Section 100.2000  Introduction

a)         In general.  The Illinois Department of Revenue is an agency of the government of the State of Illinois under the immediate  direction of the Director of Revenue.  The  Director  has  general  administrative responsibility for  the assessment  and collection  of the Illinois  Income Tax.  Offices  of the Department are in  Springfield (101  West Jefferson, Springfield, Illinois 62708)  and there are District Offices (as of May 31, 1999) in  Rockford, Des  Plaines, Fairview  Heights,  Marion,  Rock  Island, Peoria, Springfield, Chicago, Evergreen Park, West Chicago, Park City and Urbana, Illinois; and Culver City, California; Garland, Texas; Cleveland, Ohio; and Paramus, New Jersey.

b)         Scope.  The procedural  rules of  the Department  set forth in  this Part  apply to the taxes imposed by the Illinois Income  Tax Act.  These regulations provide a descriptive statement of the general course and method by which  the Department's functions are channeled and determined, insofar as such functions relate generally to the  assessment  and  collection  of  the  Illinois income tax  and enforcement of the Illinois Income Tax Act.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2050 Net Income (IITA Section 202)

a)         A taxpayer's net income under the IITA is that portion of the taxpayer's base income (determined under IITA Section 203) for the taxable year that is allocable or apportionable to Illinois under the provisions of Article 3 of the IITA, less the Illinois net loss deduction allowed by IITA Section 207 and the exemptions allowed by IITA Section 204 and Section 100.2055. (IITA Section 202) In computing net income, any Illinois net operating loss deduction shall be subtracted before the subtraction for the exemptions.

b)         For tax years ending on or after December 31, 1986, net income for income tax (IITA Section 201(a) and (b)) and for replacement tax (IITA Section 201(c) and (d)) are identical amounts. For prior tax years, the net income amount for replacement tax was usually a greater amount than net income for income tax. For purposes of the net loss deduction that may be subtracted from net income in those prior years, the amount deductible for income tax purposes shall govern, and the amount that may be deducted for replacement tax purposes in a given tax year shall be the same amount as may be deducted for income tax purposes.

(Source:  Amended at 41 Ill. Reg. 14217, effective November 7, 2017)

Section 100.2055  Standard Exemption (IITA Section 204)

a)         In computing net income, there shall be allowed as an exemption the sum of the basic amounts provided under subsections (b) and (c) plus the additional exemptions allowed under subsection (d), multiplied by a fraction, the numerator of which is the amount of the taxpayer's base income allocable to this State for the taxable year and the denominator of which is the taxpayer's total base income for the taxable year. (IITA Section 204(a))

b)         Each taxpayer shall be allowed an exemption in the basic amount equal to:

1)         in the case of an individual:

A)        for taxable years ending prior to December 31, 1998, $1,000; (IITA Section 204(b))

B)        for taxable years ending on or after December 31, 1998 and prior to December 31, 1999, $1,300; (IITA Section 204(b)(1))

C)        for taxable years ending on or after December 31, 1999 and prior to December 31, 2000, $1,650; (IITA Section 204(b)(2))

D)        for taxable years ending on or after December 31, 2000, and prior to December 31, 2012, $2,000; (IITA Section 204(b)(3))

E)        for taxable years ending on or after December 31, 2012 and prior to December 31, 2013 and for taxable years beginning on or after June 1, 2017, $2,050; (IITA Section 204(b)(4))

F)         for taxable years ending on or after December 31, 2013 and on or before December 31, 2022, $2,050 plus the cost-of-living adjustment under subsection (e); (IITA Section 204(b)(5))

G)        for taxable years ending on or after December 31, 2023 and prior to December 31, 2024, $2,425; (IITA Section 204(b)(6))

H)        for taxable years ending on or after December 31, 2024 and on or before December 31, 2028, $2,050 plus the cost-of-living adjustment under subsection (e); and (IITA Section 204(b)(7))

I)         for taxable years ending after December 31, 2028, zero.

2)         for taxable years ending on or after December 31, 1992, an individual taxpayer whose Illinois base income exceeds the basic amount and who is claimed as a dependent on another person's tax return under the Internal Revenue Code shall not be allowed any basic amount under this subsection (b). (IITA Section 204(b))

3)         in the case of a corporation, $1000 for taxable years ending prior to December 31, 2003 and $0 for taxable years ending on or after December 31, 2003. (IITA Section 204(b))

4)         in the case of an organization exempt from tax under IITA Section 205(a), $0. (See IITA Section 205.)

5)         in all other cases, $1,000. (See IITA Section 204(b).)

c)         Each individual taxpayer shall be allowed an additional exemption equal to the basic amount for each exemption in excess of one allowable to that individual taxpayer for the taxable year under IRC section 151. (IITA Section 204(c))

d)         Additional Exemptions

1)         Each individual taxpayer is allowed:

A)        an additional exemption of $1,000 for the taxpayer if he or she has attained the age of 65 before the end of the taxable year; (IITA Section 204(d)(1))

B)        an additional exemption of $1,000 for the taxpayer if he or she is blind at the end of the taxable year; (IITA Section 204(d)(2))

C)        an additional exemption of $1,000 for the spouse of the taxpayer if the spouse has attained the age of 65 before the end of the taxable year plus an additional exemption of $1,000 for the spouse of the taxpayer if the spouse is blind as of the end of the taxable year and, in either case:

i)          a joint return is not made by the taxpayer and his or her spouse; 

ii)         for the calendar year in which the taxable year of the taxpayer begins, the spouse has no gross income and is not the dependent of another taxpayer. (IITA Section 204(d)(1) and (2))

2)         For purposes of this subsection (d), an individual is blind only if his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual fields subtends an angle no greater than 20 degrees. A spouse who dies before the end of a taxpayer's taxable year and who is blind at the time of his or her death shall be treated as blind as of the end of the taxable year. (IITA Section 204(d)(2))

e)         The cost-of-living adjustment for any calendar year and for taxable years ending prior to the end of the subsequent calendar year is equal to $2,050 times the percentage (if any) by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the calendar year 2011. For purposes of this subsection (e):

1)         The Consumer Price Index for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of that calendar year.

2)         The term "Consumer Price Index" means the last Consumer Price Index for All Urban Consumers published by the United States Department of Labor or any successor agency.

3)         If any cost-of-living adjustment is not a multiple of $25, that adjustment shall be rounded to the next lowest multiple of $25. (IITA Section 204(d-5))

f)         In the case of a taxable year for a period of less than 12 months, the standard exemption allowed under this Section shall be prorated on the basis of the number of days in that year to 365. (IITA Section 401(b))

g)         Notwithstanding any other provision of law, for taxable years beginning on or after January 1, 2017, if the taxpayer's adjusted gross income for the taxable year exceeds $500,000, in the case of spouses filing a joint federal tax return or $250,000, in the case of all other taxpayers, the exemption allowed under this Section is zero. (IITA Section 204(g)) For purposes of this provision, each spouse is a separate taxpayer. This provision applies to partnerships, trusts and estates as well as to individuals. For estates and trusts, adjusted gross income is defined in IRC section 67(e). Because partnerships are not required to compute adjusted gross income, partnerships may use taxable income as defined in IITA Section 203(e)(2)(H) for purposes of this subsection (g).

(Source:  Amended at 48 Ill. Reg. 1677, effective January 10, 2024)

Section 100.2060  Compassionate Use of Medical Cannabis Pilot Program Act Surcharge (IITA Section 201(o))

a)         In general. For each taxable year beginning or ending during the Compassionate Use of Medical Cannabis Pilot Program, a surcharge is imposed on all taxpayers on income arising from the sale or exchange of capital assets, depreciable business property, real property used in the trade or business, and Section 197 intangibles of an organization registrant under the Compassionate Use of Medical Cannabis Pilot Program Act [410 ILCS 130]. (IITA Section 201(o))

b)         Definitions.  For purposes of this Section:

"Act" means the Compassionate Use of Medical Cannabis Pilot Program Act [410 ILCS 130].

"Organization Registrant" means a corporation, partnership, trust, limited liability company, or other organization, but not an individual, that holds either a medical cannabis cultivation center registration issued by the Department of Agriculture under Section 85 of the Act or a medical cannabis dispensary registration issued by the Department of Financial and Professional Regulation under Section 115 of the Act.

"Transactions Subject to the Surcharge" means sales and exchanges of capital assets, depreciable business property, real property used in the trade or business, and Section 197 intangibles of an organization registrant. (IITA Section 201(o)) Although a unitary business group filing combined Illinois returns under IITA Section 502(f) is treated as a single taxpayer and its members are jointly and severally liable for any surcharge imposed on the group, the group itself is not an organization registrant and transactions of any member that is not itself an organization registrant are not subject to the surcharge.

c)         Imposition of the Surcharge.  The surcharge is imposed on any taxpayer who incurs a federal income tax liability on the income realized on a transaction subject to the surcharge, including individuals and other taxpayers who are not themselves the organization registrant that engaged in the transaction.  An entity that is exempt from federal income tax and therefore incurs no liability with respect to a transaction otherwise subject to the surcharge will incur no surcharge.  For example:

1)         A disregarded entity, whose existence separate from that of its owner is disregarded under 26 CFR 301.7701-3, and a grantor trust will incur no federal income tax liability because income of these entities is taxed to the owner or the grantor.  The disregarded entity or grantor trust will therefore incur no surcharge.  Rather, the surcharge is imposed on the owner of the entity, or the grantor of the trust, who is taxable on the income from a transaction subject to the surcharge.

2)         A partnership incurs no federal income tax liability because its income is taxed to its partners, and so will incur no surcharge. In the case of an organization registrant that is a partnership, the surcharge is imposed on each partner who is taxable on the income from a transaction of the partnership that is subject to the surcharge.

3)         A Subchapter S corporation will generally incur no federal income tax liability because its income is taxed to its shareholders, and so will generally incur no surcharge.  However, a Subchapter S corporation subject to federal income tax on built-in gains or passive income from transactions subject to the surcharge is subject to the surcharge. The surcharge is imposed on a shareholder for income from transactions of the Subchapter S corporation that are subject to the surcharge, including transactions on which the surcharge is also imposed on the Subchapter S corporation.

4)         A trust will incur no federal income tax liability for transactions subject to the surcharge if the income from a transaction subject to the surcharge is distributed or deemed distributed to its beneficiaries, who are then taxed on the income.  In those situations, the trust will incur no surcharge, but the beneficiary to whom the income is taxable will incur the surcharge. 

d)         Amount of the Surcharge. The amount of the surcharge is equal to the amount of federal income tax liability of the taxpayer for the taxable year attributable to transactions subject to the surcharge. (IITA Section 201(o))

1)         The federal income tax liability attributable to transactions subject to the surcharge means the federal income tax liability of the taxpayer for the taxable year, minus the federal income tax liability of the taxpayer for the taxable year computed as if the transactions subject to the surcharge made in that year had not been made by the organization registrant. 

2)         If taxpayer is a member of an affiliated group of corporations that files a federal consolidated income tax return, the federal income tax liability attributable to transactions subject to the surcharge means the consolidated federal income tax liability of the affiliated group for the taxable year, minus the federal income tax liability of the affiliated group for the taxable year computed as if the transactions subject to the surcharge for which taxable income or gain was recognized in that taxable year had not been made, multiplied by a fraction equal to the amount of the separate taxable income of that member that is attributable to transactions subject to surcharge divided by the sum of the separate taxable incomes attributable to transactions subject to surcharge of all members of the affiliated group. 

e)         Transactions Exempt from the Surcharge. Under IITA Section 201(o)(1) and (2), the surcharge does not apply to a transaction if:

1)         the transaction occurs in connection with the transfer of the medical cannabis cultivation center registration, medical cannabis dispensary registration, or the property of the organization registrant as a result of any of the following:

A)        a bankruptcy, receivership or debt adjustment initiated by or against the organization registrant;

B)        the cancellation, revocation or termination of the organization registrant's registration by the Illinois Department of Public Health;

C)        a determination by the Illinois Department of Public Health that transfer of the organization registrant's registration is in the best interests of Illinois qualifying patients;

D)        the death of an owner of the equity interest in a organization registrant;

E)        the acquisition of a controlling interest in the stock or substantially all of the assets of an organization registrant that is a publicly traded company;

F)         a transfer by a parent company to a wholly owned subsidiary; or

G)        the transfer or sale to or by one person to another person where both persons were initial owners of the registration when the registration was issued; or

2)         the cannabis cultivation center registration, medical cannabis dispensary registration, or the controlling interest in a registrant's property is transferred in a transaction to lineal descendants or because of a transaction under 26 USC 351, so long as no gain or loss is recognized.

f)         Special Rules and Provisions

1)         Because the surcharge is imposed under Article 2 of the IITA, the taxpayer's surcharge liability for a taxable year is included in the tax liability for which estimated payments must be made for that taxable year.  (See IITA Section 804(f).) 

