94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
SB1653

 

Introduced 2/24/2005, by Sen. Dave Sullivan

 

SYNOPSIS AS INTRODUCED:
 
15 ILCS 505/16.5
35 ILCS 5/203   from Ch. 120, par. 2-203

    Amends the State Treasurer Act. Removes the requirement that the State Treasurer adjust each account at least annually to ensure compliance with the requirements of the College Savings Pool. Provides that the Treasurer shall limit the contributions that may be made on behalf of a designated College Savings Pool beneficiary based on the limitations established by the Internal Revenue Service (now, based on an actuarial estimate of what is required to pay tuition, fees, and room and board for 5 undergraduate years at the highest cost eligible educational institution). Amends the Illinois Income Tax Act. Provides that for taxable years beginning on or after January 1, 2006, distributions from certain qualified tuition programs under the Internal Revenue Code that are administered by other states are exempt from the requirement that a distribution from an Internal Revenue Code qualified tuition program be included when determining adjusted gross income for purposes of determining base income. Makes other changes. Effective immediately.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1     AN ACT concerning college savings.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The State Treasurer Act is amended by changing
5 Section 16.5 as follows:
 
6     (15 ILCS 505/16.5)
7     Sec. 16.5. College Savings Pool. The State Treasurer may
8 establish and administer a College Savings Pool to supplement
9 and enhance the investment opportunities otherwise available
10 to persons seeking to finance the costs of higher education.
11 The State Treasurer, in administering the College Savings Pool,
12 may receive moneys paid into the pool by a participant and may
13 serve as the fiscal agent of that participant for the purpose
14 of holding and investing those moneys.
15     "Participant", as used in this Section, means any person
16 who makes investments in the pool. "Designated beneficiary", as
17 used in this Section, means any person on whose behalf an
18 account is established in the College Savings Pool by a
19 participant. Both in-state and out-of-state persons may be
20 participants and designated beneficiaries in the College
21 Savings Pool.
22     New accounts in the College Savings Pool may shall be
23 processed through participating financial institutions.
24 "Participating financial institution", as used in this
25 Section, means any financial institution insured by the Federal
26 Deposit Insurance Corporation and lawfully doing business in
27 the State of Illinois and any credit union approved by the
28 State Treasurer and lawfully doing business in the State of
29 Illinois that agrees to process new accounts in the College
30 Savings Pool. Participating financial institutions may charge
31 a processing fee to participants to open an account in the pool
32 that shall not exceed $30 until the year 2001. Beginning in

 

 

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1 2001 and every year thereafter, the maximum fee limit shall be
2 adjusted by the Treasurer based on the Consumer Price Index for
3 the North Central Region as published by the United States
4 Department of Labor, Bureau of Labor Statistics for the
5 immediately preceding calendar year. Every contribution
6 received by a financial institution for investment in the
7 College Savings Pool shall be transferred from the financial
8 institution to a location selected by the State Treasurer
9 within one business day following the day that the funds must
10 be made available in accordance with federal law. All
11 communications from the State Treasurer to participants shall
12 reference the participating financial institution at which the
13 account was processed.
14     The Treasurer may invest the moneys in the College Savings
15 Pool in the same manner, in the same types of investments, and
16 subject to the same limitations provided for the investment of
17 moneys by the Illinois State Board of Investment. To enhance
18 the safety and liquidity of the College Savings Pool, to ensure
19 the diversification of the investment portfolio of the pool,
20 and in an effort to keep investment dollars in the State of
21 Illinois, the State Treasurer may shall make a percentage of
22 each account available for investment in participating
23 financial institutions doing business in the State. The State
24 Treasurer may shall deposit with the participating financial
25 institution at which the account was processed the following
26 percentage of each account at a prevailing rate offered by the
27 institution, provided that the deposit is federally insured or
28 fully collateralized and the institution accepts the deposit:
29 10% of the total amount of each account for which the current
30 age of the beneficiary is less than 7 years of age, 20% of the
31 total amount of each account for which the beneficiary is at
32 least 7 years of age and less than 12 years of age, and 50% of
33 the total amount of each account for which the current age of
34 the beneficiary is at least 12 years of age. The State
35 Treasurer shall adjust each account at least annually to ensure
36 compliance with this Section. The Treasurer shall develop,

 

 

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1 publish, and implement an investment policy covering the
2 investment of the moneys in the College Savings Pool. The
3 policy shall be published (i) at least once each year in at
4 least one newspaper of general circulation in both Springfield
5 and Chicago and (ii) each year as part of the audit of the
6 College Savings Pool by the Auditor General, which shall be
7 distributed to all participants. The Treasurer shall notify all
8 participants in writing, and the Treasurer shall publish in a
9 newspaper of general circulation in both Chicago and
10 Springfield, any changes to the previously published
11 investment policy at least 30 calendar days before implementing
12 the policy. Any investment policy adopted by the Treasurer
13 shall be reviewed and updated if necessary within 90 days
14 following the date that the State Treasurer takes office.
15     Participants shall be required to use moneys distributed
16 from the College Savings Pool for qualified expenses at
17 eligible educational institutions. "Qualified expenses", as
18 used in this Section, means the following: (i) tuition, fees,
19 and the costs of books, supplies, and equipment required for
20 enrollment or attendance at an eligible educational
21 institution and (ii) certain room and board expenses incurred
22 while attending an eligible educational institution at least
23 half-time. "Eligible educational institutions", as used in
24 this Section, means public and private colleges, junior
25 colleges, graduate schools, and certain vocational
26 institutions that are described in Section 481 of the Higher
27 Education Act of 1965 (20 U.S.C. 1088) and that are eligible to
28 participate in Department of Education student aid programs. A
29 student shall be considered to be enrolled at least half-time
30 if the student is enrolled for at least half the full-time
31 academic work load for the course of study the student is
32 pursuing as determined under the standards of the institution
33 at which the student is enrolled. Distributions made from the
34 pool for qualified expenses shall be made directly to the
35 eligible educational institution, directly to a vendor, or in
36 the form of a check payable to both the beneficiary and the

 

 

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1 institution or vendor. Any moneys that are distributed in any
2 other manner or that are used for expenses other than qualified
3 expenses at an eligible educational institution shall be
4 subject to a penalty of 10% of the earnings unless the
5 beneficiary dies, becomes disabled, or receives a scholarship
6 that equals or exceeds the distribution. Penalties shall be
7 withheld at the time the distribution is made.
8     The Treasurer shall limit the contributions that may be
9 made on behalf of a designated beneficiary based on the
10 limitations established by the Internal Revenue Service. an
11 actuarial estimate of what is required to pay tuition, fees,
12 and room and board for 5 undergraduate years at the highest
13 cost eligible educational institution. The contributions made
14 on behalf of a beneficiary who is also a beneficiary under the
15 Illinois Prepaid Tuition Program shall be further restricted to
16 ensure that the contributions in both programs combined do not
17 exceed the limit established for the College Savings Pool. The
18 Treasurer shall provide the Illinois Student Assistance
19 Commission each year at a time designated by the Commission, an
20 electronic report of all participant accounts in the
21 Treasurer's College Savings Pool, listing total contributions
22 and disbursements from each individual account during the
23 previous calendar year. As soon thereafter as is possible
24 following receipt of the Treasurer's report, the Illinois
25 Student Assistance Commission shall, in turn, provide the
26 Treasurer with an electronic report listing those College
27 Savings Pool participants who also participate in the State's
28 prepaid tuition program, administered by the Commission. The
29 Commission shall be responsible for filing any combined tax
30 reports regarding State qualified savings programs required by
31 the United States Internal Revenue Service. The Treasurer shall
32 work with the Illinois Student Assistance Commission to
33 coordinate the marketing of the College Savings Pool and the
34 Illinois Prepaid Tuition Program when considered beneficial by
35 the Treasurer and the Director of the Illinois Student
36 Assistance Commission. The Treasurer's office shall not

 

 

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1 publicize or otherwise market the College Savings Pool or
2 accept any moneys into the College Savings Pool prior to March
3 1, 2000. The Treasurer shall provide a separate accounting for
4 each designated beneficiary to each participant, the Illinois
5 Student Assistance Commission, and the participating financial
6 institution at which the account was processed. No interest in
7 the program may be pledged as security for a loan.
8     The assets of the College Savings Pool and its income and
9 operation shall be exempt from all taxation by the State of
10 Illinois and any of its subdivisions. The accrued earnings on
11 investments in the Pool once disbursed on behalf of a
12 designated beneficiary shall be similarly exempt from all
13 taxation by the State of Illinois and its subdivisions, so long
14 as they are used for qualified expenses. Contributions to a
15 College Savings Pool account during the taxable year may be
16 deducted from adjusted gross income as provided in Section 203
17 of the Illinois Income Tax Act. The provisions of this
18 paragraph are exempt from Section 250 of the Illinois Income
19 Tax Act.
20     The Treasurer shall adopt rules he or she considers
21 necessary for the efficient administration of the College
22 Savings Pool. The rules shall provide whatever additional
23 parameters and restrictions are necessary to ensure that the
24 College Savings Pool meets all of the requirements for a
25 qualified state tuition program under Section 529 of the
26 Internal Revenue Code (26 U.S.C. 529). The rules shall provide
27 for the administration expenses of the pool to be paid from its
28 earnings and for the investment earnings in excess of the
29 expenses and all moneys collected as penalties to be credited
30 or paid monthly to the several participants in the pool in a
31 manner which equitably reflects the differing amounts of their
32 respective investments in the pool and the differing periods of
33 time for which those amounts were in the custody of the pool.
34 Also, the rules shall require the maintenance of records that
35 enable the Treasurer's office to produce a report for each
36 account in the pool at least annually that documents the

 

 

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1 account balance and investment earnings. Notice of any proposed
2 amendments to the rules and regulations shall be provided to
3 all participants prior to adoption. Amendments to rules and
4 regulations shall apply only to contributions made after the
5 adoption of the amendment.
6     Upon creating the College Savings Pool, the State Treasurer
7 shall give bond with 2 or more sufficient sureties, payable to
8 and for the benefit of the participants in the College Savings
9 Pool, in the penal sum of $1,000,000, conditioned upon the
10 faithful discharge of his or her duties in relation to the
11 College Savings Pool.
12 (Source: P.A. 92-16, eff. 6-28-01; 92-439, eff. 8-17-01;
13 92-626, eff. 7-11-02; 93-812, eff. 1-1-05.)
 
