, the members or subscribers
are liable to reimburse each other for insured losses. The operations of an
interinsurer or reciprocal insurer are conducted by an attorney-in-fact.
Interinsurers and reciprocal insurers are subject to federal income tax as
mutual insurance companies. (See Internal Revenue Code section 832(f).) Under IRC
section 835, an interinsurer or reciprocal insurer can elect to limit its
deduction for fees paid to its attorney-in-fact to the amount of deductible
expenses incurred by the attorney-in-fact that are attributable to those fees.
An interinsurer or reciprocal insurer that makes this election is allowed a
credit equal to the federal income tax liability of its attorney-in-fact with
respect to the fees received from the interinsurer or reciprocal insurer.
b) The effect of
making an election under IRC section 835 is that the net income of the
attorney-in-fact related to the interinsurer or reciprocal insurer that made
the election is included in the federal taxable income of both the
attorney-in-fact and the interinsurer or reciprocal insurer, but the
interinsurer or reciprocal insurer is allowed a federal credit that eliminates
the double taxation of that income. Prior to the enactment of PA 91-205, that
income would be included in the base incomes of the interinsurer or reciprocal
insurer and of the attorney-in-fact. On and after July 20, 1999 (the effective
date of PA 91-205), in the case of an attorney-in-fact with respect to whom an
interinsurer or a reciprocal insurer has made the election under IRC section
835, the attorney-in-fact is allowed to subtract 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 IRC section 835 for the taxable year. (IITA
Section 203(b)(2)(R)) The provisions of IITA Section 203(b)(2)(R) are exempt
from automatic sunset under the provisions of Section 250.
(Source: Added at 42 Ill. Reg. 17852,
effective September 24, 2018)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2668 SUBTRACTION FOR DIVIDENDS FROM CONTROLLED FOREIGN CORPORATIONS (IITA SECTION 203(B)(2)(Z))
Section 100.2668 Subtraction for Dividends from
Controlled Foreign Corporations (IITA Section 203(b)(2)(Z))
a) Under Internal
Revenue Code section 965(e), the taxable income of a shareholder of a
controlled foreign corporation (CFC) may not be less than the
"nondeductible CFC dividends" received from that CFC, as defined in IRC
section 965(e)(3). If the shareholder's federal net income would otherwise be
less than the nondeductible CFC dividends, the shareholder carries over the
excess of its nondeductible CFC dividends over the amount of its federal
taxable income computed without regard to IRC section 965(e) as a net operating
loss under IRC section 172.
b) IITA Prior to PA 97-507. Under
IITA Section 203(b), the base income of a corporation for a taxable year is its
taxable income for the year, as properly reportable for federal income tax
purposes, after modifications in IITA Section 203(b)(2). Under IITA Section
203(b)(2)(D), any net operating loss deduction claimed by a corporation under IRC
section 172 for a loss incurred in a taxable year ending on or after December
31, 1986, is added back to the corporation's taxable income. Under IITA Section
207, the net loss of a taxpayer (other than an individual) for a taxable year
is its taxable income for the year, as properly reportable for federal income
tax purposes, after modifications in IITA Section 203(b)(2). As a result, a
corporation whose nondeductible CFC dividends exceeded its federal taxable
income computed without regard to IRC section 965(e) for a taxable year would
receive no tax benefit from the deductions or losses that caused the excess,
because those deductions or losses could not reduce its federal taxable income
in the year incurred and any resulting IRC section 172 deduction would be added
back to taxable income in the carryover years under IITA Section 203(b)(2)(D).
c) In order to allow a
corporation the benefit of deductions otherwise disallowed by IRC section
965(e) and IITA Section 203(b)(2)(D),
PA 97-507 added IITA Section 203(b)(2)(Z) to allow a subtraction for the
difference between the nondeductible controlled foreign corporation dividends
under IRC section 965(e)(3) over the taxable income of the taxpayer, computed
without regard to IRC section 965(e)(2)(A),
and without regard to any net operating loss deduction. IITA Section
203(b)(2)(Z) applies to all taxable years, and is exempt from automatic sunset
under the provisions of Section 250.
(Source: Added at 42 Ill. Reg. 17852,
effective September 24, 2018)
SUBPART H: BASE INCOME OF TRUSTS AND ESTATES
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2770 SUBTRACTION FOR RECOVERY OF ITEMIZED DEDUCTIONS OF A DECEDENT (IITA SECTION 203(C)(2)(W))
Section 100.2770 Subtraction for Recovery of Itemized
Deductions of a Decedent (IITA Section 203(c)(2)(W))
a) In
computing its base income, an estate is allowed to subtract from its federal
taxable income an amount equal to all amounts included in that total
pursuant to the provisions of IRC section 111 as a recovery of items previously
deducted by the decedent from adjusted gross income in the computation of
taxable income. (IITA Section 203(c)(2)(W))
b) Under
IRC section 111, a taxpayer who is allowed a deduction in computing federal
taxable income in one taxable year, and recovers the deductible expenditure in a
subsequent taxable year, includes the recovery in gross income in the year of
recovery. For example, an individual who claims an itemized deduction for
State income taxes paid in 2015 on his or her 2015 federal income tax return,
and in 2016 receives a refund of some of that tax, includes the refund in gross
income for 2016. This procedure prevents the taxpayer from receiving a tax
benefit for an expenditure that ultimately did not cost the taxpayer, without
requiring the filing of an amended return to remove the deduction from the
computation of taxable income in the year the deduction was taken.
c) If
the estate of a deceased individual recovers an item that the individual had
deducted in a taxable year prior to his or her death, the estate must include
the recovery in its taxable income.
d) Under
IITA Section 203(a)(1), the computation of an individual's base income begins
with his or her federal adjusted gross income, which is equal to taxable income
before itemized deductions, the standard deduction and personal exemptions are
taken into account. As a result, individuals receive no Illinois income tax
benefit from federal itemized deductions. Accordingly, recoveries of federal
itemized deductions taken by a decedent do not need to be included in the base
income of the decedent's estate to prevent receiving a tax benefit for the
item. IITA Section 203(c)(2)(W) therefore allows an estate to subtract
recoveries of itemized deductions taken by the decedent that are included in
the estate's federal taxable income.
e) IITA
Section 203(c)(2)(W) provides that it is exempt from the automatic sunset
provisions of IITA Section 250.
(Source: Added at 42 Ill. Reg. 17852,
effective September 24, 2018)
|
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.2775 SUBTRACTION FOR REFUNDS OF TAXES PAID TO OTHER STATES FOR WHICH A CREDIT WAS CLAIMED (IITA SECTION 203(C)(2)(X))
Section 100.2775 Subtraction for Refunds of Taxes Paid
to Other States for Which a Credit Was Claimed (IITA Section 203(c)(2)(X))
a) In
computing its base income, an estate is allowed to subtract from its federal
taxable income an amount equal to the refund included in that total of any
tax deducted for federal income tax purposes, to the extent that deduction was
added back under IITA Section 203(c)(2)(F). (IITA Section 203(c)(2)(X))
b) Under
IRC section 111, a taxpayer who is allowed a deduction in computing federal
taxable income in one taxable year, and recovers the deductible expenditure in
a subsequent taxable year, includes the recovery in gross income in the year of
recovery. For example, a trust or estate that claims a deduction for State
income taxes paid in 2015 on its 2015 federal income tax return, and in 2016
receives a refund of some of that tax, includes the refund in gross income for
2016. This procedure prevents the taxpayer from receiving a tax benefit for an
expenditure that ultimately did not cost the taxpayer, without requiring the
filing of an amended return to remove the deduction from the computation of
taxable income in the year the deduction was taken.
c) If a
trust or estate claims a credit for taxes paid to other states under IITA
Section 601(b)(3), the taxpayer adds back to its federal taxable income any
deduction taken for payment of a state tax for which the credit is claimed.
(See IITA Section 203(c)(2)(F).) If a trust or estate has added back the
federal income tax deduction for a state tax, a refund of that tax does not
need to be included in the taxpayer's base income to prevent receiving a tax
benefit for the item. IITA Section 203(c)(2)(X) therefore allows the taxpayer
to subtract refunds of these taxes that are included in the taxpayer's federal
taxable income.
d) IITA
Section 203(c)(2)(X) provides that it is exempt from the automatic sunset provisions
of IITA Section 250.
(Source: Added
at 42 Ill. Reg. 17852, effective September 24, 2018)
|
SUBPART I: BASE INCOME OF PARTNERSHIPS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.2850 SUBTRACTION MODIFICATION FOR PERSONAL SERVICE INCOME OR REASONABLE ALLOWANCE FOR COMPENSATION TO PARTNERS (IITA SECTION 203(D)(2)(H))
Section 100.2850 Subtraction Modification for Personal
Service Income or Reasonable Allowance for Compensation to Partners (IITA
Section 203(d)(2)(H))
a) In
General. A partnership is allowed to subtract from taxable income any income
of the partnership that constitutes personal service income as defined
in 26 USC 1348(b)(1) (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. (IITA Section 203(d)(2)(H)) Therefore,
pursuant to this Section, a partnership is allowed a subtraction modification
in an amount equal to the greater of the amount computed under subsection (b)
or the amount computed under subsection (c).
1) Purpose.
Under the IRC and federal income tax law, a partner is not an employee of the
partnership. Consequently, a partnership generally may not deduct in computing
the taxable income of the partnership amounts paid to a partner for services
rendered to the partnership. (Estate of Tilton, 8 BTA 914 (1927)) Instead, these
amounts are considered distributive shares of partnership income (Revenue
Ruling 55-30, 1955-1 C.B. 430). In contrast, a shareholder of a corporation may
also be employed by the corporation. Amounts paid by the corporation to the
shareholder that constitute compensation for services rendered as an employee
may be deducted by the corporation in computing its taxable income under 26 USC
162(a)(1). The purpose of the subtraction modification under IITA Section
203(d)(2)(H) and this Section is to allow partnerships, for purposes of
computing their liability for the tax imposed under IITA Section 201(c) and (d)
(replacement tax), a deduction for compensation paid to partners for services
rendered to the partnership similar to the deduction allowed to a corporation
for compensation paid a shareholder-employee for services rendered to the
corporation.
2) Amounts
that Qualify for Subtraction.
A) The
amounts computed under subsections (b) and (c) are comprised of the
distributive shares of the partners in the income of the partnership. Under 26
USC 707(c) to the extent determined without regard to the income of the
partnership, payments to a partner for services or the use of capital are
considered as made to a person who is not a partner, but only for the purposes
of 26 USC 61(a) (relating to gross income) and, subject to 26 USC 263, for
purposes of IRC section 162(a) (relating to trade or business expenses). 26 CFR
1.707-1(c) states that, for the other purposes of the IRC, a guaranteed payment
is regarded as a distributive share of the ordinary income of the partnership. Accordingly,
a guaranteed payment to a partner may be included in the computation of the
amounts computed under subsections (b) and (c).
B) Under
26 USC 707(a), if a partner engages in a transaction with the partnership other
than in his or her capacity as a partner, the transaction is generally
considered as occurring between the partnership and one who is not a partner.
When a partnership pays or accrues an amount to a non-partner for services
rendered, the partnership is allowed a deduction in the computation of its
taxable income (see, e.g., 26 USC 162). Therefore, a payment to a partner
subject to 26 USC 707(a) may not be included in the amounts computed under
subsections (b) and (c) (see IITA Section 203(g) and subsection (a)(5) of this Section).
A distribution by the partnership subject to 26 USC 731 is treated as a return
of capital and/or gain from the sale or exchange of the partnership interest of
the distributee partner and, therefore, in no event may a distribution be included
in the amounts computed under subsections (b) and (c). However, an allocation
of partnership income to a partner may be considered compensation for services
for purposes of this Section, whether or not accompanied by a corresponding
distribution under 26 USC 731.
3) Double
Deductions Prohibited. IITA Section 203(g) states that nothing in that Section
shall permit the same item to be deducted more than once.
A) Under
IITA Section 203(d)(2)(I), a subtraction modification is allowed to the
partnership for income distributable to an entity subject to replacement tax or
to organizations exempt from federal income tax by reason of IRC section
501(a). Therefore, neither a guaranteed payment nor a distributive share of net
income or gain of a partner subject to replacement tax or exempt from federal
income tax under IRC section 501(a) may be included in the subtraction
modification allowed under this Section.
B) In
addition, when a partnership pays or accrues an amount to a non-partner for
services rendered, the partnership is allowed a deduction in the computation of
its taxable income. Therefore, a payment to a partner subject to 26 USC 707(a)
because the partner is not acting in his or her capacity as a partner, whether
or not the payment is currently deducted by the partnership or capitalized, may
not be subtracted under this Section. Similarly, when a person receives a
partnership interest for the provision of services, the partnership's deduction
is determined under 26 USC 83(h). Therefore, no amount may be deducted by the
partnership under this Section for the transfer of a partnership interest in
connection with the performance of services.
b) Personal
Service Income. When the personal service income of the partnership, as
defined in this subsection (b), is greater than a reasonable allowance for
compensation paid or accrued for services rendered by partners, the subtraction
modification under this Section shall be equal to the personal service income
of the partnership. The personal service income of the partnership is equal to
the aggregate of the distributive shares of the partners in the income of the
partnership that would constitute personal service income in the hands of the
partners (less deductions allocable to that income as provided in subsection
(b)(2)). See Rev. Rul. 74-231, 1974-1 C.B. 240.
1) Definitions
Personal Service Income. The term "personal
service income", as defined in 26 USC 1348(b)(1) (as in effect December
31, 1981) means: "any income which is earned income within the meaning of
26 USC 401(c)(2)(C) or 26 USC 911(b) or which is an amount received as a
pension or annuity which arises from an employer-employee relationship or from
tax-deductible contributions to a retirement plan. For purposes of this
subparagraph, 26 USC 911(b) shall be applied without regard to the phrase, 'not
in excess of 30 percent of his share of net profits of such trade or business'.
The term 'personal service income' does not include any amount to which 26 USC 72(m)(5),
402(a)(2), 402(e), 403(a)(2), 408(e)(2), 408(e)(3), 408(e)(4), 408(e)(5),
408(f) or 409(c) applies; or which is includible in gross income under 26 USC 409(b)
because of the redemption of a bond which was not tendered before the close of
the taxable year in which the registered owner attained age 70½." See also
26 CFR 1.1348-3. Under 26 USC 1348, only an individual (or trust or estate in
the case of income in respect of a decedent) may receive personal service
income. Therefore, only the distributive share of an individual partner (or
trust or estate in the case of income in respect of a decedent) may be included
in the personal service income of the partnership under this subsection (b).
2) Personal
Service Income is Net of Allocable Expenses. For purposes of determining the
subtraction modification under this subsection (b), the personal service income
of the partnership shall be the aggregate of the distributive shares of the
partners in the income of the partnership that would constitute personal
service income in the hands of the partners less deductions allocable to that
income. In Treasury Decision 7446, Maximum Tax on Earned Income (August 13,
1976), the IRS stated that, in order to achieve a logical result in applying
the maximum tax provisions of Section 1348 and to prevent the conversion of
passive income into earned income, a proportional allocation of expenses to
earned income is required in the case of a business in which capital is a
material income-producing factor. In addition, if passive income is derived
from investments held by a trade or business, expenses of the trade or business
must be allocated between such passive income and the income available for
payment as personal service income. Therefore, when a partnership incurs a loss
from a trade or business, it does not have personal services income for
purposes of the subtraction modification under this Section.
c) Reasonable
Compensation for Services. When a reasonable allowance for compensation paid or
accrued for services actually rendered by partners is greater than the personal
service income of the partnership, as defined in subsection (b), the
subtraction modification under this Section is equal to that reasonable
allowance. The reasonable compensation allowance of the partnership under this
subsection is equal to the sum of the distributive shares of all partners who
render services to or on behalf of the partnership of the income of the
partnership to the extent that the distributive share would have been allowed
as a deduction to the partnership under 26 USC 162 if it had been paid to the
service partner for services performed in the capacity of an employee of the
partnership rather than a partner. No part of the distributive share of a
partner who performs no services to or on behalf of the partnership may be
included in the reasonable compensation allowance of the partnership under this
subsection.
1) Paid
or Accrued. IITA Section 203(d)(2)(H) limits the subtraction modification for
a reasonable allowance for compensation of partners to amounts "paid or
accrued" to the partner for services rendered to the partnership.
Therefore, the amount allowed under this subsection (c)(1) with respect to any
partner may not exceed the increase, if any, in the capital account balance of
the partner for the taxable year of the partnership in which the subtraction is
claimed, determined under 26 CFR 1.704-1(b) without regard to contributions of
money or property by the partner and without regard to distributions of money
or property to the partner, but including a guaranteed payment made to the
partner.
2) Reasonable
Allowance. 26 USC 162(a)(1) limits the deduction for compensation for services
to a reasonable allowance. (See 26 CFR 1.162-7(b)(3).) Therefore, the amount
computed under this subsection (c)(2) with respect to any service partner may
not exceed what is reasonable under all the circumstances. 26 CFR 1.162-7(b)(3)
states, "it is, in general, just to assume that reasonable and true
compensation is only such amount as would ordinarily be paid for like services
by like enterprises under like circumstances." In addition, in Exacto
Spring Corp. v. Commissioner, 196 F.3d 833 (7th Cir. 1999), the
court held that "when…the investors in [the] company are obtaining a far
higher return than they had any reason to expect, the owner/employee's salary
is presumptively reasonable." (Menard, Inc. v. C.I.R., 560 F.3d 620, 623
(7th Cir. 2009)). However, this presumption may be rebutted by other
evidence showing the amount claimed as compensation exceeds a reasonable
amount. (Menard, Inc., 560 F.3d at 623) Accordingly, when income of the
partnership is allocated to partners in amounts that would result in the
partners obtaining a far higher return on partnership capital than they had any
reason to expect, a rebuttable presumption shall arise that any remaining
amount of income allocated to partners for services actually provided to the
partnership is a reasonable allowance, and therefore may be included in the
amount computed under this subsection (c)(2). The taxpayer shall have the
burden of proving that the presumption arises.
d) Examples.
The provisions of this Section may be illustrated by the following examples.
EXAMPLE 1: Partnership PB
consists of individual partners P and B. The partnership is engaged in a
manufacturing business in which capital is a material income-producing factor.
The partnership agreement provides that B shall be entitled to a guaranteed
payment of $100,000 annually for his services in managing the operations of the
partnership. Assume that under IRC section 1348, the amount of the income of PB
reasonably attributable to B's services is $30,000. (See Brewster v. C.I.R.,
607 F.2d 1369 (D.C. Cir. 1979) and IRS Technical Advice Memorandum 7932010
(1979).) In addition, assume that $100,000 is reasonable compensation, and
would be deductible to the partnership under IRC section 162(a)(1) if B
rendered his management services as an employee rather than in his capacity as
a partner. The partners agree to share all income, gain, losses and deductions
equally after taking into account B's guaranteed payment. P does not provide
any services to the partnership. For the taxable year, Partnership PB's taxable
income, after taking into account B's guaranteed payment, is an ordinary loss
of $40,000. Under these facts, Partnership PB is allowed a subtraction
modification under this Section equal to the greater of the personal service
income of the partnership computed under subsection (b) or a reasonable
allowance for compensation for services rendered by partners to the partnership
under subsection (c). In this case, the reasonable allowance of $100,000
exceeds the personal service income of the partnership of $0. Therefore, the
subtraction modification allowed to PB under this Section is $100,000.