2)         Because the surcharge is imposed under IITA Section 201, refunds of overpayments of the surcharge may be made from funds in the Income Tax Refund Fund. (See IITA Section 901(d)(1).)

(Source:  Added at 38 Ill. Reg. 17043, effective July 23, 2014)

Section 100.2100  Replacement Tax Investment Credit Prior to January 1, 1994 (IITA 201(e))

a)         Scope of this Section.  Hereinafter, unless specifically provided  otherwise the  term "investment credit" refers to  the  credit  against  the Personal Property  Tax Replacement Income Tax provided by IITA  Section 201(e).

b)         A taxpayer shall be allowed  a credit equal to .5% of the basis of qualified property placed in service during the  taxable year,  provided  such property is placed in service on or after July 1, 1984 (IITA Section 201(e)(1)).

c)         There shall be allowed an additional credit equal to .5% of the basis of qualified property placed in service during the taxable year provided such property is placed in service on or after July 1, 1986, and the taxpayer's base employment within Illinois has increased by 1% or more over the preceding year as determined by the taxpayer's employment records filed with the Illinois Department of Employment Security. If, in any year, the increase in  base employment over the preceding year is less than  1%, the  additional  credit shall be limited to that percentage times a fraction, the numerator of which is .5% and the denominator of which is 1%, but shall not exceed .5% (IITA Section 201(e)(1)).

1)         Base employment.  For purposes of calculating the additional investment credit, base employment in Illinois is defined as the average monthly total of individuals employed in Illinois by a taxpayer during the taxable year.  To calculate base employment for a particular taxable year, the taxpayer need only total the number of individuals he employed in Illinois during each month of the taxable year as reported to the Illinois Department of Employment Security on Line 1 of Form UC-3/40 or UI-3/40M and divide this total by the number of months in the taxable year.

2)         Example of the Additional Investment Credit Computation.  During the calendar year 1991, Corporation A reported 500 employees each month on Line 1 of Form UC-3/40.  Therefore, Corporation A's base employment in Illinois for 1991 was 500  ((500 x 12)/12 = 500).  In 1992, Corporation A reported 500 employees for each of the first six months, and 505 employees for each of the remaining six months of the taxable year.  Therefore, Corporation A's base employment for 1992 was 502.5  ((500 x 6) + (505 x 6)/12 = 502.5).  Corporation A's percentage of increase in 1992 base employment over 1991 base employment is .5%.  This figure is computed by subtracting the 1991 base employment from the 1992 base employment and dividing the remainder by the 1991 base employment ((502.5 - 500)/500 = .005 or .5%).  Corporation A will be allowed an additional investment credit for 1992 of .25% (one-half the percentage of increase) times the adjusted basis of qualified property placed in service in Illinois during the taxable year and on or after July 1986.

d)         The investment  credit  is  not allowed to the extent it would decrease the taxpayer's replacement tax liability for the taxable year to less than zero, nor may any credit for qualified property be allowed for any year other than the year in which the property was placed in service in Illinois.

1)         No carryback or carryforward of unused credit is allowed for tax years ending prior  to December  31, 1985.

2)         For tax years ending on or after December 31, 1987, and on or before December 31, 1988, the credit shall be allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit years if the taxpayer:

A)        makes investments which cause the creation of a minimum of 2,000 full-time equivalent jobs in Illinois,

B)        is located in an enterprise zone established pursuant to the Illinois Enterprise Zone Act, and

C)        is certified by the Department of Commerce and Community Affairs as complying with the requirements specified in subsections (d)(2)(A) and (B) above, by July 1, 1986 (IITA Section 203(e)(1)).

3)         For tax years ending after December 31, 1988, the credit shall be allowed  for the  tax year in which the property is placed in  service, or,  if the  amount of  the credit exceeds the  tax liability  for that  year, whether it exceeds the  original liability  or the  liability  as later amended,  such excess may be carried forward and applied to  the tax  liability of  the 5 taxable years following the excess credit year.  The credit shall be applied to  the earliest  year for  which there  is  a liability.  If there is credit from more than one tax year that  is available  to offset  a  liability, earlier credit shall be applied first.

e)         Qualified property.  In order to qualify for the investment credit, property must be tangible; depreciable pursuant to Internal Revenue Code Section 167, except  that "3-year  property" as defined in IRC Section 168(c)(2)(A) is not eligible; and acquired by purchase as  defined in Internal Revenue Code Section 179(d).  IRC Section 168(c)(2)(A), as in effect at the time the credit was enacted, defined "3-year property" to mean "section 1245 property: with a present class life of 4 years or less; or used in connection with research and experimentation." In addition  to the  above  requirements, property must be used in Illinois, by the taxpayer, in manufacturing, retailing, coal  mining  or  fluorite mining in order to qualify for the IITA Section 201(e) credit against  the replacement  tax.   Qualified property can be new or used; but cannot  have been  previously used in Illinois, in such a  manner and  by such  a person as would qualify for the investment credit, or for the Section 201(f) Enterprise Zone Investment Credit,  and includes buildings and structural components thereof.

1)         Tangible property.  Tangible property can consist of personalty  or realty and includes, but is not limited  to, buildings,  component parts of buildings, machinery,  equipment,  and  vehicles. Certain property, though tangible in nature, does not qualify as investment credit property because it is not depreciable.

2)         Depreciable.  In  order to qualify for the investment  credit, property must also be depreciable pursuant to IRC Section 167. IRC Section 167 provides that  depreciable property  is  property used in the taxpayer's trade or business or held for the production of income which is subject to wear and tear, exhaustion, or obsolescence.

A)        Property which is depreciated under the Modified Accelerated Cost Recovery System (MACRS) as provided by IRC Section 168, is considered depreciable pursuant to IRC Section 167  for  purposes  of  the investment credit.  Property assigned to a MACRS class of less than 4 years does not qualify for the investment credit.

B)        Examples of tangible property which is not depreciable are land, inventories or stock in  trade, natural  resources, and  coin or currency.

C)        The  provisions of Treasury Reg. Section 1.167(a)-4 shall govern in determining whether leasehold improvements are depreciable.

D)        IRC Section 179 allows taxpayers, under certain circumstances, to expense up to $10,000 of equipment purchased in a single tax year.  Based on this provision, if the total cost of the property was $10,000 or less, the taxpayer has the option of expensing the cost all in one year as a depreciation expense.  While the property does have a useful life of four or more years, since the election was made to completely expense the cost of the property in one year, the property has no federal depreciable basis and does not have a basis upon which to compute the Illinois investment tax credit.  Property not fully expensed under Section 179 would qualify for the credit based on the cost of the depreciable property reduced by the Section 179 deduction.

3)         Placed in  service.  For purposes of the Illinois investment credit,  "placed in  service"  has  the same meaning  as under IRC Section 46.  Property  will be  considered  to have been  placed in  service in the same taxable year  in  which  it  is  taken  into  account  in determining the  federal investment  tax  credit. See Treasury Reg. Section 1.46-3(d).

A)        Even though property is placed in service in the same  taxable year  in which it is taken into account  in determining  the Federal investment tax  credit only  property placed in service in Illinois  after June 30, 1984 and before January 1, 1997 can qualify for consideration in determining the credit against the replacement tax.   Qualifying property shall be considered placed in service in Illinois on the date on which the property  is placed  in a  condition  or state of  readiness and  availability for  a specifically assigned  function.  See Treasury Reg. Section 1.46-3(d)(2).

B)        Property which  is disposed of or which ceases  to  qualify  for  any  other  reason during the  same taxable  year it was placed in service  in Illinois  will not be considered in computing the investment credit for the taxable year.

4)         Adjusted basis.  The basis of qualified property for purposes of the investment credit is the property's basis used to compute the depreciation deduction for federal income tax purposes.

A)        In computing the amount of investment credit available for a taxable year, the proper investment credit rate will be applied to the total basis of all qualified property placed in service in Illinois during the taxable year, provided the property continues to qualify on the last day of the taxable year.

B)        If the basis of property placed in service during a taxable year is increased or decreased during  the same taxable year, the increased or decreased basis will be used to compute the investment credit for the taxable year.

5)         Acquired by  purchase. In order  to qualify for the investment  credit, the property must have been acquired  by purchase  as defined in IRC Section 179(d).  For purposes of determining whether property is acquired by purchase as defined by IRC Section 179(d), the family of an individual includes only his spouse, ancestors and lineal descendants.  Also, for these purposes only, a controlled group has the same meaning as in IRC Section 1563(a), except stock ownership of only 50% or more is required.  See Treasury Reg. Section 1.179-4 under the Internal Revenue Code. Property which the taxpayer constructs, reconstructs or erects itself is generally considered acquired by purchase.  IRC Section 179 defines purchase as any acquisition of property except:

A)        an acquisition from a person whose relationship to the acquiring person is such that a  resulting loss would be disallowed under IRC Section 267 or 707(b);

B)        an acquisition by one component member of a controlled group from another component member of the group; an acquisition of property, if the basis of  the property in the hands of the person acquiring it is determined in whole or in part by its adjusted  basis in the hands of the person from whom the property was acquired; or

C)        an acquisition of  property, the  basis of  which is determined under IRC Section 1014(a).  IRC Section 1014(a) covers property acquired from a decedent.  Property acquired by bequest or demise is not acquired by purchase.

6)         Used in Illinois.  Mobile property such as vehicles must be used predominantly in Illinois.  Removal of such property from Illinois for a temporary and transitory purpose will not disqualify the property so long as it continues to be used predominantly in the Illinois operation of the taxpayer.  For purposes of this Section, mobile property is considered to be predominantly used in Illinois if usage in Illinois exceeds usage outside of Illinois.  Example.  A retailer sometimes uses its trucks based in Illinois to deliver goods both in Illinois and to out-of-State buyers.  Such temporary absence of its trucks  from  Illinois  does  not  disqualify them.

7)         Manufacturing,  retailing, coal or fluorite mining.  In general, in order to qualify for the investment credit against the replacement  tax, property must be used in Illinois by the taxpayer exclusively in manufacturing operations, retailing, coal mining, or fluorite  mining.  See subsection (d) of this regulation for  the method of apportioning the cost of a building or structural component thereof  when a portion of such building or structural component is used in a non-qualifying operation.  A  lessor of otherwise qualifying property, which property is used by the lessee in manufacturing, retailing, or coal or fluorite mining operations, would not qualify for the credit because the property is not used "by the taxpayer".

8)         Manufacturing  operations.  "Manufacturing operations" is  defined in IITA Section 201(e)(3) as the material  staging and  production of tangible personal property by procedures commonly regarded as  manufacturing, processing,  fabrication  or assembling which changes some existing material into new shapes, new qualities, or new combinations.  It  is  not  necessary  that  such procedures result in a finished consumer product.  Procedures commonly regarded  as  manufacturing, processing, fabrication or  assembling are  those so regarded by the  general public.  The  use  of  otherwise qualifying property in any industrial, commercial or business  activity which  may be distinguished from manufacturing,  processing,  fabrication  or assembling will not be considered a manufacturing operation for  purposes  of  the  Section  201(e) credit.  For example,  a building constructed to house the  administrative services  division of a manufacturing  company  would  not  be  used  for manufacturing operations  and would  not  qualify for the Section 201(e) credit.  By way of further example, otherwise  qualifying property  used  in the following operations will not qualify for the investment credit  because the activities described are generally not considered manufacturing operations:

A)        Agricultural activities such as cultivating the soil;  raising or  harvesting crops; the production of  seed or seedlings; and the development of hybrid seeds, plants, or shoots are not manufacturing operations. The raising or breeding of  livestock, poultry, fish or any other animals, as well as commercial fishing or beekeeping is not manufacturing.

B)        Manufacturing  operations do  not  include mining;  quarrying;  logging;  drilling  for oil, gas  or water;  or any other operations which  result in the  extraction  or procurement of a natural resource.  However, the refining  or processing  of such natural resources into a product of a different form or a  product which  has different qualities is manufacturing.