14     Section 10. The Illinois Income Tax Act is amended by
15 changing Section 203 as follows:
 
16     (35 ILCS 5/203)  (from Ch. 120, par. 2-203)
17     Sec. 203. Base income defined.
18     (a) Individuals.
19         (1) In general. In the case of an individual, base
20     income means an amount equal to the taxpayer's adjusted
21     gross income for the taxable year as modified by paragraph
22     (2).
23         (2) Modifications. The adjusted gross income referred
24     to in paragraph (1) shall be modified by adding thereto the
25     sum of the following amounts:
26             (A) An amount equal to all amounts paid or accrued
27         to the taxpayer as interest or dividends during the
28         taxable year to the extent excluded from gross income
29         in the computation of adjusted gross income, except
30         stock dividends of qualified public utilities
31         described in Section 305(e) of the Internal Revenue
32         Code;
33             (B) An amount equal to the amount of tax imposed by
34         this Act to the extent deducted from gross income in

 

 

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1         the computation of adjusted gross income for the
2         taxable year;
3             (C) An amount equal to the amount received during
4         the taxable year as a recovery or refund of real
5         property taxes paid with respect to the taxpayer's
6         principal residence under the Revenue Act of 1939 and
7         for which a deduction was previously taken under
8         subparagraph (L) of this paragraph (2) prior to July 1,
9         1991, the retrospective application date of Article 4
10         of Public Act 87-17. In the case of multi-unit or
11         multi-use structures and farm dwellings, the taxes on
12         the taxpayer's principal residence shall be that
13         portion of the total taxes for the entire property
14         which is attributable to such principal residence;
15             (D) An amount equal to the amount of the capital
16         gain deduction allowable under the Internal Revenue
17         Code, to the extent deducted from gross income in the
18         computation of adjusted gross income;
19             (D-5) An amount, to the extent not included in
20         adjusted gross income, equal to the amount of money
21         withdrawn by the taxpayer in the taxable year from a
22         medical care savings account and the interest earned on
23         the account in the taxable year of a withdrawal
24         pursuant to subsection (b) of Section 20 of the Medical
25         Care Savings Account Act or subsection (b) of Section
26         20 of the Medical Care Savings Account Act of 2000;
27             (D-10) For taxable years ending after December 31,
28         1997, an amount equal to any eligible remediation costs
29         that the individual deducted in computing adjusted
30         gross income and for which the individual claims a
31         credit under subsection (l) of Section 201;
32             (D-15) For taxable years 2001 and thereafter, an
33         amount equal to the bonus depreciation deduction (30%
34         of the adjusted basis of the qualified property) taken
35         on the taxpayer's federal income tax return for the
36         taxable year under subsection (k) of Section 168 of the

 

 

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1         Internal Revenue Code;
2             (D-16) If the taxpayer reports a capital gain or
3         loss on the taxpayer's federal income tax return for
4         the taxable year based on a sale or transfer of
5         property for which the taxpayer was required in any
6         taxable year to make an addition modification under
7         subparagraph (D-15), then an amount equal to the
8         aggregate amount of the deductions taken in all taxable
9         years under subparagraph (Z) with respect to that
10         property.
11             The taxpayer is required to make the addition
12         modification under this subparagraph only once with
13         respect to any one piece of property;
14             (D-17) For taxable years ending on or after
15         December 31, 2004, an amount equal to the amount
16         otherwise allowed as a deduction in computing base
17         income for interest paid, accrued, or incurred,
18         directly or indirectly, to a foreign person who would
19         be a member of the same unitary business group but for
20         the fact that foreign person's business activity
21         outside the United States is 80% or more of the foreign
22         person's total business activity. The addition
23         modification required by this subparagraph shall be
24         reduced to the extent that dividends were included in
25         base income of the unitary group for the same taxable
26         year and received by the taxpayer or by a member of the
27         taxpayer's unitary business group (including amounts
28         included in gross income under Sections 951 through 964
29         of the Internal Revenue Code and amounts included in
30         gross income under Section 78 of the Internal Revenue
31         Code) with respect to the stock of the same person to
32         whom the interest was paid, accrued, or incurred.
33             This paragraph shall not apply to the following:
34                 (i) an item of interest paid, accrued, or
35             incurred, directly or indirectly, to a foreign
36             person who is subject in a foreign country or

 

 

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1             state, other than a state which requires mandatory
2             unitary reporting, to a tax on or measured by net
3             income with respect to such interest; or
4                 (ii) an item of interest paid, accrued, or
5             incurred, directly or indirectly, to a foreign
6             person if the taxpayer can establish, based on a
7             preponderance of the evidence, both of the
8             following:
9                     (a) the foreign person, during the same
10                 taxable year, paid, accrued, or incurred, the
11                 interest to a person that is not a related
12                 member, and
13                     (b) the transaction giving rise to the
14                 interest expense between the taxpayer and the
15                 foreign person did not have as a principal
16                 purpose the avoidance of Illinois income tax,
17                 and is paid pursuant to a contract or agreement
18                 that reflects an arm's-length interest rate
19                 and terms; or
20                 (iii) the taxpayer can establish, based on
21             clear and convincing evidence, that the interest
22             paid, accrued, or incurred relates to a contract or
23             agreement entered into at arm's-length rates and
24             terms and the principal purpose for the payment is
25             not federal or Illinois tax avoidance; or
26                 (iv) an item of interest paid, accrued, or
27             incurred, directly or indirectly, to a foreign
28             person if the taxpayer establishes by clear and
29             convincing evidence that the adjustments are
30             unreasonable; or if the taxpayer and the Director
31             agree in writing to the application or use of an
32             alternative method of apportionment under Section
33             304(f).
34                 Nothing in this subsection shall preclude the
35             Director from making any other adjustment
36             otherwise allowed under Section 404 of this Act for

 

 

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1             any tax year beginning after the effective date of
2             this amendment provided such adjustment is made
3             pursuant to regulation adopted by the Department
4             and such regulations provide methods and standards
5             by which the Department will utilize its authority
6             under Section 404 of this Act;
7             (D-18) For taxable years ending on or after
8         December 31, 2004, an amount equal to the amount of
9         intangible expenses and costs otherwise allowed as a
10         deduction in computing base income, and that were paid,
11         accrued, or incurred, directly or indirectly, to a
12         foreign person who would be a member of the same
13         unitary business group but for the fact that the
14         foreign person's business activity outside the United
15         States is 80% or more of that person's total business
16         activity. The addition modification required by this
17         subparagraph shall be reduced to the extent that
18         dividends were included in base income of the unitary
19         group for the same taxable year and received by the
20         taxpayer or by a member of the taxpayer's unitary
21         business group (including amounts included in gross
22         income under Sections 951 through 964 of the Internal
23         Revenue Code and amounts included in gross income under
24         Section 78 of the Internal Revenue Code) with respect
25         to the stock of the same person to whom the intangible
26         expenses and costs were directly or indirectly paid,
27         incurred, or accrued. The preceding sentence does not
28         apply to the extent that the same dividends caused a
29         reduction to the addition modification required under
30         Section 203(a)(2)(D-17) of this Act. As used in this
31         subparagraph, the term "intangible expenses and costs"
32         includes (1) expenses, losses, and costs for, or
33         related to, the direct or indirect acquisition, use,
34         maintenance or management, ownership, sale, exchange,
35         or any other disposition of intangible property; (2)
36         losses incurred, directly or indirectly, from

 

 

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1         factoring transactions or discounting transactions;
2         (3) royalty, patent, technical, and copyright fees;
3         (4) licensing fees; and (5) other similar expenses and
4         costs. For purposes of this subparagraph, "intangible
5         property" includes patents, patent applications, trade
6         names, trademarks, service marks, copyrights, mask
7         works, trade secrets, and similar types of intangible
8         assets.
9             This paragraph shall not apply to the following:
10                 (i) any item of intangible expenses or costs
11             paid, accrued, or incurred, directly or
12             indirectly, from a transaction with a foreign
13             person who is subject in a foreign country or
14             state, other than a state which requires mandatory
15             unitary reporting, to a tax on or measured by net
16             income with respect to such item; or
17                 (ii) any item of intangible expense or cost
18             paid, accrued, or incurred, directly or
19             indirectly, if the taxpayer can establish, based
20             on a preponderance of the evidence, both of the
21             following:
22                     (a) the foreign person during the same
23                 taxable year paid, accrued, or incurred, the
24                 intangible expense or cost to a person that is
25                 not a related member, and
26                     (b) the transaction giving rise to the
27                 intangible expense or cost between the
28                 taxpayer and the foreign person did not have as
29                 a principal purpose the avoidance of Illinois
30                 income tax, and is paid pursuant to a contract
31                 or agreement that reflects arm's-length terms;
32                 or
33                 (iii) any item of intangible expense or cost
34             paid, accrued, or incurred, directly or
35             indirectly, from a transaction with a foreign
36             person if the taxpayer establishes by clear and

 

 

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1             convincing evidence, that the adjustments are
2             unreasonable; or if the taxpayer and the Director
3             agree in writing to the application or use of an
4             alternative method of apportionment under Section
5             304(f);
6                 Nothing in this subsection shall preclude the
7             Director from making any other adjustment
8             otherwise allowed under Section 404 of this Act for
9             any tax year beginning after the effective date of
10             this amendment provided such adjustment is made
11             pursuant to regulation adopted by the Department
12             and such regulations provide methods and standards
13             by which the Department will utilize its authority
14             under Section 404 of this Act;
15             (D-20) For taxable years beginning on or after
16         January 1, 2002 and ending on or before December 31,
17         2005, in the case of a distribution from a qualified
18         tuition program under Section 529 of the Internal
19         Revenue Code, other than (i) a distribution from a
20         College Savings Pool created under Section 16.5 of the
21         State Treasurer Act or (ii) a distribution from the
22         Illinois Prepaid Tuition Trust Fund, an amount equal to
23         the amount excluded from gross income under Section
24         529(c)(3)(B). For taxable years beginning on or after
25         January 1, 2006, in the case of a distribution from a
26         qualified tuition program under Section 529 of the
27         Internal Revenue Code, other than (i) a distribution
28         from a College Savings Pool created under Section 16.5
29         of the State Treasurer Act, (ii) a distribution from
30         the Illinois Prepaid Tuition Trust Fund, or (iii) a
31         distribution from a qualified tuition program under
32         Section 529 of the Internal Revenue Code that is
33         administered by a state that (I) does not permit a
34         sales load exceeding the greater of 3.5% or the
35         greatest sales load permitted by a qualified tuition
36         program administered by the State and (II) has

 

 

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1         disclosure practices that are no less extensive than
2         those established by the State for the Illinois College
3         Savings Pool, an amount equal to the amount excluded
4         from gross income under Section 529(c)(3)(B);
5     and by deducting from the total so obtained the sum of the
6     following amounts:
7             (E) For taxable years ending before December 31,
8         2001, any amount included in such total in respect of
9         any compensation (including but not limited to any
10         compensation paid or accrued to a serviceman while a
11         prisoner of war or missing in action) paid to a
12         resident by reason of being on active duty in the Armed
13         Forces of the United States and in respect of any
14         compensation paid or accrued to a resident who as a
15         governmental employee was a prisoner of war or missing
16         in action, and in respect of any compensation paid to a
17         resident in 1971 or thereafter for annual training
18         performed pursuant to Sections 502 and 503, Title 32,
19         United States Code as a member of the Illinois National
20         Guard. For taxable years ending on or after December
21         31, 2001, any amount included in such total in respect
22         of any compensation (including but not limited to any
23         compensation paid or accrued to a serviceman while a
24         prisoner of war or missing in action) paid to a
25         resident by reason of being a member of any component
26         of the Armed Forces of the United States and in respect
27         of any compensation paid or accrued to a resident who
28         as a governmental employee was a prisoner of war or
29         missing in action, and in respect of any compensation
30         paid to a resident in 2001 or thereafter by reason of
31         being a member of the Illinois National Guard. The
32         provisions of this amendatory Act of the 92nd General
33         Assembly are exempt from the provisions of Section 250;
34             (F) An amount equal to all amounts included in such
35         total pursuant to the provisions of Sections 402(a),
36         402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the

 

 

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1         Internal Revenue Code, or included in such total as
2         distributions under the provisions of any retirement
3         or disability plan for employees of any governmental
4         agency or unit, or retirement payments to retired
5         partners, which payments are excluded in computing net
6         earnings from self employment by Section 1402 of the
7         Internal Revenue Code and regulations adopted pursuant
8         thereto;
9             (G) The valuation limitation amount;
10             (H) An amount equal to the amount of any tax
11         imposed by this Act which was refunded to the taxpayer
12         and included in such total for the taxable year;
13             (I) An amount equal to all amounts included in such
14         total pursuant to the provisions of Section 111 of the
15         Internal Revenue Code as a recovery of items previously
16         deducted from adjusted gross income in the computation
17         of taxable income;
18             (J) An amount equal to those dividends included in
19         such total which were paid by a corporation which
20         conducts business operations in an Enterprise Zone or
21         zones created under the Illinois Enterprise Zone Act,
22         and conducts substantially all of its operations in an
23         Enterprise Zone or zones;
24             (K) An amount equal to those dividends included in
25         such total that were paid by a corporation that
26         conducts business operations in a federally designated
27         Foreign Trade Zone or Sub-Zone and that is designated a
28         High Impact Business located in Illinois; provided
29         that dividends eligible for the deduction provided in
30         subparagraph (J) of paragraph (2) of this subsection
31         shall not be eligible for the deduction provided under
32         this subparagraph (K);
33             (L) For taxable years ending after December 31,
34         1983, an amount equal to all social security benefits
35         and railroad retirement benefits included in such
36         total pursuant to Sections 72(r) and 86 of the Internal

 

 

