SB3422 98TH GENERAL ASSEMBLY

LRB098 19706 HLH 54917 b

98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
SB3422

Introduced 2/14/2014, by Sen. John M. Sullivan

SYNOPSIS AS INTRODUCED:

35 ILCS 5/305	from Ch. 120, par. 3-305
35 ILCS 5/307	from Ch. 120, par. 3-307
35 ILCS 5/308	from Ch. 120, par. 3-308

Amends the Illinois Income Tax Act. Contains provisions concerning the apportionment to nonresidents of gains or losses on partnerships, trusts, or stock in Subchapter S corporations upon the sale, exchange, abandonment, liquidation, or other disposition of the interest in the partnership, trust, or stock.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

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

Section 5. The Illinois Income Tax Act is amended by changing Sections 305, 307, and 308 as follows:

(35 ILCS 5/305) (from Ch. 120, par. 3-305)

Sec. 305. Allocation of Partnership Income by partnerships and partners other than residents.

(a) Allocation of partnership business income by partners other than residents. The respective shares of partners other than residents in so much of the business income of the partnership as is allocated or apportioned to this State in the possession of the partnership shall be taken into account by such partners pro rata in accordance with their respective distributive shares of such partnership income for the partnership's taxable year and allocated to this State.

(b) Allocation of partnership nonbusiness income by partners other than residents. The respective shares of partners other than residents in the items of partnership income and deduction not taken into account in computing the business income of a partnership shall be taken into account by such partners pro rata in accordance with their respective distributive shares of such partnership income for the partnership's taxable year, and allocated as if such items had been paid, incurred or accrued directly to such partners in their separate capacities.

(c) Allocation or apportionment of base income by partnership. Base income of a partnership shall be allocated or apportioned to this State pursuant to Article 3, in the same manner as it is allocated or apportioned for any other nonresident.

(c-5) Taxable income of an investment partnership, as defined in Section 1501(a)(11.5) of this Act, that is distributable to a nonresident partner shall be treated as nonbusiness income and shall be allocated to the partner's state of residence (in the case of an individual) or commercial domicile (in the case of any other person). However, any income distributable to a nonresident partner shall be treated as business income and apportioned as if such income had been received directly by the partner if the partner has made an election under Section 1501(a)(1) of this Act to treat all income as business income or if such income is from investment activity:

(1) that is directly or integrally related to any other business activity conducted in this State by the nonresident partner (or any member of that partner's unitary business group);

(2) that serves an operational function to any other business activity of the nonresident partner (or any member of that partner's unitary business group) in this State; or

(3) where assets of the investment partnership were acquired with working capital from a trade or business activity conducted in this State in which the nonresident partner (or any member of that partner's unitary business group) owns an interest.

(c-10) Gain or loss on partnership interest. The amount of gain or loss realized by a nonresident partner upon the sale, exchange, abandonment, liquidation, or other disposition of an interest in a partnership (other than an investment partnership) included in net income of that partner shall be the total gain or loss multiplied by the apportionment factor of the partnership determined under Section 304 of this Act for the taxable year of the partnership in which the sale, exchange, abandonment, liquidation or other disposition occurs.

(d) Cross reference. For allocation of partnership income or deductions by residents, see Section 301(a).

(Source: P.A. 93-840, eff. 7-30-04.)

(35 ILCS 5/307) (from Ch. 120, par. 3-307)

Sec. 307. Allocation of income by estate or trust beneficiaries other than residents. (a) Allocation of business income by beneficiaries other than residents. To the extent the business income of an estate or trust allocated or apportioned to this State in the possession of the estate or trust is deemed to have been paid, credited or distributed by the estate or trust under Section 306, the respective shares of beneficiaries of the estate or trust, other than residents, in such business income shall be taken into account by such beneficiaries in proportion to their respective shares of the distributable net income of the estate or trust for its taxable year and allocated to this State.

(b) Allocation of nonbusiness income by beneficiaries other than residents. To the extent items of estate or trust income and deduction not taken into account in computing the business income of an estate or trust are deemed to have been paid, credited or distributed by the estate or trust under Section 306, the respective shares of beneficiaries of the estate or trust, other than residents, in such items shall be taken into account by such beneficiaries in proportion to their respective shares of the distributable net income of the estate or trust for its taxable year, and allocated as if such items had been paid, incurred or accrued directly to such beneficiaries in their separate capacities.

(c) Accumulation and capital gain distributions. In the event that, in any taxable year of a trust, the trust makes an accumulation distribution or a capital gain distribution (both as defined in Section 665 of the Internal Revenue Code), the total of the amounts which are included in the income of each beneficiary of such trust, other than a resident, under Sections 668 and 669 of the Internal Revenue Code shall be allocated to this State to the extent that the items of income included in such distribution were allocated or apportioned to this State in the hands of the trust.

(c-5) Gain or loss on interest in trust. The amount of gain or loss realized by a nonresident beneficiary upon the sale, exchange, abandonment, liquidation or other disposition of an interest in a trust included in net income of that beneficiary shall be the total gain or loss multiplied by the apportionment factor of the trust determined under Section 304 of this Act for the taxable year of the trust in which the sale, exchange, abandonment, liquidation or other disposition occurs.

(d) Cross references. (1) For allocation of amounts received by nonresidents from certain employee trusts, see Section 301 (b) (2).

(2) For allocation of estate or trust income or deductions by residents, see Section 301 (a).

(Source: P.A. 84-550.)

(35 ILCS 5/308) (from Ch. 120, par. 3-308)

Sec. 308. Allocation of Subchapter S Corporation Income by Subchapter S Corporations and Shareholders Other Than Residents. (a) Allocation of Subchapter S corporation business income by shareholders other than residents. The respective shares of shareholders other than residents in so much of the business income of the Subchapter S corporation as is allocated or apportioned to this State in the hands of the Subchapter S corporation shall be taken into account by such shareholder pro rata in accordance with the requirements of Section 1366 of the Internal Revenue Code for the Subchapter S corporation's taxable year and allocated to this State.

(b) Allocation of Subchapter S corporation nonbusiness income by shareholders other than residents. The respective share of shareholders other than residents in the items of Subchapter S corporation income and deduction not taken into account in computing the business income of the Subchapter S corporation shall be taken into account by such shareholders pro rata in accordance with the requirements of Section 1366 of the Internal Revenue Code for the corporation's taxable year, and allocated as if such items had been paid, incurred or accrued directly to such shareholders in their separate capacities.

(c) Allocation or apportionment of base income by the Subchapter S corporation. Base income of a Subchapter S corporation shall be allocated or apportioned to this State pursuant to this Article 3 in the same manner as it is allocated or apportioned for any other nonresident.

(c-5) Gain or loss on stock in a Subchapter S corporation. The amount of gain or loss realized by a nonresident shareholder upon the sale, exchange, abandonment, liquidation or other disposition of stock in a Subchapter S corporation included in net income of that shareholder shall be the total gain or loss multiplied by the apportionment factor of the Subchapter S corporation determined under Section 304 of this Act for the taxable year of the Subchapter S corporation in which the sale, exchange, abandonment, liquidation or other disposition occurs.

(d) This Section shall not apply to any corporation for which there is in effect a federal election to opt out of the provisions of the Subchapter S Revision Act of 1982 and have applied instead the prior federal Subchapter S rules as in effect on July 1, 1982.

(Source: P.A. 83-1352.)