C)        Persons engaged in the construction, reconstruction, alteration,  remodeling,  or improvement  of  real  estate  are  not considered engaged in manufacturing operations.

D)        Manufacturing  operations  do  not  include research and  development of new products or production techniques.

E)        Manufacturing operations do not include the use of  machinery or equipment in managerial or  other  non-production,  non-operational activities including  disposal  of  waste, scrap or  residue, inventory control, production  scheduling,  work routing, purchasing,  receiving, accounting,  fiscal management,  general  communications,  plant security, or personnel recruitment, selection or training.

9)         Retailing.  Retailing is  defined as the sale of tangible personal  property or services rendered in conjunction with the sale of tangible consumer goods or commodities (IITA Section 203(e)(3)). It is not required that such  tangible personal property be finished consumer goods,  or that  the property be sold to its ultimate  consumer.  For example,  sales  of tangible  personal property  for resale are included in  the definition  of retailing.  Also included in the definition of retailing for these purposes are any services rendered in conjunction with the sale of tangible consumer goods or commodities such as uncrating, cleaning, assembling, delivery  or  installation,  provided such services  are in conjunction with a specific sale.  For  example,  a  delivery  truck  would qualify for  the Section  201(e) credit  as it is used in  conjunction with  specific sales  but  a company jet  used by the president of the company for  general  or  personal  purposes  would  not. Similarly, equipment used by the payroll division of a  company would  not be  used in  a retailing operation or in a service rendered in conjunction with the  sale of  tangible consumer  goods.  The following activities are not considered retailing operations:

A)        The construction, reconstruction, alteration, remodeling, or improvement  of real estate;

B)        The operation  of a  hotel or motel or other institution providing only lodging facilities;

C)        Other service professions which do not involve the transfer of tangible personal property other than as an incident to the service  performed.  For guidance in distinguishing service professions from retailing professions, the Department will rely on  rules promulgated under the Service Occupation Tax Act at 86 Ill. Adm. Code 140;

D)        Farming operations related to crop and livestock production do not constitute retailing.  However, the marketing of such products would constitute a retailing operation and otherwise qualifying property used in marketing farm produce would qualify for the Section 201(h) credit.

10)       Mining of coal or fluorite.  Mining has the same meaning as in Section 613(c) of the Internal Revenue Code, but shall be limited to the mining of coal and fluorite (IITA Section 203(e)(3)).  Mining as defined in IRC Section 613(c) includes not only extraction, but also treatment processes such as  cleaning, breaking, sorting,  sizing,  dust  allaying,  and loading for shipment.

11)       New or used.  Qualifying property can be new or used; however, used property does not qualify if it was  previously used  in Illinois  in  such  a manner and  by such a person as would qualify for the Illinois investment credit.

A)        Example:  Corporation A  purchases  a  used pick-up truck, for use in its manufacturing business  in  Illinois,  from  an  Illinois resident who  used the  truck  for  personal purposes in  Illinois.  If the  truck meets all the other requirements for the investment credit it will not be disqualified, merely, because it was previously used  in Illinois  for a  purpose which  did not  qualify  for  the  credit. However, had  Corporation  A  purchased  the used truck  from  an  Illinois  taxpayer  in whose hands  the  truck  qualified  for  the investment credit,  the truck  would not  be qualified property  to Corporation  A,  even though the  party from  whom the  truck  was acquired had  never received  an  investment credit for it.

B)        Property which  would otherwise  qualify for the credit  will not be disqualified because it was  previously used in such a manner and by such a person as would have qualified for the  investment credit before the time such credit came into  effect.  Example:  In August of 1983, Corporation A purchased a drill press  for use  in  its  manufacturing operation in  an  Illinois  Enterprise  Zone from Corporation B.  Corporation B originally  placed the  drill  press  into service  in its Illinois manufacturing operation in  January of  1980, before the investment credit came into effect. Even  though  Corporation  B  would  have qualified for the Illinois investment credit had there  been a  credit in 1980, this will not disqualify Corporation A from claiming a credit for  this property, provided  the  property  is otherwise  qualified.  However,  should Corporation  A sell the property to Corporation  C for  use  in  its  Illinois manufacturing operation,  the property would not qualify  for  the investment  credit,  even though it  would otherwise qualify.  Because the property  was used  in such a manner and by such a person as would have qualified for the investment  credit at a time when at least one of the credits was  in effect.  The  fact that the credit was not yet effective when Corporation  A placed  the property  in service  will  not  cause  the  property  to qualify for the credit in the hands of Corporation C because IITA Section 201(e)  specifically provides that the property is  disqualified if  it  previously qualified under  either IITA  Section 201(e) or 201(f).

f)         Apportioning cost  when a  building is  used for  both qualifying and  non-qualifying operations.  To qualify for the  Section 201(e)  credit, property must be used exclusively in  one of  the qualified operations, such as  manufacturing, but  the  taxpayer  need  not  be exclusively engaged  in such  operations.  Therefore, situations may  arise where a building or structure is used  to  house  both  qualifying  and  non-qualifying operations.  In such  cases, the  portion of the cost associated  with that  part  of  the  building  used exclusively in  manufacturing operations would qualify for the  credit, but not that part of the building, or any  part  of  a  separate  building,  used  for  non-qualified operations. The cost of the building can be apportioned by multiplying the cost of the building by a fraction,  the numerator  of which  is total  square footage  devoted  to  qualifying  operations  and  the denominator of which is total square footage.

g)         Recapture.  If within 48 months after being placed in service, any  property ceases to be qualified property in the  hands of  the taxpayer  or the  situs  of  any qualified property  is moved  outside of  Illinois, or outside of  the enterprise  zone,  for  other  than  a temporary or  transitory purpose,  then  the  personal property tax  replacement income or the income  tax (whichever was  reduced by the credit) for the taxable year in which such event occurred will be increased.

1)         Any property disposed of by the taxpayer within 48 months  of being  placed in service ceases to qualify.  Also, any property  converted  to personal use ceases to qualify. Any property used in other than manufacturing, retailing, coal mining or fluorite mining ceases to qualify.

2)         A taxpayer disposes of property when he sells the property,  exchanges or  trades in worn-out property for  new property, abandons the property or retires  it from  use.  Property destroyed by casualty, stolen,  or transferred  as a  gift  is treated as  having been  disposed of.  Property which is mortgaged or used as security for a loan does not  cease to  qualify provided the taxpayer continues to  use the  property in  its  business within Illinois. Property transferred  to a  trustee in bankruptcy   is  considered disposed  of in  the year  the property  is transferred  to  the  trustee.  A  transfer  of property  by foreclosure  is treated as a disposition.

3)         The reduction  of the basis of qualified property resulting  from the  redetermination of the purchase price  is  a  disposition  of  qualified property to  the extent  of such reduction in the taxable year  the reduction  takes place.  This occurs, for  example, when  property is purchased and placed in service in one year, and in a later year the  taxpayer receives  a refund  of part of the original  purchase  price.  See Treasury Reg. Section  1.47-2(c) under the Internal Revenue Code.

4)         In order  to determine  the amount  by which  the personal property  tax replacement  income tax or the income  tax must  be increased in the taxable year in which the property ceased to qualify, was moved outside of Illinois or the enterprise zone, the taxpayer must recompute the investment credit for the  taxable year  in which  the property was placed  in service  by eliminating  from  his calculations any  such property.  This recomputed investment credit  is subtracted  from the amount of credit  actually used in the year in which the disqualified property was placed in service.  The difference between  the recomputed credit and the credit actually  used is  added to  the  personal property tax replacement income tax or the income tax for  the year in which the property ceased to qualify or was moved outside of Illinois.  If the recomputed credit  is  greater  than  the  credit actually used in the year the property was placed in service,  no addition  to the  current taxable year's personal  property tax  replacement income tax or income tax is required.

EXAMPLE:  In 1985, Corporation A places qualifying property  with a  basis of  $55,000 into service  in an  enterprise zone  located  in Illinois and computes a Section 201(g) investment credit for the year of $275 ($55,000.00 x .5%) and a Section 201(h) investment credit of $275 ($55,000  x .5%). Corporation  A's  1985 personal property  tax replacement  income tax is $260 and its income tax liability for the year is $420.  After  application of  the  investment  credit, Corporation A has no remaining replacement  tax liability  and  its  remaining income  tax liability  is $145.  In  the following year, Corporation A  moved a qualifying asset having  a basis  in 1985  of $5,000 from Illinois and is therefore required to recapture a portion of  the investment  credit  applied against its  replacement tax. In  order  to  determine  its  additional income tax for 1986, Corporation A must recompute its 1985   investment  credit  by eliminating the disqualified property ($55,000 - $5,000  x .5%  = $250).  This recomputed credit is subtracted from  the investment credit actually used  in 1985  against  the  income  tax ($260 -  $250 =  $10) and the difference is added to Corporation A's 1986 income tax after application of the 1986 investment credit.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2101  Replacement Tax Investment Credit (IITA 201(e))

a)         A taxpayer shall be allowed a credit against the Personal Property Replacement Income Tax for investment in qualified property ("the  investment credit").   The qualified property must be used in Illinois by a taxpayer who is primarily engaged in manufacturing, retailing, coal mining or fluorite mining.

b)         A taxpayer shall be allowed a credit equal to .5% of the basis  of qualified property placed in service during the taxable year, provided such property is placed in service on or after July 1, 1984 (IITA Section 201(e)(1)).  However, the basis of qualified property shall not include costs incurred after December 31, 2013, except for costs incurred pursuant to a binding contract entered into on or before December 31, 2013 (IITA Section 201(e)(8)).

c)         There shall  be allowed  an additional credit equal to .5% of the basis of qualified property placed in service during the taxable year, provided such property is placed in service on or after July 1, 1986, and the taxpayer's base employment in Illinois has increased by at least 1% over the preceding year. If, in any year, the increase in base employment within Illinois over the preceding year is less than 1%, the additional credit shall be limited to that percentage times a fraction, the numerator of which is .5% and denominator of which is 1%, but shall not exceed .5% (IITA Section 201(e)(1)).

1)         Base employment.  For purposes of calculating the additional investment credit, base employment in Illinois is defined as the average monthly total of individuals employed in Illinois by a taxpayer during the taxable year.  To calculate base employment for a particular taxable year, the taxpayer need only total the number of individuals he employed in Illinois during each month of the taxable year as reported to the Illinois Department of Employment Security on Line 1 of Form UC-3/40 or Form UI-3/40M and divide this total by the number of months in the taxable year.

2)         Example of the Additional Investment Credit Computation.  During the calendar year 1994, Corporation A reported 500 employees each month on Line 1 of Form UC-3/40.  Therefore, Corporation A's base employment in Illinois for 1994 was 500 ((500 x 12) divided by 12 = 500).  In 1995, Corporation A reported 500 employees for each of the first six months, and 505 employees for each of the remaining six months of the taxable year. Therefore, Corporation A's base employment for 1995 was 502.5 ((500 x 6) + (505 x 6) divided by 12 = 502.5).  Corporation A's percentage of increase in 1995 base employment over 1994 base employment is .5%.   This figure is computed by subtracting the 1994 base employment from the 1995 base employment and dividing the remainder by the 1994 base employment ((502.5 - 500) divided by 500 = .005 or .5%).   Corporation A will be allowed an additional investment credit for 1995 of .25% (one-half of the percentage of increase) times the adjusted basis of qualified property placed in service in Illinois during the taxable year and on or after July 1, 1986.

d)         The investment credit is not allowed to the extent it would decrease the taxpayer's replacement tax liability for the taxable year to less than zero, nor may any credit for qualified property be allowed for any year other than the year in which the property was placed in service in Illinois.  No carryback or carryforward of unused credit is allowed for tax years ending prior to December 31, 1985.   For tax years ending after December 31, 1988, the credit shall be allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year.  The credit shall be applied to the earliest year for which there is a liability.   If there is credit from more than one tax year that is available to offset a liability, earlier credit shall be applied first.

e)         Qualified property. In order to qualify for the investment credit, property must be tangible; depreciable pursuant to Internal Revenue Code Section 167, except that "3-year property" as defined in IRC section 168(c)(2)(A) is not eligible; and acquired by purchase as defined in Internal Revenue Code section 179(d). IRC section 168(c)(2)(A), as in effect at the time the credit was enacted, defined "3-year property" to mean "section 1245 property: with a present class life of 4 years or less; or used in connection with research and experimentation". In addition to the above requirements, property must be used in Illinois by the taxpayer who is engaged primarily in manufacturing, retailing, coal mining or fluorite mining, in order to qualify for the IITA Section 201(e) credit against the replacement tax.  Qualified property can be new or used, but cannot have been previously used in Illinois, in such a manner and by such a person as would qualify for the investment credit, or for the Section 201(f) Enterprise Zone Investment Credit, and includes buildings and structural components of buildings.