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1         Revenue Code;
2             (M) With the exception of any amounts subtracted
3         under subparagraph (N), an amount equal to the sum of
4         all amounts disallowed as deductions by (i) Sections
5         171(a) (2), and 265(2) of the Internal Revenue Code of
6         1954, as now or hereafter amended, and all amounts of
7         expenses allocable to interest and disallowed as
8         deductions by Section 265(1) of the Internal Revenue
9         Code of 1954, as now or hereafter amended; and (ii) for
10         taxable years ending on or after August 13, 1999,
11         Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of
12         the Internal Revenue Code; the provisions of this
13         subparagraph are exempt from the provisions of Section
14         250;
15             (N) An amount equal to all amounts included in such
16         total which are exempt from taxation by this State
17         either by reason of its statutes or Constitution or by
18         reason of the Constitution, treaties or statutes of the
19         United States; provided that, in the case of any
20         statute of this State that exempts income derived from
21         bonds or other obligations from the tax imposed under
22         this Act, the amount exempted shall be the interest net
23         of bond premium amortization;
24             (O) An amount equal to any contribution made to a
25         job training project established pursuant to the Tax
26         Increment Allocation Redevelopment Act;
27             (P) An amount equal to the amount of the deduction
28         used to compute the federal income tax credit for
29         restoration of substantial amounts held under claim of
30         right for the taxable year pursuant to Section 1341 of
31         the Internal Revenue Code of 1986;
32             (Q) An amount equal to any amounts included in such
33         total, received by the taxpayer as an acceleration in
34         the payment of life, endowment or annuity benefits in
35         advance of the time they would otherwise be payable as
36         an indemnity for a terminal illness;

 

 

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1             (R) An amount equal to the amount of any federal or
2         State bonus paid to veterans of the Persian Gulf War;
3             (S) An amount, to the extent included in adjusted
4         gross income, equal to the amount of a contribution
5         made in the taxable year on behalf of the taxpayer to a
6         medical care savings account established under the
7         Medical Care Savings Account Act or the Medical Care
8         Savings Account Act of 2000 to the extent the
9         contribution is accepted by the account administrator
10         as provided in that Act;
11             (T) An amount, to the extent included in adjusted
12         gross income, equal to the amount of interest earned in
13         the taxable year on a medical care savings account
14         established under the Medical Care Savings Account Act
15         or the Medical Care Savings Account Act of 2000 on
16         behalf of the taxpayer, other than interest added
17         pursuant to item (D-5) of this paragraph (2);
18             (U) For one taxable year beginning on or after
19         January 1, 1994, an amount equal to the total amount of
20         tax imposed and paid under subsections (a) and (b) of
21         Section 201 of this Act on grant amounts received by
22         the taxpayer under the Nursing Home Grant Assistance
23         Act during the taxpayer's taxable years 1992 and 1993;
24             (V) Beginning with tax years ending on or after
25         December 31, 1995 and ending with tax years ending on
26         or before December 31, 2004, an amount equal to the
27         amount paid by a taxpayer who is a self-employed
28         taxpayer, a partner of a partnership, or a shareholder
29         in a Subchapter S corporation for health insurance or
30         long-term care insurance for that taxpayer or that
31         taxpayer's spouse or dependents, to the extent that the
32         amount paid for that health insurance or long-term care
33         insurance may be deducted under Section 213 of the
34         Internal Revenue Code of 1986, has not been deducted on
35         the federal income tax return of the taxpayer, and does
36         not exceed the taxable income attributable to that

 

 

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1         taxpayer's income, self-employment income, or
2         Subchapter S corporation income; except that no
3         deduction shall be allowed under this item (V) if the
4         taxpayer is eligible to participate in any health
5         insurance or long-term care insurance plan of an
6         employer of the taxpayer or the taxpayer's spouse. The
7         amount of the health insurance and long-term care
8         insurance subtracted under this item (V) shall be
9         determined by multiplying total health insurance and
10         long-term care insurance premiums paid by the taxpayer
11         times a number that represents the fractional
12         percentage of eligible medical expenses under Section
13         213 of the Internal Revenue Code of 1986 not actually
14         deducted on the taxpayer's federal income tax return;
15             (W) For taxable years beginning on or after January
16         1, 1998, all amounts included in the taxpayer's federal
17         gross income in the taxable year from amounts converted
18         from a regular IRA to a Roth IRA. This paragraph is
19         exempt from the provisions of Section 250;
20             (X) For taxable year 1999 and thereafter, an amount
21         equal to the amount of any (i) distributions, to the
22         extent includible in gross income for federal income
23         tax purposes, made to the taxpayer because of his or
24         her status as a victim of persecution for racial or
25         religious reasons by Nazi Germany or any other Axis
26         regime or as an heir of the victim and (ii) items of
27         income, to the extent includible in gross income for
28         federal income tax purposes, attributable to, derived
29         from or in any way related to assets stolen from,
30         hidden from, or otherwise lost to a victim of
31         persecution for racial or religious reasons by Nazi
32         Germany or any other Axis regime immediately prior to,
33         during, and immediately after World War II, including,
34         but not limited to, interest on the proceeds receivable
35         as insurance under policies issued to a victim of
36         persecution for racial or religious reasons by Nazi

 

 

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1         Germany or any other Axis regime by European insurance
2         companies immediately prior to and during World War II;
3         provided, however, this subtraction from federal
4         adjusted gross income does not apply to assets acquired
5         with such assets or with the proceeds from the sale of
6         such assets; provided, further, this paragraph shall
7         only apply to a taxpayer who was the first recipient of
8         such assets after their recovery and who is a victim of
9         persecution for racial or religious reasons by Nazi
10         Germany or any other Axis regime or as an heir of the
11         victim. The amount of and the eligibility for any
12         public assistance, benefit, or similar entitlement is
13         not affected by the inclusion of items (i) and (ii) of
14         this paragraph in gross income for federal income tax
15         purposes. This paragraph is exempt from the provisions
16         of Section 250;
17             (Y) For taxable years beginning on or after January
18         1, 2002 and ending on or before December 31, 2004,
19         moneys contributed in the taxable year to a College
20         Savings Pool account under Section 16.5 of the State
21         Treasurer Act, except that amounts excluded from gross
22         income under Section 529(c)(3)(C)(i) of the Internal
23         Revenue Code shall not be considered moneys
24         contributed under this subparagraph (Y). For taxable
25         years beginning on or after January 1, 2005, a maximum
26         of $10,000 contributed in the taxable year to (i) a
27         College Savings Pool account under Section 16.5 of the
28         State Treasurer Act or (ii) the Illinois Prepaid
29         Tuition Trust Fund, except that amounts excluded from
30         gross income under Section 529(c)(3)(C)(i) of the
31         Internal Revenue Code shall not be considered moneys
32         contributed under this subparagraph (Y). This
33         subparagraph (Y) is exempt from the provisions of
34         Section 250;
35             (Z) For taxable years 2001 and thereafter, for the
36         taxable year in which the bonus depreciation deduction

 

 

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1         (30% of the adjusted basis of the qualified property)
2         is taken on the taxpayer's federal income tax return
3         under subsection (k) of Section 168 of the Internal
4         Revenue Code and for each applicable taxable year
5         thereafter, an amount equal to "x", where:
6                 (1) "y" equals the amount of the depreciation
7             deduction taken for the taxable year on the
8             taxpayer's federal income tax return on property
9             for which the bonus depreciation deduction (30% of
10             the adjusted basis of the qualified property) was
11             taken in any year under subsection (k) of Section
12             168 of the Internal Revenue Code, but not including
13             the bonus depreciation deduction; and
14                 (2) "x" equals "y" multiplied by 30 and then
15             divided by 70 (or "y" multiplied by 0.429).
16             The aggregate amount deducted under this
17         subparagraph in all taxable years for any one piece of
18         property may not exceed the amount of the bonus
19         depreciation deduction (30% of the adjusted basis of
20         the qualified property) taken on that property on the
21         taxpayer's federal income tax return under subsection
22         (k) of Section 168 of the Internal Revenue Code;
23             (AA) If the taxpayer reports a capital gain or loss
24         on the taxpayer's federal income tax return for the
25         taxable year based on a sale or transfer of property
26         for which the taxpayer was required in any taxable year
27         to make an addition modification under subparagraph
28         (D-15), then an amount equal to that addition
29         modification.
30             The taxpayer is allowed to take the deduction under
31         this subparagraph only once with respect to any one
32         piece of property;
33             (BB) Any amount included in adjusted gross income,
34         other than salary, received by a driver in a
35         ridesharing arrangement using a motor vehicle;
36             (CC) The amount of (i) any interest income (net of

 

 

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1         the deductions allocable thereto) taken into account
2         for the taxable year with respect to a transaction with
3         a taxpayer that is required to make an addition
4         modification with respect to such transaction under
5         Section 203(a)(2)(D-17), 203(b)(2)(E-13),
6         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
7         the amount of that addition modification, and (ii) any
8         income from intangible property (net of the deductions
9         allocable thereto) taken into account for the taxable
10         year with respect to a transaction with a taxpayer that
11         is required to make an addition modification with
12         respect to such transaction under Section
13         203(a)(2)(D-18), 203(b)(2)(E-14), 203(c)(2)(G-13), or
14         203(d)(2)(D-8), but not to exceed the amount of that
15         addition modification;
16             (DD) An amount equal to the interest income taken
17         into account for the taxable year (net of the
18         deductions allocable thereto) with respect to
19         transactions with a foreign person who would be a
20         member of the taxpayer's unitary business group but for
21         the fact that the foreign person's business activity
22         outside the United States is 80% or more of that
23         person's total business activity, but not to exceed the
24         addition modification required to be made for the same
25         taxable year under Section 203(a)(2)(D-17) for
26         interest paid, accrued, or incurred, directly or
27         indirectly, to the same foreign person; and
28             (EE) An amount equal to the income from intangible
29         property taken into account for the taxable year (net
30         of the deductions allocable thereto) with respect to
31         transactions with a foreign person who would be a
32         member of the taxpayer's unitary business group but for
33         the fact that the foreign person's business activity
34         outside the United States is 80% or more of that
35         person's total business activity, but not to exceed the
36         addition modification required to be made for the same

 

 

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1         taxable year under Section 203(a)(2)(D-18) for
2         intangible expenses and costs paid, accrued, or
3         incurred, directly or indirectly, to the same foreign
4         person.
 
5     (b) Corporations.
6         (1) In general. In the case of a corporation, base
7     income means an amount equal to the taxpayer's taxable
8     income for the taxable year as modified by paragraph (2).
9         (2) Modifications. The taxable income referred to in
10     paragraph (1) shall be modified by adding thereto the sum
11     of the following amounts:
12             (A) An amount equal to all amounts paid or accrued
13         to the taxpayer as interest and all distributions
14         received from regulated investment companies during
15         the taxable year to the extent excluded from gross
16         income in the computation of taxable income;
17             (B) An amount equal to the amount of tax imposed by
18         this Act to the extent deducted from gross income in
19         the computation of taxable income for the taxable year;
20             (C) In the case of a regulated investment company,
21         an amount equal to the excess of (i) the net long-term
22         capital gain for the taxable year, over (ii) the amount
23         of the capital gain dividends designated as such in
24         accordance with Section 852(b)(3)(C) of the Internal
25         Revenue Code and any amount designated under Section
26         852(b)(3)(D) of the Internal Revenue Code,
27         attributable to the taxable year (this amendatory Act
28         of 1995 (Public Act 89-89) is declarative of existing
29         law and is not a new enactment);
30             (D) The amount of any net operating loss deduction
31         taken in arriving at taxable income, other than a net
32         operating loss carried forward from a taxable year
33         ending prior to December 31, 1986;
34             (E) For taxable years in which a net operating loss
35         carryback or carryforward from a taxable year ending

 

 