Therefore, PB's base income for replacement tax purposes is a loss of $40,000
(i.e., taxable income under IITA Section 203(e)(2)(H) of a loss of $40,000,
plus an addition modification of $100,000 under IITA Section 203(d)(2)(C), less
a subtraction modification under this Section of $100,000).
EXAMPLE 2: Assume the same facts
as in Example 1, except that the partnership agreement does not provide B with
a guaranteed payment, and the partnership's taxable income remains an ordinary
loss of $40,000. Because PB incurs a loss in its trade or business, it has no
personal services income. In addition, because the loss is shared by the
partners, there is no increase in B's capital account balance for the taxable
year. Therefore, no amount has been paid or accrued to the partners for
services rendered to the partnership. This result is not changed even if the
partnership makes distributions to the partners during the taxable year.
Partnership PB is not allowed a subtraction modification under this Section.
Therefore, PB's base income for replacement tax purposes is a loss of $40,000
(i.e., taxable income under IITA Section 203(e)(2)(H)).
EXAMPLE 3: Assume the same facts
as in Example 1, except that the partnership's taxable income consists of an
ordinary loss of $100,000, and a $200,000 capital gain under IRC section 1231.
Because Partnership PB incurs a loss in its trade or business and its only item
of income is a section 1231 gain of $200,000, it has no personal services
income. (See 26 CFR 1.1348-3(a)(1), which states that the term "earned
income" does not include gains treated as capital gains under any
provision of chapter 1 of the Internal Revenue Code.) However, the partnership
is allowed a subtraction modification for reasonable compensation paid to B for
services rendered to the partnership. The amount of the subtraction
modification is the $100,000 guaranteed payment to B. Because P has not
provided any services to the partnership, none of the income allocated to P is
reasonable compensation for services.
EXAMPLE 4: Assume the same facts
as in Example 3, except that the partnership agreement does not provide for
guaranteed payments. However, B is entitled under the partnership agreement to
the first $100,000 of profits, if any, for his services managing the operations
of the partnership. As a result, the partnership's taxable income consists
solely of a section 1231 gain of $200,000. Because PB does not have income from
its trade or business, and its only item of income is a section 1231 gain of
$200,000, it has no personal services income. However, it is allowed a
subtraction modification for reasonable compensation paid to B for services
rendered to the partnership. Under the partnership agreement, $100,000 of gain
allocated to B is in exchange for B's services managing the partnership.
Provided that amount does not exceed a reasonable allowance for those services,
PB is allowed a subtraction modification under this Section of the $100,000
guaranteed payment to B. Since P has not provided any services to the
partnership, none of the gain allocated to P is reasonable compensation for
services. Therefore, PB's base income for replacement tax purposes is $100,000
(i.e., taxable income under IITA Section 203(e)(2)(H) of $200,000, less a
subtraction modification under this Section of $100,000).
EXAMPLE 5: Partnership ABC is an
engineering firm. The partnership's only trade or business is the provision of
engineering services to clients, and capital is not a material income-producing
factor. Partners A and B are individuals who provide all of the services to
clients of the partnership. Partner C is a corporation that provides management
services to the partnership. Under the partnership agreement, partners A and B
have a 45% share of any income or loss of the partnership, and partner C has a
10% share of any income or loss. For its taxable year the partnership has
taxable income from its engineering business of $100,000, plus $4,000 of
portfolio interest income (net of allocable expenses). Since capital is not a
material income-producing factor in the engineering services business, the
partnership's personal services income is equal to the sum of A's and B's
distributive share of the $100,000 of taxable income. Because C is not an
individual, no part of C's distributive share constitutes personal services
income. In addition, because IITA Section 203(g) prohibits double deductions,
the partnership's subtraction modification under this Section may not include
any part of partner C's distributive share of the partnership's income. Because
C is a partner subject to replacement tax, C's distributive share of partnership
income is allowed as a subtraction modification under IITA Section
203(d)(2)(I). The partnership is allowed a subtraction modification under this
Section of $90,000, which is equal to partner A's and partner B's share of the
personal services income of the partnership. Because the entire distributive
share of A and B constitutes personal service income, and the computation of a
reasonable allowance may not exceed the amount "paid or accrued" to A
and B for their services, the subtraction modification is equal to the personal
service income of the partnership. Therefore, ABC's base income for replacement
tax purposes is $3,600 (i.e., taxable income under IITA Section 203(e)(2)(H) of
$104,000, less a subtraction modification under Section 203(d)(2)(I) of
$10,400, less a subtraction modification under this Section of $90,000).
EXAMPLE 6: Partnership DEF
consists of individual partners D, E and F. The partnership is engaged in a
rental real estate business. DEF has entered into a management contract with G
corporation under which, in exchange for a fixed fee, G corporation agrees to
manage the daily rental operations of the partnership. G corporation is not a
partner of DEF. The shareholders of G corporation are individuals D, E and F,
who actually perform the services required under the management contract
between the partnership and G corporation. Individuals D, E and F do not
perform any other services except those set forth in the management contract.
Partnership DEF is not allowed a subtraction modification under this Section
because individuals D, E and F have not rendered any services to the
partnership in their capacity as partners. Rather, the services rendered by D,
E and F were provided to G corporation in their capacity as employees of G corporation.
EXAMPLE 7: The facts are the same
as in Example 6, except that G is a limited liability company (LLC), elects to
be taxed as a partnership, and is a general partner of DEF. Individuals D, E
and F are limited partners of DEF. The partnership agreement provides that G
LLC shall manage the daily rental operations of the partnership. The members of
G LLC are individuals D, E and F, who actually perform the services required of
G LLC under the partnership agreement. Partnership DEF is not allowed a subtraction
modification under this Section because DEF is allowed to subtract G LLC's
distributive share of partnership income under IITA Section 203(d)(2)(I), and
therefore a subtraction under this Section is disallowed under subsection (a)(3)
of this Section, and because individuals D, E and F have not rendered any
services to the partnership in their capacity as partners. Rather, the services
rendered by D, E and F were provided to G LLC as members of G LLC. Because G
LLC is taxed as a partnership, G LLC may be allowed a subtraction modification
under this Section in computing its replacement tax liability for services
provided to it by individuals D, E, and F.
EXAMPLE 8: The facts are the same
as in Example 7, except that the members of G LLC are D and H LLC, which elects
to be taxed as a partnership. The members of H LLC are E and F. D, E and F
perform the services required of G LLC under the partnership agreement.
Partnership DEF is not allowed a subtraction modification under this Section
because DEF is allowed to subtract G LLC's distributive share of partnership
income under IITA Section 203(d)(2)(I), and therefore subtraction under this
Section is disallowed under subsection (a)(3) of this Section, and because
individuals D, E and F have not rendered any services to Partnership DEF in
their capacity as partners. Rather, the services rendered by D were provided to
G LLC as a member of G LLC and by E and F indirectly to G LLC as members of H
LLC. Because G LLC is taxed as a partnership, in computing its replacement tax
liability it may be allowed a subtraction modification for D's distributive
share of G LLC's income to the extent allowed under this Section, and allowed a
subtraction modification under IITA Section 203(d)(2)(I) for H LLC's
distributive share of G LLC's income. H LLC may be allowed a subtraction
modification for E and F's distributive share of H LLC's income to the extent
allowed under this Section.
(Source: Added at 43 Ill. Reg. 727,
effective December 18, 2018)
SUBPART J: GENERAL RULES OF ALLOCATION AND APPORTIONMENT OF BASE INCOME
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3000 TERMS USED IN ARTICLE 3 (IITA SECTION 301)
Section 100.3000 Terms Used
In Article 3 (IITA Section 301)
Article 3 of the Illinois Income
Tax Act sets forth the rules for determining that portion of a person's base
income which is allocable to Illinois in the computation of net income under
IITA Section 202. In the case of a person who is a resident, all items of
income or deduction which are taken into account in the computation of base
income for the taxable year are allocated to Illinois under IITA Section 301(a)
and enter into the computation of such person's net income under IITA Section
202. In the case of persons who are not residents of Illinois, specific
allocation and apportionment rules are provided in Article 3 and the
regulations thereunder. Certain terms appearing throughout the Article to
which such rules relate are defined in 86 Ill. Adm. Code 100.3010 through
100.3210.
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3010 BUSINESS AND NONBUSINESS INCOME (IITA SECTION 301)
Section 100.3010 Business
and Nonbusiness Income (IITA Section 301)
a) In general. For purposes of administration of Article 3 of
the Illinois Income Tax Act:
1) For transactions and activities occurring prior to July
30, 2004 (the effective date of Public Act 93-0840), business income is income
arising from transactions and activity in the regular course of a trade or
business and includes income from tangible and intangible property constituting
integral parts of a person's regular trade or business operations. (See
IITA Section 1501(a)(1), prior to amendment by Public Act 93-0840.) The
classification of income by the labels occasionally used, such as manufacturing
income, sales income, interest, dividends, rents, royalties, gains, and
operating income, is of no aid in determining whether income is business or
nonbusiness income. Income of any type or class and from any source is
business income if it arises from transactions and activity occurring in the
regular course of trade or business operations. Accordingly, the critical
element in determining whether income is "business income" or
"nonbusiness income" is the identification of the transactions and
activity that are the elements of a particular trade or business. In general,
all transactions and activity that are dependent upon or contribute to the
operations of the economic enterprise as a whole will be transactions and
activity arising in the regular course of a trade or business.
2) For
transactions or activities occurring on or after July
30, 2004, business income is all income that may be treated as
apportionable business income under the Constitution of the United States. (See IITA Section 1501(a)(1), after amendment by Public Act 93-0840.)
By adopting this definition, the General Assembly overruled the decisions in the
following cases:
A) Blessing/White,
Inc. v. Zehnder, 329 Ill. App. 3d 714 (Third Div. 2002) and American States
Insurance Co. v. Hamer, 352 Ill. App. 3d 521 (First
Div. 2004), which held that the gain on a sale of an entire line of
business was nonbusiness income. This "liquidating sale" exclusion
from business income was based on the courts' construction of the statutory
definition of business income prior to the enactment of Public Act 93-0840, and
not on any principle of the Constitution of the United States.
B) Hercules,
Inc. v. Zehnder, 324 Ill. App. 3d 329 (First Div. 2001), which held that gain
realized on the sale of the taxpayer's stock in a subsidiary corporation that
it had received in exchange for the contribution of assets used in its business
was not business income. The taxpayer's basis in its stock was determined by
its basis in the assets exchanged, so that the gain realized on the sale was
attributable, at least in part, to its use of those assets in its business
before the exchange. Accordingly, the investment that produced the gain had an
operational function related to that business, and is subject to apportionment
under Allied-Signal v. Director, 504 US 768 (1992). In addition, the court's
holding that the taxpayer was not engaged in a unitary business with the
subsidiary was based in part on the fact that the taxpayer did not meet
the statutory "common ownership" requirement in IITA Section
1501(a)(27), which provides that a corporation must be owned more than 50% in
order to be engaged in a unitary business. There is no such requirement in the
Constitution of the United States, and a unitary business may exist with less
than 50% common ownership. See In re Panhandle Eastern Pipe Line Co., 39 P.3d
21 (Ks. 2002) and True v. Heitkamp, 470 NW2d 582 (N.D. 1991). Accordingly, a
taxpayer may be engaged in a unitary business with a subsidiary in which it
holds only a minority interest, so that the gain or loss realized on the sale
of its stock in the subsidiary is subject to apportionment under Allied-Signal
v. Director, 504 US 768 (1992).
3) For
all taxable years:
A) Business
income is net of the deductions allocable thereto and does not
include compensation or the deductions allocable thereto (IITA Section
1501(a)(1)).
B) Nonbusiness
income means all income other than business income or compensation (IITA
Section 1501(a)(13)).
C) A
person's income is business income unless clearly classifiable as nonbusiness
income.
b) Two
or more businesses of a single person
1) A person may have more than one "trade or
business". In such cases, it is necessary to determine the business income
attributable to each separate trade or business. In the case of a person other
than a resident, the income of each business is then apportioned by a formula
that takes into consideration the instate and outstate factors relating to the
trade or business the income of which is being apportioned.
2) Example: The person is a corporation with three operating
divisions. One division is engaged in manufacturing aerospace items for the
federal government. Another division is engaged in growing tobacco products.
The third division produces and distributes motion pictures for theaters and
television. Each division operates independently; there is no strong central
management. Each division operates in this State as well as in other states.
In this case, it is fair to conclude that the corporation is engaged in three
separate "trades or businesses". Accordingly, the amount of business
income attributable to the corporation's trade or business activities in this
State is determined by applying an apportionment formula to the business income
of each business.
3) The determination of whether the activities of the person
constitute a single trade or business or more than one trade or business will
turn on the facts in each case. In general, the activities of the person will
be considered a single business if there is evidence to indicate that the
segments under consideration are integrated with, dependent upon, or contribute
to each other and the operations of the person as a whole. The following
factors are considered to be good indicia of a single trade or business, and
the presence of any one of these factors creates a strong indication that the
activities of the person constitute a single trade or business.
A) Same type of business. A person is generally engaged in a
single trade or business when all of its activities are in the same general
line. For example, a person that operates a chain of retail grocery stores
will almost always be engaged in a single trade or business.
B) Steps in a vertical process. A person is almost always engaged
in a single trade or business when its various divisions or segments are
engaged in a vertically structured enterprise. For example, a person that
explores for and mines copper ores; concentrates, smelts and refines the copper
ores; and fabricates the refined copper into consumer products is engaged in a
single trade or business, regardless of the fact that the various steps in the
process are operated substantially independently of each other with only
general supervision from the person's executive offices.
C) Strong centralized management. A person that might otherwise
be considered as engaged in more than one trade or business is properly
considered as engaged in one trade or business when there is a strong central
management, coupled with the existence of centralized departments for functions
such as financing, advertising, research or purchasing. Thus, some
corporations may properly be considered as engaged in only one trade or
business when the central executive officers are normally involved in the
operations of the various divisions and there are centralized offices that
perform for the divisions the normal matters that a truly independent business
would perform for itself, such as accounting, personnel, insurance, legal,
purchasing, advertising or financing. Note in this connection that neither the
existence of central management authority, nor the exercise of that authority
over any particular function (through centralized departments or offices), is determinative
in itself; the entire operations of the person must be examined in order to
determine whether or not strong centralized management absent other unitary
indicia as described in this subsection (b) (i.e., same type of business or
steps in a vertical process) justifies a conclusion that the activities of the
person constitute a single trade or business. Both elements of strong
centralized management, i.e., strong central management authority and the
exercise of that authority through centralized departments or offices, must
exist in order to justify a conclusion that the operations of seemingly
separate divisions are significantly integrated so as to constitute a single
trade or business.
c) Items referred to in IITA Section 303 and unspecified items
under IITA Section 301(c)(2)
1) In general. IITA Section 303 provides rules for the
allocation by persons other than residents of Illinois of any item of capital
gain or loss, and any item of income from rents or royalties from real or
tangible personal property, interest, dividends, and patent or copyright
royalties, and prizes awarded under the Illinois Lottery Law [20 ILCS 1605],
together with any item of deduction directly allocable to that income, to the
extent the item constitutes nonbusiness income. In addition, IITA Section
301(c)(2) provides rules for the allocation by these persons of unspecified
items of nonbusiness income. Any item may, in a given case, constitute either
business income or nonbusiness income depending on all the facts and
circumstances. The following are rules and examples for determining whether
particular income is business or nonbusiness income. (The examples used
throughout these regulations are illustrative only and do not purport to set
forth all pertinent facts.)
2) Rents from real and tangible personal property. Rental income
from real and tangible property is business income if the property with respect
to which the rental income was received is used in the person's trade or
business or is attendant to it and is includable in the property factor under
Section 100.3350.
A) Example A: A corporation operates a multistate car rental
business. The income from car rentals is business income.
B) Example B: A corporation is engaged in the heavy construction
business in which it uses equipment such as cranes, tractors, and earth moving
vehicles. The corporation makes short-term leases of the equipment when
particular pieces of equipment are not needed on any particular project. The
rental income is business income.
C) Example C: A corporation operates a multistate chain of men's
clothing stores. The corporation purchases a five-story office building for
use in connection with its trade or business. It uses the street floor as one
of its retail stores and the second and third floors for its general corporate
headquarters. The remaining two floors are leased to others. The rental of
the two floors is attendant to the operation of the corporation's trade or
business. The rental income is business income.
D) Example
D: A corporation operates a multistate chain of grocery stores. As an
investment, it uses surplus funds to purchase an office building in another
state, leasing the entire building to others. The rental is not attendant to,
but rather is separate from, the operation of the grocery store trade or
business. The net rental income is nonbusiness income.
E) Example E: A corporation operates a multistate chain of men's
clothing stores. The corporation invests in a 20-story office building and
uses the street floor as one of its retail stores and second floor for its
general corporate headquarters. The remaining 18 floors are leased to others.
The rental of the 18 floors is not attendant to, but rather is separate from,
the operation of the corporation's trade or business. The net rental income is
nonbusiness income.
F) Example F: A corporation constructed a plant for use in its
multistate manufacturing business and 20 years later the plant was closed and
put up for sale. The plant was rented for a temporary period from the time it
was closed by the corporation until it was sold 18 months later. The rental
income is business income and the gain on the sale of the plant is business
income.
3) Gains or losses from sales of assets. Gain or loss from the
sale, exchange or other disposition of real or tangible personal property
constitutes business income if the property, while owned by the person, was
used in its trade or business. However, if such property was utilized for the
production of nonbusiness income or otherwise was removed from the property
factor before its sale, exchange or other disposition, the gain or loss will
constitute nonbusiness income. See Section 100.3350.
A) Example A: In conducting its multistate manufacturing
business, a corporation systematically replaces automobiles, machines, and
other equipment used in the business. The gains or losses resulting from those
sales constitute business income.
B) Example B: A corporation constructed a plant for use in its
multistate manufacturing business and 20 years later sold the property at a
gain while it was in operation by the corporation. The gain is business
income.
C) Example C: Same as subsection (c)(3)(B) except that the plant
was closed and put up for sale but was not in fact sold until a buyer was found
18 months later. The gain is business income.
D) Example D: Same as subsection (c)(3)(C) except that the plant
was rented while being held for sale. The rental income is business income and
the gain on the sale of the plant is business income.
4) Interest. Interest income is business income where the
intangible with respect to which the interest was received, is held or was
created in the regular course of the person's trade or business operations or
where the purpose for acquiring or holding the intangible is related or
attendant to such trade or business operations.
A) Example A: A corporation operates a multistate chain of
department stores, selling for cash and on credit. Service charges, interest,
or time-price differentials and the like are received with respect to
installment sales and revolving charge accounts. These amounts are business
income.
B) Example B: A corporation conducts a multistate manufacturing
business. During the year the taxpayer receives a federal income tax refund
and collects a judgment against a debtor of the business. Both the tax refund
and the judgment bore interest. The interest income is business income.