1)         Tangible property, whether new or used, can consist of personalty or realty and includes, but is not limited to, buildings and structural components of buildings, signs that are real property, machinery, equipment, and vehicles. Certain property, though tangible in nature, does not qualify as investment credit property because it is not depreciable.

2)         Depreciable. In order to qualify for the investment credit, property must also be depreciable pursuant to IRC section 167. IRC section 167 provides that depreciable property is property used in the taxpayer's trade or business or held for the production of income which is subject to wear and tear, exhaustion, or obsolescence.

A)        Property that is depreciated under the Modified Accelerated Cost Recovery System (MACRS), as provided by IRC section 168, is considered depreciable pursuant to IRC section 167 for purposes of the investment credit.  Property assigned to a MACRS class of less than 4 years does not qualify for the investment credit.

B)        Examples of tangible property that is not depreciable are land, inventories or stock in trade, natural resources, and coin or currency.

C)        The provisions of Treasury Reg. section 1.167(a)-4 shall govern in determining whether leasehold improvements are depreciable.

D)        IRC section 179 allows taxpayers, under certain circumstances, to expense up to $25,000 of equipment purchased in a single tax year.  Based on this provision, if the total cost of the property was $25,000 or less, the taxpayer has the option of expensing the cost all in one year as a depreciation expense. While the property does have a useful life of four or more years, since the election was made to completely expense the cost of the property in one year, the property has no federal depreciable basis and does not have a basis upon which to compute the Illinois investment tax credit.  Property not fully expensed under section 179 would qualify for the credit based on the cost of the depreciable property reduced by the section 179 deduction.

3)         Placed in service.  For purposes of the Illinois investment credit, "placed in service" has the same meaning as under IRC section 46.  Property will be considered to have been placed in service in the same taxable year in which it is taken into account in determining the federal investment tax credit. See Treasury Reg. section 1.46-3(d).

A)        Even though property is placed in service in the same taxable year in which it is taken into account in determining the Federal investment tax credit, only property placed in service in Illinois after June 30, 1984 and before January 1, 1997 can qualify for consideration in determining the credit against the replacement tax. Qualifying property shall be considered placed in service in Illinois on the date on which the property is placed in a condition or state of readiness and available for a specifically assigned function.  See Treasury Reg. section 1.46-3(d)(2).

B)        Property that is disposed of, moved out of Illinois or which ceases to qualify for any other reason during the same taxable year it was placed in service in Illinois will not be considered in computing the investment credit for the taxable year.

4)         Adjusted basis.  The basis of qualified property for purposes of the investment credit is the property's basis used to compute the depreciation deduction for federal income tax purposes.  Accordingly, the basis for the credit is determined without regard to any bonus depreciation under IRC section 168(k), but after taking into account any amount treated as an expense not chargeable to capital under IRC section 179.

A)        In computing the amount of investment credit available for a taxable year, the proper investment credit rate will be applied to the total basis of all qualified property placed in service in Illinois during the taxable year, provided the property continues to qualify on the last day of the taxable year.

B)        If the basis of property placed in service during a taxable year is increased or decreased during the same taxable year, the increased or decreased basis will be used to compute the investment credit for the taxable year.

5)         Acquired by purchase.  In order to qualify for the investment credit, the property must have been acquired by purchase as defined in IRC section 179(d).  For purposes of determining whether property is acquired by purchase as defined by IRC section 179(d), the family of an individual includes only his spouse, ancestors and lineal descendants.  Also, for these purposes only, a controlled group has the same meaning as in IRC section 1563(a), except stock ownership of only 50% or more is required.  See Treasury Reg. section 1.179-4 under the Internal Revenue Code. Property which the taxpayer constructs, reconstructs or erects itself is generally considered acquired by purchase.  IRC section 179 defines purchase as any acquisition of property except:

A)        an acquisition from a person whose relationship to the acquiring person is such that a  resulting loss would be disallowed under IRC section 267 or 707(b);

B)        an acquisition by one component member of a controlled group from another component member of the group; an acquisition of property, if the basis of the property in the hands of the person acquiring it is determined in whole or in part by its adjusted basis in the hands of the person from whom the property was acquired; or

C)        an acquisition of property, the basis of which is determined under IRC section 1014(a).  IRC section 1014(a) covers property acquired from a decedent.  Property acquired by bequest or demise is not acquired by purchase.

6)         Used in Illinois.  Mobile property such as vehicles must be used predominantly in Illinois. Removal of such property from Illinois for a temporary and transitory purpose will not disqualify the property so long as it continues to be used predominantly in the Illinois operation of the taxpayer.  For purposes of this Section, mobile property is considered to be predominantly used in Illinois if usage in Illinois exceeds usage outside of Illinois. Example:  A retailer sometimes uses its trucks based in Illinois to deliver goods both in Illinois and to out-of-State buyers.  Temporary   absence of its trucks from Illinois does not disqualify them.

7)         A lessor of otherwise qualifying property that is used by the lessee in manufacturing, retailing, or coal or fluorite mining operations, would not qualify for the credit because the property is not used "by the taxpayer".

8)         "Manufacturing" is defined in IITA Section 201(e)(3) as the material staging and production of tangible personal property by procedures commonly regarded as manufacturing, processing, fabrication or assembling which changes some existing material into new shapes, new qualities, or new combinations.  It is not necessary that these procedures result in a finished consumer product.  Procedures commonly regarded as manufacturing, processing, fabrication or assembling are those so regarded by the general public.  If a taxpayer primarily engages in the following operations, the taxpayer will not qualify for the investment credit on the basis of engaging primarily in manufacturing.  The activities described are generally not considered manufacturing operations:

A)        Agricultural activities such as cultivating the soil, raising or harvesting crops, the production of seed or seedlings, and the development of hybrid seeds, plants or shoots are not manufacturing operations. The raising or breeding of livestock, poultry, fish or any other animals, as well as commercial fishing or beekeeping, is not manufacturing.

B)        Manufacturing operations do not include mining, quarrying, logging, drilling for oil, gas or water, or any other operations that result in the extraction or procurement of a natural resource.  However, the refining or processing of natural resources into a product of a different form or a product that has different qualities is manufacturing.

C)        Persons engaged in the construction, reconstruction, alteration, remodeling or improvement of real estate are not considered engaged in manufacturing operations.

D)        Manufacturing operations do not include research and development of new products or production techniques.

E)        Manufacturing operations do not include the use of machinery or equipment in managerial or other non-production, non-operational activities including disposal of waste, scrap or residue, inventory control, production scheduling, work routing, purchasing, receiving, accounting, fiscal management, general communications, plant security, or personnel recruitment, selection or training.

9)         Retailing.   Retailing is defined as the sale of tangible personal property for use or consumption and not for resale, or services rendered in conjunction with the sale of tangible personal property for use or consumption and not for resale.  For purposes of this Section, the term "tangible personal property" has the same meaning as when used in the Retailers' Occupation Tax Act, and does not include the generation, transmission, or distribution of electricity (IITA Section 201(e)(3)). It is required that the tangible personal property be finished consumer goods, and the property be sold to its ultimate consumer.  For example, sales of tangible personal property for resale are not included in the definition of retailing. The following activities are not considered retailing operations:

A)        The construction, reconstruction, alteration, remodeling or improvement of real estate;

B)        The operation of a hotel or motel or other institution providing only lodging facilities;

C)        Other service professions that do not involve the transfer of tangible personal property other than as an incident to the service performed. For guidance in distinguishing service professions from retailing professions, the Department will rely on rules promulgated under the Service Occupation Tax Act at 86 Ill. Adm. Code 140;

D)        Farming operations related to crop and livestock production do not constitute retailing.   However, the marketing of these products would constitute a retailing operation.

10)         Mining of coal or fluorite.  Mining has the same meaning as in section 613(c) of the Internal Revenue Code, but shall be limited to the mining of coal and fluorite (IITA Section 201(e)(3)). Mining as defined in IRC Section 613(c) includes not only extraction, but also treatment processes such as cleaning, breaking, sorting, sizing, dust allaying, and loading for shipment.

11)         New or used.  Qualifying property can be new or used; however, used property does not qualify if it was previously used in Illinois in such a manner and by such a person as would qualify for the Illinois investment credit.

A)        Example:   Corporation A purchases a used pick-up truck, for use in its manufacturing business in Illinois, from an Illinois resident who used the truck for personal purposes in Illinois. If the truck meets all the other requirements for the investment credit, it will not be disqualified merely because it was previously used in Illinois for a purpose that did not qualify for the credit. However, had Corporation A purchased the used truck from an Illinois taxpayer in whose hands the truck qualified for the investment credit, the truck would not be qualified property to Corporation A, even though the party from whom the truck was acquired had never received an investment credit for it.

B)        Property that would otherwise qualify for the credit will not be disqualified because it was previously used in such a manner and by such a person as would have qualified for the investment credit before the credit came into effect. Example: In August of  1983, Corporation A purchased a drill press for use in its manufacturing operation in an Illinois Enterprise Zone from Corporation B. Corporation B originally placed the drill press into service in its Illinois manufacturing operation in January of 1980, before IITA Section 201(e) came into effect.  Even though Corporation B would have qualified for the Illinois investment credit had there been a credit in 1980, this will not disqualify Corporation A from claiming a credit for this property, provided the property is otherwise qualified.   However, should Corporation A sell the property to Corporation C for use in its Illinois manufacturing operation, the property would not qualify for the credit, even though it would otherwise qualify, because the property was used in such a manner and by such a person as would have qualified for the investment credit under Section 201(e) or 201(f) at a time when at least one of the credits was in effect.   The fact that the Section 201(e) credit was not yet effective when Corporation A placed the property in service will not cause the property to qualify for the Section 201(e) credit in the hands of Corporation C because IITA Section 201(e) specifically provides that the property is disqualified if it previously qualified under either IITA Section 201(e) or 201(f).

f)         To qualify for the credit, property must be used in Illinois by a taxpayer who is primarily engaged in manufacturing, or in mining coal or fluorite, or in retailing.  It is not required that the property be used exclusively in manufacturing, mining of coal or fluorite or in retailing.  So long as the taxpayer is primarily, more than 50%, engaged in one of these operations, all qualified property is eligible for the credit, even if the property is not actually used in an exempt manufacturing, coal or fluorite mining or retailing process.  The taxpayer must engage primarily in one or more of the operations.  In other words, a taxpayer that is engaged 30% of the time in retailing and 40% of the time in manufacturing will qualify for the credit, because the taxpayer is engaged primarily in one or more of the operations.  In determining whether a taxpayer is primarily engaged in an activity the Department will look to the gross receipts of the taxpayer received in the ordinary course of business by that taxpayer.  For example, if more than 50% of the taxpayer's gross receipts are from manufacturing, the taxpayer is primarily engaged in manufacturing, or if more than 50% of the gross receipts are from retailing, the taxpayer is primarily engaged in retailing.  The taxpayer (and the Department) will look to the gross receipts received by the taxpayer in the ordinary course of business. Therefore, if, for example, the taxpayer suffers a casualty loss and that is compensated for by an insurance payment, the amount of money so received will not be deemed gross receipts received in the ordinary course of business, and disqualify the taxpayer from eligibility and perhaps result in the recapture of credits granted in prior years.

EXAMPLE 1:  Corporation A manufactures CD ROM Units for personal computers, which are sold to others for resale.  Corporation A also engages in the retail sale of canned computer software.  Finally, Corporation A develops and sells custom computer software to various clients.  Corporation A receives 20% of its gross receipts from the manufacturing of CD ROM Units, 40% of its gross receipts from retail sales of canned software, and 40% of its gross receipts from its custom computer software development and sales operations. Corporation A is eligible for the credit.  Corporation A is engaged primarily in manufacturing and retailing, because the total of its manufacturing and retailing operations is 80% of its gross receipts.  Therefore, the Corporation is eligible for the credit.