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1         prior to December 31, 1986 is an element of taxable
2         income under paragraph (1) of subsection (e) or
3         subparagraph (E) of paragraph (2) of subsection (e),
4         the amount by which addition modifications other than
5         those provided by this subparagraph (E) exceeded
6         subtraction modifications in such earlier taxable
7         year, with the following limitations applied in the
8         order that they are listed:
9                 (i) the addition modification relating to the
10             net operating loss carried back or forward to the
11             taxable year from any taxable year ending prior to
12             December 31, 1986 shall be reduced by the amount of
13             addition modification under this subparagraph (E)
14             which related to that net operating loss and which
15             was taken into account in calculating the base
16             income of an earlier taxable year, and
17                 (ii) the addition modification relating to the
18             net operating loss carried back or forward to the
19             taxable year from any taxable year ending prior to
20             December 31, 1986 shall not exceed the amount of
21             such carryback or carryforward;
22             For taxable years in which there is a net operating
23         loss carryback or carryforward from more than one other
24         taxable year ending prior to December 31, 1986, the
25         addition modification provided in this subparagraph
26         (E) shall be the sum of the amounts computed
27         independently under the preceding provisions of this
28         subparagraph (E) for each such taxable year;
29             (E-5) For taxable years ending after December 31,
30         1997, an amount equal to any eligible remediation costs
31         that the corporation deducted in computing adjusted
32         gross income and for which the corporation claims a
33         credit under subsection (l) of Section 201;
34             (E-10) For taxable years 2001 and thereafter, an
35         amount equal to the bonus depreciation deduction (30%
36         of the adjusted basis of the qualified property) taken

 

 

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1         on the taxpayer's federal income tax return for the
2         taxable year under subsection (k) of Section 168 of the
3         Internal Revenue Code; and
4             (E-11) If the taxpayer reports a capital gain or
5         loss on the taxpayer's federal income tax return for
6         the taxable year based on a sale or transfer of
7         property for which the taxpayer was required in any
8         taxable year to make an addition modification under
9         subparagraph (E-10), then an amount equal to the
10         aggregate amount of the deductions taken in all taxable
11         years under subparagraph (T) with respect to that
12         property.
13             The taxpayer is required to make the addition
14         modification under this subparagraph only once with
15         respect to any one piece of property;
16             (E-12) For taxable years ending on or after
17         December 31, 2004, an amount equal to the amount
18         otherwise allowed as a deduction in computing base
19         income for interest paid, accrued, or incurred,
20         directly or indirectly, to a foreign person who would
21         be a member of the same unitary business group but for
22         the fact the foreign person's business activity
23         outside the United States is 80% or more of the foreign
24         person's total business activity. The addition
25         modification required by this subparagraph shall be
26         reduced to the extent that dividends were included in
27         base income of the unitary group for the same taxable
28         year and received by the taxpayer or by a member of the
29         taxpayer's unitary business group (including amounts
30         included in gross income pursuant to Sections 951
31         through 964 of the Internal Revenue Code and amounts
32         included in gross income under Section 78 of the
33         Internal Revenue Code) with respect to the stock of the
34         same person to whom the interest was paid, accrued, or
35         incurred.
36             This paragraph shall not apply to the following:

 

 

SB1653 - 24 - LRB094 09118 BDD 39348 b

1                 (i) an item of interest paid, accrued, or
2             incurred, directly or indirectly, to a foreign
3             person who is subject in a foreign country or
4             state, other than a state which requires mandatory
5             unitary reporting, to a tax on or measured by net
6             income with respect to such interest; or
7                 (ii) an item of interest paid, accrued, or
8             incurred, directly or indirectly, to a foreign
9             person if the taxpayer can establish, based on a
10             preponderance of the evidence, both of the
11             following:
12                     (a) the foreign person, during the same
13                 taxable year, paid, accrued, or incurred, the
14                 interest to a person that is not a related
15                 member, and
16                     (b) the transaction giving rise to the
17                 interest expense between the taxpayer and the
18                 foreign person did not have as a principal
19                 purpose the avoidance of Illinois income tax,
20                 and is paid pursuant to a contract or agreement
21                 that reflects an arm's-length interest rate
22                 and terms; or
23                 (iii) the taxpayer can establish, based on
24             clear and convincing evidence, that the interest
25             paid, accrued, or incurred relates to a contract or
26             agreement entered into at arm's-length rates and
27             terms and the principal purpose for the payment is
28             not federal or Illinois tax avoidance; or
29                 (iv) an item of interest paid, accrued, or
30             incurred, directly or indirectly, to a foreign
31             person if the taxpayer establishes by clear and
32             convincing evidence that the adjustments are
33             unreasonable; or if the taxpayer and the Director
34             agree in writing to the application or use of an
35             alternative method of apportionment under Section
36             304(f).

 

 

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1                 Nothing in this subsection shall preclude the
2             Director from making any other adjustment
3             otherwise allowed under Section 404 of this Act for
4             any tax year beginning after the effective date of
5             this amendment provided such adjustment is made
6             pursuant to regulation adopted by the Department
7             and such regulations provide methods and standards
8             by which the Department will utilize its authority
9             under Section 404 of this Act;
10             (E-13) For taxable years ending on or after
11         December 31, 2004, an amount equal to the amount of
12         intangible expenses and costs otherwise allowed as a
13         deduction in computing base income, and that were paid,
14         accrued, or incurred, directly or indirectly, to a
15         foreign person who would be a member of the same
16         unitary business group but for the fact that the
17         foreign person's business activity outside the United
18         States is 80% or more of that person's total business
19         activity. The addition modification required by this
20         subparagraph shall be reduced to the extent that
21         dividends were included in base income of the unitary
22         group for the same taxable year and received by the
23         taxpayer or by a member of the taxpayer's unitary
24         business group (including amounts included in gross
25         income pursuant to Sections 951 through 964 of the
26         Internal Revenue Code and amounts included in gross
27         income under Section 78 of the Internal Revenue Code)
28         with respect to the stock of the same person to whom
29         the intangible expenses and costs were directly or
30         indirectly paid, incurred, or accrued. The preceding
31         sentence shall not apply to the extent that the same
32         dividends caused a reduction to the addition
33         modification required under Section 203(b)(2)(E-12) of
34         this Act. As used in this subparagraph, the term
35         "intangible expenses and costs" includes (1) expenses,
36         losses, and costs for, or related to, the direct or

 

 

SB1653 - 26 - LRB094 09118 BDD 39348 b

1         indirect acquisition, use, maintenance or management,
2         ownership, sale, exchange, or any other disposition of
3         intangible property; (2) losses incurred, directly or
4         indirectly, from factoring transactions or discounting
5         transactions; (3) royalty, patent, technical, and
6         copyright fees; (4) licensing fees; and (5) other
7         similar expenses and costs. For purposes of this
8         subparagraph, "intangible property" includes patents,
9         patent applications, trade names, trademarks, service
10         marks, copyrights, mask works, trade secrets, and
11         similar types of intangible assets.
12             This paragraph shall not apply to the following:
13                 (i) any item of intangible expenses or costs
14             paid, accrued, or incurred, directly or
15             indirectly, from a transaction with a foreign
16             person who is subject in a foreign country or
17             state, other than a state which requires mandatory
18             unitary reporting, to a tax on or measured by net
19             income with respect to such item; or
20                 (ii) any item of intangible expense or cost
21             paid, accrued, or incurred, directly or
22             indirectly, if the taxpayer can establish, based
23             on a preponderance of the evidence, both of the
24             following:
25                     (a) the foreign person during the same
26                 taxable year paid, accrued, or incurred, the
27                 intangible expense or cost to a person that is
28                 not a related member, and
29                     (b) the transaction giving rise to the
30                 intangible expense or cost between the
31                 taxpayer and the foreign person did not have as
32                 a principal purpose the avoidance of Illinois
33                 income tax, and is paid pursuant to a contract
34                 or agreement that reflects arm's-length terms;
35                 or
36                 (iii) any item of intangible expense or cost

 

 

SB1653 - 27 - LRB094 09118 BDD 39348 b

1             paid, accrued, or incurred, directly or
2             indirectly, from a transaction with a foreign
3             person if the taxpayer establishes by clear and
4             convincing evidence, that the adjustments are
5             unreasonable; or if the taxpayer and the Director
6             agree in writing to the application or use of an
7             alternative method of apportionment under Section
8             304(f);
9                 Nothing in this subsection shall preclude the
10             Director from making any other adjustment
11             otherwise allowed under Section 404 of this Act for
12             any tax year beginning after the effective date of
13             this amendment provided such adjustment is made
14             pursuant to regulation adopted by the Department
15             and such regulations provide methods and standards
16             by which the Department will utilize its authority
17             under Section 404 of this Act;
18     and by deducting from the total so obtained the sum of the
19     following amounts:
20             (F) An amount equal to the amount of any tax
21         imposed by this Act which was refunded to the taxpayer
22         and included in such total for the taxable year;
23             (G) An amount equal to any amount included in such
24         total under Section 78 of the Internal Revenue Code;
25             (H) In the case of a regulated investment company,
26         an amount equal to the amount of exempt interest
27         dividends as defined in subsection (b) (5) of Section
28         852 of the Internal Revenue Code, paid to shareholders
29         for the taxable year;
30             (I) With the exception of any amounts subtracted
31         under subparagraph (J), an amount equal to the sum of
32         all amounts disallowed as deductions by (i) Sections
33         171(a) (2), and 265(a)(2) and amounts disallowed as
34         interest expense by Section 291(a)(3) of the Internal
35         Revenue Code, as now or hereafter amended, and all
36         amounts of expenses allocable to interest and

 

 

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1         disallowed as deductions by Section 265(a)(1) of the
2         Internal Revenue Code, as now or hereafter amended; and
3         (ii) for taxable years ending on or after August 13,
4         1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and
5         832(b)(5)(B)(i) of the Internal Revenue Code; the
6         provisions of this subparagraph are exempt from the
7         provisions of Section 250;
8             (J) An amount equal to all amounts included in such
9         total which are exempt from taxation by this State
10         either by reason of its statutes or Constitution or by
11         reason of the Constitution, treaties or statutes of the
12         United States; provided that, in the case of any
13         statute of this State that exempts income derived from
14         bonds or other obligations from the tax imposed under
15         this Act, the amount exempted shall be the interest net
16         of bond premium amortization;
17             (K) An amount equal to those dividends included in
18         such total which were paid by a corporation which
19         conducts business operations in an Enterprise Zone or
20         zones created under the Illinois Enterprise Zone Act
21         and conducts substantially all of its operations in an
22         Enterprise Zone or zones;
23             (L) An amount equal to those dividends included in
24         such total that were paid by a corporation that
25         conducts business operations in a federally designated
26         Foreign Trade Zone or Sub-Zone and that is designated a
27         High Impact Business located in Illinois; provided
28         that dividends eligible for the deduction provided in
29         subparagraph (K) of paragraph 2 of this subsection
30         shall not be eligible for the deduction provided under
31         this subparagraph (L);
32             (M) For any taxpayer that is a financial
33         organization within the meaning of Section 304(c) of
34         this Act, an amount included in such total as interest
35         income from a loan or loans made by such taxpayer to a
36         borrower, to the extent that such a loan is secured by

 

 

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1         property which is eligible for the Enterprise Zone
2         Investment Credit. To determine the portion of a loan
3         or loans that is secured by property eligible for a
4         Section 201(f) investment credit to the borrower, the
5         entire principal amount of the loan or loans between
6         the taxpayer and the borrower should be divided into
7         the basis of the Section 201(f) investment credit
8         property which secures the loan or loans, using for
9         this purpose the original basis of such property on the
10         date that it was placed in service in the Enterprise
11         Zone. The subtraction modification available to
12         taxpayer in any year under this subsection shall be
13         that portion of the total interest paid by the borrower
14         with respect to such loan attributable to the eligible
15         property as calculated under the previous sentence;
16             (M-1) For any taxpayer that is a financial
17         organization within the meaning of Section 304(c) of
18         this Act, an amount included in such total as interest
19         income from a loan or loans made by such taxpayer to a
20         borrower, to the extent that such a loan is secured by
21         property which is eligible for the High Impact Business
22         Investment Credit. To determine the portion of a loan
23         or loans that is secured by property eligible for a
24         Section 201(h) investment credit to the borrower, the
25         entire principal amount of the loan or loans between
26         the taxpayer and the borrower should be divided into
27         the basis of the Section 201(h) investment credit
28         property which secures the loan or loans, using for
29         this purpose the original basis of such property on the
30         date that it was placed in service in a federally
31         designated Foreign Trade Zone or Sub-Zone located in
32         Illinois. No taxpayer that is eligible for the
33         deduction provided in subparagraph (M) of paragraph
34         (2) of this subsection shall be eligible for the
35         deduction provided under this subparagraph (M-1). The
36         subtraction modification available to taxpayers in any