C) Example C: A corporation is engaged in a multistate
manufacturing and wholesaling business. In connection with that business, the
corporation maintains special accounts to cover items such as workers'
compensation claims, rain and storm damage, machinery replacement, etc. The
moneys in those accounts are invested at interest. Similarly, the corporation
temporarily invests funds intended for payment of federal, state and local tax
obligations. The interest income is business income.
D) Example D: A corporation is engaged in a multistate money
order and traveler's check business. In addition to the fees received in
connection with the sale of the money orders and traveler's checks, the
corporation earns interest income by the investment of the funds pending their
redemption. The interest income is business income.
E) Example E: A corporation is engaged in a multistate
manufacturing and selling business. The corporation usually has working
capital and extra cash totaling $200,000 that it regularly invests in
short-term interest bearing securities. The interest income is business
income.
5) Dividends. Dividends are business income where the stock with
respect to which the dividends are received, is held or was acquired in the
regular course of the person's trade or business operations or where the
purpose for acquiring or holding the stock is related or attendant to such
trade or business operations.
A) Example A: A corporation operates a multistate chain of stock
brokerage houses. During the year the corporation receives dividends on stock
it owns. The dividends are business income.
B) Example B: A corporation is engaged in a multistate manufacturing
and wholesaling business. In connection with that business, the corporation
maintains special accounts to cover items such as workers' compensation claims,
etc. A portion of the moneys in those accounts is invested in interest-bearing
bonds. The remainder is invested in various common stocks listed on national
stock exchanges. Both the interest income and any dividends are business
income.
C) Example C: Several unrelated corporations own all of the stock
of another corporation whose business operations consist solely of acquiring
and processing materials for delivery to the corporate owners of its stock.
The corporations acquired the stock in order to obtain a source of supply of
materials used in their manufacturing businesses. The dividends are business
income.
D) Example D: A corporation is engaged in a multistate heavy
construction business. Much of its construction work is performed for agencies
of the federal government and various state governments. Under state and
federal laws applicable to contracts for these agencies, a contractor must have
adequate bonding capacity, as measured by the ratio of its current assets (cash
and marketable securities) to current liabilities. In order to maintain an
adequate bonding capacity, the corporation holds various stocks and
interest-bearing securities. Both the interest income and any dividends
received are business income.
E) Example E: A corporation receives dividends from the stock of
its subsidiary or affiliate that acts as the marketing agency for products
manufactured by the corporation. The dividends are business income.
F) Example F: A corporation is engaged in a multistate glass
manufacturing business. It also holds a portfolio of stock and
interest-bearing securities, the acquisition and holding of which are unrelated
to the corporation's trade or business operations. The dividends and interest
income received are nonbusiness income.
6) Patent and copyright royalties. Patent and copyright
royalties are business income where the patent or copyright with respect to
which the royalties were received, is held or was created in the regular course
of the person's trade or business operations or where the purpose for acquiring
or holding the patent or copyright is related or attendant to such trade or
business operations.
A) Example A: A corporation is engaged in the multistate business
of manufacturing and selling industrial chemicals. In connection with that
business, the corporation obtained patents on some of its products. The
corporation licensed the production of the chemicals in foreign countries in
return for which the corporation receives royalties. The royalties received by
the taxpayer are business income.
B) Example B: A corporation is engaged in the music publishing
business and holds copyrights on numerous songs. The corporation acquired the
assets of a smaller publishing company, including music copyrights. These
acquired copyrights are thereafter used by the corporation in its business.
Any royalties received on these copyrights are business income.
C) Example C: Same as Example B, except that the acquired company
also held the patent on a type of phonograph needle. The corporation does not
manufacture or sell phonographs or phonograph equipment and the holding of the
patent is unrelated to its publishing business operations. Any royalties received
on the patent would be nonbusiness income.
d) Proration
and recapture of deductions
1) Most of a person's allowable deductions will be attributable
only to the business income arising from a particular trade or business or to a
particular item of nonbusiness income. In some cases, an allowable deduction
may be attributable to the business income of more than one trade or business
and/or to several items of nonbusiness income.
2) In such cases, the deduction shall be prorated among the
trades or businesses and such items of nonbusiness income in a manner that
fairly distributes the deduction among the classes of income to which it is
attributable. In filing returns with this State, if a person departs from or
modifies the manner of prorating any deduction used in returns for prior years,
the taxpayer should disclose in the return for the current year the nature and
extent of the modification. If the returns or reports filed by a person with
all states to which the taxpayer reports under Article IV of the Multistate Tax
Compact or the Uniform Division of Income for Tax Purposes Act are not uniform
in the attribution or proration of any deduction, the person shall disclose in
its return to this State the nature and extent of the variance.
3) If
in prior years income from an asset or business has been classified as business
income and in a later year is demonstrated to be non-business income, then all
expenses, without limitation, deducted in such later year and in the 2
immediately-preceding taxable years related to that asset or business that
generated the non-business income shall be added back and recaptured as
business income in the year of the disposition of the asset or business. Such
amount shall be apportioned to Illinois using the greater of the apportionment
fraction computed for the business under IITA Section 304 for the taxable year
or the average of the apportionment fractions computed for the business under
IITA Section 304 for the taxable year and for the 2 immediately preceding taxable
years (IITA Section 203(e)(3)).
e) Definitions
1) The term "allocation" refers to the assignment of
nonbusiness income to a particular state.
2) The term "apportionment" refers to the division of
business income between states by the use of a formula containing apportionment
factors.
3) The term "business activity" refers to the
transactions and activity occurring in the regular course of a particular trade
or business.
4) The term "person" under IITA Section 1501(a)(18)
shall be construed to mean and include an individual, trust, estate,
partnership, association, firm, company, corporation or fiduciary.
5) The term "taxpayer" is defined in IITA Section
1501(a)(24) to mean any person subject to the tax imposed by the Act.
6) For a definition of the term "commercial domicile",
see Section 100.3210.
7) For
a definition of the term "resident", see Section 100.3020.
8) For
a definition of the term "state", see Section 100.3110.
9) For a definition of the term "taxable in another
state", see Section 100.3200.
(Source: Amended at 32 Ill.
Reg. 6055, effective March 25, 2008)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3015 BUSINESS INCOME ELECTION (IITA SECTION 1501)
Section
100.3015 Business Income Election (IITA Section 1501)
a) For each taxable year beginning on or after January
1, 2003, a taxpayer may elect to treat all income other than compensation as
business income. This election shall be made in accordance with rules adopted
by the Department and, once made, shall be irrevocable. (IITA Section 1501(a)(1))
b) The
election under this Section shall be made on the original return filed by the
person making the election for the taxable year to which the election applies
or on a corrected return filed prior to the due date (including extensions) for
the return pursuant to Section 100.9400(f)(3) of this Part. An election made
on an original return may also be revoked on a timely-filed corrected return.
After the extended due date for filing the return has passed, the election may
still be made on an original return, but an election that has been made on the
original or corrected return may no longer be revoked.
c) In
the case of a partnership, estate, trust or Subchapter S corporation, for
purposes of IITA Section 305, 307 or 308, respectively, an election made by the
pass-through entity to treat all of its income as business income shall be
binding on its partners, beneficiaries and shareholders. An election by a
partner, beneficiary or shareholder to treat all income as business income
shall cause all nonbusiness income received by that partner, beneficiary or
shareholder from the pass-through entity to be treated as business income
received directly by the partner, beneficiary or shareholder.
d) In
the case of a combined group of corporations filing a combined return under
Subpart P of this Part, the election shall be made each year by the designated
agent of the group and shall apply to all income of the unitary business group
required to be shown on the combined return, including income of members who do
not join in the filing of the combined return.
(Source:
Added at 30 Ill. Reg. 10473, effective May 23, 2006)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3020 RESIDENT (IITA SECTION 301)
Section 100.3020 Resident
(IITA Section 301)
a) General definition. The term "resident" is defined
in IITA Section 1501(a)(20) to mean:
1) an individual who is in Illinois for other than a temporary or
transitory purpose during the taxable year or who is domiciled in Illinois but
is absent from Illinois for a temporary or transitory purpose during the
taxable year;
2) the
estate of a decedent who, at his or her death, was domiciled in Illinois;
3) a trust created by the will of a decedent who, at his or her
death, was domiciled in Illinois; and
4) an irrevocable trust, the grantor of which was domiciled in Illinois
at the time the trust became irrevocable. For the purpose of this subsection
(a)(4), a trust is considered irrevocable to the extent that the grantor is not
treated as the owner of the trust under 26 USC 671 through 678.
b) Individuals. The purpose of the general definition is to
include in the category of individuals who are taxable on their entire net
income, regardless of whether derived from sources within or without Illinois, and
all individuals who are physically present in Illinois enjoying the benefit of its
government, except those individuals who are here temporarily, and to exclude from
this category all individuals who, although domiciled in Illinois, are outside
Illinois for other than temporary and transitory purposes and, hence, do not obtain
the benefit of Illinois government. If an individual acquires the status of a
resident by virtue of being physically present in Illinois for other than temporary
or transitory purposes, he or she remains a resident even though temporarily
absent from Illinois. If, however, he or she leaves Illinois for other than
temporary or transitory purposes, he or she ceases to be a resident. If an
individual is domiciled in Illinois, he or she remains a resident unless he or
she is outside Illinois for other than temporary or transitory purposes.
c) Temporary or transitory purposes. Whether or not the purpose
for which an individual is in Illinois will be considered temporary or
transitory in character will depend upon the facts and circumstances of each
particular case. It can be stated generally, however, that if an individual is simply
passing through Illinois on his or her way to another state, or is here for a
brief rest or vacation or to complete a particular transaction, perform a particular
contract, or fulfill a particular engagement that will require his or her
presence in Illinois for but a short period, he or she is in Illinois for
temporary or transitory purposes and will not be a resident by virtue of his or
her presence here. If, however, an individual is in Illinois to improve his or
her health and his or her illness is of such a character as to require a relatively
long or indefinite period to recuperate, or he or she is here for business
purposes that will require a long or indefinite period to accomplish, or is
employed in a position that may last permanently or indefinitely, or has retired
from business and moved to Illinois with no definite intention of leaving
shortly thereafter, he or she is in Illinois for other than temporary or transitory
purposes and, accordingly, is a resident taxable upon his or her entire net
income even though he or she may also maintain an abode in some other state.
1) EXAMPLE 1. X is domiciled in Fairbanks, Alaska, where he had lived
for 50 years and had accumulated a large fortune. For medical reasons, X moves
to Illinois where he now spends his entire time, except for yearly summer trips
of about three or four months duration to Fairbanks. X maintains an abode in
Illinois and still maintains, and occupies on visits there, his old abode in
Fairbanks. Notwithstanding his abode in Fairbanks, because his yearly sojourn
in Illinois is not temporary or transitory, he is a resident of Illinois and is
taxable on his entire net income.
AGENCY NOTE: If,
in the foregoing example, the facts are reversed so that Illinois is the state
of original domicile and Alaska is the state in which the person is present for
the indicated periods and purposes, X is not a resident of Illinois within the
meaning of the law, because he is absent from Illinois for other than temporary
or transitory purposes.
2) EXAMPLE 2. Until the summer of 1969, Y admitted domicile in Illinois.
At that time, however, to avoid the Illinois income tax, Y declared himself to
be domiciled in Nevada, where he had a summer home. Y moved his bank accounts
to banks in Nevada and each year thereafter spent about three or four months in
Nevada. He continued to spend six or seven months of each year at his estate in
Illinois, which he continued to maintain, and continued his social club and
business connections in Illinois. The months not spent in Nevada or Illinois he
spent traveling in other states. Y is a resident of Illinois and is taxable on
his entire net income, for his sojourns in Illinois are not for temporary or
transitory purposes.
AGENCY NOTE: If,
in the foregoing example, the facts are reversed so that Nevada is the state of
his original domicile and the state in which the person is present for the
indicated periods and purposes, Y is not a resident of Illinois within the
meaning of the law because he is absent from Illinois for other than temporary
or transitory purposes.
3) EXAMPLE 3. B and C, husband and wife, domiciled in Minnesota where
they maintain their family home, come to Illinois each November and stay here
until the middle of March. Originally they rented an apartment or house for the
duration of their stay here but three years ago they purchased a house here. The
house is either rented or put in the charge of a caretaker from March to November.
B has retired from active control of his Minnesota business but still keeps
office space and nominal authority in it. He belongs to clubs in Minnesota, but
to none in Illinois. He has no business interests in Illinois. C has little
social life in Illinois, more in Minnesota, and has no relatives in Illinois. Neither
B nor C is a resident of Illinois. The connection of each to Minnesota, the
state of domicile, in each year is closer than it is to Illinois. Their
presence here is for temporary or transitory purposes.
AGENCY NOTE: If,
in the foregoing example, the facts are reversed so that Illinois is the state
of domicile and B and C are visitors to Minnesota, B and C are residents of
Illinois.
d) Domicile. Domicile has been defined as the place where an individual
has his or her true, fixed, permanent home and principal establishment, the
place to which he or she intends to return whenever absent. It is the place in
which an individual has voluntarily fixed the habitation of himself or herself
and family, not for a mere special or limited purpose, but with the present
intention of making a permanent home, until some unexpected event shall occur to
induce adoption of some other permanent home. Another definition of
"domicile" consistent with this is the place where an individual has
fixed his or her habitation and has a permanent residence without any present
intention of permanently moving. An individual can at any one time have but one
domicile. If an individual has acquired a domicile at one place, he or she
retains that domicile until he or she acquires another elsewhere. Thus, if an individual
who has acquired a domicile in California, for example, comes to Illinois for a
rest or vacation or on business or for some other purpose, but intends either
to return to California or to go elsewhere as soon as his or her purpose in Illinois
is achieved, he or she retains domicile in California and does not acquire
domicile in Illinois. Likewise, an individual who is domiciled in Illinois and
leaves the State retains Illinois domicile as long as he or she has the definite
intention of returning to Illinois. On the other hand, an individual domiciled in
California who comes to Illinois with the intention of remaining indefinitely
and with no fixed intention of returning to California loses his or her California
domicile and acquires Illinois domicile the moment he or she enters the State. Similarly,
an individual domiciled in Illinois loses Illinois domicile:
1) by locating elsewhere with the intention of establishing the new
location as his or her domicile; and
2) by abandoning
any intention of returning to Illinois.
e) Minors. The domicile of a minor is ordinarily the same as the
domicile of his or her parents or guardians. If the father is deceased, the
domicile of a minor is ordinarily the same as the domicile of the mother and
vice versa. In either case, if the minor's parents are divorced, the domicile
of the minor is the same as the domicile of the parent having custody.
f) Presumption of residence. The following create rebuttable
presumptions of residence. These presumptions are not conclusive and may be
overcome by clear and convincing evidence to the contrary.
1) An individual receiving a homestead exemption (see 35 ILCS
200/15-175) for Illinois property is presumed to be a resident of Illinois.
2) An individual who is an Illinois resident in one year is
presumed to be a resident in the following year if he or she is present in
Illinois more days than he or she is present in any other state.
g) Proof
of residence or nonresidence
1) The type and amount of proof that will be required in all
cases to establish residency or nonresidency or to rebut or overcome a
presumption of residence cannot be specified by a general regulation, but will
depend largely on the circumstances of each particular case. The taxpayer may submit
any relevant evidence to the Department for its consideration. The evidence may
include, but is not limited to, affidavits and evidence of: location of spouse
and dependents; voter registration; automobile registration or driver's license;
filing an income tax return as a resident of another state; home ownership or
rental agreements; the permanent or temporary nature of work assignments in a
state; location of professional licenses; location of medical professionals,
other healthcare providers, accountants and attorneys; club and/or organizational
memberships and participation; and telephone and/or other utility usage over a
duration of time. In appropriate instances, the Department may request any
relevant evidence that may assist it in determining the taxpayer's place of
residence.
2) The location of any corporation, foundation, organization or
institution that is exempt from taxation under IRC section 503(c)(3) to which
the taxpayer makes financial contributions, gifts, bequests, donations or
pledges in any amount qualifying for a deduction as an IRC section 170(a)
charitable contribution or as an IRC section 2055(a) bequest, legacy, devise or
transfer is not evidence used to establish domicile or nondomicile, or
residence or nonresidence, in any state.
3) If an individual is presumed under this Section to be a
resident for any taxable year, he or she should file a return for that year even
though he or she believes he or she was a nonresident who, as such, would not
incur an Illinois income tax liability because he or she would have no income allocable
or apportionable to Illinois. The return will enable the individual to avoid
the possible imposition of penalties for failure to file under IITA Section
1001 should it later be determined that he or she was a resident for the
taxable year. The return should be marked as a nonresident return, though
Schedule NR is not required. The return should exhibit the computation of net
income as though the individual were a resident. The line on the return
provided for entering the tax liability should have the following notation: "No
liability – nonresident". The return should be accompanied by a signed statement
indicating which presumption of residence the individual was subject to and setting
forth in detail the reasons why the individual believes he or she was a
nonresident for the taxable year. The return should also be accompanied by any evidence,
such as certificates or affidavits, that the individual is able to obtain
showing that he or she was a nonresident for the taxable year. If the
Department is not satisfied that the individual was a nonresident, it will so inform
the individual and provide him or her with an opportunity to submit additional
information supporting his or her contention. If the individual fails to submit
additional information, or if the additional information submitted does not, when
considered with the information appended to the return, overcome the presumption
that the individual was a resident for the taxable year, the Department will
issue a notice of deficiency asserting a liability against the individual on
the following basis:
A) that
the individual is a resident for the taxable year; and
B) that
the individual's net income for the taxable year is:
i) the amount reflected, with appropriate mathematical error adjustments
under IITA Section 903(a)(1), on the return filed by the individual under this
subsection (g)(3)(B)(i); or
ii) whatever other amount the Department has determined by an
examination under IITA Section 904.
4) An individual who, for any taxable year, believes himself or
herself to be a nonresident, but who is presumed to be a resident under this
Section, may file a return (including a Schedule NR) as a nonresident if, as a
nonresident, he or she incurs an Illinois income tax liability due to income
allocated or apportioned to Illinois as a nonresident. However, the return should
be accompanied by a signed statement indicating which presumption of residence the
individual is subject to and setting forth in detail the reasons why the
individual believes he or she was a nonresident for the taxable year. The
return should also be accompanied by any evidence, such as certificates or
affidavits, that the individual is able to obtain showing that he or she was a
nonresident for the taxable year. If the Department is not satisfied that the
individual was a nonresident, it will so inform the individual and provide him
or her with an opportunity to submit additional information supporting his or
her contention. If the individual fails to submit additional information, or if
the additional information submitted does not, when considered with the
information appended to the return, overcome the presumption that the
individual was a resident for the taxable year, the Department will issue a
notice of deficiency asserting a liability against the individual on the
following basis:
A) that
the individual was a resident for the taxable year;
B) that
the individual's net income for the taxable year is:
i) his or her entire base income, as reflected on the return
with appropriate mathematical error adjustments under IITA Section 903(a)(1), less
the appropriate standard exemption prescribed by IITA Section 204; or
ii) his or her entire base income, as determined by the Department
in an examination under IITA Section 904, less the appropriate standard exemption
prescribed by IITA Section 204.
h) Military personnel. Under 50 USC App. 571, members of the U.S.