EXAMPLE 2:  Corporation B operates a hotel.  80% of the gross receipts of Corporation B are from the renting of rooms, 5% of the gross receipts are from the operation of a gift shop in the hotel and the remaining 15% of the gross receipts are from the operation of a restaurant and lounge in the hotel.  The renting of rooms is not retailing.  Therefore, Corporation B is ineligible for the credit because it is not engaged primarily in retailing, even though it does, through the operation of the gift shop, restaurant and lounge, engage in some retailing activities.

g)         Recapture.  If, within 48 months after being placed in service, any property ceases to be qualified property in the hands of the taxpayer or the situs of any qualified property is moved outside of Illinois, or outside of the enterprise zone, for other than a temporary or transitory purpose, then the personal property tax replacement income for the taxable year in which such event occurred will be increased (IITA Section 201(e)(7)).  If, during the 48 month period, the taxpayer ceased to be primarily engaged in retailing, manufacturing, coal or fluorite mining, the property ceases to be qualified property.  Therefore, previously granted credits must be recaptured.

1)         Any property disposed of by the taxpayer within 48 months after being placed in service ceases to qualify.

2)         A taxpayer disposes of property when he sells the property, exchanges or trades in worn-out property for new property, abandons the property or retires it from use.  Property destroyed by casualty, stolen, or transferred as a gift is treated as having been disposed of.  Property which is mortgaged or used as security for a loan does not cease to qualify provided the taxpayer continues to use the property within Illinois.  Property transferred to a trustee in bankruptcy is considered disposed of in the year the property is transferred to the trustee.  A transfer of property by foreclosure is treated as a disposition.

3)         The reduction of the basis of qualified property resulting from the redetermination of the purchase price is a disposition of qualified property to the extent of such reduction in the taxable year the reduction takes place. This occurs, for example, when property is purchased and placed in service in one year, and in a later year the taxpayer receives a refund of part of the original purchase price.  See 26 CFR 1.47-2(c) (2010).

4)         In order to determine the amount by which the personal property tax replacement income tax must be increased in the taxable year in which the property ceased to qualify or was moved outside of Illinois or the enterprise zone, the taxpayer must recompute the investment credit for the taxable year in which the property was placed in service by eliminating from his calculations any such property.  This recomputed investment credit is subtracted from the amount of credit actually used in the year in which the disqualified property was placed in service.  The difference between the recomputed credit and the credit actually used is added to the personal property tax replacement income tax or the income tax for the year in which the property ceased to qualify or was moved outside of Illinois.  If the recomputed credit is greater than the credit actually used in the year the property was placed in service, no addition to the current taxable year's personal property tax replacement income tax or income tax is required.

EXAMPLE:  In 1985, Corporation A places qualifying property with a basis of $55,000 into service in an enterprise zone located in Illinois and computes a Section 201(e) investment credit for the year of $275 ($55,000 x .5%) and a Section 201(h) investment credit of $275 ($55,000 x .5%). Corporation A's 1985 personal property tax replacement income tax is $260 and its income tax liability for the year is $420.  After application of the credit, Corporation A has no remaining replacement tax liability and its remaining income tax liability is $145.  In the following year Corporation A moved a qualifying asset having a basis in 1985 of $5,000 from Illinois and is therefore required to recapture a portion of the investment credit applied against its replacement tax.  In order to determine its additional income tax for 1986, Corporation A must recompute its 1985 investment credit by eliminating the disqualified property ($55,000 - $5,000 x .5% = $250).  This recomputed credit is subtracted from the investment credit actually used in 1985 against the income tax ($260 - $250 = $10) and the difference is added to Corporation A's 1986 income tax after application of the 1986 investment credit.

h)         Partnerships and Subchapter S Corporations.

1)         For each taxable year ending before December 31, 2000, a partnership may elect to pass through to its partners the credits to which the partnership is entitled under IITA Section 201(e) for the taxable year. The election to pass through the credits shall be irrevocable.  [IITA Section 201(e)(9)]

A)        This subsection (h)(1) applies only to partnerships.  Subchapter S corporations may not pass credits through to their stockholders under this provision.

B)        Subject to the statute of limitations, the election under this subsection (h)(1) may be made retroactively.  See Borden Chemicals and Plastics, L.P. v. Zehnder, 312 IllApp3d 35 (1^st Dist. 2000).  A retroactive election shall be made by filing an amended return by the partnership making the election for the tax year of the election and for any subsequent year affected by the election, and including a schedule of the credits to be passed through. An example of a subsequent year affected by an election would be a year in which a credit carried forward from a year prior to the election was used by the partnership or was passed through to the partners by an election for that subsequent year.

C)        All credits to which the partnership is entitled under IITA Section 201(e) in the year an election is made are passed through to the partners, including credits passed through to the partnership from another partnership, credits carried forward from prior years and the share attributable to partners who are not subject to Personal Property Tax Replacement Income Tax and exempt organizations not subject to tax under IITA Section 205(a).

D)        Any credit passed through to a partner must be used within the 5-year carryforward period allowed to the partnership.  Thus, a credit earned by a partnership in the year the election is made may be used by the partner to whom it is passed in that partner's taxable year in which the taxable year of the partnership for which the election was made ends, and any unused amount may be carried forward to the 5 succeeding taxable years of the partner.  If a partnership elects to pass through to its partners a credit earned in its immediately preceding taxable year, a partner may use that credit in its taxable year in which the taxable year of the partnership for which the election was made ends, and any unused amount may be carried forward to the 4 succeeding taxable years of the partner.

2)         For taxable years ending on or after December 31, 2000, a partner that qualifies its partnership for a subtraction under Section 203(d)(2)(I) of IITA or a shareholder that qualifies a subchapter S corporation for a subtraction under Section 203(b)(2)(S) shall be allowed a credit under IITA Section 201(e) equal to its share of the credit earned under IITA Section 201(e) during the taxable year by the partnership or subchapter S corporation, determined in accordance with the determination of income and distributive share of income under sections 702 and 704 and subchapter S of the Internal Revenue Code. [35 ILCS 5/201(e)(9)] Under this subsection (h)(2):

A)        The provisions of this subsection (h)(2) apply to both partnerships and subchapter S corporations.

B)        Credits are passed through only in the year earned.  Any amount carried forward from a prior year cannot flow through to the partners or shareholders of the entity.

C)        The share of credits allocable to a partner or shareholder who is not subject to Personal Property Tax Replacement Income Tax and who is not exempt from taxation under IRC section 501(a) do not pass through to that partner or shareholder.  Those amounts may be used by the partnership or subchapter S corporation against the Personal Property Tax Replacement Income Tax liability it incurs on the share of its income attributable to such partners or shareholders.

D)        Any credit passed through to a partner or shareholder under this subsection (h)(2) may be used in the taxable year of the partner or shareholder in which the taxable year of the entity that passes the credit through ends, and may be carried forward to the 5 succeeding taxable years of the partner or shareholder until used.

E)        Any credit passed through to a partnership or subchapter S corporation under this subsection (h)(2) shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

(Source:  Amended at 35 Ill. Reg. 15092, effective August 24, 2011)

Section 100.2110  Economic Development for a Growing Economy Credit (IITA Section 211)

a)         For tax years beginning on or after January 1, 1999, a taxpayer who has entered into an Agreement (including for tax years beginning on or after January 1, 2021, a New Construction EDGE Agreement) with the Department of Commerce and Economic Opportunity (DCEO) under the Economic Development for a Growing Economy Tax Credit Act [35 ILCS 10] (EDGETCA), shall be allowed a credit against the tax imposed by the Illinois Income Tax Act (IITA) Section 201(a) and (b) in an amount to be determined in the Agreement. (IITA Section 211)

b)         The credit shall be computed as follows:

1)         The credit allowed shall not exceed the Incremental Income Tax with respect to the project. Additionally, the New Construction EDGE Credit shall not exceed the New Construction EDGE Incremental Income Tax. (IITA Section 211(1)) EDGETCA Section 5-5 defines Incremental Income Tax as the total amount withheld during the taxable year from the compensation of new employees, and if applicable, retained employees under Article 7 of the IITA arising from employment at a project that is the subject of an Agreement. EDGETCA Section 5-5 also defines New Construction EDGE Incremental Income Tax as the total amount withheld during the taxable year from the compensation of New Construction EDGE Employees. [35 ILCS 10/5-5]

2)         The amount of the credit allowed during the tax year plus the sum of all amounts allowed in prior years shall not exceed 100% of the aggregate amount expended by the taxpayer during all prior tax years on approved costs defined by Agreement. (IITA Section 211(2))

3)         Pursuant to IITA Section 211(3), the amount of credit shall be determined on an annual basis; provided, however, that:

A)        except in the case of a taxpayer described in subsection (b)(3)(B), the credit against any State income tax liability may not be applied in more than 10 taxable years;

B)        in the case of a taxpayer certified by DCEO under the Corporate Headquarters Relocation Act, the credit may not extend beyond 15 taxable years; provided, that the taxpayer may not claim for any tax year during that period more than 60% of the credit otherwise allowed for that tax year under the EDGETCA (see EDGETCA Section 5-45); and

C)        a credit earned within the applicable period specified in subsection (b)(3)(A) or (B) may be carried forward beyond that period pursuant to IITA Section 211(4).

4)         The credit may not exceed the amount of taxes imposed pursuant to IITA Section 201(a) and (b). (IITA Section 211(4))

5)         In the case of an election under Section 100.7380(a), no credit shall be allowed under IITA Section 211 or this Section for the taxable year of the election.

c)         Any credit in excess of the tax liability for the taxable year may be carried forward to offset the income tax liability of the taxpayer for the next five years or until it has been fully utilized, whichever occurs first. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 211(4)) In the case of an election under Section 100.7380(a), no credit to which the election applies may be carried forward under IITA Section 211(4) and this Section.

d)         No credit shall be allowed with respect to any Agreement for any taxable year ending after the Noncompliance Date. Upon receiving notification by the Department of Commerce and Economic Opportunity of the noncompliance of a taxpayer with an Agreement, the Department shall notify the taxpayer that no credit is allowed with respect to that Agreement for any taxable year ending after the Noncompliance Date, as stated in such notification. If any credit has been allowed with respect to an Agreement for a taxable year ending after the Noncompliance Date for that Agreement, any refund paid to the taxpayer for that taxable year shall, to the extent of that credit allowed, be an erroneous refund within the meaning of IITA Section 912. (IITA Section 211(5)) If, during any taxable year, a taxpayer ceases operations at a project location that is the subject of that Agreement with the intent to terminate operations in the State, the tax imposed under subsections (a) and (b) of IITA Section 201 for such taxable year shall be increased by the amount of any credit allowed under the Agreement for that project location prior to the date the taxpayer ceases operations. (IITA Section 211(5))

e)         In the case of a credit earned by a partnership or Subchapter S corporation, the credit passes through to the owners for use against their regular income tax liabilities in the same proportion as other items of the taxpayer are passed through to the taxpayer's owners for federal income tax purposes. (See IITA Section 211.)

1)         The credit earned by a partnership or a Subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or Subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 5-55 of the EDGETCA.

2)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or Subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

f)         To claim the credit, a taxpayer shall attach to its Illinois income tax return:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a Subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or Subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder and

B)        the taxable year of the partnership or Subchapter S corporation in which the tax credit certificate was issued.

g)         For purposes of this credit, the terms "Agreement", "Incremental Income Tax", "new employees", "New Construction EDGE Incremental Income Tax", "New Construction EDGE Employee", "Noncompliance Date", and "retained employees" shall have the same meaning as when used in EDGETCA Section 5-5. (IITA Section 211(6))

h)         This credit is exempt from the sunset provisions of IITA Section 250. (IITA Section 211)

(Source:  Former Section 100.2110 renumbered to Section 100.2131; New Section 100.2110 renumbered from Section 100.2198 and amended at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2111 REV Tax Credit (IITA Section 236)

a)         For tax years beginning on or after January 1, 2025, a taxpayer who has entered into an Agreement with the Department of Commerce and Economic Opportunity (DCEO) under the Reimagining Energy and Vehicles in Illinois Act [20 ILCS 686] (REV Illinois Act) is entitled to a credit against the taxes imposed under the Illinois Income Tax Act (IITA) Section 201 (a) and (b) in an amount to be determined in the Agreement.  (IITA Section 236(a))

b)         The credit may be in the form of a REV Illinois Credit, a REV Construction Jobs Credit, or both. (IITA Section 236(b)(1))

c)         Instead of claiming the credit against the taxes imposed under IITA Section 201(a) and (b), with respect to the portion of a REV Illinois Credit that is calculated based on the incremental income tax attributable to new employees and retained employees, the taxpayer may elect, in accordance with the REV Illinois Act, to claim the credit, on or after January 1, 2025, against its obligation to pay over withholding under IITA Section 704A.  (IITA Section 236(b)(6)) (See Section 100.7381.)

d)         The credit shall be computed as established in this subsection.