 

 

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1         year under this subsection shall be that portion of the
2         total interest paid by the borrower with respect to
3         such loan attributable to the eligible property as
4         calculated under the previous sentence;
5             (N) Two times any contribution made during the
6         taxable year to a designated zone organization to the
7         extent that the contribution (i) qualifies as a
8         charitable contribution under subsection (c) of
9         Section 170 of the Internal Revenue Code and (ii) must,
10         by its terms, be used for a project approved by the
11         Department of Commerce and Economic Opportunity under
12         Section 11 of the Illinois Enterprise Zone Act;
13             (O) An amount equal to: (i) 85% for taxable years
14         ending on or before December 31, 1992, or, a percentage
15         equal to the percentage allowable under Section
16         243(a)(1) of the Internal Revenue Code of 1986 for
17         taxable years ending after December 31, 1992, of the
18         amount by which dividends included in taxable income
19         and received from a corporation that is not created or
20         organized under the laws of the United States or any
21         state or political subdivision thereof, including, for
22         taxable years ending on or after December 31, 1988,
23         dividends received or deemed received or paid or deemed
24         paid under Sections 951 through 964 of the Internal
25         Revenue Code, exceed the amount of the modification
26         provided under subparagraph (G) of paragraph (2) of
27         this subsection (b) which is related to such dividends;
28         plus (ii) 100% of the amount by which dividends,
29         included in taxable income and received, including,
30         for taxable years ending on or after December 31, 1988,
31         dividends received or deemed received or paid or deemed
32         paid under Sections 951 through 964 of the Internal
33         Revenue Code, from any such corporation specified in
34         clause (i) that would but for the provisions of Section
35         1504 (b) (3) of the Internal Revenue Code be treated as
36         a member of the affiliated group which includes the

 

 

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1         dividend recipient, exceed the amount of the
2         modification provided under subparagraph (G) of
3         paragraph (2) of this subsection (b) which is related
4         to such dividends;
5             (P) An amount equal to any contribution made to a
6         job training project established pursuant to the Tax
7         Increment Allocation Redevelopment Act;
8             (Q) An amount equal to the amount of the deduction
9         used to compute the federal income tax credit for
10         restoration of substantial amounts held under claim of
11         right for the taxable year pursuant to Section 1341 of
12         the Internal Revenue Code of 1986;
13             (R) In the case of an attorney-in-fact with respect
14         to whom an interinsurer or a reciprocal insurer has
15         made the election under Section 835 of the Internal
16         Revenue Code, 26 U.S.C. 835, an amount equal to the
17         excess, if any, of the amounts paid or incurred by that
18         interinsurer or reciprocal insurer in the taxable year
19         to the attorney-in-fact over the deduction allowed to
20         that interinsurer or reciprocal insurer with respect
21         to the attorney-in-fact under Section 835(b) of the
22         Internal Revenue Code for the taxable year;
23             (S) For taxable years ending on or after December
24         31, 1997, in the case of a Subchapter S corporation, an
25         amount equal to all amounts of income allocable to a
26         shareholder subject to the Personal Property Tax
27         Replacement Income Tax imposed by subsections (c) and
28         (d) of Section 201 of this Act, including amounts
29         allocable to organizations exempt from federal income
30         tax by reason of Section 501(a) of the Internal Revenue
31         Code. This subparagraph (S) is exempt from the
32         provisions of Section 250;
33             (T) For taxable years 2001 and thereafter, for the
34         taxable year in which the bonus depreciation deduction
35         (30% of the adjusted basis of the qualified property)
36         is taken on the taxpayer's federal income tax return

 

 

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1         under subsection (k) of Section 168 of the Internal
2         Revenue Code and for each applicable taxable year
3         thereafter, an amount equal to "x", where:
4                 (1) "y" equals the amount of the depreciation
5             deduction taken for the taxable year on the
6             taxpayer's federal income tax return on property
7             for which the bonus depreciation deduction (30% of
8             the adjusted basis of the qualified property) was
9             taken in any year under subsection (k) of Section
10             168 of the Internal Revenue Code, but not including
11             the bonus depreciation deduction; and
12                 (2) "x" equals "y" multiplied by 30 and then
13             divided by 70 (or "y" multiplied by 0.429).
14             The aggregate amount deducted under this
15         subparagraph in all taxable years for any one piece of
16         property may not exceed the amount of the bonus
17         depreciation deduction (30% of the adjusted basis of
18         the qualified property) taken on that property on the
19         taxpayer's federal income tax return under subsection
20         (k) of Section 168 of the Internal Revenue Code;
21             (U) If the taxpayer reports a capital gain or loss
22         on the taxpayer's federal income tax return for the
23         taxable year based on a sale or transfer of property
24         for which the taxpayer was required in any taxable year
25         to make an addition modification under subparagraph
26         (E-10), then an amount equal to that addition
27         modification.
28             The taxpayer is allowed to take the deduction under
29         this subparagraph only once with respect to any one
30         piece of property;
31             (V) The amount of: (i) any interest income (net of
32         the deductions allocable thereto) taken into account
33         for the taxable year with respect to a transaction with
34         a taxpayer that is required to make an addition
35         modification with respect to such transaction under
36         Section 203(a)(2)(D-17), 203(b)(2)(E-12),

 

 

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1         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
2         the amount of such addition modification and (ii) any
3         income from intangible property (net of the deductions
4         allocable thereto) taken into account for the taxable
5         year with respect to a transaction with a taxpayer that
6         is required to make an addition modification with
7         respect to such transaction under Section
8         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
9         203(d)(2)(D-8), but not to exceed the amount of such
10         addition modification;
11             (W) An amount equal to the interest income taken
12         into account for the taxable year (net of the
13         deductions allocable thereto) with respect to
14         transactions with a foreign person who would be a
15         member of the taxpayer's unitary business group but for
16         the fact that the foreign person's business activity
17         outside the United States is 80% or more of that
18         person's total business activity, but not to exceed the
19         addition modification required to be made for the same
20         taxable year under Section 203(b)(2)(E-12) for
21         interest paid, accrued, or incurred, directly or
22         indirectly, to the same foreign person; and
23             (X) An amount equal to the income from intangible
24         property taken into account for the taxable year (net
25         of the deductions allocable thereto) with respect to
26         transactions with a foreign person who would be a
27         member of the taxpayer's unitary business group but for
28         the fact that the foreign person's business activity
29         outside the United States is 80% or more of that
30         person's total business activity, but not to exceed the
31         addition modification required to be made for the same
32         taxable year under Section 203(b)(2)(E-13) for
33         intangible expenses and costs paid, accrued, or
34         incurred, directly or indirectly, to the same foreign
35         person.
36         (3) Special rule. For purposes of paragraph (2) (A),

 

 

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1     "gross income" in the case of a life insurance company, for
2     tax years ending on and after December 31, 1994, shall mean
3     the gross investment income for the taxable year.
 
4     (c) Trusts and estates.
5         (1) In general. In the case of a trust or estate, base
6     income means an amount equal to the taxpayer's taxable
7     income for the taxable year as modified by paragraph (2).
8         (2) Modifications. Subject to the provisions of
9     paragraph (3), the taxable income referred to in paragraph
10     (1) shall be modified by adding thereto the sum of the
11     following amounts:
12             (A) An amount equal to all amounts paid or accrued
13         to the taxpayer as interest or dividends during the
14         taxable year to the extent excluded from gross income
15         in the computation of taxable income;
16             (B) In the case of (i) an estate, $600; (ii) a
17         trust which, under its governing instrument, is
18         required to distribute all of its income currently,
19         $300; and (iii) any other trust, $100, but in each such
20         case, only to the extent such amount was deducted in
21         the computation of taxable income;
22             (C) An amount equal to the amount of tax imposed by
23         this Act to the extent deducted from gross income in
24         the computation of taxable income for the taxable year;
25             (D) The amount of any net operating loss deduction
26         taken in arriving at taxable income, other than a net
27         operating loss carried forward from a taxable year
28         ending prior to December 31, 1986;
29             (E) For taxable years in which a net operating loss
30         carryback or carryforward from a taxable year ending
31         prior to December 31, 1986 is an element of taxable
32         income under paragraph (1) of subsection (e) or
33         subparagraph (E) of paragraph (2) of subsection (e),
34         the amount by which addition modifications other than
35         those provided by this subparagraph (E) exceeded

 

 

SB1653 - 35 - LRB094 09118 BDD 39348 b

1         subtraction modifications in such taxable year, with
2         the following limitations applied in the order that
3         they are listed:
4                 (i) the addition modification relating to the
5             net operating loss carried back or forward to the
6             taxable year from any taxable year ending prior to
7             December 31, 1986 shall be reduced by the amount of
8             addition modification under this subparagraph (E)
9             which related to that net operating loss and which
10             was taken into account in calculating the base
11             income of an earlier taxable year, and
12                 (ii) the addition modification relating to the
13             net operating loss carried back or forward to the
14             taxable year from any taxable year ending prior to
15             December 31, 1986 shall not exceed the amount of
16             such carryback or carryforward;
17             For taxable years in which there is a net operating
18         loss carryback or carryforward from more than one other
19         taxable year ending prior to December 31, 1986, the
20         addition modification provided in this subparagraph
21         (E) shall be the sum of the amounts computed
22         independently under the preceding provisions of this
23         subparagraph (E) for each such taxable year;
24             (F) For taxable years ending on or after January 1,
25         1989, an amount equal to the tax deducted pursuant to
26         Section 164 of the Internal Revenue Code if the trust
27         or estate is claiming the same tax for purposes of the
28         Illinois foreign tax credit under Section 601 of this
29         Act;
30             (G) An amount equal to the amount of the capital
31         gain deduction allowable under the Internal Revenue
32         Code, to the extent deducted from gross income in the
33         computation of taxable income;
34             (G-5) For taxable years ending after December 31,
35         1997, an amount equal to any eligible remediation costs
36         that the trust or estate deducted in computing adjusted

 

 

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1         gross income and for which the trust or estate claims a
2         credit under subsection (l) of Section 201;
3             (G-10) For taxable years 2001 and thereafter, an
4         amount equal to the bonus depreciation deduction (30%
5         of the adjusted basis of the qualified property) taken
6         on the taxpayer's federal income tax return for the
7         taxable year under subsection (k) of Section 168 of the
8         Internal Revenue Code; and
9             (G-11) If the taxpayer reports a capital gain or
10         loss on the taxpayer's federal income tax return for
11         the taxable year based on a sale or transfer of
12         property for which the taxpayer was required in any
13         taxable year to make an addition modification under
14         subparagraph (G-10), then an amount equal to the
15         aggregate amount of the deductions taken in all taxable
16         years under subparagraph (R) with respect to that
17         property.
18             The taxpayer is required to make the addition
19         modification under this subparagraph only once with
20         respect to any one piece of property;
21             (G-12) For taxable years ending on or after
22         December 31, 2004, an amount equal to the amount
23         otherwise allowed as a deduction in computing base
24         income for interest paid, accrued, or incurred,
25         directly or indirectly, to a foreign person who would
26         be a member of the same unitary business group but for
27         the fact that the foreign person's business activity
28         outside the United States is 80% or more of the foreign
29         person's total business activity. The addition
30         modification required by this subparagraph shall be
31         reduced to the extent that dividends were included in
32         base income of the unitary group for the same taxable
33         year and received by the taxpayer or by a member of the
34         taxpayer's unitary business group (including amounts
35         included in gross income pursuant to Sections 951
36         through 964 of the Internal Revenue Code and amounts

 

 