Armed Forces (and commissioned officers of the U.S. Public Health Service) will
not cease to be domiciled in Illinois solely by reason of their assignment to duty
in other states for long periods. Domiciliaries of other states will not become
Illinois residents under the Act solely by reason of their presence in Illinois
under military orders.
i) Resident: Legal Definition: Usage. The term "resident"
is defined differently for different purposes. For example, an individual may be
a "resident" for Illinois income tax purposes but not a
"resident" eligible to vote (see IITA Section
15-1501(a)(20)
with Sections 3-1 through 3-4 of the Election Code [10 ILCS 5/3-1 through
3-4]). Similarly, a person may be a resident of Illinois for Illinois income
tax purposes and also a resident of another state for purposes of that state's
income tax law (see IITA Section 15-1501(a)(20) with Ky. Rev. Stat. Ann.
Section 141.010(17)).
(Source: Amended at 37 Ill.
Reg. 5823, effective April 19, 2013)
SUBPART K: COMPENSATION
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3100 COMPENSATION (IITA SECTION 302)
Section 100.3100 Compensation
(IITA Section 302)
a) General
Definition
Compensation
is defined in IITA Section 1502(a)(3) to mean wages, salaries, commissions and
any other form of remuneration paid to employees for personal services. The
term is thus comparable to the term "wages" as used in IRC Section
3401(a), except that the exceptions set forth in the Code section are
inapplicable for purposes of Article 3 of the Act. (See Section 100.7000 for definition
of compensation subject to withholding.)
b) Employee
Compensation
is defined as remuneration for personal services performed by an "employee".
If the employer-employee relationship does not exist, remuneration for services
performed does not constitute "compensation." The term "employee"
includes every individual performing services if the relationship between him or
her and the person for whom he or she performs the services is the legal relationship
of employer and employee. The term has the same meaning under the Illinois
Income Tax Act as under IRC Section 3401(c) and 26 CFR 31.3401(c)-l.
c) Types
of Compensation
The name by which
remuneration for services is designated is immaterial. Thus, salaries, fees,
bonuses, commissions on sales or on insurance premiums, and pensions and
retired pay are compensation within the meaning of the statute if paid for services
performed by an employee for his or her employer.
d) Past
Services
Remuneration
for personal services constitutes compensation even though at the time paid the
relationship of employer and employee no longer exists between the person in whose
employ the services were performed and the individual who performed them, so
long as the relationship existed when the services were rendered.
e) Examples
The standards set
forth in this Section may be illustrated, in part, by the following examples:
1) EXAMPLE 1: A is a salesman for B corporation. B conducts a
selling contest among its salesmen, first prize being a two-week vacation in
Las Vegas. A is the winner of the contest and is awarded the vacation. The fair
market value of the trip constitutes compensation.
2) EXAMPLE 2: C is employed by D corporation during the month of
January 1970 and is entitled to receive remuneration of $100 for services
performed for D during the month. C leaves the employ of D at the close of
business on January 31, 1970. On February 15, 1970 (when C is no longer an
employee of D), D pays C the remuneration of $100 for services performed in January.
The $100 is compensation.
3) EXAMPLE 3: The facts are the same as in Example 2, except
that C is discharged by D at the end of January. In addition to the $100 earned
by C for services performed in January, D pays C $50 severance pay. The $50
constitutes compensation.
(Source: Amended at 44 Ill. Reg. 10907, effective June 10, 2020)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3110 STATE (IITA SECTION 302)
Section 100.3110 State (IITA
Section 302)
The term "state" when
applied to a jurisdiction other than Illinois is defined in IITA Section
1501(a)(22) to mean any state of the United States, the District of Columbia,
the Commonwealth of Puerto Rico, any Territory or Possession of the United
States, and any foreign country, or any political subdivision of any of the
foregoing.
(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3120 ALLOCATION OF COMPENSATION PAID TO NONRESIDENTS (IITA SECTION 302)
Section 100.3120 Allocation
of Compensation Paid to Nonresidents (IITA Section 302)
a) Compensation
Paid in This State – General Rule
1) In order for items of compensation paid to an individual who
is a nonresident of Illinois at the time of payment to be allocated to
Illinois, the compensation must constitute "compensation paid in this
State". If the test is met, then all items of the compensation, and all
items of deduction directly allocable thereto, are allocated to Illinois under
IITA Section 302(a) (except items allocated under IITA Section 301(c)(2), as to
which see subsection (d)). Compensation paid to a nonresident, which is allocated
to Illinois, enters into the computation of the individual's net income under
IITA Section 202 and is generally subject to withholding under IITA Section 701
(see Sections 100.7000, 100.7010 and 100.7020). The tests for determining
whether compensation is paid in Illinois appear in IITA Section 304(a)(2)(B)
and are substantially the same as those used to define "employment"
in the Illinois Unemployment Insurance Act [820 ILCS 405] (and similar
unemployment compensation acts of other states). Except as provided in this Section,
compensation is paid in Illinois if:
A) The individual's service is localized in Illinois because it is
performed entirely within Illinois (IITA Section 304(a)(2)(B)(i));
B) The individual's service is localized in Illinois although it
is performed both within and without Illinois, because the service performed
without Illinois is incidental to the individual's service performed within
Illinois (see IITA Section 304(a)(2)(B)(ii)); or
C) For taxable years ending prior to December 31, 2020, the
individual's service is not localized in any state under subsections (a)(1)(A) and
(B), but some of the service is performed within Illinois and either:
i) the base of operations, or if there is no base of operations,
the place from which the service is directed or controlled is within Illinois;
or
ii) the base of operations or the place from which the service is
directed or controlled is not in any state in which some part of the service is
performed, but the individual's residence is in Illinois. (See IITA Section
304(a)(2)(B)(iii).)
D) The rules in subsections (a)(1)(A) through (C) are to be
applied in a manner so that, if they were in effect in other states, an item of
compensation would constitute compensation "paid in" only one state.
Thus, if an item would, under these rules, constitute compensation paid in a
state other than Illinois because the individual's service was localized in that
other state under subsection (a)(1)(B), it could not also be compensation paid
in Illinois.
E) For taxable years ending on or after December 31, 2020, the
individual's service is not localized in any state under subsection (a)(1)(A)
or (B), but some of the individual's service is performed within this State
and the individual's service is performed within this State for more than 30
working days during the taxable year, the amount of compensation paid in this
State shall include the portion of the individual's total compensation for
services performed on behalf of his or her employer during the taxable year that
the number of working days spent within this State during the taxable year
bears to the total number of working days spent both within and without this
State during the taxable year. (IITA Section 304(a)(2)(B)(iii)) For
purposes of this subsection (a)(1)(E):
i) "Working day" means each day during the
taxable year in which the individual performs duties on behalf of his or her
employer. All days in which the individual performs no duties on behalf of his
or her employer (e.g., weekends, vacation days, sick days, and holidays) are
not working days. (IITA Section 304(a)(2)(B)(iii)(a))
ii) A
working day is "spent within this State" if:
• the
individual performs service on behalf of the employer and a greater amount of
time on that day is spent by the individual performing duties on behalf of the
employer within this State, without regard to time spent traveling, than is
spent performing duties on behalf of the employer without this State; or
• the
only service the individual performs on behalf of the employer on that day is
traveling to a destination within this State, and the individual arrives on
that day. (IITA Section 304(a)(2)(B)(iii)(b))
iii) Working days "spent within this State" do
not include any day in which the employee is performing services in this
State during a disaster period solely in response to a request made to his or
her employer by the government of this State, by any political subdivision of
this State, or by a person conducting business in this State to perform
disaster or emergency-related services in this State. (IITA Section
304(a)(2)(B)(iii)(c)) For purposes of this subsection (a)(1)(E)(iii):
• "Declared
State disaster or emergency" means a disaster or emergency event for
which a Governor's proclamation of a state of emergency has been issued or for
which a Presidential declaration of a federal major disaster or emergency has
been issued.
• "Disaster
period" means a period that begins 10 days prior to the date of the
Governor's proclamation or the President's declaration (whichever is earlier)
and extends for a period of 60 calendar days after the end of the declared
disaster or emergency period.
• "Disaster
or emergency-related services" means repairing, renovating, installing,
building, or rendering services or conducting other business activities that
relate to infrastructure that has been damaged, impaired, or destroyed by the declared
State disaster or emergency.
• "Infrastructure"
means property and equipment owned or used by a public utility,
communications network, broadband and internet service provider, cable and
video service provider, electric or gas distribution system, or water pipeline
that provides service to more than one customer or person, including related
support facilities. "Infrastructure" includes, but is not limited
to, real and personal property such as buildings, offices, power lines,
cable lines, poles, communications lines, pipes, structures, and equipment. (IITA
Section 304(a)(2)(B)(iii)(c))
2) Localization Tests
A) If
compensation is paid in this State because the service is localized in this
State under either of the tests set forth in subsection (a)(1)(A) or (B), the
factors in subsections (a)(1)(C) and (D) are not considered. In those cases,
the place of the base of operations, the place from which the service is
directed or controlled, and the number of working days spent in any state are
irrelevant.
B) In
determining whether an individual's service performed outside of this State is
incidental to the service performed within this State for purposes of the test
set forth in subsection (a)(1)(B), the term "incidental" means any
service that is necessary to, or supportive of, the primary service performed
by the employee or that is temporary or transitory in nature or consists of
isolated transactions. The incidental service may or may not be similar to the
individual's normal occupation so long as it is performed within the same
employer-employee relationship. That is, an individual who normally performs
all of his or her service in this State may be sent by the employer to another
state to perform service that is totally different in nature from his or her
usual work, or he or she may be sent to do similar work. So long as the service
is temporary or consists merely of isolated transactions, it will be considered
to be incidental to the service performed within this State, and the employee's
entire compensation will be subject to withholding.
C) In
some cases, it may be difficult to determine whether service performed in
another state is incidental to service performed within this State. In those
cases, the facts (including any contract of employment) should be carefully
considered. In many instances, the contract of employment will provide a
definite territorial assignment that will be prima facie evidence that the
service is localized within that territory. However, the presence or absence of
a contract of employment is but one fact to be considered. In every case, the
ultimate determination to be made is whether the individual's service was
intended to be, and was in fact, principally performed within this State and
whether any service that was performed in another state was of a temporary or
transitory nature or arose out of special circumstances at infrequent
intervals. The amount of time spent or the amount of service performed outside
this State should not be regarded as decisive, in itself, in determining
whether that service is incidental to service performed within this State. For
example, an individual normally performing service within this State might be
sent on a special assignment to another state for a period of months. The
service in the other state would nevertheless be incidental to service within
this State if that special assignment were an isolated transaction.
D) This
subsection (a)(2) may be illustrated by the following examples:
i) EXAMPLE
1: A is a resident of State X and a salesman for the B Corporation, located in
State X. A's territory covers the northern part of Illinois. Sporadically, A is
requested by B corporation to call on particular customers who are located in
State X. The compensation for service that A performs in Illinois and State X
is paid in Illinois because the service performed in State X is incidental to
the service performed in Illinois, since it consists of isolated transactions.
ii) EXAMPLE
2: The facts are the same as in Example 1 except that A's regular territory
covers several counties in Illinois and one or two towns in State X. A goes to
the State X towns on a regular basis even though more than 95% of A's time
spent and sales made are in Illinois. The compensation for service that A
performs in Illinois and State X is not localized in Illinois under the
provisions of subsection (a)(1)(B) because the service performed in State X is
regular and permanent in nature and is not necessary to or supportive of sales
made in Illinois.
iii) EXAMPLE
3: A works for B construction company in Chicago. Occasionally the company
obtains a construction job in State X that may last from one to several weeks.
A is sent by the company to supervise the construction jobs in State X. The
compensation for the service A performs in Illinois and State X is paid in
Illinois because the service performed in State X, being temporary in nature,
is incidental to the service performed in Illinois.
iv) EXAMPLE
4: A is a resident of Illinois and a buyer for a department store located in
State X. Regular buying trips by A to Illinois are incidental to the service
performed in State X because they are necessary to and supportive of A's
primary duties that are localized in State X and not in Illinois. A's compensation
is not paid in Illinois under the provisions of subsection (a)(1)(B).
3) Base
of Operations
A) For
taxable years ending prior to December 31, 2020, if the localization tests in
subsection (a)(1)(A) or (B) are not determinative of the issue of whether
compensation is paid in this State and the individual's base of operations is
within this State, his or her entire compensation is paid in Illinois. However,
if his or her base of operations is outside this State, none of his or her
compensation is paid in this State. (See IITA Section 304(a)(2)(B)(iii).)
B) The
term "base of operations" refers to the place or fixed center from
which the individual works. An individual's base of operations may be his or
her business office (which may be maintained in the employee's home), or the
contract of employment may specify a place at which the employee is to receive
directions and instructions. In the absence of more controlling factors, an
individual's base of operations may be the place to which the employee has his
or her business mail, supplies, and equipment sent or the place where the
employee maintains his or her business records. An employee's base of
operations may change during a tax year, but only if there is a change in the
employee's circumstances that is expected to be permanent. The base of
operations does not change when the employee is temporarily assigned to work at
a different location.
C) This subsection
(a)(3) may be illustrated by the following examples:
i) EXAMPLE
1: A is a salesman for the B corporation located in Chicago. A's territory
includes Illinois, State X and State Y. A uses the corporation office in
Chicago as a base of operations. The compensation for service performed by A is
paid in Illinois because the service is not localized in any of the three states
in which it is performed, but part of the service is performed in Illinois and
A's base of operations is in Illinois.
ii) EXAMPLE
2: A is a salesman for the B corporation located in Chicago. A lives in State
X and A's territory includes State X and part of Cook County, Illinois. A
starts his or her sales calls from and returns to his or her home daily. A
keeps a catalogue and copies of correspondence from customers at his or her
home, and writes his or her sales reports there. About once a week, A reports
to B's sales office in Chicago for consultation with and directions from the
sales manager. Communications from customers to A are addressed to the Chicago
sales office. A's letters to customers are on letterheads bearing the Chicago
sales office address and are sometimes typed by A at home and sometimes
dictated by him or her to a stenographer when he or she is in the Chicago sales
office. Correspondence to A and A's paychecks are sometimes picked up by A in
Chicago and otherwise are forwarded by the sales office to A's home. The duties
that A performs at home are sufficient to make his or her home the base of
operations. A's compensation is therefore not paid in Illinois because A's base
of operations is in State X, and part of A's service is performed in that
state.
iii) EXAMPLE
3: A, a resident of Illinois, sells products in Illinois, State X and State Y
for B corporation, which is located in State Z. A operates from his or her home,
where he or she receives instructions from B corporation, communications from
customers, etc. Once a year, A goes to State Z for a 10 day sales meeting. All
of A's compensation is paid in Illinois because the service is not localized in
any state, but part of the service is performed in Illinois and A's base of
operations is A's home in Illinois.
iv) EXAMPLE
4: A works for a company whose home office is in State X. A is a regional
director working out of a branch office in Illinois. A works mostly in Illinois
but spends considerable time in State X. A's base of operations is the branch
office in Illinois. Since A performs some service in Illinois and his base of
operations is in Illinois, it is immaterial that A's source of direction and
control is in State X. All of A's compensation for service is paid in Illinois.
v) EXAMPLE
5: A, a resident of Illinois, is a salesman for the B corporation, which has
its main office in State X. A works out of the main office and A's territory is
divided equally between State X and Illinois. A's compensation is not paid in
Illinois because A's base of operations is in State X, and part of A's service
is performed in that State.
vi) EXAMPLE
6: B, an Indiana resident, is a certified public accountant based in her
employer's Chicago office. B is regularly sent to perform auditing services at
clients' offices outside Illinois, often for periods of weeks or months. Some
of her assignments are recurring, requiring her to perform services at the same
client's office for some period or periods every year. B's base of operations
is in Illinois, and does not change with any of these temporary assignments.
4) Place
of Direction or Control
A) For
taxable years ending prior to December 31, 2020, if the localization tests in
subsection (a)(1)(A) or (B) are not determinative of the issue of whether
compensation is paid in this State and the individual has no base of operations
or the individual performs no services in the state in which his or her base of
operations is located, the permanent place from which an employee's service is
directed or controlled is relevant in determining whether the employee's wages
are paid in Illinois. In those cases, if the place from which the individual's
service is directed or controlled is within this State, and some of the
employee's services are performed within this State, then the employee's entire
compensation will be paid in Illinois. (See IITA Section 304(a)(2)(B)(iii).)
For example, a salesman's territory may be so indefinite and so widespread that
the employee will not retain any fixed business office or address but will
receive orders or instructions wherever he or she may happen to be. In that
case, the location of the permanent place from which direction and control is
exercised must be determined, and the employee's compensation will be paid in
Illinois if the place of direction and control is in Illinois and the employee
performs some services in Illinois.
B) This
subsection (a)(4) may be illustrated by the following examples:
i) EXAMPLE
1: A, a resident of State X, is employed as a salesman by B, a corporation
with its main office in State Y. B has a permanent branch office and sales
supervisor in Cairo, Illinois. A was hired by the branch office and sells
merchandise for B in Illinois and other neighboring states as directed by the
branch office in telephone calls, but A has no place that is used as a base of
operations. All of the compensation for service performed by A for B is paid in
Illinois because A's service is not localized in any state and A has no base of
operations, but part of A's service is performed in Illinois and the place from
which the service is directed is in Illinois.
ii) EXAMPLE
2: A is a salesman residing in State X, who works for a concern whose factory
and selling office is in Chicago, Illinois. A's territory covers five states,
including Illinois. A does not report, start from, or return to the Chicago
office, and does not work from his or her residence in State X. State X is the
territory of another salesman. A does not have a base of operations, and his or
her compensation is paid in Illinois since part of A's service is performed in
Illinois and the place from which the service is directed is in Illinois.
iii) EXAMPLE
3: A, a contractor whose main office is in Illinois, is regularly engaged in
road construction work in Illinois and State X. All operations are under
direction of a general superintendent whose permanent office is in Illinois.
Work in each state is directly supervised by field supervisors working from
temporary field offices located in each of the two states. Each field
supervisor has the power to hire and fire personnel; however, all requests for
manpower must be cleared through the Illinois office. Employees report for work
at the field offices. Time cards are sent weekly to the main office in Illinois
where the payrolls are prepared. A is hired by a field supervisor in State X
and regularly performs service in both Illinois and State X. In this case,
neither the localization nor the base-of-operations test would apply, but A's
compensation would be paid in Illinois because part of A's service is performed
in Illinois and the place of direction or control is in Illinois because the
permanent office from which basic direction and control emanates is the
Illinois office.
5) When
Residence Is Important
A) For
taxable years ending prior to December 31, 2020, residence is a factor in
determining whether compensation of an employee is paid in Illinois only when
the localization tests in subsection (a)(1)(A) or (B) are not determinative of
the issue of whether compensation is paid in this State and the individual has
no base of operations or the individual performs no services in the state in
which his or her base of operations is located, and the employee performs no
service in the state from which his or her service is directed or controlled.