1)         The credit allowed shall not exceed the percentage of incremental income tax and percentage of training costs permitted in the REV Illinois Act and in the Agreement with respect to the project.  (IITA Section 236(b)(1))

2)         The amount of the credit allowed during a tax year plus the sum of all amounts allowed in prior tax years shall not exceed the maximum amount of credit established in the Agreement.  (IITA Section 236(b)(2))

3)         The amount of the credit shall be determined on an annual basis.  

4)         The credit may not be applied against any State income tax liability in more than 15 taxable years, except as applied in a carryover year as provided in subsection (f). (IITA Section 236(b)(3))

5)         The credit may not exceed the amount of taxes imposed pursuant to IITA Section 201(a) and (b). (IITA Section 236(b)(4))

6)         In the case of an election under Section 100.7381, no credit shall be allowed under IITA Section 236 or this Section for the taxable year of the election against the taxes imposed under IITA Section 201(a) and (b). (IITA Section 236(b)(6))

e)         The credit allowed under this Section shall be taken in the taxable year that includes the date of the tax credit certificate issued by DCEO under Section 30 of the REV Illinois Act, except that credits awarded by DCEO prior to January 1, 2025, shall be taken in the first taxable year beginning on or after January 1, 2025.

f)         Any credit that is unused in the year the credit is computed may be carried forward to and applied to the tax liability of the 5 taxable years following the excess credit year, or until it has been fully utilized, whichever occurs first. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 236(b)(4)) In the case of an election under Section 100.7381, no credit to which the election applies may be carried forward under IITA Section 236(b)(4) and this Section.

g)         No credit shall be allowed with respect to any Agreement for any taxable year ending after the noncompliance date.

1)         Upon receiving notification by DCEO of the noncompliance of a taxpayer with an Agreement, the Department shall notify the taxpayer that no credit is allowed with respect to that Agreement for any taxable year ending after the Noncompliance Date, as stated in such notification.

2)         If any credit has been allowed with respect to an Agreement for a taxable year ending after the noncompliance date for that Agreement, any refund paid to the taxpayer for that taxable year shall, to the extent of that credit allowed, be an erroneous refund within the meaning of IITA Section 912. (IITA Section 236(b)(5))

h)         If, during any taxable year, a taxpayer ceases operations at a project location that is the subject of that Agreement with the intent to terminate operations in the State, the tax imposed under subsections (a) and (b) of IITA Section 201 for such taxable year shall be increased by the amount of any credit allowed under the Agreement for that project location prior to the date the taxpayer ceases operations. (IITA Section 236(b)(5))

i)          Partnerships and Subchapter S Corporations

1)         If the taxpayer is a partnership or a Subchapter S corporation, the credit is allowed to pass through to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule. Partnership has the meaning prescribed in IITA Section 1501(a)(16). (IITA Section 251)

2)         The credit earned by a partnership or a subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 30 of the REV Illinois Act.

3)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

4)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

j)          To claim the credit, a taxpayer shall attach to its Illinois income tax return:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued.

k)         For purposes of this Section, the terms "Agreement," "incremental income tax," "new employee," "noncompliance date," "retained employee," "REV Construction Jobs Credit," "REV Illinois Credit," and "training costs" shall have the same meaning as when used in the REV Illinois Act.

l)          This credit is exempt from the sunset provisions of IITA Section 250. (IITA Section 236(a))

(Source:  Added at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2112 MICRO Tax Credit (IITA Section 238)

a)         For tax years beginning on or after January 1, 2025, a taxpayer who has entered into an Agreement with the Department of Commerce and Economic Opportunity (DCEO) under the Manufacturing Illinois Chips for Real Opportunity (MICRO) Act [35 ILCS 45] (MICRO Act) is entitled to a credit against the taxes imposed under the Illinois Income Tax Act (IITA) Section 201 (a) and (b) in an amount to be determined in the Agreement.  (IITA Section 238(a))

b)         The credit may be in the form of a MICRO Illinois Credit, a MICRO Construction Jobs Credit, or both.  (IITA Section 238(b)(1))

c)         Instead of claiming the credit against the taxes imposed under IITA Section 201(a) and (b), with respect to the portion of a MICRO Illinois Credit that is calculated based on the incremental income tax attributable to new employees and retained employees, the taxpayer may elect, in accordance with the MICRO Act, to claim the credit, on or after January 1, 2025, against its obligation to pay over withholding under IITA Section 704A.  (IITA Section 238(b)(6)) (See Section 100.7382.)

d)         The credit shall be computed as established in this subsection.

1)         The credit allowed shall not exceed the percentage of incremental income tax and percentage of training costs permitted in the MICRO Act and in the Agreement with respect to the project.  (IITA Section 238(b)(1))

2)         The amount of the credit allowed during a tax year plus the sum of all amounts allowed in prior tax years shall not exceed the maximum amount of credit established in the Agreement.  (IITA Section 238(b)(2))

3)         The amount of the credit shall be determined on an annual basis. 

4)         The credit may not be applied against any State income tax liability in more than 15 taxable years, except as applied in a carryover year as provided in subsection (f). (IITA Section 238(b)(3))

5)         The credit may not exceed the amount of taxes imposed pursuant to IITA Section 201(a) and (b). (IITA Section 238(b)(4))

6)         In the case of an election under Section 100.7382, no credit shall be allowed under IITA Section 238 or this Section for the taxable year of the election against the taxes imposed under IITA Section 201(a) and (b). (IITA Section 238(b)(6))

e)         The credit allowed under this Section shall be taken in the taxable year that includes the date of the tax credit certificate issued by DCEO under Section 110-30 of the MICRO Act, except that credits awarded by DCEO prior to January 1, 2025, shall be taken in the first taxable year beginning on or after January 1, 2025.

f)         Any credit that is unused in the year the credit is computed may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year, or until it has been fully utilized, whichever occurs first. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 238(b)(4)) In the case of an election under Section 100.7382, no credit to which the election applies may be carried forward under IITA Section 238(b)(4) and this Section.

g)         No credit shall be allowed with respect to any Agreement for any taxable year ending after the noncompliance date.

1)         Upon receiving notification by DCEO of the noncompliance of a taxpayer with an Agreement, the Department shall notify the taxpayer that no credit is allowed with respect to that Agreement for any taxable year ending after the Noncompliance Date, as stated in such notification.

2)         If any credit has been allowed with respect to an Agreement for a taxable year ending after the noncompliance date for that Agreement, any refund paid to the taxpayer for that taxable year shall, to the extent of that credit allowed, be an erroneous refund within the meaning of IITA Section 912. (IITA Section 238(b)(5))

h)         If, during any taxable year, a taxpayer ceases operations at a project location that is the subject of that Agreement with the intent to terminate operations in the State, the tax imposed under subsections (a) and (b) of IITA Section 201 for such taxable year shall be increased by the amount of any credit allowed under the Agreement for that project location prior to the date the taxpayer ceases operations. (IITA Section 238(b)(5))

i)          Partnerships and Subchapter S Corporations

1)         If the taxpayer is a partnership or a Subchapter S corporation, the credit is allowed to pass through to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule. Partnership has the meaning prescribed in IITA Section 1501(a)(16). (IITA Section 251)

2)         The credit earned by a partnership or a subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 110-30 of the MICRO Act.

3)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

4)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

j)          To claim the credit, a taxpayer shall attach to its Illinois income tax return:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued.

k)         For purposes of this Section, the terms "Agreement," "incremental income tax," "new employee," "noncompliance date," "MICRO Construction Jobs Credit," "MICRO Illinois Credit," "retained employee," and "training costs" shall have the same meaning as when used in the MICRO Act.

l)          This credit is exempt from the sunset provisions of IITA Section 250. (IITA Section 238(a))

(Source:  Added at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2120  Jobs Tax Credit; Enterprise Zone, Foreign Trade Zone or Sub-Zone and River Edge Redevelopment Zone (IITA Section 201(g))

a)         A taxpayer conducting a trade or business in an enterprise zone, or a High Impact Business designated by the Department of Commerce and Economic Opportunity conducting a trade or business in a federally designated foreign trade zone or sub-zone, or in a river edge redevelopment zone established pursuant to the River Edge Redevelopment Zone Act [65 ILCS 115] shall be allowed a credit against the tax imposed by Section 201(a) and (b) of the Illinois Income Tax Act in the amount of $500 per eligible employee hired to work in the zone during the taxable year.

1)         In general, the credit is available for eligible employees hired on or after January 1, 1986, or for taxable years ending prior to July 25, 2013, the effective date of PA 98-109, which repealed IITA Section 201(g).

2)         The credit is not allowed for an eligible employee hired to work in an enterprise zone in a taxable year ending on or after August 7, 2012, the effective date of PA 97-905, which repealed the credit as it relates to enterprise zones.

b)         To qualify for the credit:

1)         The taxpayer must hire 5 or more eligible employees to work in an enterprise zone or federally designated foreign trade zone or sub-zone or a river edge redevelopment zone during the taxable year.

2)         The taxpayer's total employment within the enterprise zone or federally designated foreign trade zone or sub-zone or a river edge redevelopment zone must increase by 5 or more full-time employees beyond the total employed in that zone at the end of the previous tax year for which a jobs tax credit under this Section was taken, or beyond the total employed by the taxpayer as of December 31, 1985, whichever is later.

A)        If a taxpayer was in business in 1985 at a location, has never before taken the credit, and is located in an enterprise zone created before or during 1985, the taxpayer would use 1985 as the base year.

B)        If a taxpayer was in business in 1985 at a location, has never before taken the credit, and is located in an enterprise zone created after 1985, the taxpayer's base year for calculating the increase in employment is the total employed at the end of the calendar year in which the enterprise zone was created.   The law is clear that the credit is a reward for increasing employment in enterprise zones.  To use 1985 as a base year, even if no enterprise zone was then in existence, is not consistent with this clear goal of the law.   In such a situation, a taxpayer would not always be able to show that there was job creation in the enterprise zone.  For example, while employment may have increased over 1985 levels, there may not have been an increase in employment from the end of the calendar year in which the zone was created. Therefore, to accept 1985 as the base year no matter whether there was an enterprise zone in existence at that time, could result in providing a credit for job creation that did not occur in an enterprise zone.  Such a result would be contrary to law.

3)         The eligible employees must be employed 180 consecutive days in order to be deemed hired for purposes of this subsection (b)(3).

EXAMPLE:  An otherwise eligible employee is hired to work in an enterprise zone on August 1, 1987.   The employer's tax year ends on December 31, 1987.   The employee would have worked 153 days during the 1987 tax year and, therefore, would not be considered to be "deemed hired" in 1987. Even if all other requirements were met, the employer would not be eligible for the jobs tax credit for 1987.  Once the employee has been employed for 180 consecutive days, the employee is deemed hired.  Therefore, in this instance the employee would be "deemed hired" in 1988.   If all other requirements were met, the employer could claim the Jobs Tax Credit for this employee for the 1989 tax year.

c)         An "eligible employee" means an employee who is:

1)         certified by the Department of Commerce and Economic Opportunity (DCEO) as "eligible for services" pursuant to regulations promulgated in accordance with  Title II of the Job Training Partnership Act, Training Services for the Disadvantaged or Title III of the Job Training Partnership Act, Employment and Training Assistance for Dislocated Workers Program. Whenever an employee is certified, a voucher is completed by the applicant and approved by DCEO. The vouchers are entitled "Illinois Department of Commerce and Community Affairs, Enterprise Zone Program, Jobs Tax Credit Certification Voucher." Taxpayers should request a copy of the voucher to verify that the employee is DCEO certified. Taxpayers should maintain a copy of the voucher in their files to document eligibility status of employees in the event of an audit;

2)         hired after the enterprise zone, federally designated foreign trade zone or sub-zone, or a river edge redevelopment zone was designated or the trade or business was located in that zone, whichever is later.  The term "hired" means hired by the particular employer claiming the credit.  Employees transferred from another facility of the employer to a facility located in an enterprise zone, federally designated foreign trade zone or sub-zone, or a river edge redevelopment zone are not deemed "hired" upon transfer to a facility located in the enterprise zone, federally designated foreign trade zone or sub-zone, or a river edge redevelopment zone;

3)         employed in the enterprise zone, foreign trade zone or sub-zone, or a river edge redevelopment zone.  An employee is employed in an enterprise zone, federally designated foreign trade zone or sub-zone, or a river edge redevelopment zone if his or her services are rendered there or the zone is the base of operations for the services performed; and

4)         a full-time employee working 30 or more hours per week.

d)         For tax years ending on or after December 31, 1985, and prior to December 31, 1988, the credit shall be allowed for the tax year in which the eligible employees are hired.  For tax years ending on or after December 31, 1988, the credit shall be allowed for the tax year immediately following the tax year in which the eligible employees are hired.   If the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year.  The credit shall be applied to the earliest year for which there is a liability.   If there is credit from more than one tax year that is available to offset a liability, earlier credit shall be applied first.