SB1653 - 37 - LRB094 09118 BDD 39348 b

1         included in gross income under Section 78 of the
2         Internal Revenue Code) with respect to the stock of the
3         same person to whom the interest was paid, accrued, or
4         incurred.
5             This paragraph shall not apply to the following:
6                 (i) an item of interest paid, accrued, or
7             incurred, directly or indirectly, to a foreign
8             person who is subject in a foreign country or
9             state, other than a state which requires mandatory
10             unitary reporting, to a tax on or measured by net
11             income with respect to such interest; or
12                 (ii) an item of interest paid, accrued, or
13             incurred, directly or indirectly, to a foreign
14             person if the taxpayer can establish, based on a
15             preponderance of the evidence, both of the
16             following:
17                     (a) the foreign person, during the same
18                 taxable year, paid, accrued, or incurred, the
19                 interest to a person that is not a related
20                 member, and
21                     (b) the transaction giving rise to the
22                 interest expense between the taxpayer and the
23                 foreign person did not have as a principal
24                 purpose the avoidance of Illinois income tax,
25                 and is paid pursuant to a contract or agreement
26                 that reflects an arm's-length interest rate
27                 and terms; or
28                 (iii) the taxpayer can establish, based on
29             clear and convincing evidence, that the interest
30             paid, accrued, or incurred relates to a contract or
31             agreement entered into at arm's-length rates and
32             terms and the principal purpose for the payment is
33             not federal or Illinois tax avoidance; or
34                 (iv) an item of interest paid, accrued, or
35             incurred, directly or indirectly, to a foreign
36             person if the taxpayer establishes by clear and

 

 

SB1653 - 38 - LRB094 09118 BDD 39348 b

1             convincing evidence that the adjustments are
2             unreasonable; or if the taxpayer and the Director
3             agree in writing to the application or use of an
4             alternative method of apportionment under Section
5             304(f).
6                 Nothing in this subsection shall preclude the
7             Director from making any other adjustment
8             otherwise allowed under Section 404 of this Act for
9             any tax year beginning after the effective date of
10             this amendment provided such adjustment is made
11             pursuant to regulation adopted by the Department
12             and such regulations provide methods and standards
13             by which the Department will utilize its authority
14             under Section 404 of this Act;
15             (G-13) For taxable years ending on or after
16         December 31, 2004, an amount equal to the amount of
17         intangible expenses and costs otherwise allowed as a
18         deduction in computing base income, and that were paid,
19         accrued, or incurred, directly or indirectly, to a
20         foreign person who would be a member of the same
21         unitary business group but for the fact that the
22         foreign person's business activity outside the United
23         States is 80% or more of that person's total business
24         activity. The addition modification required by this
25         subparagraph shall be reduced to the extent that
26         dividends were included in base income of the unitary
27         group for the same taxable year and received by the
28         taxpayer or by a member of the taxpayer's unitary
29         business group (including amounts included in gross
30         income pursuant to Sections 951 through 964 of the
31         Internal Revenue Code and amounts included in gross
32         income under Section 78 of the Internal Revenue Code)
33         with respect to the stock of the same person to whom
34         the intangible expenses and costs were directly or
35         indirectly paid, incurred, or accrued. The preceding
36         sentence shall not apply to the extent that the same

 

 

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1         dividends caused a reduction to the addition
2         modification required under Section 203(c)(2)(G-12) of
3         this Act. As used in this subparagraph, the term
4         "intangible expenses and costs" includes: (1)
5         expenses, losses, and costs for or related to the
6         direct or indirect acquisition, use, maintenance or
7         management, ownership, sale, exchange, or any other
8         disposition of intangible property; (2) losses
9         incurred, directly or indirectly, from factoring
10         transactions or discounting transactions; (3) royalty,
11         patent, technical, and copyright fees; (4) licensing
12         fees; and (5) other similar expenses and costs. For
13         purposes of this subparagraph, "intangible property"
14         includes patents, patent applications, trade names,
15         trademarks, service marks, copyrights, mask works,
16         trade secrets, and similar types of intangible assets.
17             This paragraph shall not apply to the following:
18                 (i) any item of intangible expenses or costs
19             paid, accrued, or incurred, directly or
20             indirectly, from a transaction with a foreign
21             person who is subject in a foreign country or
22             state, other than a state which requires mandatory
23             unitary reporting, to a tax on or measured by net
24             income with respect to such item; or
25                 (ii) any item of intangible expense or cost
26             paid, accrued, or incurred, directly or
27             indirectly, if the taxpayer can establish, based
28             on a preponderance of the evidence, both of the
29             following:
30                     (a) the foreign person during the same
31                 taxable year paid, accrued, or incurred, the
32                 intangible expense or cost to a person that is
33                 not a related member, and
34                     (b) the transaction giving rise to the
35                 intangible expense or cost between the
36                 taxpayer and the foreign person did not have as

 

 

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1                 a principal purpose the avoidance of Illinois
2                 income tax, and is paid pursuant to a contract
3                 or agreement that reflects arm's-length terms;
4                 or
5                 (iii) any item of intangible expense or cost
6             paid, accrued, or incurred, directly or
7             indirectly, from a transaction with a foreign
8             person if the taxpayer establishes by clear and
9             convincing evidence, that the adjustments are
10             unreasonable; or if the taxpayer and the Director
11             agree in writing to the application or use of an
12             alternative method of apportionment under Section
13             304(f);
14                 Nothing in this subsection shall preclude the
15             Director from making any other adjustment
16             otherwise allowed under Section 404 of this Act for
17             any tax year beginning after the effective date of
18             this amendment provided such adjustment is made
19             pursuant to regulation adopted by the Department
20             and such regulations provide methods and standards
21             by which the Department will utilize its authority
22             under Section 404 of this Act;
23     and by deducting from the total so obtained the sum of the
24     following amounts:
25             (H) An amount equal to all amounts included in such
26         total pursuant to the provisions of Sections 402(a),
27         402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the
28         Internal Revenue Code or included in such total as
29         distributions under the provisions of any retirement
30         or disability plan for employees of any governmental
31         agency or unit, or retirement payments to retired
32         partners, which payments are excluded in computing net
33         earnings from self employment by Section 1402 of the
34         Internal Revenue Code and regulations adopted pursuant
35         thereto;
36             (I) The valuation limitation amount;

 

 

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1             (J) An amount equal to the amount of any tax
2         imposed by this Act which was refunded to the taxpayer
3         and included in such total for the taxable year;
4             (K) An amount equal to all amounts included in
5         taxable income as modified by subparagraphs (A), (B),
6         (C), (D), (E), (F) and (G) which are exempt from
7         taxation by this State either by reason of its statutes
8         or Constitution or by reason of the Constitution,
9         treaties or statutes of the United States; provided
10         that, in the case of any statute of this State that
11         exempts income derived from bonds or other obligations
12         from the tax imposed under this Act, the amount
13         exempted shall be the interest net of bond premium
14         amortization;
15             (L) With the exception of any amounts subtracted
16         under subparagraph (K), an amount equal to the sum of
17         all amounts disallowed as deductions by (i) Sections
18         171(a) (2) and 265(a)(2) of the Internal Revenue Code,
19         as now or hereafter amended, and all amounts of
20         expenses allocable to interest and disallowed as
21         deductions by Section 265(1) of the Internal Revenue
22         Code of 1954, as now or hereafter amended; and (ii) for
23         taxable years ending on or after August 13, 1999,
24         Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of
25         the Internal Revenue Code; the provisions of this
26         subparagraph are exempt from the provisions of Section
27         250;
28             (M) An amount equal to those dividends included in
29         such total which were paid by a corporation which
30         conducts business operations in an Enterprise Zone or
31         zones created under the Illinois Enterprise Zone Act
32         and conducts substantially all of its operations in an
33         Enterprise Zone or Zones;
34             (N) An amount equal to any contribution made to a
35         job training project established pursuant to the Tax
36         Increment Allocation Redevelopment Act;

 

 

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1             (O) An amount equal to those dividends included in
2         such total that were paid by a corporation that
3         conducts business operations in a federally designated
4         Foreign Trade Zone or Sub-Zone and that is designated a
5         High Impact Business located in Illinois; provided
6         that dividends eligible for the deduction provided in
7         subparagraph (M) of paragraph (2) of this subsection
8         shall not be eligible for the deduction provided under
9         this subparagraph (O);
10             (P) An amount equal to the amount of the deduction
11         used to compute the federal income tax credit for
12         restoration of substantial amounts held under claim of
13         right for the taxable year pursuant to Section 1341 of
14         the Internal Revenue Code of 1986;
15             (Q) For taxable year 1999 and thereafter, an amount
16         equal to the amount of any (i) distributions, to the
17         extent includible in gross income for federal income
18         tax purposes, made to the taxpayer because of his or
19         her status as a victim of persecution for racial or
20         religious reasons by Nazi Germany or any other Axis
21         regime or as an heir of the victim and (ii) items of
22         income, to the extent includible in gross income for
23         federal income tax purposes, attributable to, derived
24         from or in any way related to assets stolen from,
25         hidden from, or otherwise lost to a victim of
26         persecution for racial or religious reasons by Nazi
27         Germany or any other Axis regime immediately prior to,
28         during, and immediately after World War II, including,
29         but not limited to, interest on the proceeds receivable
30         as insurance under policies issued to a victim of
31         persecution for racial or religious reasons by Nazi
32         Germany or any other Axis regime by European insurance
33         companies immediately prior to and during World War II;
34         provided, however, this subtraction from federal
35         adjusted gross income does not apply to assets acquired
36         with such assets or with the proceeds from the sale of

 

 

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1         such assets; provided, further, this paragraph shall
2         only apply to a taxpayer who was the first recipient of
3         such assets after their recovery and who is a victim of
4         persecution for racial or religious reasons by Nazi
5         Germany or any other Axis regime or as an heir of the
6         victim. The amount of and the eligibility for any
7         public assistance, benefit, or similar entitlement is
8         not affected by the inclusion of items (i) and (ii) of
9         this paragraph in gross income for federal income tax
10         purposes. This paragraph is exempt from the provisions
11         of Section 250;
12             (R) For taxable years 2001 and thereafter, for the
13         taxable year in which the bonus depreciation deduction
14         (30% of the adjusted basis of the qualified property)
15         is taken on the taxpayer's federal income tax return
16         under subsection (k) of Section 168 of the Internal
17         Revenue Code and for each applicable taxable year
18         thereafter, an amount equal to "x", where:
19                 (1) "y" equals the amount of the depreciation
20             deduction taken for the taxable year on the
21             taxpayer's federal income tax return on property
22             for which the bonus depreciation deduction (30% of
23             the adjusted basis of the qualified property) was
24             taken in any year under subsection (k) of Section
25             168 of the Internal Revenue Code, but not including
26             the bonus depreciation deduction; and
27                 (2) "x" equals "y" multiplied by 30 and then
28             divided by 70 (or "y" multiplied by 0.429).
29             The aggregate amount deducted under this
30         subparagraph in all taxable years for any one piece of
31         property may not exceed the amount of the bonus
32         depreciation deduction (30% of the adjusted basis of
33         the qualified property) taken on that property on the
34         taxpayer's federal income tax return under subsection
35         (k) of Section 168 of the Internal Revenue Code;
36             (S) If the taxpayer reports a capital gain or loss

 

 

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1         on the taxpayer's federal income tax return for the
2         taxable year based on a sale or transfer of property
3         for which the taxpayer was required in any taxable year
4         to make an addition modification under subparagraph
5         (G-10), then an amount equal to that addition
6         modification.
7             The taxpayer is allowed to take the deduction under
8         this subparagraph only once with respect to any one
9         piece of property;
10             (T) The amount of (i) any interest income (net of
11         the deductions allocable thereto) taken into account
12         for the taxable year with respect to a transaction with
13         a taxpayer that is required to make an addition
14         modification with respect to such transaction under
15         Section 203(a)(2)(D-17), 203(b)(2)(E-12),
16         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
17         the amount of such addition modification and (ii) any
18         income from intangible property (net of the deductions
19         allocable thereto) taken into account for the taxable
20         year with respect to a transaction with a taxpayer that
21         is required to make an addition modification with
22         respect to such transaction under Section
23         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
24         203(d)(2)(D-8), but not to exceed the amount of such
25         addition modification;
26             (U) An amount equal to the interest income taken
27         into account for the taxable year (net of the
28         deductions allocable thereto) with respect to
29         transactions with a foreign person who would be a
30         member of the taxpayer's unitary business group but for
31         the fact the foreign person's business activity
32         outside the United States is 80% or more of that
33         person's total business activity, but not to exceed the
34         addition modification required to be made for the same
35         taxable year under Section 203(c)(2)(G-12) for
36         interest paid, accrued, or incurred, directly or

 

 

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1         indirectly, to the same foreign person; and
2             (V) An amount equal to the income from intangible
3         property taken into account for the taxable year (net
4         of the deductions allocable thereto) with respect to
5         transactions with a foreign person who would be a
6         member of the taxpayer's unitary business group but for
7         the fact that the foreign person's business activity
8         outside the United States is 80% or more of that
9         person's total business activity, but not to exceed the
10         addition modification required to be made for the same
11         taxable year under Section 203(c)(2)(G-13) for
12         intangible expenses and costs paid, accrued, or
13         incurred, directly or indirectly, to the same foreign
14         person.
15         (3) Limitation. The amount of any modification
16     otherwise required under this subsection shall, under
17     regulations prescribed by the Department, be adjusted by
18     any amounts included therein which were properly paid,
19     credited, or required to be distributed, or permanently set
20     aside for charitable purposes pursuant to Internal Revenue
21     Code Section 642(c) during the taxable year.
 