In these cases, if the individual is a resident of this State, and some of his
or her service is performed within this State, the employee's entire
compensation will be paid in this State. (See IITA Section 304(a)(2)(B)(iii).)
EXAMPLE: A is a salesman employed
by the B company located in State X. A's services are directed and controlled
from the State X office and A has no base of operations. A lives in Illinois
but A's territory includes State Y and State Z as well as Illinois. For taxable
years ending prior to December 31, 2020, all of A's wages are paid in Illinois
because no part of his service is performed in the state (State X) in which the
place from which A's services are directed is located, but part of A's service
is performed in Illinois and A's residence is in Illinois.
B) For all taxable years, residence is also important in
determining the Illinois income tax obligations of certain employees of
railroads, motor carriers, merchant marine and air carriers. (See Section
100.2590.)
b) Compensation Paid in This State – Nonresident
Members of Professional Athletic Teams
1) Notwithstanding
the provisions of subsection (a), compensation of a
nonresident individual who is a member of a professional athletic team paid
in this State includes the portion of the
individual's total compensation for services performed as a member of a
professional athletic team during the taxable year which the number of duty
days spent within this State performing services for the team in any manner
during the taxable year bears to the total number of duty days spent both
within and without this State during the taxable year. (IITA Section
304(a)(2)(B)(iv)(a))
2) For purposes of this subsection (b):
A) "Professional athletic team" includes,
but is not limited to, any professional baseball, basketball, football,
soccer, or hockey team. (IITA Section 304(a)(2)(B)(iv)(c)(1))
B) "Member of a professional athletic
team" includes those employees who are active players, players on the
disabled list, and any other persons required to travel and who travel with,
and perform services on behalf of, a professional athletic team on a regular
basis. This includes, but is not limited to, coaches, managers, and trainers. (IITA
Section 304(a)(2)(B)(iv)(c)(2))
C) "Duty days" means all days during
the taxable year from the beginning of the professional athletic team's
official pre-season training period through the last game in which the team
competes or is scheduled to compete. Duty days are counted for the year in
which they occur, including instances in which a team's official pre-season
training period through the last game in which the team competes or is
scheduled to compete occurs during more than one tax year. (IITA Section
304(a)(2)(B)(iv)(c)(3))
i) "Duty days" includes days on which
a member of a professional athletic team performs service for a team on a date
that does not fall within the period from the beginning of the professional
athletic team's official pre-season training period through the last game in
which the team competes or is scheduled to compete (e.g., participation in
instructional leagues, the "All Star Game", or promotional
"caravans"). Performing a service for a professional athletic team
includes conducting training and rehabilitation activities, when those
activities are conducted at team facilities. (IITA Section
304(a)(2)(B)(iv)(c)(3)(A))
ii) "Duty days" includes game days,
practice days, days spent at team meetings, promotional caravans, preseason
training camps, and days served with the team through all post-season games in
which the team competes or is scheduled to compete. (IITA Section
304(a)(2)(B)(iv)(c)(3)(B))
iii) "Duty days" for any person who
joins a team during the period from the beginning of the professional athletic
team's official pre-season training period through the last game in which the
team competes, or is scheduled to compete, begins on the day that person joins
the team. Conversely, "duty days" for any person who leaves a team
during this period ends on the day that person leaves the team. When a person
switches teams during a taxable year, a separate duty-day calculation is made
for each period the person was with each team. (IITA Section
304(a)(2)(B)(iv)(c)(3)(C)) For purposes of this provision, "team"
means the employer, so that if a single employer operates more than one club, a
player who is transferred from one of the employer's clubs to another is not
leaving or joining a team.
iv) "Duty days" does not include any
day for which a member of a professional athletic team is not compensated and
is not performing services for the team in any manner, including days when that
member has been suspended without pay and prohibited from performing any
services for the team. (IITA Section 304(a)(2)(B)(iv)(c)(3)(D))
v) Days for which a member of a professional
athletic team is on the disabled list and does not conduct rehabilitation
activities at facilities of the team, and is not otherwise performing services
for the team in Illinois, are not duty days spent in this State. All days on
the disabled list, however, are considered to be included in total duty days
spent both within and outside of this State. (IITA Section
304(a)(2)(B)(iv)(c)(3)(E))
vi) Travel days that do not involve either a
game, practice, team meeting, or other similar team event are not considered
duty days spent in this State. However, travel days are considered in the total
duty days spent both within and outside of this State. (IITA Section
304(a)(2)(B)(iv)(b))
D) Total Compensation
i) "Total compensation for services performed
as a member of a professional athletic team" means the total
compensation received during the taxable year for services performed:
• from the beginning of the official pre-season
training period through the last game in which the team competes or is
scheduled to compete during that taxable year (IITA Section
304(a)(2)(B)(iv)(c)(4)(A)); and
• during the taxable year on a date that does
not fall within the foregoing period (e.g., participation in instructional
leagues, the "All Star Game", or promotional caravans). This
compensation includes, but is not limited to, salaries, wages, bonuses, and any
other type of compensation paid during the taxable year to a member of a
professional athletic team for services performed in that year. (IITA
Section 304(a)(2)(B)(iv)(c)(4)(B))
ii) For purposes of this subsection (b)(2)(D),
compensation does not include strike benefits, severance pay, termination pay,
contract or option year buy-out payments, expansion or relocation payments, or
any other payments not related to services performed for the team. (IITA
Section 304(a)(2)(B)(iv)(c))
iii) For purposes of this subsection (b)(2)(D),
"bonuses" included in "total compensation for services performed
as a member of a professional athletic team" subject to allocation under
this subsection (b)(2)(D) are: bonuses earned as a result of play (e.g.,
performance bonuses) during the season, including bonuses paid for
championship, playoff or "bowl" games played by a team, or for
selection to all-star or other honorary positions; and bonuses paid for signing
a contract, unless the payment of the signing bonus is not conditional upon the
signee playing any games for the team or performing any subsequent services for
the team or even making the team, payable separately from the salary and any
other compensation, and nonrefundable. (IITA Section 304(a)(2)(B)(iv)(c))
c) Compensation Paid for Past Service
1) A federal law, P.L. 104-95 (4 USC 114), which applies to
amounts received after December 31, 1995, limits the power of states to impose
income taxation on certain nonresident pension income. This limitation also
impacts income received by a nonresident in the form of distributions from many
deferred compensation plans. The allocation of distributions to nonresidents
from deferred compensation plans which are not governed by that law and which
are potentially income taxable in this State is governed by this subsection (c)(1).
For the purpose of determining whether and to what extent compensation paid for
past service is "paid in" Illinois and is allocated to Illinois under
IITA Section 302(a), that compensation is presumed to have been earned ratably
over the employee's last 5 years of service with the employer (or any
predecessor or successor of the employer or a parent or subsidiary corporation
of the employer), in the absence of clear and convincing evidence that the
compensation is properly attributable to a different period of employment or
that it was not earned ratably over the appropriate period of employment.
Compensation earned in each past year will be deemed compensation paid in
Illinois if the individual's service in that year met the tests set forth in
subsection (a) applicable to that year. Compensation paid for past service
includes amounts paid under deferred compensation agreements where the amount
of compensation is unrelated to the amount of service being currently
rendered. Amounts paid to nonresidents under deferred compensation agreements are
allocated to Illinois under IITA Section 302(a) in accordance with this subsection
(c)(1) notwithstanding the fact that amounts paid to nonresidents are exempted
from withholding under Section 100.7010(g).
2) The standards detailed in this subsection (c)(1) may be
illustrated by the following examples:
A) EXAMPLE 1: A is a union member employed by B corporation as a
factory worker. During the years 1965-1968, A was employed in B's factory in
Illinois; in 1969, A worked in B's factory in State X. In 1970, as a result of
union labor contract negotiations, A received a lump-sum payment of $500 in
lieu of a retroactive wage increase. A is at all times a resident of State X.
Unless A establishes, by clear and convincing evidence, facts to support a
different result, $100 is deemed to have been earned in each of the 5 years
1965-1969. Further, $400 is deemed to have been earned by service localized in
Illinois and $100 by service localized in State X (see subsection (a)).
Therefore, $400 is allocable to Illinois under IITA Section 302(a).
B) EXAMPLE 2: The facts are the same as in Example 1, except that
A is able to establish that the $500 constituted a wage increase retroactive to
July 1, 1969. In this case, no part of the $500 is allocable to Illinois,
since it was earned by service in 1969 localized in State X.
C) EXAMPLE 3: C is a corporate executive. On January 1, 1965, C
entered into an agreement with D corporation under which he was to be employed
by D in an executive capacity for a period of 5 years. Under the contract C is
entitled to a stated annual salary and to additional compensation of $10,000
for each year, the additional compensation to be credited to a bookkeeping
reserve account and deferred, accumulated and paid in annual installments of
$5,000 on C's retirement beginning January 1, 1970. In the event of C's death
prior to exhaustion of the account, the balance is to be paid to C's personal
representative. C is required to render consultative services to D when called
upon after December 31, 1969. During 1970, C is paid $5,000 while a resident
of Florida. The $5,000 is deemed to have been earned at the rate of $1,000 in
each of the years 1965-1969, since the amount paid is unrelated to C's current
consultative services. Whether the $1,000 earned in each year is allocable to
Illinois under IITA Section 302(a) must be determined by applying the tests set
forth in subsection (a) to that year.
d) Exceptions
to General Allocation Rules
1) While "compensation" may include items of income
taken into account by a nonresident employee under the provisions of IRC sections
401 through 425, such as, for example, amounts received by a beneficiary of an
employees' trust (taxable to the employee under IRC section 402, whether the
trust is exempt or non-exempt from federal income tax), or income resulting
from a disqualifying disposition of stock acquired pursuant to the exercise of
a qualified stock option (taxable to the employee under IRC section 421(b)),
under the express provision of IITA Section 301(c)(2)(A), that compensation is
not allocated to Illinois. Consequently, a nonresident claiming the
compensation that would otherwise constitute compensation paid in Illinois is
not allocated to Illinois under IITA Section 301(c)(2)(A) must establish that the
compensation was properly taken into account by the individual under the
provisions of IRC sections 401 through 425.
2) Reciprocal
Exemptions
In any case in
which the Director has entered into an agreement with the taxing authorities of
another state which imposes a tax on or measured by income to provide the
compensation paid in that state to residents of Illinois is exempt from that
state's tax, compensation paid in Illinois to residents of that state will not
be allocated to Illinois.
3) Employees Engaged in Interstate Transportation. Federal law
affects the authority of the State of Illinois to subject certain employees of
railroads, motor carriers, merchant mariners, and air carriers to Illinois
income taxation, even though in the absence of specific federal provisions
those employees would be subject to Illinois taxation by virtue of IITA Section
302(a). (See Section 100.2590.) Compensation that Illinois may not tax under
those provisions is not "paid in this State" under this Section.
4) Military Servicemembers and Spouses of Servicemembers.
Pursuant to 50 USC 4001, compensation for military service paid to a
nonresident servicemember and compensation paid to a servicemember's spouse, if
the spouse is not a resident of Illinois and is in Illinois solely to be with
the servicemember serving in compliance with military orders, do not constitute
"compensation paid in" Illinois even though it meets the tests set
forth in this subsection (d).
(Source: Amended at 44 Ill. Reg. 10907, effective June 10, 2020)
SUBPART L: NON-BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3200 TAXABILITY IN OTHER STATE (IITA SECTION 303)
Section 100.3200 Taxability
in Other State (IITA Section 303)
a) General definition
1) For purposes of allocation of nonbusiness income and for
purposes of the sales factor used in apportioning business income, a taxpayer
is taxable in another state if:
A) in that state he or she is subject to a net income tax, a
franchise tax measured by net income, a franchise tax for the privilege of
doing business, or a corporate stock tax [35 ILCS 5/303(f)(1)]; or
B) that state has jurisdiction to subject the taxpayer to a net
income tax regardless of whether, in fact, the state does or does not subject
the taxpayer to such a tax [35 ILCS 5/303(f)(2)].
2) A taxpayer is subject to one of the specified taxes in
subsection (a)(1)(A) in a particular state only if the taxpayer is subject to
the tax by reason of income-producing activities in that state. For example, a
corporation that pays a minimum franchise tax in order to qualify for the
privilege of doing business in a state is not subject to tax by that state
within the meaning of subsection (a)(1)(A) if the amount of that minimum tax
bears no relation to the corporation's activities within that state. Further, a
taxpayer claiming to be taxable in another state under the test set forth in
subsection (a)(1)(A) must establish not only that under the laws of that state the
taxpayer is subject to one of the specified taxes, but that the taxpayer, in
fact, pays the tax. If a taxpayer is subject to one of the taxes specified in
subsection (a)(1)(A) but does not, in fact, pay the tax, the taxpayer may not
claim to be taxable in the state imposing the tax under the test set forth in
subsection (a)(1)(A) or (a)(1)(B). (See Dover Corp. v. Dept. of Revenue, 271
Ill. App. 3d 700 (1995).) On the other hand, if a taxpayer is not subject in a
given state to any of the taxes specified in subsection (a)(1)(A) but the taxpayer
establishes that the taxpayer's activities in that state are such as to give
the state jurisdiction to subject the taxpayer to a net income tax, then, under
the test set forth in this subsection (a)(2), the taxpayer is taxable in that
state, notwithstanding the fact that that state has not enacted legislation
subjecting the taxpayer to the tax. For purposes of this Section:
A) A net
income tax is a tax for which an individual may claim a deduction under 26 U.S.C.
164(a)(3) or for which a foreign tax credit may be claimed under 26 U.S.C. 901.
B) In the
case of any state other than a foreign country or political subdivision of a
foreign country, the determination of whether a state has jurisdiction to
subject the taxpayer to a net income tax will be determined under the
Constitution, statutes and treaties of the United States. Such a state does not
have jurisdiction to subject the taxpayer to a net income tax if it is
prohibited from imposing that tax by reason of the provisions of Public Law
86-272 (15 U.S.C. Sections 381-385). See 100.9720 of this Part for guidance on
nexus standards under the Constitution and statutes of the United States.
C) In the
case of any foreign country or political subdivision of a foreign country, the
determination of whether a state has jurisdiction to subject the taxpayer to a
net income tax will be determined as if the foreign country or political
subdivision were a state of the United States or a political subdivision of a
U.S. state. For taxable years ending before December 31, 2022, a person who is
not required to pay net income tax by a foreign country or political
subdivision as the result of a treaty provision exempting certain persons,
business activities or sources of income from tax is not subject to net income
tax in that jurisdiction. For taxable years ending on or after December 31,
2022, if jurisdiction is otherwise present, due to income-producing activities
conducted by the taxpayer, that foreign country or political subdivision is not
considered as being without jurisdiction by reason of the provisions of a
treaty between that foreign country or political subdivision and the United
States.
D) A
person is not subject to tax in another state or in a foreign country under
subsection (a)(1)(B) if that state or country imposes a tax on net income,
unless the taxpayer can show a specific provision of that state's or country's
constitution, statutes or regulations, or a holding of that state's or
country's courts or taxing authorities, that exempts the person from taxation
even though that person could be subject to a net income tax under the
Constitution and statutes of the United States.
b) Examples. Section 100.3200 of this Part may be illustrated by
the following examples:
1) EXAMPLE 1. A corporation, although subject to the provisions
of the net income tax statute imposed by X state, has never filed income tax
returns in that jurisdiction and has never paid income tax to X. For purposes
of allocation and apportionment of A's income, A is not taxable in X state
because it does not meet the test specified in either subsection (a)(1)(A) or
(1)(B).
2) EXAMPLE 2. B corporation, an Illinois corporation, is actively
engaged in manufacturing farm equipment in Y foreign country. Y does not impose
a franchise tax measured by net income or a corporate stock tax. It does impose
a franchise tax for the privilege of doing business, but B corporation is not
subject to that tax because it applies only to corporations incorporated under
Y's laws. Y also imposes a net income tax upon foreign corporations doing
business within its boundaries, but B is not subject to that tax because the
income tax statute grants tax exemption to corporations manufacturing farm
equipment. For purposes of allocation and apportionment of B's income, B is
taxable in Y country. B does not meet the test specified in subsection
(a)(1)(A), but does meet the test specified in subsection (a)(1)(B), since Y
has jurisdiction to impose a net income tax on B.
EXAMPLE 3. C
corporation sells large mining equipment to customers in foreign country W in
April 2022. The equipment is disassembled before shipping, and employees of C
travel to W to re-assemble the equipment. C's activities in W thus exceed the
protections of Public Law 86-272. However, due to a bilateral treaty between W
and the United States, W will impose a net income tax only upon taxpayers
maintaining a permanent establishment in W. C's activities in W do not
constitute a permanent establishment. C meets the test specified in subsection
(a)(1)(B) because W has jurisdiction to impose a net income tax on C,
irrespective of the treaty provision, for tax years ending on or after December
31, 2022.
(Source: Amended at 46 Ill.
Reg. 15317, effective August 24, 2022)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3210 COMMERCIAL DOMICILE (IITA SECTION 303)
Section 100.3210 Commercial
Domicile (IITA Section 303)
a) General definition. The term "commercial domicile"
is defined in IITA Section 1501(a)(2) to mean the principal place from which the
trade or business of the taxpayer is directed or managed. In general, this is
the place at which the offices of the principal executives are located. Where
executive authority is scattered, the place of daily operational decision
making controls. Such determinations must be made on the basis of all the facts
and circumstances.
b) Example. Section 100.3210 of this Part may be illustrated by
the following example: Company A has a board of directors which meets
quarterly, each meeting being held at a different plant in a different state.
A's chairman is designated as its chief executive officer and all top policy
decisions are made by him. A's president makes the day-to-day decisions
involved in management and it is to him that the manufacturing and sales vice
presidents report. He reports to the chairman. A's treasurer is the company's top
financial officer, reporting directly to the chairman, and being reported to by
financial vice presidents and the controller. A's chairman operates largely out
of his home in Wisconsin, communicating with other executives by telephone and periodic
visits to their offices. A's president has his office at the company office in Chicago.
The manufacturing and sales vice presidents also have offices at the company
office in Illinois, as do the sales manager and the controller. A's treasurer and
financial vice-president have their offices at the company office in New York
City. The company's attorneys and accountants are located in Chicago; its investment
banker in New York City. On the basis of the foregoing facts, A's commercial
domicile would be Illinois, because daily operational decision making occurs
principally within Illinois.
(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3220 ALLOCATION OF CERTAIN ITEMS OF NONBUSINESS INCOME BY PERSONS OTHER THAN RESIDENTS (IITA SECTION 303)
Section 100.3220 Allocation
of Certain Items of Nonbusiness Income by Persons Other Than Residents (IITA
Section 303)
a) In General. IITA Section 303 provides rules for the allocation
by any person other than a resident of Illinois of any item of capital gain or
loss, and any item of income from rents or royalties from real or tangible
personal property, interest, dividends, and patent or copyright royalties,
together with any item of deduction directly allocable thereto, to the extent
the item constitutes nonbusiness income. For the tests as to whether any item
constitutes business or nonbusiness income, see Section 100.3010.
b) Capital
Gains and Losses
1) Real Property. Capital gains and losses from sales or
exchanges of real property are allocated to Illinois if the property is located
in Illinois. (IITA Section 303(b)(1)) Economic interests in minerals in
place, such as oil or gas, are real property under IITA Section 303. Examples
of these interests are royalties, overriding royalties, participating
interests, production payments and working interests.