(Source:  Amended at 38 Ill. Reg. 9550, effective April 21, 2014)

Section 100.2130  Investment Credit; High Impact Business (IITA 201(h))

a)         Subject to the minimum investment requirements of Section 5.5 of the Illinois Enterprise Zone Act, a taxpayer shall be allowed a credit against the tax imposed by IITA Sections 201(a) and (b) for investment in qualified property which is placed in service in a federally designated Foreign Trade Zone or Sub-Zone located in Illinois by a Department of Commerce and Community Affairs designated High Impact Business. The credit is reported on Schedules 1299 A, C or D. Recapture (see subsection (i) below) is computed on Schedule 4255.

b)         The credit shall be .5% of the basis for such property.

c)         The credit shall not be available until the minimum investments in qualified and shall not be allowed to the extent that it would reduce a taxpayer's liability for the tax imposed by IITA Sections 201(a) and (b) to below zero. The credit applicable to such minimum investments shall be taken in the taxable year in which such minimum investments have been completed.  The credit for additional investments beyond the minimum investment by a designated high impact business shall be available only in the taxable year in which the property is placed in service and shall not be allowed to the extent that it would reduce a taxpayer's liability for the tax imposed by IITA Sections 201(a) and (b) to below  zero.  The minimum investments required by Section 5.5 of the Illinois Enterprise Zone Act are:

1)         $12,000,000 which will be placed in service in qualified property with an intention to create 500 full-time equivalent jobs at a designated location in Illinois, or

2)         $30,000,000 which will be placed in service in qualified property with the intention to retain 1,500 full-time jobs at a designated location in Illinois.

The Illinois Department of Commerce and Community Affairs must certify that the minimum investment requirements have been met.

d)         For tax years ending on or after December 31, 1987, the credit shall be allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year.  The credit shall be applied to the earliest year for which there is a liability.  If there is a credit from more than one tax year that is available to offset a liability, the credit accruing first in time shall be applied first.

e)         The term "qualified property" means property which is:

1)         tangible, whether new or used;

A)        Tangible property includes objects or things that are physically capable of being touched and seen and over which a person may assert rights of ownership.

B)        Tangible property consists of personalty or realty and includes such items as buildings, structural components of buildings, machinery, equipment and vehicles.

C)        Items such as stock certificates, bonds, notes and the like are not tangible personal property.   While the certificate or paper may be tangible, the item itself, the share of ownership of a corporation or the promise to pay is an intangible that is memorialized by the paper.

D)        The terms "new or used" shall have their commonly ascribed meanings.

2)         depreciable pursuant  to IRC  Section 167, except that "3-year  property" as defined in IRC Section 168 is not eligible for the credit provided by IITA Section 201(h);

A)        Depreciable property is property used in the trade or business of a taxpayer, or held for production of income, which is subject to wear and tear, exhaustion, or obsolescence.

B)        Property that is depreciated under the Modified Accelerated Cost Recovery System (MARCS), as provided by IRC Section 168, is considered depreciable pursuant to IRC Section 167 for purposes of the Enterprise Zone Investment Credit.

C)        Examples of tangible property that is not depreciable include land, inventories or stock-in-trade, natural resources, and coin or currency.

D)        The provisions of Internal Revenue Service regulation Section 1.167(a)-4 will be utilized in making determinations as to whether particular leasehold improvements are depreciable.

3)         acquired by purchase as defined in IRC Section 179(d); and

A)        A purchase is any acquisition of property except:

i)          an acquisition from a person whose relationship to the acquiring person is such that a resulting loss would be disallowed under IRC Sections 267 or 707(b);

ii)         an acquisition by one component member of a controlled group from another component member of the group;

iii)        an acquisition of property if the basis of the property in the hands of the person acquiring it is determined in whole or in part by its adjusted basis in the hands of the person from whom the property was acquired; or

iv)        an acquisition of property, the basis of which is determined under IRC Section 1014(a).  IRC Section 1014(a) covers property received from a decedent.  Property acquired by bequest or demise is not acquired by purchase.

B)        For purposes of determining whether property is acquired by purchase as defined by IRC 179(d), the family of an individual includes only his spouse and ancestral and lineal descendants of the individual and his spouse.

C)        For purposes of determining whether property is acquired by purchase only, a controlled group has the same meaning as in IRC Section 1563(a), except stock ownership of only 50% or more is required (also see IRS Regulation Section 1.179-4(f)).

D)        Property that the taxpayer constructs, reconstructs or erects is generally considered acquired by purchase.

4)         not eligible for the Enterprise Zone Investment Credit provided by IITA Section 201(f).

f)         The basis of qualified property shall be the basis used to compute the depreciation deduction for federal income tax purposes.

1)         In computing the amount of credit available for a taxable year, the credit rate will be applied to the total basis of all qualified property that is placed in service by a high impact business located in a foreign trade zone or sub-zone in Illinois during the taxable year, provided the property continues to qualify on the last day of the taxable year.

2)         If the basis of the property for federal income tax depreciation purposes is increased after it has been placed in service in a federally designated foreign trade zone or sub-zone located in Illinois by the taxpayer, the amount of such increase shall be deemed property placed in service on the date of such increase in basis.

3)         Property that has been fully expensed under IRC Section 179 has no federal depreciable basis with which to compute the credit.  Property not fully expensed under IRC 179 can still qualify for the credit.

g)         The term "placed in service" shall have the same meaning as under IRC Section 46. (IITA Section 201(h)(5))  Property is placed in service for purposes of the credit in the earlier of the following years:

1)         That in which, under the taxpayer's depreciation practice, depreciation begins on the property; or

2)         That in which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

h)         If, during any taxable year ending on or before December 31, 1996, any property ceases to be qualified property in the hands of the taxpayer within 48 months after being placed in service in a foreign trade zone or sub-zone, or the situs of any qualified property is moved outside Illinois within 48 months after being placed in service, the tax imposed under IITA Section 201(a) and (b) of this Section for such taxable year shall be increased.

1)         Any property disposed of by the taxpayer within 48 months after being placed in service ceases to qualify.

A)        A taxpayer disposes of property when he sells the property, exchanges or trades-in worn-out property for new property, abandons the property or retires it from use.

B)        Property destroyed by casualty, stolen, or transferred as a gift is disposed of property.

C)        Property that is mortgaged or used as security for a loan is not disposed of property, provided that the taxpayer continues to use the property in its business within a foreign trade zone or subzone located in Illinois.

D)        Property transferred to a trustee in bankruptcy is considered disposed of property.

E)        A transfer of property by foreclosure is a disposition of property.

F)         A  reduction in the basis of qualified property resulting from a redetermination of the purchase price of the property is a disposition of property to the extent of such reduction in basis in the year in which the reduction takes place. For example, this would occur when property is purchased and placed in service in one year, and in a later year the taxpayer receives a refund of a portion of the original purchase price.

2)         Any property converted to personal use ceases to qualify for the credit.

3)         The increase in tax shall be determined by:

A)        recomputing the investment credit which would have been allowed for the year in which credit for such property was originally allowed by eliminating such property from such computation, and

B)        subtracting such computed credit from the amount of credit previously allowed.   The difference between the recomputed credit and the credit actually claimed is added to the income tax for year in which the property ceased to qualify.

EXAMPLE:   In 1990, High Impact Business A places qualifying property with a basis of $55,000 into service in Illinois and computes a credit for the year of $275 ($55,000 x .5%).   High Impact Business A's 1990 income tax is $275.  After application of the credit, High Impact Business A has no remaining income tax liability.   In the following year, High Impact Business A moved a qualifying asset having a basis of $5,000 from Illinois to Missouri and is required to recapture a portion of the credit applied against its 1990 income tax liability.  The credit applied against High Impact Business A's income tax must be recaptured because the property was moved outside of Illinois and no longer qualifies for the credit.  In order to determine its additional income tax for 1991, High Impact Business A must recompute its 1990 credit  by eliminating the disqualified property ($55,000 - $5,000 x .5% =  $250).   This recomputed credit is subtracted from the credit actually used in 1990 against the income tax ($275 - $250 = $25) and the difference is added to High Impact Business A's 1991 income tax.

i)          If, during any taxable year ending after December 31, 1996, a taxpayer who has been allowed a credit under IITA Section 201(h) relocates its entire facility in violation of the explicit terms and length of the contract under Section 18-183 of the Property Tax Code, the tax imposed under subsections (a) and (b) of this Section shall be increased for the taxable year in which the taxpayer relocates that facility by an amount equal to the amount of credit received by the taxpayer under this IITA Section 201(h) with respect to qualified property placed in service at that facility.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2131  Investment Credit; Enterprise Zone and River Edge Redevelopment Zone (IITA Section 201(f))

a)         A taxpayer shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b) for investment in qualified property placed in service in an enterprise zone created pursuant to the Illinois Enterprise Zone Act [20 ILCS 655] or for qualified property placed in service on or after July 1, 2006 in a river edge redevelopment zone established pursuant to the River Edge Redevelopment Zone Act [65 ILCS 115].

b)         For partners in a partnership and shareholders of Subchapter S corporations, there shall be allowed an enterprise zone or river edge redevelopment zone investment credit to be determined in accordance with the determination of income and distributive share of income under sections 702 and 704 and Subchapter S of the Internal Revenue Code.

c)         The credit shall be 0.5% of the basis for property in a zone.

d)         The credit shall be available only in the taxable year in which the property is placed in service in the enterprise zone or river edge redevelopment zone and shall not be allowed to the extent that it would reduce a taxpayer's liability for the tax imposed by IITA Section 201(a) and (b) below zero.

1)         Qualifying property shall be considered placed in service in an Illinois enterprise zone or river edge redevelopment zone on the date on which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

2)         Property that is disposed of, is moved out of the enterprise zone or river edge redevelopment zone, or ceases to qualify for any other reason during the same taxable year it was placed in service in an enterprise zone or river edge redevelopment zone will not be considered in computing the credit for the taxable year.

3)         The credit shall be allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the original liability or the liability as later amended, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year.

4)         The credit shall be applied to the earliest year for which there is a liability.

5)         If there is credit for more than one tax year that is available to offset a liability, the credit accruing first in time shall be applied first.

e)         The term "qualified property" means property that is:

1)         tangible, whether new or used.  The terms "new" and "used" shall have their commonly ascribed meanings.  Buildings and structural components of buildings may be qualified property.  The term tangible property generally includes:

A)        objects or things that are physically capable of being touched and seen and over which a person may assert rights of ownership; and

B)        personal or real property, which may consist of such items as buildings, component parts of buildings, machinery, equipment and vehicles.

C)        Items such as stock certificates, bonds, notes and the like are not tangible personal property.  While the certificate or paper may be tangible, the item itself, the share of ownership of a corporation or the promise to pay, is an intangible that is memorialized by the paper.

2)         depreciable pursuant to IRC section 167, except that 3-year property as defined in IRC section 168(c)(2)(A) is not eligible for the credit.

A)        Depreciable property is property used in the trade or business of a taxpayer, or held for production of income, that is subject to wear and tear, exhaustion, or obsolescence.

B)        Property that is depreciated under the Modified Accelerated Cost Recovery System (MACRS), as provided by IRC section 168, is considered depreciable pursuant to IRC section 167 for purposes of the enterprise zone or river edge redevelopment zone Investment Credit.

C)        Examples of tangible property that is not depreciable include land, inventories or stock-in-trade, natural resources, and coin or currency.

D)        The provisions of 26 CFR 1.167(a)-4 will be utilized in making determinations as to whether particular leasehold improvements are depreciable.