22     (d) Partnerships.
23         (1) In general. In the case of a partnership, base
24     income means an amount equal to the taxpayer's taxable
25     income for the taxable year as modified by paragraph (2).
26         (2) Modifications. The taxable income referred to in
27     paragraph (1) shall be modified by adding thereto the sum
28     of the following amounts:
29             (A) An amount equal to all amounts paid or accrued
30         to the taxpayer as interest or dividends during the
31         taxable year to the extent excluded from gross income
32         in the computation of taxable income;
33             (B) An amount equal to the amount of tax imposed by
34         this Act to the extent deducted from gross income for
35         the taxable year;

 

 

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1             (C) The amount of deductions allowed to the
2         partnership pursuant to Section 707 (c) of the Internal
3         Revenue Code in calculating its taxable income;
4             (D) An amount equal to the amount of the capital
5         gain deduction allowable under the Internal Revenue
6         Code, to the extent deducted from gross income in the
7         computation of taxable income;
8             (D-5) For taxable years 2001 and thereafter, an
9         amount equal to the bonus depreciation deduction (30%
10         of the adjusted basis of the qualified property) taken
11         on the taxpayer's federal income tax return for the
12         taxable year under subsection (k) of Section 168 of the
13         Internal Revenue Code;
14             (D-6) If the taxpayer reports a capital gain or
15         loss on the taxpayer's federal income tax return for
16         the taxable year based on a sale or transfer of
17         property for which the taxpayer was required in any
18         taxable year to make an addition modification under
19         subparagraph (D-5), then an amount equal to the
20         aggregate amount of the deductions taken in all taxable
21         years under subparagraph (O) with respect to that
22         property.
23             The taxpayer is required to make the addition
24         modification under this subparagraph only once with
25         respect to any one piece of property;
26             (D-7) For taxable years ending on or after December
27         31, 2004, an amount equal to the amount otherwise
28         allowed as a deduction in computing base income for
29         interest paid, accrued, or incurred, directly or
30         indirectly, to a foreign person who would be a member
31         of the same unitary business group but for the fact the
32         foreign person's business activity outside the United
33         States is 80% or more of the foreign person's total
34         business activity. The addition modification required
35         by this subparagraph shall be reduced to the extent
36         that dividends were included in base income of the

 

 

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1         unitary group for the same taxable year and received by
2         the taxpayer or by a member of the taxpayer's unitary
3         business group (including amounts included in gross
4         income pursuant to Sections 951 through 964 of the
5         Internal Revenue Code and amounts included in gross
6         income under Section 78 of the Internal Revenue Code)
7         with respect to the stock of the same person to whom
8         the interest was paid, accrued, or incurred.
9             This paragraph shall not apply to the following:
10                 (i) an item of interest paid, accrued, or
11             incurred, directly or indirectly, to a foreign
12             person who is subject in a foreign country or
13             state, other than a state which requires mandatory
14             unitary reporting, to a tax on or measured by net
15             income with respect to such interest; or
16                 (ii) an item of interest paid, accrued, or
17             incurred, directly or indirectly, to a foreign
18             person if the taxpayer can establish, based on a
19             preponderance of the evidence, both of the
20             following:
21                     (a) the foreign person, during the same
22                 taxable year, paid, accrued, or incurred, the
23                 interest to a person that is not a related
24                 member, and
25                     (b) the transaction giving rise to the
26                 interest expense between the taxpayer and the
27                 foreign person did not have as a principal
28                 purpose the avoidance of Illinois income tax,
29                 and is paid pursuant to a contract or agreement
30                 that reflects an arm's-length interest rate
31                 and terms; or
32                 (iii) the taxpayer can establish, based on
33             clear and convincing evidence, that the interest
34             paid, accrued, or incurred relates to a contract or
35             agreement entered into at arm's-length rates and
36             terms and the principal purpose for the payment is

 

 

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1             not federal or Illinois tax avoidance; or
2                 (iv) an item of interest paid, accrued, or
3             incurred, directly or indirectly, to a foreign
4             person if the taxpayer establishes by clear and
5             convincing evidence that the adjustments are
6             unreasonable; or if the taxpayer and the Director
7             agree in writing to the application or use of an
8             alternative method of apportionment under Section
9             304(f).
10                 Nothing in this subsection shall preclude the
11             Director from making any other adjustment
12             otherwise allowed under Section 404 of this Act for
13             any tax year beginning after the effective date of
14             this amendment provided such adjustment is made
15             pursuant to regulation adopted by the Department
16             and such regulations provide methods and standards
17             by which the Department will utilize its authority
18             under Section 404 of this Act; and
19             (D-8) For taxable years ending on or after December
20         31, 2004, an amount equal to the amount of intangible
21         expenses and costs otherwise allowed as a deduction in
22         computing base income, and that were paid, accrued, or
23         incurred, directly or indirectly, to a foreign person
24         who would be a member of the same unitary business
25         group but for the fact that the foreign person's
26         business activity outside the United States is 80% or
27         more of that person's total business activity. The
28         addition modification required by this subparagraph
29         shall be reduced to the extent that dividends were
30         included in base income of the unitary group for the
31         same taxable year and received by the taxpayer or by a
32         member of the taxpayer's unitary business group
33         (including amounts included in gross income pursuant
34         to Sections 951 through 964 of the Internal Revenue
35         Code and amounts included in gross income under Section
36         78 of the Internal Revenue Code) with respect to the

 

 

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1         stock of the same person to whom the intangible
2         expenses and costs were directly or indirectly paid,
3         incurred or accrued. The preceding sentence shall not
4         apply to the extent that the same dividends caused a
5         reduction to the addition modification required under
6         Section 203(d)(2)(D-7) of this Act. As used in this
7         subparagraph, the term "intangible expenses and costs"
8         includes (1) expenses, losses, and costs for, or
9         related to, the direct or indirect acquisition, use,
10         maintenance or management, ownership, sale, exchange,
11         or any other disposition of intangible property; (2)
12         losses incurred, directly or indirectly, from
13         factoring transactions or discounting transactions;
14         (3) royalty, patent, technical, and copyright fees;
15         (4) licensing fees; and (5) other similar expenses and
16         costs. For purposes of this subparagraph, "intangible
17         property" includes patents, patent applications, trade
18         names, trademarks, service marks, copyrights, mask
19         works, trade secrets, and similar types of intangible
20         assets;
21             This paragraph shall not apply to the following:
22                 (i) any item of intangible expenses or costs
23             paid, accrued, or incurred, directly or
24             indirectly, from a transaction with a foreign
25             person who is subject in a foreign country or
26             state, other than a state which requires mandatory
27             unitary reporting, to a tax on or measured by net
28             income with respect to such item; or
29                 (ii) any item of intangible expense or cost
30             paid, accrued, or incurred, directly or
31             indirectly, if the taxpayer can establish, based
32             on a preponderance of the evidence, both of the
33             following:
34                     (a) the foreign person during the same
35                 taxable year paid, accrued, or incurred, the
36                 intangible expense or cost to a person that is

 

 

SB1653 - 50 - LRB094 09118 BDD 39348 b

1                 not a related member, and
2                     (b) the transaction giving rise to the
3                 intangible expense or cost between the
4                 taxpayer and the foreign person did not have as
5                 a principal purpose the avoidance of Illinois
6                 income tax, and is paid pursuant to a contract
7                 or agreement that reflects arm's-length terms;
8                 or
9                 (iii) any item of intangible expense or cost
10             paid, accrued, or incurred, directly or
11             indirectly, from a transaction with a foreign
12             person if the taxpayer establishes by clear and
13             convincing evidence, that the adjustments are
14             unreasonable; or if the taxpayer and the Director
15             agree in writing to the application or use of an
16             alternative method of apportionment under Section
17             304(f);
18                 Nothing in this subsection shall preclude the
19             Director from making any other adjustment
20             otherwise allowed under Section 404 of this Act for
21             any tax year beginning after the effective date of
22             this amendment provided such adjustment is made
23             pursuant to regulation adopted by the Department
24             and such regulations provide methods and standards
25             by which the Department will utilize its authority
26             under Section 404 of this Act;
27     and by deducting from the total so obtained the following
28     amounts:
29             (E) The valuation limitation amount;
30             (F) An amount equal to the amount of any tax
31         imposed by this Act which was refunded to the taxpayer
32         and included in such total for the taxable year;
33             (G) An amount equal to all amounts included in
34         taxable income as modified by subparagraphs (A), (B),
35         (C) and (D) which are exempt from taxation by this
36         State either by reason of its statutes or Constitution

 

 

SB1653 - 51 - LRB094 09118 BDD 39348 b

1         or by reason of the Constitution, treaties or statutes
2         of the United States; provided that, in the case of any
3         statute of this State that exempts income derived from
4         bonds or other obligations from the tax imposed under
5         this Act, the amount exempted shall be the interest net
6         of bond premium amortization;
7             (H) Any income of the partnership which
8         constitutes personal service income as defined in
9         Section 1348 (b) (1) of the Internal Revenue Code (as
10         in effect December 31, 1981) or a reasonable allowance
11         for compensation paid or accrued for services rendered
12         by partners to the partnership, whichever is greater;
13             (I) An amount equal to all amounts of income
14         distributable to an entity subject to the Personal
15         Property Tax Replacement Income Tax imposed by
16         subsections (c) and (d) of Section 201 of this Act
17         including amounts distributable to organizations
18         exempt from federal income tax by reason of Section
19         501(a) of the Internal Revenue Code;
20             (J) With the exception of any amounts subtracted
21         under subparagraph (G), an amount equal to the sum of
22         all amounts disallowed as deductions by (i) Sections
23         171(a) (2), and 265(2) of the Internal Revenue Code of
24         1954, as now or hereafter amended, and all amounts of
25         expenses allocable to interest and disallowed as
26         deductions by Section 265(1) of the Internal Revenue
27         Code, as now or hereafter amended; and (ii) for taxable
28         years ending on or after August 13, 1999, Sections
29         171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the
30         Internal Revenue Code; the provisions of this
31         subparagraph are exempt from the provisions of Section
32         250;
33             (K) An amount equal to those dividends included in
34         such total which were paid by a corporation which
35         conducts business operations in an Enterprise Zone or
36         zones created under the Illinois Enterprise Zone Act,

 

 