2) Tangible Personal Property. Capital gains and losses from
sales or exchanges of tangible personal property are allocated to Illinois, if
at the time of the sale or exchange:
A) the
property has its situs in Illinois; or
B) the taxpayer has its commercial domicile in Illinois and is
not taxable in the state in which the property has its situs. (IITA
Section 303(b)(2)) For the tests of taxability in another state and commercial
domicile, see Sections 100.3200 and 100.3210.
3) Intangible Personal Property. Capital gains and losses from
sales or exchanges of intangible personal property are allocated to Illinois if
the taxpayer has its commercial domicile in Illinois at the time of the sale or
exchange. (IITA Section 303(b)(3)) For the tests of commercial domicile,
see Section 100.3210.
c) Rents
and Royalties
1) Real Property. Rents and royalties from real property are
allocated to Illinois if the property is located in Illinois. (IITA
Section 303(c)(1)) Economic interests in minerals in place, such as oil or
gas, are real property under IITA Section 303. Examples of these interests are
royalties, overriding royalties, participating interests, production payments
and working interests.
2) Tangible Personal Property. Rents and royalties from
tangible personal property are allocated to Illinois:
A) if
and to the extent that the property is utilized in Illinois; or
B) in their entirety if, at the time rents or royalties are
paid or accrued, the taxpayer has its commercial domicile in Illinois and was
not organized under the laws of, or is not taxable with respect to the rents or
royalties in, the state in which the property is utilized. (IITA Section
303(c)(2)) For the tests of taxability in another state and commercial
domicile, see Sections 100.3200 and 100.3210. The extent of utilization of
tangible personal property in a state is determined by multiplying the rents or
royalties derived from the property by a fraction, the numerator of which is
the number of days of physical location of the property in the state during the
rental or royalty period in the taxable year and the denominator of which is
the number of days of physical location of the property everywhere during all
rental or royalty periods in the taxable year. If the physical location of the
property during the rental or royalty period is unknown or unascertainable by
the taxpayer, tangible personal property is utilized in the state in which the
property is located at the time the rental or royalty payor obtains possession.
3) Examples. Section 100.3220(c) may be illustrated by the
following examples:
A) EXAMPLE A. A is a resident of Missouri. A purchases an interest
in oil royalty under an oil and gas lease in Illinois. During 1970, A receives
$2,000 in royalty payments. Under Section 100.3010(c)(3), the royalty income is
presumed to be nonbusiness income. As such it is allocated to Illinois, being
derived from real property located in Illinois.
B) EXAMPLE B. B is a resident of Iowa, with a summer home in
Illinois. B owns a sailboat that he keeps in Iowa during the winter months and
tows to Illinois by trailer for use in the summer. During 1970, B is unable to
visit his summer home, and rents his sailboat for the months of July through
September to C, the owner of the adjoining property in Illinois. Under Section
100.3010(c)(3), the rent is presumed to be nonbusiness income. C takes the boat
from Iowa to Illinois and returns it to B in Iowa on October 1, 1970. Although
the boat is physically located in Iowa during the months of January through
June and October through December, the rental period is only the months of July
through September. During the rental period, the boat is located in Illinois.
Hence, it is utilized in Illinois and, accordingly, the rental income is
allocated to Illinois.
C) EXAMPLE C. The facts are the same as in Example B, except that
B rents the boat through a want ad and does not know C, nor where he uses the
boat during the months of July through September. In this case, since C takes
possession of the boat in Iowa, it is utilized in Iowa and, accordingly, the
rental income is not allocated to Illinois.
d) Patent
and Copyright Royalties
1) Allocation. Patent and copyright royalties are allocated to
Illinois:
A) if and to the extent that the patent or copyright is
utilized by the payor of the royalties in Illinois; or
B) if and to the extent that the patent or copyright is
utilized by the payor of the royalties in a state in which the taxpayer is not
taxable with respect to the royalties and, at the time the royalties are paid
or accrued, the taxpayer has its commercial domicile in Illinois. (IITA
Section 303(d)(1)) For the tests of taxability in another state and commercial
domicile, see Sections 100.3200 and 100.3210.
2) Utilization
A) Patents. A patent is utilized in a state to the extent that
it is employed in production, fabrication, manufacturing or other processing in
the state or to the extent that a patented product is produced in the state. If
the basis of receipts from patent royalties does not permit allocation to
states or if the accounting procedures of the royalty payor do not reflect
states of utilization, the patent is utilized in Illinois if the taxpayer has
its commercial domicile in Illinois. (IITA Section 303(d)(2)(A))
B) Copyrights. A copyright is utilized in a state to the extent
that printing or other publication originates in that state. If the basis of
receipts from copyright royalties does not permit allocation to states or if
the accounting procedures of the royalty payor do not reflect states of
utilization, the copyright is utilized in Illinois if the taxpayer has its
commercial domicile in Illinois. (IITA Section 303(d)(2)(B))
3) Example. A, a resident of New York, is not in the business of
being an inventor, but owns a patent on a single invention, which he licenses
to a manufacturer of automatic garage door openers. Royalties are a percentage
of the manufacturer's sales. The manufacturer has plants situated in Missouri,
Illinois and Indiana. Under Section 100.3050(c)(6), the royalty income is
presumed to be nonbusiness income. If A's royalties can be allocated to
Missouri, Illinois and Indiana on the basis of sales from the manufacturer's
plants in each of those states, those royalties attributable to sales from the
Illinois plant are allocated to Illinois. If, however, the manufacturer's
accounting procedures do not reflect sales from the specific plants, but
royalties are paid on the basis of total sales not broken down by plant, then,
since A is not a resident of Illinois, the patent is not utilized in Illinois
and none of the royalties are allocated to Illinois.
e) Taxability in another state. For the test of taxability in
another state, see Section 100.3200.
f) Interest and dividends. For allocation of interest and
dividends, see Section 100.3300(b)(2).
g) Illinois Lottery Prizes. Prizes awarded under the Illinois
Lottery Law [20 ILCS 1605] are allocable to this State. Payments
received in taxable years ending on or after December 31, 2013, from the
assignment of a prize under Section 13.1 of the Illinois Lottery Law, are
allocable to this State. (IITA Section 303(e))
h) Wagering and Gambling Winnings. Payments, received in
taxable years ending on or after December 31, 2019, of winnings from
pari-mutuel wagering conducted at a wagering facility licensed under the
Illinois Horse Racing Act of 1975 [230 ILCS 5] and from gambling games
conducted on a riverboat or in a casino or organization gaming facility
licensed under the Illinois Gambling Act [230 ILCS 10] are allocable to
this State. (IITA Section 303(e-1))
i) Sports Wagering and Winnings. Payments received in
taxable years ending on or after December 31, 2021 of winnings from sports
wagering conducted in accordance with the Sports Wagering Act [230 ILCS 45]
are allocable to this State. (IITA Section 303(e-2))
j) Unemployment Compensation. Unemployment compensation paid by
this State is allocated to this State. (See IITA Section 303(e-5))
(Source: Amended at 47 Ill.
Reg. 13669, effective September 11, 2023)
SUBPART M: BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3300 ALLOCATION AND APPORTIONMENT OF BASE INCOME (IITA SECTION 304)
Section 100.3300 Allocation
and Apportionment of Base Income (IITA Section 304)
a) Residents. All items of income or deduction which are taken
into account in the computation of base income for the taxable year by a resident
of Illinois are allocated to Illinois under IITA Section 301(a) and enter into
the computation of such person's net income under IITA Section 202. For the definition
of a resident see IITA Section 1501(a)(20) and Section 100.3020 of this Part.
b) Other
persons
1) In general. In order to compute net income under IITA Section 202
of persons other than residents of Illinois, it is necessary to determine that
portion of each item of income and deduction taken into account in the
computation of base income for the taxable year which is allocable to Illinois.
In general, the allocation of items of compensation and of items of deduction
directly allocable thereto is governed by IITA Section 302 (see Section
100.3120 of this Part). The allocation of certain specified items of income, to
the extent such items constitute nonbusiness income, together with items of
deduction directly allocable thereto, is governed by IITA Section 303 (see Section
100.3220 of this Part). The allocation and apportionment of business income is governed
by IITA Section 304 (see Sections 100.3310, 100.3350, 100.3360 and 100.3370 of
this Part.) An item of income or deduction specifically allocated or
apportioned pursuant to one of the foregoing sections is allocated to Illinois
and enters into the computation of net income of a person other than a resident
only to the extent provided by such allocation or apportionment section. All
other items of income and deductions are allocated under IITA Section
301(b)(2).
2) Unspecified items. An item of income or deduction which is
taken into account in the computation of base income for the taxable year by a person
other than a resident of Illinois, and which is not otherwise specifically
allocated or apportioned, in the case of an individual, trust or estate, is not
allocated to Illinois. In the case of a corporation, such items are allocated
to Illinois if the corporation has its commercial domicile in Illinois at the
time such item is paid, incurred or accrued. For the definition of commercial domicile,
see IITA Section 1501(a)(2) and Section 100.3210 of this Part. Examples of
items of income which (to the extent such items constitute nonbusiness income)
are not otherwise specifically allocated or apportioned are interest,
dividends, items of income taken into account under the provisions of 26 USC 401
through 425, benefit payments received by a beneficiary of a supplemental
unemployment benefit trust which is referred to in 26 USC 501(c)(17) and royalties
from intangible personal property (other than patent and copyright royalties).
(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3310 BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS (IITA SECTION 304) IN GENERAL
Section 100.3310 Business Income
of Persons Other Than Residents (IITA Section 304) – In General
The business income of a person other
than a resident is allocated to Illinois if such person's business income is
derived solely from Illinois. Note that any reference to person in this section
shall refer to a person other than a resident. Every person who derives business
income from Illinois and one or more other states must apportion such business
income between Illinois and such other state or states in accordance with the
provisions of IITA Section 304. Special apportionment rules are provided for
the business income of insurance companies, financial organizations, and
persons furnishing transportation services, and for alternative methods of apportionment
(and allocation) where the specific statutory provisions do not fairly
represent the extent of a person's business activity in Illinois. See IITA
Section 304(b),(c),(d) and (e) of the Act.
(Source: Section
repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981;
amended at 8 Ill. Reg. 6184, effective May 4, 1984)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3320 BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS(IITA SECTION 304) -- APPORTIONMENT (REPEALED)
Section 100.3320 Business
Income of Persons Other Than Residents(IITA Section 304) -- Apportionment (Repealed)
(Source: Amended at 26 Ill.
Reg. 13237, effective August 23, 2002)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3330 BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS (IITA SECTION 304 ALLOCATION
Section 100.3330 Business
Income of Persons Other Than Residents (IITA Section 304 – Allocation
Any person subject to the taxing
jurisdiction of this state shall allocate all of its nonbusiness income within
or without this state in accordance with IITA Section 303 and 86 Ill. Adm. Code
100.3300.
(Source: Section
repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981;
amended at 8 Ill. Reg. 6184, effective May 4, 1984)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3340 BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS (IITA SECTION 304)
Section 100.3340 Business
Income of Persons Other Than Residents (IITA Section 304)
In filing returns with this
state, if any person departs from or modifies the manner in which income has been
classified as business income or nonbusiness income in returns for prior years,
such person shall disclose in the return for the current year the nature and
extent of the modification. If the returns or reports filed by a person for all
states to which such person reports under Article IV of the Multistate Tax
Compact or the Uniform Division of Income for Tax Purposes Act are not uniform
in the classification of income as business or nonbusiness income, the person
shall disclose in its return to this state the nature and extent of the
variance.
(Source: Section
repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981;
amended at 8 Ill. Reg. 6184, effective May 4, 1984)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3350 PROPERTY FACTOR (IITA SECTION 304)
Section 100.3350 Property
Factor (IITA Section 304)
a) In general. The property factor of the apportionment formula
for each trade or business of a person shall include all real and tangible
personal property owned or rented by such person and used during the tax
period in the regular course of such trade or business. The term
"real and tangible personal property" includes land, building,
machinery, stocks of goods, equipment, and other real and tangible personal
property but does not include coin or currency. Property used in connection
with the production of nonbusiness income shall be excluded from the property
factor. Property used both in the regular course of a person's trade or
business and in the production of nonbusiness income shall be included in the
factor only to the extent the property is used in the regular course of the
person's trade or business. The method of determining that portion of the
value to be included in the factor will depend on the facts of each case. The property
factor shall include the average value of property includable in the factor.
See subsection (g), below.
b) Property used for the production of business income. Property
shall be included in the property factor if it is actually used or is available
for or capable of being used during the tax period in the regular course of the
trade or business of the person. Property held as reserves or standby
facilities or property held as a reserve source of materials shall be included
in the factor. For example, a plant temporarily idle or raw material reserves
not currently being processed are includable in the factor. Property or
equipment under construction during the tax period (except inventoriable goods
in process), shall be excluded from the factor until such property is
actually used in the regular course of the trade or business of the person.
If the property is partially used in the regular course of the trade or
business of the person while under construction, the value of the property to
the extent used shall be included in the property factor. Property used in
the regular course of the trade or business of the person shall remain in the
property factor until its permanent withdrawal is established by an
identifiable event such as its conversion to the production of nonbusiness
income, its sale, or the lapse of an extended period of time (normally five
years) during which the property is held for sale.
1) Example 1: Corporation A closed its manufacturing plant in
State X and held such property for sale. The property remained vacant until
its sale one year later. The value of the manufacturing plant is included in
the property factor until the plant is sold.
2) Example 2: Same as above except that the property was rented
until the plant was sold. The plant is included in the property factor until
the plant is sold.
3) Example 3: Corporation A operates a chain of retail grocery
stores. The corporation closed Store A, which was then remodeled into three
small retail stores, such as a dress shop, dry cleaning, and barber shop, which
were leased to unrelated parties. The property is removed from the property
factor on the date the remodeling of Store A commenced.
c) Consistency in reporting. In filing returns with this State,
if a person departs from or modifies the manner of valuing property, or of
excluding or including property in the property factor used in returns for
prior years, the person shall disclose in the return for the current year the
nature and extent of the modification. If the returns or reports filed by the
person with all states to which the person reports under Article IV of the
Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act
are not uniform in the valuation of property and in the exclusion or inclusion
of property in the property factor, the person shall disclose in its return to
this State the nature and extent of the variance.
d) Numerator. The numerator of the property factor shall include
the average value of the real and tangible personal property owned or rented by
the person and used in this State during the tax period in the regular course
of the trade or business of the person. Property in transit between locations
of the person to which it belongs shall be considered to be at the destination
for purposes of the property factor. Property in transit between a buyer and
seller which is included by a person in the denominator of its property factor
in accordance with its regular accounting practices shall be included in the
numerator according to the state of destination. The value of mobile or
movable property such as construction equipment, trucks or leased electronic
equipment which are located within and without this State during the tax
period, shall be determined for purposes of the numerator of the factor on the
basis of total time within the State during the tax period. An automobile
assigned to a traveling employee shall be included in the numerator of the
factor of the state to which the employee's compensation is assigned under the
payroll factor or in the numerator of the state in which the automobile is
licensed.
e) Valuation of owned property. Property owned by the person
shall be at its original cost. As a general rule "original cost"
is the basis of property for federal income tax purposes at the time of
acquisition and will not reflect any federal adjustments thereafter for
deductions for depreciation, depletion, amortization and the like.
1) In addition, however, the valuation will include the
original cost, at acquisition, of any capital improvement as well as
partial dispositions of any portion by reason of sale, exchange, abandonment,
etc.
2) However, capitalized intangible drilling and development costs
shall be included in the property factor whether or not they have been expensed
for either federal or state tax purposes. Intangible drilling and development
costs include such elements as wages, fuel, repairs, hauling, draining,
roadbuilding, surveying, geological works, construction of derricks, tanks,
pipelines, and other physical structures necessary for the drilling of wells
and their preparation for the production of oil and gas, and supplies incident
to and necessary for the drilling of wells and clearing of ground.
3) Example 1: Corporation W acquired a factory building in
this State at a cost of $500,000 and 18 months later expended $100,000
for major remodeling of the building. The corporation files its return
for the current taxable year on the calendar-year basis. Depreciation
deduction in the amount of $22,000 was claimed on the building for its
return for the current taxable year. The value of the building includable
in the numerator and denominator of the property factor is $600,000 as the
depreciation deduction is not taken into account in determining the value
of the building for purposes of the factor.
4) Example 2: During the current taxable year, X Corporation
merges into Y Corporation in a tax-free reorganization under the Internal
Revenue Code. At the time of the merger, X Corporation owns a factory
which X built five years earlier at a cost of $1,000,000. X has been
depreciating the factory at the rate of two percent per year, and its basis
in X's hands at the time of the merger is $900,000. Since the property is
acquired by Y in a transaction in which, under the Internal Revenue Code,
its basis in Y's hands is the same as its basis in X's, Y includes the
property in Y's property factor at X's original cost, without adjustment for
depreciation, i.e., $1,000,000.
5) Example 3: Corporation Y acquires the assets of Corporation
X in a liquidation by which Y is entitled to use its stock cost as the
basis of the X assets under 26 U.S.C. Section 334(b)(2) (i.e. stock
possessing 80 percent control is purchased and liquidated within two
years). Under these circumstances, Y's cost of the assets is the purchase
price of the X stock, prorated over the X assets.
A) If original cost of property is unascertainable, the property
is included in the factor at its fair market value as of the date of
acquisition by the person.
B) Inventory or stock of goods shall be included in the
factor in accordance with the valuation method used for federal income tax
purposes.
C) Property acquired by gift or inheritance shall be included
in the factor at its basis for determining depreciation for federal income
tax purposes.
f) Valuation
of rented property.
1) Property rented by the person is valued at eight times the
net annual rental rate. The net annual rental rate for any item of rented
property is the annual rental rate paid by the person for such property,
less the aggregate annual subrental rates paid by subtenants of the person.
(See Section 100.3380(a) for special rules where the use of such net
annual rental rate produces a negative or clearly inaccurate value or
where property is used by the person at no charge or rented at a nominal
rental rate.) Subrents are not deducted when the subrents constitute
business income because the property which produces the subrents is
used in the regular course of a trade or business of the person when
it is producing such income. Accordingly there is no reduction in its value.
A) Example A: Corporation A receives subrents from a bakery
concession in a food market operated by it. Since the subrents are
business income they are not deducted from the rent paid by Corporation A
for the food market.
B) Example B: Corporation B rents a 5-story office building
primarily for use in its multistate business, uses three floors for its
offices and subleases two floors to various other businesses and persons
such as professional people, shops and the like. The rental of the two
floors is attendant to the operation of the corporation's trade or business.
Since the subrents are business income they are not deducted from the rent
paid by the corporation.
C) Example C: Corporation C rents a 20-story office building
and uses the lower two stories for its general corporation headquarters.
The remaining 18 floors are subleased to others. The rental of the
eighteen floors is not attendant to but rather is separate from the
operation of the corporation's trade or business. Since the subrents are
nonbusiness income they are to be deducted from the rent paid by the
corporation.
2) "Annual rental rate" is the amount paid as rental
for property for a 12-month period (i.e., the amount of the annual
rent). Where property is rented for less than a 12-month period, the rent
paid for the actual period of rental shall constitute the "annual
rental rate" for the tax period. However, where a corporation has rented
property for a term of 12 or more months and the current tax period covers a
period of less than 12 months (due, for example, to a reorganization or
change of accounting period), the rent paid for the short tax period shall
be annualized. If the rental term is for less than 12 months, the rent
shall not be annualized beyond its term. Rent shall not be annualized
because of the uncertain duration when the rental term is on a month to
month basis.
A) Example A: Corporation A which ordinarily files its returns
based on a calendar year is merged into Corporation B on April 30. The net
rent paid under a lease with 5 years remaining is $2,500 a month. The rent
for the tax period January 1 to April 30 is $10,000. After the rent is
annualized the net rent is $30,000 ($2,500 X 12).
B) Example B: Same facts as in Example A except that the
lease would have terminated August 31. In this case the annualized net rent is
$20,000 ($2,500 X 8).
3) "Annual rent" is the actual sum of money or other
consideration payable, directly or indirectly, by the person or for its
benefit for the use of the property and includes:
A) Any amount payable for the use of real or tangible
personal property, or any part thereof, whether designated as a fixed sum
of money or as a percentage of sales, profits or otherwise.
Example: A
corporation pursuant to the terms of a lease, pays a lessor $1,000 per
month as a base rental and at the end of the year pays the lessor one
percent of its gross sales of $400,000. The annual rent is $16,000 ($12,000
plus one percent of $400,000 or $4,000).
B) Any amount payable as additional rent or in lieu of rents,
such as interest, taxes, insurance, repairs or any other items which are
required to be paid by the terms of the lease or other arrangement, not
including amounts paid as service charges, such as utilities, janitor
services, etc. If a payment includes rent and other charges
unsegregated, the amount of rent shall be determined by consideration of
the relative values of the rent and the other items.
i) Example i: A corporation, pursuant to the terms of a
lease, pays the lessor $12,000 a year rent plus taxes in the amount of
$2,000 and interest on a mortgage in the amount of $1,000. The annual
rent is $15,000.
ii) Example ii: A corporation stores part of its inventory in a
public warehouse. The total charge for the year was $1,000 of which $700
was for the use of storage space and $300 for inventory insurance, handling
and shipping charges, and C.O.D. collections. The annual rent is $700.
C) "Annual rent" includes royalties based on extraction
of natural resources, whether represented by delivery or purchase. For this
purpose, a royalty includes any consideration conveyed or credited to a holder
of an interest in property that constitutes a sharing of current or future
production of natural resources from such property, irrespective of the method
of payment or how such consideration may be characterized, whether as a
royalty, advance royalty, rental or otherwise. "Annual rent" does
not include incidental day-to-day expenses such as hotel or motel
accommodations, daily rental of automobiles, etc.
4) Leasehold improvements shall, for the purposes of the property
factor, be treated as property owned by the person regardless of whether the
person is entitled to remove the improvements or the improvements revert
to the lessor upon expiration of the lease. Hence, the original cost of
leasehold improvements shall be included in the factor.
g) Averaging
property values
1) As a general rule the average value of property owned by the
person shall be determined by averaging the values at the beginning and ending
of the tax period. However, the Director may require or allow averaging by
monthly values if such method of averaging is required to properly reflect the
average value of the person's property for the tax period. Averaging by
monthly values will generally be applied if substantial fluctuations in the
values of the property exist during the tax period or where property is
acquired after the beginning of the tax period or disposed of before the end of
the tax period.
2) Example: The monthly value of the person's property was as
follows:
|
January
|
$ 2,000
|
July
|
$ 15,000
|
|
February
|
2,000
|
August
|
17,000
|
|
March
|
3,000
|
September
|
23,000
|
|
April
|
3,500
|
October
|
25,000
|
|
May
|
4,500
|
November
|
13,000
|
|
June
|
10,000
|
December
|
2,000
|
|
|
|
TOTAL
|
$120,000
|
A) The average value of the person's property includable in the
property factor for the taxable year is determined as follows: $120,000 divided
by 12 = $10,000
B) Averaging with respect to rented property is achieved
automatically by the method of determining the net annual rental rate of such
property as set forth in subsection(e) above.
(Source: Amended at 26 Ill.
Reg. 13237, effective August 23, 2002)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3360 PAYROLL FACTOR (IITA SECTION 304)
Section 100.3360 Payroll
Factor (IITA Section 304)
a) In
general
1) The payroll factor of the apportionment formula for each trade
or business of an employer shall include the total amount paid by the employer
in the regular course of its trade or business for compensation during the tax
period.
2) The total amount "paid" to employees is determined
upon the basis of the employer's accounting method. If the employer has adopted
the accrual method of accounting, all compensation properly accrued shall be
deemed to have been paid. The compensation of any employee on account of
activities which are connected with the production of nonbusiness income shall be
excluded from the factor.
A) Example A: A corporation uses some of its employees in the
construction of a storage building which, upon completion, is used in the regular
course of the corporation's trade or business. The wages paid to those
employees are treated as a capital expenditure by the corporation. The amount
of such wages is included in the payroll factor.
B) Example B: A corporation owns various securities which it holds
as an investment separate and apart from its trade or business. The management
of the corporation's investment portfolio is the only duty of Mr. X, an employee.
The salary paid to Mr. X is excluded from the payroll factor.
3) The
term "compensation" is defined in Section 100.3100 of this Part.
4) The
term "employee" is defined in Section 100.3100 of this Part.
5) In filing returns with this state, if the employer departs from
or modifies the treatment of compensation paid used in returns for prior years,
the employer shall disclose in the return for the current year the nature and
extent of the modification. If the returns or reports filed by the employer with
all states to which the employer reports under Article IV of the Multistate Tax
Compact or the Uniform Division of Income for Tax Purposes Act are not uniform
in the treatment of compensation paid, the employer shall disclose in its return
to this state the nature and extent of the variance.
b) Denominator. The denominator of the payroll factor is the
total compensation paid everywhere during the tax period. Accordingly,
compensation paid to employees whose services are performed entirely in a state
where the employer is immune from taxation, by Public Law 86-272 for example,
is included in the denominator of the payroll factor. Example: A corporation
has employees in its state of legal domicile (State A) and is taxable in State
B. In addition the corporation has other employees whose services are performed
entirely in State C where the corporation is immune from taxation by Public Law
86-272. As to these latter employees, the compensation will be assigned to State
C where their services are performed (i.e., included in the denominator – but
not the numerator – of the payroll factor) even though the corporation is not
taxable in State C.
c) Numerator. The numerator of the payroll factor is the total
amount paid in this State during the tax period by the employer for compensation.
The tests in IITA Section 304(a)(2) to be applied in determining whether
compensation is paid in this State are derived from the Model Unemployment
Compensation Act.
d) Compensation paid in this State. The term "compensation
paid in this State" is explained in Section 100.3120 of this Part.
(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)
| TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100
INCOME TAX
SECTION 100.3370 SALES FACTOR (IITA SECTION 304)
Section 100.3370 Sales
Factor (IITA Section 304)
a) In General
1) IITA Section 1501(a)(21) defines the term "sales" to
mean all gross receipts of the person not allocated under IITA Sections 301,
302 and 303. Thus, for the purposes of the sales factor of the apportionment
formula for each trade or business of the person, the term "sales"
means all gross receipts derived by the person from transactions and activity
in the regular course of his or her trade or business. The following are rules
for determining "sales" in various situations, except in instances in
which an alternative method of determining the sales factor is prescribed in
Section 100.3380. If the determination prescribed by this Section does not
clearly reflect the taxpayer's business activities in Illinois (for taxable
years ending before December 31, 2008) or the market for the taxpayer's goods,
services or other sources of income in Illinois (for taxable years ending on or
after December 31, 2008), the taxpayer may request the use of an alternative
method of apportionment under Section 100.3390.
A) In the case of a person engaged in manufacturing and selling or
purchasing and reselling goods or products, "sales" includes all
gross receipts from the sales of those goods or products (or other property of
a kind that would properly be included in the inventory of the person if on
hand at the close of the tax period) held by the person primarily for sale to
customers in the ordinary course of its trade or business. Gross receipts for
this purpose means gross sales less returns and allowances, and includes all
interest income, service charges, carrying charges, or time-price differential
charges attendant to those sales. Federal and State excise taxes (including
sales taxes) shall be included as part of the receipts if the taxes are passed
on to the buyer or included as part of the selling price of the product.
B) In the case of cost plus fixed fee contracts, such as the
operation of a government-owned plant for a fee, "sales" includes the
entire reimbursed cost, plus the fee.
C) In the case of a person engaged in providing services, such as
the operation of an advertising agency, or the performance of equipment service
contracts, or research and development contracts, "sales" includes
the gross receipts from the performance of those services, including fees,
commissions and similar items.
D) In the case of a person engaged in renting real or tangible
property, "sales" includes the gross receipts from the rental, lease
or licensing of the use of the property.
E) In the case of a person engaged in the sale, assignment or
licensing of intangible personal property such as patents and copyrights,
"sales" includes the gross receipts therefrom.
F) If a person derives receipts from the sale of equipment used
in its business, those receipts constitute "sales". For example, a
truck express company owns a fleet of trucks and sells its trucks under a
regular replacement program. The gross receipts from the sales of the trucks shall
be included in the sales factor.
2) The following gross receipts are not included in the sales
factor:
A) For taxable years ending on or after December
31, 1995, dividends; amounts included under IRC section 78; and Subpart F
income are excluded from the sales factor under IITA Section 304(a)(3)(D).
B) Gross receipts that are excluded from or deducted in the
computation of federal taxable income or federal adjusted gross income, and
that are not added back in the computation of base income. For example, in
years ending prior to December 31, 1995, dividends received from a domestic
corporation are excluded from the sales factor to the extent the taxpayer is
allowed a deduction under IRC section 243 with respect to those dividends.
C) Gross receipts that are subtracted from federal taxable income
or federal adjusted gross income in the computation of base income or that are
eliminated in the computation of taxable income in the case of a unitary
business group under Section 100.5270(b)(1). Examples of gross receipts
excluded from the sales factor under this provision include:
i) Interest on federal obligations subtracted under IITA Section
203(a)(2)(N), (b)(2)(J), (c)(2)(K) or (d)(2)(G).
ii) For taxable years ending prior to December 31, 1995,
dividends included in federal taxable income or federal adjusted gross income
are excluded from the sales factor if eliminated in combination or to the
extent subtracted under IITA Section 203(a)(2)(J), (a)(2)(K), (b)(2)(K),
(b)(2)(L), (b)(2)(O), (c)(2)(M), (c)(2)(O), (d)(2)(K) or (d)(2)(M).
D) Gross receipts that are excluded from or deducted in the
computation of federal taxable income or federal adjusted gross income, but are
added back in the computation of base income, are included in the sales factor
unless subtracted or eliminated in combination. For example:
i) Interest on State obligations excluded from federal taxable
income or adjusted gross income under IRC section 103 and added back in the
computation of base income under IITA Section 203(a)(2)(A), (b)(2)(A),
(c)(2)(A) or (d)(2)(A) shall be included in the sales factor except in the case
of interest on certain Illinois obligations that is exempt from Illinois Income
Tax. (See 86 Ill. Adm. Code 100.2470(f).)
ii) Gross receipts from intercompany transactions between two
corporate members of a federal consolidated group, the taxable income on which
is deferred under 26 CFR 1.1502-13, shall be included in the sales factor of
the recipient unless subtracted under a provision of IITA Section 203 or
eliminated in combination of the two corporations as members of a unitary
business group.
E) In some cases, certain gross receipts should be disregarded in
determining the sales factor in order that the apportionment formula will
operate fairly to apportion to this State the income of the person's trade or
business. (See 86 Ill. Adm. Code 100.3380(c).)
F) For
taxable years ending on or after December 31, 1999, gross receipts from the
licensing, sale, or other disposition of a patent, copyright, trademark, or
similar item of intangible personal property may be included in the sales
factor only if gross receipts from licenses, sales, or other dispositions of
these items comprise more than 50% of the taxpayer's total gross receipts
included in gross income during the tax year and during each of the 2
immediately preceding tax years; provided that, when a taxpayer is a member of
a unitary business group, the determination shall be made on the basis of the
gross receipts of the entire unitary business group. (IITA Section
304(a)(3)(B-2)) For purposes of this Section:
i) "Gross
receipts from the licensing, sale, or other disposition of a patent, copyright,
trademark, or similar item of intangible personal property" includes
amounts received as damages or settlements from claims of infringement.
ii) "Gross
receipts from the licensing, sale, or other disposition of a patent" includes
only amounts received from a person using the patent in the production,
fabrication, manufacturing, or other processing of a product or from a person
producing, fabricating or manufacturing a product subject to the patent.
iii) "Gross
receipts from the licensing, sale, or other disposition of a copyright" includes
only amounts received by the taxpayer from a person engaged in printing or
other publication of the material protected by the copyright, which are
governed by Section 100.3373. The term does not include gross receipts from
broadcasting within the meaning of IITA Section 304(a)(3)(B-7) or from
publishing or advertising within the meaning of IITA Section
304(a)(3)(C-5)(iv).
iv) If a
taxpayer has been in existence less than three taxable years, its gross
receipts from the licensing, sale, or other disposition of patents, copyrights,
trademarks or similar items of intangible personal property shall be included
in its sales factor if those gross receipts comprise more than 50% of its total
gross receipts during each taxable year of its existence.
v) "Patent"
means a patent issued under 35 U.S.C. 151.
vi) "Copyright"
means a copyright registered or eligible for registration under 17 U.S.C. 408.
vii) "Trademark"
means a trademark registered or eligible for registration under 15 U.S.C. 1051.
viii) A "similar
item" means an item of intellectual property that is registered or
otherwise enforceable under a law equivalent to 35 U.S.C. 151, 17 U.S.C. 408 or
15 U.S.C. 1051 or that is otherwise recognized in the country under whose law
the sale or license agreement would be enforced, or under which an infringement
claim would be brought.
ix) In
the case of a unitary business group, the "total gross receipts and gross
receipts from the licensing, sale or other disposition of a patent, copyright,
trademark or similar item of intangible personal property in the two years immediately
preceding the tax year" includes the gross receipts and gross receipts
from the licensing, sale or other disposition of a patent, copyright, trademark
or similar item of intangible personal property of all persons who are members
of the unitary business group at some time during the taxable year, whether or
not those persons were also members of the unitary business group in a
preceding tax year, and only of those persons.
3) In filing returns with this State, if the person departs from
or modifies the basis for excluding or including gross receipts in the sales
factor used in returns for prior years, the person shall disclose in the return
for the current year the nature and extent of the modification. If the returns
or reports filed by the person with all states to which the person reports
under Article IV of the Multistate Tax Compact or the Uniform Division of
Income for Tax Purposes Act are not uniform in the inclusion or exclusion of
gross receipts, the person shall disclose in its return to this State the
nature and extent of the variance.
4) For taxable years ending prior to
December 31, 2008, sales of electricity are sales other than sales of tangible
personal property sourced under IITA Section 304(a)(3)(C). For taxable years
ending on or after December 31, 2008 and prior to July 16, 2009, sales of
electricity are sales of service sourced under IITA Section 304(a)(3)(C-5)(iv).
For taxable years ending after July 15, 2009, sales of electricity are
sales of tangible personal property sourced under IITA Section 304(a)(3)(B).
(See Exelon Corp. v. Department of Revenue, 234 Ill
2d 266 (2009)).
b) Denominator. The denominator of the sales factor shall
include the total gross receipts derived by the person from transactions and
activity in the regular course of its trade or business, except receipts
excluded under 86 Ill. Adm. Code 100.3380(c).
c) Numerator. The numerator of the sales factor shall include
the gross receipts attributable to this State and derived by the person from
transactions and activity in the regular course of its trade or business. All
interest income, service charges, carrying charges, or time-price differential
charges incidental to those gross receipts shall be included regardless of the
place where the accounting records are maintained or the location of the
contract or other evidence of indebtedness.
1) Sales of Tangible Personal Property in this State
A) Gross receipts from the sales of tangible personal property
(except sales to the United States Government) (see subsection (c)(2)) are in
this State:
i) if the property is delivered or shipped to a purchaser within
this State regardless of the f.o.b. (free on board) point or other conditions of
sale; or
ii) if the property is shipped from an office, store, warehouse,
factory or other place of storage in this State and the taxpayer is not taxable
in the state of the purchaser. However, premises owned or leased by a person
who has independently contracted with the taxpayer for the printing of
newspapers, periodicals or books shall not be deemed to be an office, store,
warehouse, factory or other place of storage.
B) Property shall be deemed to be delivered or shipped to a
purchaser within this State if the recipient is located in this State, even
though the property is ordered from outside this State.
EXAMPLE: A
corporation, with inventory in State A, sold $100,000 of its products to a
purchaser having branch stores in several states including this State. The
order for the purchase was placed by the purchaser's central purchasing
department located in State B. $25,000 of the purchase order was shipped
directly to purchaser's branch store in this State. The branch store in this
State is the "purchaser within this State" with respect to $25,000 of
the corporation's sales.
C) Property is delivered or shipped to a purchaser within this
State if the shipment terminates in this State, even though the property is
subsequently transferred by the purchaser to another state.
EXAMPLE: A
corporation makes a sale to a purchaser who maintains a central warehouse in
this State at which all merchandise purchases are received. The purchaser
reships the goods to its branch stores in other states for sale. All of the
corporation's products shipped to the purchaser's warehouse in this State is
property "delivered or shipped to a purchaser within this State".
D) The term "purchaser within this State" shall include
the ultimate recipient of the property if the person in this State, at the
designation of the purchaser, delivers to or has the property shipped to the ultimate
recipient within this State.
EXAMPLE: A
corporation in this State sold merchandise to a purchaser in State A. The
corporation directed the manufacturer or supplier of the merchandise in State B
to ship the merchandise to the purchaser's customer in this State pursuant to
purchaser's instructions. The sale by the corporation is "in this
State".
E) When property being shipped by a seller from the state of
origin to a consignee in another state is diverted while en route to a
purchaser in this State, the sales are in this State.
EXAMPLE:
Corporation X, a produce grower in State A, begins shipment of perishable
produce to the purchaser's place of business in State B. While en route the
produce is diverted to the purchaser's place of business in this State in which
state Corporation X is subject to tax. The sale by the corporation is
attributed to this State.
F) If the person is not taxable in the state of the purchaser,
the sale is attributed to this State if the property is shipped from an office,
store, warehouse, factory, or other place of storage in this State (subject to
the exception noted in (c)(1)(A)(ii)).