SB1653 - 52 - LRB094 09118 BDD 39348 b

1         enacted by the 82nd General Assembly, and conducts
2         substantially all of its operations in an Enterprise
3         Zone or Zones;
4             (L) An amount equal to any contribution made to a
5         job training project established pursuant to the Real
6         Property Tax Increment Allocation Redevelopment Act;
7             (M) An amount equal to those dividends included in
8         such total that were paid by a corporation that
9         conducts business operations in a federally designated
10         Foreign Trade Zone or Sub-Zone and that is designated a
11         High Impact Business located in Illinois; provided
12         that dividends eligible for the deduction provided in
13         subparagraph (K) of paragraph (2) of this subsection
14         shall not be eligible for the deduction provided under
15         this subparagraph (M);
16             (N) An amount equal to the amount of the deduction
17         used to compute the federal income tax credit for
18         restoration of substantial amounts held under claim of
19         right for the taxable year pursuant to Section 1341 of
20         the Internal Revenue Code of 1986;
21             (O) For taxable years 2001 and thereafter, for the
22         taxable year in which the bonus depreciation deduction
23         (30% of the adjusted basis of the qualified property)
24         is taken on the taxpayer's federal income tax return
25         under subsection (k) of Section 168 of the Internal
26         Revenue Code and for each applicable taxable year
27         thereafter, an amount equal to "x", where:
28                 (1) "y" equals the amount of the depreciation
29             deduction taken for the taxable year on the
30             taxpayer's federal income tax return on property
31             for which the bonus depreciation deduction (30% of
32             the adjusted basis of the qualified property) was
33             taken in any year under subsection (k) of Section
34             168 of the Internal Revenue Code, but not including
35             the bonus depreciation deduction; and
36                 (2) "x" equals "y" multiplied by 30 and then

 

 

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1             divided by 70 (or "y" multiplied by 0.429).
2             The aggregate amount deducted under this
3         subparagraph in all taxable years for any one piece of
4         property may not exceed the amount of the bonus
5         depreciation deduction (30% of the adjusted basis of
6         the qualified property) taken on that property on the
7         taxpayer's federal income tax return under subsection
8         (k) of Section 168 of the Internal Revenue Code;
9             (P) If the taxpayer reports a capital gain or loss
10         on the taxpayer's federal income tax return for the
11         taxable year based on a sale or transfer of property
12         for which the taxpayer was required in any taxable year
13         to make an addition modification under subparagraph
14         (D-5), then an amount equal to that addition
15         modification.
16             The taxpayer is allowed to take the deduction under
17         this subparagraph only once with respect to any one
18         piece of property;
19             (Q) The amount of (i) any interest income (net of
20         the deductions allocable thereto) taken into account
21         for the taxable year with respect to a transaction with
22         a taxpayer that is required to make an addition
23         modification with respect to such transaction under
24         Section 203(a)(2)(D-17), 203(b)(2)(E-12),
25         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
26         the amount of such addition modification and (ii) any
27         income from intangible property (net of the deductions
28         allocable thereto) taken into account for the taxable
29         year with respect to a transaction with a taxpayer that
30         is required to make an addition modification with
31         respect to such transaction under Section
32         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
33         203(d)(2)(D-8), but not to exceed the amount of such
34         addition modification;
35             (R) An amount equal to the interest income taken
36         into account for the taxable year (net of the

 

 

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1         deductions allocable thereto) with respect to
2         transactions with a foreign person who would be a
3         member of the taxpayer's unitary business group but for
4         the fact that the foreign person's business activity
5         outside the United States is 80% or more of that
6         person's total business activity, but not to exceed the
7         addition modification required to be made for the same
8         taxable year under Section 203(d)(2)(D-7) for interest
9         paid, accrued, or incurred, directly or indirectly, to
10         the same foreign person; and
11             (S) An amount equal to the income from intangible
12         property taken into account for the taxable year (net
13         of the deductions allocable thereto) with respect to
14         transactions with a foreign person who would be a
15         member of the taxpayer's unitary business group but for
16         the fact that the foreign person's business activity
17         outside the United States is 80% or more of that
18         person's total business activity, but not to exceed the
19         addition modification required to be made for the same
20         taxable year under Section 203(d)(2)(D-8) for
21         intangible expenses and costs paid, accrued, or
22         incurred, directly or indirectly, to the same foreign
23         person.
 
24     (e) Gross income; adjusted gross income; taxable income.
25         (1) In general. Subject to the provisions of paragraph
26     (2) and subsection (b) (3), for purposes of this Section
27     and Section 803(e), a taxpayer's gross income, adjusted
28     gross income, or taxable income for the taxable year shall
29     mean the amount of gross income, adjusted gross income or
30     taxable income properly reportable for federal income tax
31     purposes for the taxable year under the provisions of the
32     Internal Revenue Code. Taxable income may be less than
33     zero. However, for taxable years ending on or after
34     December 31, 1986, net operating loss carryforwards from
35     taxable years ending prior to December 31, 1986, may not

 

 

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1     exceed the sum of federal taxable income for the taxable
2     year before net operating loss deduction, plus the excess
3     of addition modifications over subtraction modifications
4     for the taxable year. For taxable years ending prior to
5     December 31, 1986, taxable income may never be an amount in
6     excess of the net operating loss for the taxable year as
7     defined in subsections (c) and (d) of Section 172 of the
8     Internal Revenue Code, provided that when taxable income of
9     a corporation (other than a Subchapter S corporation),
10     trust, or estate is less than zero and addition
11     modifications, other than those provided by subparagraph
12     (E) of paragraph (2) of subsection (b) for corporations or
13     subparagraph (E) of paragraph (2) of subsection (c) for
14     trusts and estates, exceed subtraction modifications, an
15     addition modification must be made under those
16     subparagraphs for any other taxable year to which the
17     taxable income less than zero (net operating loss) is
18     applied under Section 172 of the Internal Revenue Code or
19     under subparagraph (E) of paragraph (2) of this subsection
20     (e) applied in conjunction with Section 172 of the Internal
21     Revenue Code.
22         (2) Special rule. For purposes of paragraph (1) of this
23     subsection, the taxable income properly reportable for
24     federal income tax purposes shall mean:
25             (A) Certain life insurance companies. In the case
26         of a life insurance company subject to the tax imposed
27         by Section 801 of the Internal Revenue Code, life
28         insurance company taxable income, plus the amount of
29         distribution from pre-1984 policyholder surplus
30         accounts as calculated under Section 815a of the
31         Internal Revenue Code;
32             (B) Certain other insurance companies. In the case
33         of mutual insurance companies subject to the tax
34         imposed by Section 831 of the Internal Revenue Code,
35         insurance company taxable income;
36             (C) Regulated investment companies. In the case of

 

 

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1         a regulated investment company subject to the tax
2         imposed by Section 852 of the Internal Revenue Code,
3         investment company taxable income;
4             (D) Real estate investment trusts. In the case of a
5         real estate investment trust subject to the tax imposed
6         by Section 857 of the Internal Revenue Code, real
7         estate investment trust taxable income;
8             (E) Consolidated corporations. In the case of a
9         corporation which is a member of an affiliated group of
10         corporations filing a consolidated income tax return
11         for the taxable year for federal income tax purposes,
12         taxable income determined as if such corporation had
13         filed a separate return for federal income tax purposes
14         for the taxable year and each preceding taxable year
15         for which it was a member of an affiliated group. For
16         purposes of this subparagraph, the taxpayer's separate
17         taxable income shall be determined as if the election
18         provided by Section 243(b) (2) of the Internal Revenue
19         Code had been in effect for all such years;
20             (F) Cooperatives. In the case of a cooperative
21         corporation or association, the taxable income of such
22         organization determined in accordance with the
23         provisions of Section 1381 through 1388 of the Internal
24         Revenue Code;
25             (G) Subchapter S corporations. In the case of: (i)
26         a Subchapter S corporation for which there is in effect
27         an election for the taxable year under Section 1362 of
28         the Internal Revenue Code, the taxable income of such
29         corporation determined in accordance with Section
30         1363(b) of the Internal Revenue Code, except that
31         taxable income shall take into account those items
32         which are required by Section 1363(b)(1) of the
33         Internal Revenue Code to be separately stated; and (ii)
34         a Subchapter S corporation for which there is in effect
35         a federal election to opt out of the provisions of the
36         Subchapter S Revision Act of 1982 and have applied

 

 

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1         instead the prior federal Subchapter S rules as in
2         effect on July 1, 1982, the taxable income of such
3         corporation determined in accordance with the federal
4         Subchapter S rules as in effect on July 1, 1982; and
5             (H) Partnerships. In the case of a partnership,
6         taxable income determined in accordance with Section
7         703 of the Internal Revenue Code, except that taxable
8         income shall take into account those items which are
9         required by Section 703(a)(1) to be separately stated
10         but which would be taken into account by an individual
11         in calculating his taxable income.
12         (3) Recapture of business expenses on disposition of
13     asset or business. Notwithstanding any other law to the
14     contrary, if in prior years income from an asset or
15     business has been classified as business income and in a
16     later year is demonstrated to be non-business income, then
17     all expenses, without limitation, deducted in such later
18     year and in the 2 immediately preceding taxable years
19     related to that asset or business that generated the
20     non-business income shall be added back and recaptured as
21     business income in the year of the disposition of the asset
22     or business. Such amount shall be apportioned to Illinois
23     using the greater of the apportionment fraction computed
24     for the business under Section 304 of this Act for the
25     taxable year or the average of the apportionment fractions
26     computed for the business under Section 304 of this Act for
27     the taxable year and for the 2 immediately preceding
28     taxable years.
29     (f) Valuation limitation amount.
30         (1) In general. The valuation limitation amount
31     referred to in subsections (a) (2) (G), (c) (2) (I) and
32     (d)(2) (E) is an amount equal to:
33             (A) The sum of the pre-August 1, 1969 appreciation
34         amounts (to the extent consisting of gain reportable
35         under the provisions of Section 1245 or 1250 of the
36         Internal Revenue Code) for all property in respect of

 

 

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1         which such gain was reported for the taxable year; plus
2             (B) The lesser of (i) the sum of the pre-August 1,
3         1969 appreciation amounts (to the extent consisting of
4         capital gain) for all property in respect of which such
5         gain was reported for federal income tax purposes for
6         the taxable year, or (ii) the net capital gain for the
7         taxable year, reduced in either case by any amount of
8         such gain included in the amount determined under
9         subsection (a) (2) (F) or (c) (2) (H).
10         (2) Pre-August 1, 1969 appreciation amount.
11             (A) If the fair market value of property referred
12         to in paragraph (1) was readily ascertainable on August
13         1, 1969, the pre-August 1, 1969 appreciation amount for
14         such property is the lesser of (i) the excess of such
15         fair market value over the taxpayer's basis (for
16         determining gain) for such property on that date
17         (determined under the Internal Revenue Code as in
18         effect on that date), or (ii) the total gain realized
19         and reportable for federal income tax purposes in
20         respect of the sale, exchange or other disposition of
21         such property.
22             (B) If the fair market value of property referred
23         to in paragraph (1) was not readily ascertainable on
24         August 1, 1969, the pre-August 1, 1969 appreciation
25         amount for such property is that amount which bears the
26         same ratio to the total gain reported in respect of the
27         property for federal income tax purposes for the
28         taxable year, as the number of full calendar months in
29         that part of the taxpayer's holding period for the
30         property ending July 31, 1969 bears to the number of
31         full calendar months in the taxpayer's entire holding
32         period for the property.
33             (C) The Department shall prescribe such
34         regulations as may be necessary to carry out the
35         purposes of this paragraph.
 

 

 

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1     (g) Double deductions. Unless specifically provided
2 otherwise, nothing in this Section shall permit the same item
3 to be deducted more than once.
 
4     (h) Legislative intention. Except as expressly provided by
5 this Section there shall be no modifications or limitations on
6 the amounts of income, gain, loss or deduction taken into
7 account in determining gross income, adjusted gross income or
8 taxable income for federal income tax purposes for the taxable
9 year, or in the amount of such items entering into the
10 computation of base income and net income under this Act for
11 such taxable year, whether in respect of property values as of
12 August 1, 1969 or otherwise.
13 (Source: P.A. 92-16, eff. 6-28-01; 92-244, eff. 8-3-01; 92-439,
14 eff. 8-17-01; 92-603, eff. 6-28-02; 92-626, eff. 7-11-02;
15 92-651, eff. 7-11-02; 92-846, eff. 8-23-02; 93-812, eff.
16 7-26-04; 93-840, eff. 7-30-04; revised 10-12-04.)
 
17     Section 99. Effective date. This Act takes effect upon
18 becoming law.