EXAMPLE: A
corporation has its head office and factory in State A. It maintains a branch
office and inventory in this State. The corporation's only activity in State B
is the solicitation of orders by a resident salesman. All orders by the State
B salesman are sent to the branch office in this State for approval and are
filled by shipment from the inventory in this State. Since the corporation is
immune under Public Law 86-272 from tax in State B, all sales of merchandise to
purchasers in State B are attributed to this State, the state from which the
merchandise was shipped.
2) Sales of tangible personal property to the United States
Government in this State. Gross receipts from the sales of tangible personal
property to the United States Government are in this State if the property is
shipped from an office, store, warehouse, factory, or other place of storage in
this State. For the purposes of this regulation, only sales for which the
United States Government makes direct payment to the seller pursuant to the
terms of the contract constitute sales to the United States Government. Thus,
as a general rule, sales by a subcontractor to the prime contractor, the party
to the contract with the United States Government, do not constitute sales to
the United States Government.
EXAMPLE A: A
corporation contracts with General Services Administration to deliver X number
of trucks that were paid for by the United States Government. The sale is a
sale to the United States Government.
EXAMPLE B: A
corporation as a subcontractor to a prime contractor with the National
Aeronautics and Space Administration contracts to build a component of a rocket
for $1,000,000. The sale by the subcontractor to the prime contractor is not a
sale to the United States Government.
3) For
taxable years ending on or after December 31, 1999, gross receipts from the
licensing, sale, or other disposition of a patent, copyright, trademark, or
similar item of intangible personal property that are not excluded from the
sales factor under subsection (a)(2)(F) are included in the numerator of the
sales factor to the extent the item is utilized in this State during the
year the gross receipts are included in gross income. (IITA Section
304(a)(3)(B-1)) For purposes of this subsection (c)(3):
A) A
patent is utilized in a state to the extent that it is employed in production,
fabrication, manufacturing, or other processing in the state or to the extent
that a patented product is produced in the state. If a patent is utilized in
more than one state, the extent to which it is utilized in any one state shall
be a fraction equal to the gross receipts of the licensee or purchaser from
sales or leases of items produced, fabricated, manufactured, or processed
within that state using the patent and of patented items produced within that
state, divided by the total of the gross receipts for all states in which the
patent is utilized. (IITA Section 304(a)(3)(B-1)(ii)(I))
B) A
copyright is utilized in a state to the extent that printing or other
publication originates in the state. Printing or other publication
originates at the place at which the licensee of the copyright incorporates the
copyrighted material into the physical medium by which it will be delivered to
the purchaser of the material or, if the copyrighted material is delivered to
the purchaser without use of a physical medium, the place at which delivery of
the copyrighted material to the person purchasing the material from the
licensee originates. If a copyright is utilized in more than one state, the
extent to which it is utilized in any one state shall be a fraction equal to
the gross receipts from sales or licenses of materials printed or published in
that state divided by the total of the gross receipts for all states in which
the copyright is utilized. (IITA Section 304(a)(3)(B-1)(ii)(II))
C) Trademarks
and other items of intangible personal property governed by this subsection
(c)(3) are utilized in the state in which the commercial domicile of the
licensee or purchaser is located. (IITA Section 304(a)(3)(B-1)(ii)(III))
D) If the
place of utilization of an item of property under subsection (c)(3)(A), (B) or
(C) cannot be determined from the taxpayer's books and records or from the
books and records of any person related to the taxpayer within the meaning of IRC
section 267(b), the gross receipts attributable to that item shall be excluded
from both the numerator and the denominator of the sales factor. (IITA
Section 304(a)(3)(B-1)(iii))
4) For
taxable years ending on or after December 31, 2013, gross receipts from
winnings under the Illinois Lottery Law [20 ILCS 1605] and from the
assignment of a prize under Section 13-1 of the Illinois Lottery Law are
received in this State. (IITA Section 304(a)(3)(B-8))
5) For taxable years ending on or after December 31, 2019,
gross receipts from winnings from pari-mutuel wagering conducted at a wagering
facility licensed under the Illinois Horse Racing Act of 1975 [230 ILCS 5] or
from winnings from gambling games conducted on a riverboat or in a casino or
organization gaming facility licensed under the Illinois Gambling Act [230
ILCS 10] are in this State. (IITA Section 304(a)(3)(B-9))
6) For taxable
years ending on or after December 31, 2021, gross receipts from winnings from
sports wagering conducted in accordance with the Sports Wagering Act [230 ILCS 45] are in this State.
(IITA Section 304(a)(3)(B-10))
7) For taxable years ending prior to December 31, 2008, gross
receipts from transactions not governed by the provisions of subsection (c)(1),
(2), (3) or (4) and, for taxable years ending on or after December 31, 2008,
from transactions involving intangible personal property when the taxpayer is
not a dealer with respect to the intangible personal property, are attributed
to this State if the income producing activity that gave rise to the receipts
is performed wholly within this State. Also, gross receipts are attributed to
this State if, with respect to a particular item of income, the income
producing activity is performed in this State, based on costs of performance.
A) Income Producing Activity Defined. The term "income
producing activity" applies to each separate item of income and means the
transactions and activity directly engaged in by the person in the regular
course of its trade or business for the ultimate purpose of obtaining gains or
profit. Income producing activity does not include transactions and activities
performed on behalf of a person, such as those conducted on its behalf by an
independent contractor. The mere holding of intangible personal property is
not, of itself, an income producing activity. Accordingly, the income
producing activity includes but is not limited to the following:
i) The rendering of personal services by employees or the
utilization of tangible and intangible property by the person in performing a
service.
ii) The sale, rental, leasing, licensing or other use of real
property.
iii) The rental, leasing, licensing or other use of tangible
personal property.
iv) The sale, licensing or other use of intangible personal
property.
B) Costs of Performance Defined. The term "costs of
performance" means direct costs determined in a manner consistent with
generally accepted accounting principles and in accordance with accepted
conditions or practices in the trade or business of the person.
C) Application. Receipts sourced under this subsection (c)(7) in
respect to a particular income producing activity are in this State if:
i) the income producing activity is performed wholly within this
State; or
ii) the income producing activity is performed both in and
outside this State and, based on costs of performance, a greater proportion of
the income producing activity is performed in this State than without this
State (for taxable years ending prior to December 31, 2008) or a greater
proportion of the income-producing activity of the taxpayer is performed within
this State than in any other state (for taxable years ending on or after
December 31, 2008).
D) Special Rules. The following are special rules for determining
when receipts from the income producing activities described in this subsection
(c)(7)(D) are in this State.
i) Gross receipts from the sale, lease, rental or licensing of
real property are in this State if the real property is located in this State.
ii) Gross receipts from the rental, lease, or licensing of
tangible personal property are in this State if the property is located in
this State. The principal cost of performance in a rental, leasing or
licensing transaction is the depreciation or amortization of the tangible
personal property, and the depreciation or amortization expense is incurred in
the state in which the tangible personal property is located. The rental,
lease, licensing or other use of tangible personal property in this State is a
separate income producing activity from the rental, lease, licensing or other
use of the same property while located in another state; consequently, if
property is within and without this State during the rental, lease or licensing
period, gross receipts attributable to this State shall be measured by the
ratio which the time the property was physically present or was used in this
State bears to the total time or use of the property everywhere during that
period.
EXAMPLE:
Corporation X is the owner of 10 railroad cars. During the year, the total of
the days each railroad car was present in this State was 50 days for a total of
500 days. The receipts attributable to the use of each of the railroad cars in
this State are a separate item of income. Total receipts attributable to this
State shall be determined as follows:
(10 x 50)/3650
x Total Receipts
iii) Gross receipts for the performance of personal services are
attributable to this State to the extent those services are performed partly
within and partly outside this State. The gross receipts for the performance
of those services shall be attributable to this State only if a greater portion
of the services were performed in this State, based on costs of performance. When
services are performed partly within and partly outside this State and the
services performed in each state constitute a separate income producing
activity, the gross receipts for the performance of services attributable to
this State shall be measured by the ratio that the time spent in performing the
services in this State bears to the total time spent in performing the services
everywhere. Time spent in performing services includes the amount of time
expended in the performance of a contract or other obligation that gives rise
to the gross receipts. Personal service not directly connected with the
performance of the contract or other obligation, as for example, time expended
in negotiating the contract, is excluded from the computations.
EXAMPLE 1:
Corporation X, a road show, gave theatrical performances at various locations
in State X and in this State during the tax period. All gross receipts from
performances given in this State are attributed to this State.
EXAMPLE 2: A
public opinion survey corporation conducted a poll by its employees in State X
and in this State for the sum of $9,000. The project required 600 man hours to
obtain the basic data and prepare the survey report. Two hundred of the 600
man hours were expended in this State. The receipts attributable to this State
are $3,000, calculated as follows:
200/600 x $9,000
8) For
taxable years ending on or after December 31, 2008, gross receipts from
transactions not governed by the provisions of subsection (c)(1), (2), (3), (4),
(5), (6) or (7) are in this State if any of the following criteria are met:
A) Sales
from the sale or lease of real property are in this State if the property is
located in this State. (IITA Section 304(a)(3)(C-5)(i))
B) Sales
from the lease or rental of tangible personal property are in this State if the
property is located in this State during the rental period. Sales from the
lease or rental of tangible personal property that is characteristically moving
property, including, but not limited to, motor vehicles, rolling stock,
aircraft, vessels, or mobile equipment, are in this State to the extent that
the property is used in this State. (IITA Section 304(a)(3)(C-5)(ii))
C) In
the case of interest, net gains (but not less than zero) and other items of
income from intangible personal property, the sale is in this State if:
i) in
the case of a taxpayer who:
• is
a dealer in the item of intangible personal property within the meaning of IRC
section 475, the income or gain is received from a customer in this State. A taxpayer is a dealer with respect to
an item of intangible personal property if the taxpayer is a dealer with
respect to the item under IRC section 475(c)(1), or would be a dealer with
respect to the item under IRC section 475(c)(1) if the item were a security as
defined under IRC section 475(c)(2). For purposes of this subsection (c)(8)(C)(i),
a customer is in this State if the customer is an individual, trust or estate
who is a resident of this State and, for all other customers, if the customer's
commercial domicile is in this State. Unless the dealer has actual knowledge of
the residence or commercial domicile of a customer during a taxable year, the
customer shall be deemed to be a customer in this State if the billing address
of the customer, as shown in the records of the dealer, is in this State. (IITA
Section 304(a)(3)(C-5)(iii)(a)) A dealer shall treat the person with whom it
engages in a transaction as the customer, even when that person is acting on
behalf of a third party, unless the dealer has actual knowledge of the party on
whose behalf the person is acting. If a taxpayer is a dealer with respect to an
item of intangible personal property and recognizes gain or loss with respect
to that item other than in connection with a transaction with a customer (for
example, unrealized gain or loss from marking the item to market under IRC section
475), that gain or loss shall be excluded from the numerator and denominator of
the sales factor; or
• is
not a dealer with respect to the item of intangible personal
property, if the income-producing activity of the taxpayer is performed in
this State or, if the income-producing activity of the taxpayer is performed
both within and without this State, if a greater proportion of the
income-producing activity of the taxpayer is performed within this State than
in any other state, based on performance costs. (IITA Section
304(a)(3)(C-5)(iii)(b)) (See subsection (c)(7) of this Section.)
ii) For
purposes of this subsection (c)(8)(C), an item of "intangible personal
property" includes only an item that can ordinarily be resold or otherwise
reconveyed by the person acquiring the item from the taxpayer, and does not
include any obligation of the taxpayer to make any payment, perform any act, or
otherwise provide anything of value to another person.
EXAMPLE 1: A ticket to attend a
sporting event would not be an item of intangible personal property for the
owner of the stadium who issues the ticket and is obliged to grant admission to
the holder of the ticket. Rather, the sale of the ticket is a prepayment for a
service to be provided. However, the ticket would be an item of intangible
personal property in the hands of the original purchaser or any subsequent
purchaser of the ticket, and a ticket broker engaged in the business of buying
and reselling tickets would be a dealer with respect to the ticket.
EXAMPLE 2: A taxpayer selling
canned computer software is selling intangible personal property. (First
National Bank of Springfield v. Dept. of Revenue, 85 Ill.2d 84 (1981)) If the
taxpayer sells software to customers in the ordinary course of its business, it
is a dealer with respect to those sales. In contrast, a taxpayer providing
programming or maintenance services to its customers is selling services rather
than intangible personal property.
EXAMPLE 3: A taxpayer administers
a "rewards program" for a group of unrelated businesses. Under the
program, a customer of one business can earn discounts or rebates on products
and services provided by any of the businesses. As each customer earns rewards,
measured in "units", from one of the businesses, that business pays a
specified amount per unit to the taxpayer. When a customer uses units earned in
the program to purchase products or services at a discount from a participating
business, the taxpayer pays that business a specified amount per unit used by
the customer. Rebates may be paid to the customer directly by the taxpayer or
by one of the businesses, which is then reimbursed by the taxpayer. To the
extent payments made to the taxpayer by businesses awarding units exceed the
payments the taxpayer must make for discounts and rebates, the excess is
payment for operating the program. The units awarded are obligations of the
taxpayer to make payments to the business providing products or services at a
discount or to pay rebates. Accordingly, payments received by the taxpayer from
the participating businesses for units awarded are not income from sales of
intangible personal property by the taxpayer.
D) Sales
of services are in this State if the services are received in this State. (IITA
Section 304(a)(3)(C-5)(iv))
i) General
Rule. Gross receipts from services are assigned to the numerator of the sales
factor to the extent that the receipts may be attributed to services received
in Illinois.
ii) A
contract that involves the provision of a service by the taxpayer and the use
of property of the taxpayer by the service recipient shall be treated as a sale
of service unless the contract is properly treated as a lease of property under
IRC section 7701(e)(1), taking into account all relevant factors, including
whether:
• the
service recipient is in physical possession of the property;
• the
service recipient controls the property;
• the
service recipient has a significant economic or possessory interest in the property;
• the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract;
• the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient; and
• the
total contract price does not substantially exceed the rental value of the
property for the contract period.
EXAMPLE: A taxpayer selling
access to an online database or applications software, and who is required to
perform regular update services to the database or software, retains control
over the contents of the database or software, and provides access to the same
database or software to multiple customers is not selling or licensing an item
of intangible personal property to its customers, but rather is providing a
service.
iii) Services
received in this State include, but are not limited to:
• When
the subject matter of the service is an item of tangible personal property, the
service is received in this State if possession of the property is restored to
the recipient of the service under the principles in subsection (c)(1) for
determining whether a sale of that property is in this State.
EXAMPLE 1: A customer returns a
computer to the manufacturer for repair. The manufacturer performs the repairs
in Indiana and ships the computer to the customer's Illinois address. The
service is received in this State.
EXAMPLE 2: Individual purchases
clothing from Merchant at a store in this State, using a credit card issued by
Bank A pursuant to a licensing agreement with Credit Card Company. Credit Card
Company is not a financial organization required to apportion its business
income under Section 100.3405. Bank A remits the purchase price to Credit Card
Company, which deposits the purchase price with Merchant's bank, minus a fee or
discount. All fees and discounts earned by Credit Card Company in connection
with this purchase are for services received in this State.
• When
the subject matter of the service is an item of real property, the service is
received in the state in which the real property is located.
EXAMPLE 3: Individual purchases a
parcel of land in Illinois and constructs a house on the parcel. Services
performed at an architect's office in Wisconsin regarding the design and
construction of the house are received in this State.
• When
the service is performed on or with respect to the person of an individual (for
example, medical treatment services), the service is received in the state in
which the individual is located at the time the service is performed.
• Services
performed by a taxpayer that are directly connected to or in support of
services received in this State are also services received in this State.
EXAMPLE 4: Individual purchases
automobile repair services from Automobile Dealership at its facility located
in this State, using a credit card issued by Bank A pursuant to a licensing
agreement with Credit Card Company. Bank A remits the purchase price to Credit
Card Company, which deposits the purchase price with Automobile Dealership's
bank, minus a fee or discount. All fees and discounts earned by Credit Card
Company in connection with this purchase are for services received in this
State.
EXAMPLE 5: Services performed by
an investment fund on behalf of an investor are received in this State if the
investor resides in this State (in the case of an individual) or has its
ordering or billing address in this State (for other investors). In the case of
services provided by Taxpayer to or on behalf of the investment fund that are
directly connected with services provided separately to the investors, such as
preparation of communications and statements to investors, and allocations of
earnings and distributions to investors, the service is also received in this
State to the extent the investors reside (or have their ordering or billing
address) in this State. Accordingly, receipts of Taxpayer for these services
are allocated to this State on the basis of the ratio of: the average of the
outstanding shares in the fund owned by shareholders, partners or other
investors residing (or having their ordering or billing address) within this
State at the beginning and end of each taxable year of the taxpayer; and the
average of the total number of outstanding shares in the fund at the beginning
and end of each year. Residence or ordering or billing address of the
shareholder, partner or other investor is determined by the mailing address in
the records of the investment fund or the taxpayer. Services provided to an
investment fund that are not directly connected to or in support of services
provided separately to investors, such as brokerage services or investment
advising, are not received by the customer at the location of its investors.
iv) Special
Rules
• Under
IITA Section 304(a)(3)(C-5)(iv), if the state where the services are
received is not readily determinable, the services shall be deemed to be
received at the location of the office of the customer from which the services
were ordered in the regular course of the customer's trade or business,
or, if the ordering office cannot be determined, at the office of the customer
to which the services are billed. If the service is provided to an
individual who provides a residential address as the place from which the
services are ordered or to which the services are billed, rather than an office
address, the residential address shall be used. For purposes of this provision,
the state where services are received is not readily determinable if the facts
necessary to make the determination are not contained in the books and records
of the taxpayer or any person related to the taxpayer within the meaning of IRC
section 267(b) or if the available facts would allow reasonable persons to
reach different determinations of the state in which the services were
received.
• Under
IITA Section 304(a)(3)(C-5)(iv), if the services are provided to a
corporation, partnership, or trust and the services are received in a state in
which the corporation, partnership, or trust does not maintain a fixed place of
business (as defined in Section 100.3405(b)(1)), the services shall be
deemed to be received at the location of the office of the customer from which
the services were ordered in the regular course of the customer's trade or business,
or, if the ordering office cannot be determined, at the office of the customer
to which the services are billed. For purposes of this provision, in the
case of services performed by the taxpayer as a subcontractor or as an agent
acting on behalf of a principal, if either the contractor or principal has a
fixed place of business in the state in which the services are received or the
customer of the contractor or principal either is an individual or has a fixed
place of business in the state in which the services are received, the service shall
be treated as received in a state in which the customer of the taxpayer has a
fixed place of business.
• Under
IITA Section 304(a)(3)(C-5)(iv), if the taxpayer is not taxable in the state
in which the services are received or deemed to be received, the gross receipts
attributed to those services must be excluded from both the numerator and
denominator of the sales factor. (See Section 100.3200 for guidance on
determining when a taxpayer is taxable in another state.)
(Source: Amended at 47 Ill.
Reg. 13669, effective September 11, 2023)
ADMINISTRATIVE CODE TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.3371 SALES FACTOR FOR TELECOMMUNICATIONS SERVICES
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