E)        IRC section 179 allows taxpayers, under certain circumstances, to expense a designated dollar amount of equipment purchased in a single tax year.  Based on this provision, if the total cost of the property was equal to or less than the amount specified under IRC section 179, the taxpayer has the option of expensing the cost all in one year as a depreciation expense.  While the property does have a useful life of four or more years, since the election was made to completely expense the cost of the property in one year, the property has no federal depreciable basis and does not have a basis upon which to compute the Illinois investment tax credit.  Property not fully expensed under section 179 would qualify for the credit based on the cost of the depreciable property reduced by the section 179 deduction.

3)         acquired by purchase as defined in IRC section 179(d).

A)        A purchase is any acquisition of property except:

i)          an acquisition from a person whose relationship to the acquiring person is such that a resulting loss would be disallowed under IRC section 267 or 707(b);

ii)         an acquisition by one component member of a controlled group from another component member of the group;

iii)        an acquisition of property if the basis of the property in the hands of the person acquiring it is determined in whole or in part by its adjusted basis in the hands of the person from whom the property was acquired; or

iv)        an acquisition of property, the basis of which is determined under IRC section 1014(a).  IRC section 1014(a) covers property received from a decedent.  Property acquired by bequest or demise is not acquired by purchase.

B)        For purposes of determining whether property is acquired by purchase as defined by IRC section 179(d), the family of an individual includes only the individual's spouse and the ancestral and lineal descendants of the individual and the individual's spouse.

C)        For purposes of determining whether property is acquired by purchase only, a controlled group has the same meaning as in IRC section 1563(a), except stock ownership of only 50% or more is required (also see 26 CFR 1.179-4).

D)        Property that the taxpayer constructs, reconstructs or erects is generally considered acquired by purchase.

4)         used in the enterprise zone or river edge redevelopment zone by the taxpayer.

A)        The term "used in an Illinois enterprise zone or river edge redevelopment zone" means that the property for which the credit is being claimed is physically located within the boundaries of an Illinois enterprise zone certified by the Illinois Department of Commerce and Economic Opportunity or river edge redevelopment zone established pursuant to the River Edge Redevelopment Zone Act from the time it is placed in service and while it is being utilized by the taxpayer claiming the credit in that taxpayer's business operation.

i)          Storage of property in an enterprise zone or river edge redevelopment zone will not constitute use.  The taxpayer must make use of, convert to its service, avail itself of, or employ the property in the enterprise zone or river edge redevelopment zone in order to demonstrate use of the property in the enterprise zone or river edge redevelopment zone.

ii)         A lessor may claim the credit for otherwise qualified property if the property is physically located in an Illinois enterprise zone or river edge redevelopment zone from the time it is placed in service and all other conditions of eligibility for the credit are met.

iii)        A lessee of tangible property may never claim the credit because a lessee has not acquired the property by purchase.

B)        Mobile property, such as vehicles, must be used predominantly in an Illinois enterprise zone or river edge redevelopment zone in order to qualify for the credit.

i)          Removal of such property from the enterprise zone or river edge redevelopment zone for a temporary or transitory purpose will not disqualify the property so long as it continues to be used predominantly in the enterprise zone or river edge redevelopment zone.

ii)         Mobile property is considered to be predominantly used in an enterprise zone or river edge redevelopment zone if usage in the enterprise zone or river edge redevelopment zone exceeds usage outside of the enterprise zone or river edge redevelopment zone.

5)         not property that has been previously used in Illinois in such a manner and by such a person as would qualify for the credit.

A)        Generally, used property will not qualify for the credit if it was previously used in Illinois in such a manner that it could have qualified for the credit.

B)        However, property that would otherwise qualify for the credit will not be disqualified because it was previously used in Illinois in such a manner that it could have qualified for the credit, if that use pre-dated the effective date of the law that established the credit.

EXAMPLE 1:  Corporation A purchases a used pickup truck for use in its manufacturing business in Illinois from an Illinois resident who used the truck for personal purposes in Illinois.  If the truck meets all other requirements for the credit, it will not be disqualified because it has been previously used in Illinois for a non-qualifying purpose.

EXAMPLE 2:  Corporation A purchases a used pickup truck from Corporation B.  Corporation B used the truck in its business in a qualifying manner and could have claimed the credit for the truck, but did not.  Corporation A may not claim the credit for the truck because the truck has been previously used in Illinois in such a manner that it could have qualified for the credit.

f)         The basis of qualified property shall be the basis used to compute the depreciation deduction for federal income tax purposes, including any bonus depreciation deduction allowed under IRC section 168(k).  If the basis of the property for federal income tax depreciation purposes is increased after it has been placed in service in the enterprise zone or river edge redevelopment zone by the taxpayer, the amount of the increase shall be deemed property placed in service on the date of the increase in basis.

g)         If, during any taxable year, any property ceases to be qualified property in the hands of the taxpayer within 48 months after being placed in service, or the situs of any qualified property is moved outside the enterprise zone or river edge redevelopment zone within 48 months after being placed in service, the tax imposed under IITA Section 201(a) and (b) for the taxable year shall be increased.

1)         Any property disposed of by the taxpayer within 48 months after being placed in service ceases to qualify.

A)        A taxpayer disposes of property when he or she sells the property, exchanges or trades-in worn-out property for new property, abandons the property or retires it from use.

B)        Property destroyed by casualty, stolen, or transferred as a gift is disposed of property.

C)        Property that is mortgaged or used as security for a loan is not disposed of property, provided that the taxpayer continues to use the property in its business within an Illinois enterprise zone or river edge redevelopment zone.

D)        Property transferred to a trustee in bankruptcy is considered disposed of property.

E)        A transfer of property by foreclosure is a disposition of property.

F)         A reduction in the basis of qualified property resulting from a redetermination of the purchase price of the property is a disposition of property to the extent of the reduction in basis in the year in which the reduction takes place.  For example, this would occur when property is purchased and placed in service in one year, and in a later year the taxpayer receives a refund of a portion of the original purchase price.

2)         Any property converted to personal use ceases to qualify for the credit.

3)         The increase in tax shall be determined by:

A)        recomputing the investment credit that would have been allowed for the year in which credit for the property was originally allowed by eliminating the property from the computation, and

B)        subtracting the computed credit from the amount of credit previously allowed.  The difference between the recomputed credit and the credit actually claimed is added to the income tax for the year in which the property ceased to qualify or was moved outside of the enterprise zone or river edge redevelopment zone.

EXAMPLE:  In 2007, Corporation A places qualifying property with a basis of $55,000 into service in an enterprise zone or river edge redevelopment zone located in Illinois and computes a Section 201(f) enterprise zone or river edge redevelopment zone Investment Tax Credit of $275 ($55,000 x 0.5%).  Corporation A's 2007 income tax liability is $420.  After the application of the credit, Corporation A has remaining income tax liability of $145.  In the following year, Corporation A moved a qualifying asset having a basis in 2007 of $5,000 from the enterprise zone or river edge redevelopment zone to another location in Illinois.  As a result, Corporation A is required to recapture a portion of the enterprise zone or river edge redevelopment zone Investment Credit that was applied against its 2007 income tax liability.  In order to determine its additional income tax for 2008, Corporation A must recompute its 2007 enterprise zone Investment Tax Credit by eliminating the disqualified property ($55,000 - $5,000 x 0.5% = $250).  This recomputed credit is subtracted from the enterprise zone Investment Tax Credit actually used in 2007 ($275 - $250 = $25), and the difference is added to Corporation A's 2008 income tax after application of the Investment Tax Credit.

h)         Automatic Sunset of Credit for River Edge Redevelopment Zone Property.  IITA Section 250(a) provides that, if a reasonable and appropriate sunset date is not specified in the Public Act that creates a credit, a taxpayer shall not be entitled to take the credit for tax years beginning on or after 5 years after the effective date of the Public Act creating the credit.  IITA Section 250(b) provides that any credit scheduled to expire in 2011, 2012, or 2013 by operation of this Section shall be extended by 5 years.  The credit for property placed in service in a river edge redevelopment zone was created by PA 94-1021, which had an effective date of July 12, 2006, and specified no sunset date for the credit.  Accordingly, no credit is allowed under this Section for property placed in service in a river edge redevelopment zone for any taxable year beginning on or after July 12, 2016.

(Source:  Section 100.2131 renumbered from Section 100.2110 and amended at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2135  REV Illinois Investment Tax Credit (IITA Section 237)

a)         For tax years beginning on or after November 16, 2021, a taxpayer shall be allowed a credit against the tax imposed by IITA Section 201 (a) and (b) for investment in qualified property which is placed in service at the site of a REV Illinois Project subject to an agreement between the taxpayer and the Department of Commerce and Economic Opportunity (DCEO) pursuant to the Reimagining Energy and Vehicles in Illinois Act [20 ILCS 686] (REV Illinois Act). (IITA Section 237(a))

b)         For the purposes of the REV Illinois investment tax credit, "Project" or "REV Illinois Project" shall have the same meaning as when used in Section 10 of the REV Illinois Act.

c)         The credit shall be 0.5% of the basis for such property. (IITA Section 237(a))

d)         The credit shall be available only in the taxable year in which the property is placed in service and shall not be allowed to the extent that it would reduce a taxpayer's liability for the tax imposed by IITA Section 201(a) and (b) to less than zero. The credit shall be allowed for the tax year in which the property is placed in service, or if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a liability. If there is credit from more than one tax year that is available to offset a liability, the earlier credit shall be applied first. (IITA Section 237(a))

e)         The credit allowed under this Section shall be taken in the taxable year that includes the date of the tax credit certificate issued by DCEO under Section 100 of the REV Illinois Act.

f)         The term "qualified property" means property which:

1)         is tangible, whether new or used;

A)        Tangible property includes objects or things that are physically capable of being touched and seen and over which a person may assert rights of ownership.

B)        Tangible property consists of personal or real property and includes such items as buildings, structural components of buildings, machinery, equipment, and vehicles.

C)        Items such as stock certificates, bonds, notes and the like are not tangible personal property. While the certificate or paper may be tangible, the item itself, the share of ownership of a corporation or the promise to pay, is an intangible that is memorialized by the paper.

D)        The terms "new or used" shall have their commonly ascribed meanings.

2)         is depreciable pursuant to Internal Revenue Code (IRC) Section 167, except that "3-year property" as defined in IRC Section 168 is not eligible for the credit provided by IITA Section 237;

A)        Depreciable property is property used in the trade or business of a taxpayer, or held for production of income, which is subject to wear and tear, exhaustion, or obsolescence.

B)        Property that is depreciated under the Modified Accelerated Cost Recovery System (MACRS), as provided by IRC Section 168, is considered depreciable pursuant to IRC Section 167 for purposes of this credit.

C)        Examples of tangible property that is not depreciable include land, inventories or stock-in-trade, natural resources, and coin or currency.

D)        The provisions of Internal Revenue Service (IRS) Regulation Section 1.167(a)-4 will be utilized in making determinations as to whether particular leasehold improvements are depreciable.

E)        IRC Section 179 allows taxpayers, under certain circumstances, to expense a designated dollar amount of equipment purchased in a single tax year. Based on this provision, if the total cost of the property was equal to or less than the amount specified under IRC Section 179, the taxpayer has the option of expensing the cost all in one year as a depreciation expense. While the property does have a useful life of four or more years, since the election was made to completely expense the cost of the property in one year, the property has no federal depreciable basis and does not have a basis upon which to compute the REV Illinois investment tax credit. Property not fully expensed under IRC Section 179 would qualify for the credit based on the cost of the depreciable property reduced by the IRC Section 179 deduction.

3)         is acquired by purchase as defined in IRC Section 179(d);

A)        A purchase is any acquisition of property except:

i)          an acquisition from a person whose relationship to the acquiring person is such that a resulting loss would be disallowed under IRC Sections 267 or 707(b),

ii)         an acquisition by one component member of a controlled group from another component member of the same controlled group,

iii)        an acquisition of property if the basis of the property in the hands of the person acquiring it is determined in whole or in part by its adjusted basis in the hands of the person from whom the property was acquired, or

iv)        an acquisition of property, the basis of which is determined under IRC Section 1014(a). IRC Section 1014(a) covers property received from a decedent. Property acquired by bequest or demise is not acquired by purchase.

B)        For purposes of determining whether property is acquired by purchase as defined by IRC Section 179(d), the family of an individual includes only the individual's spouse and the ancestral and lineal descendants of the individual and the individual's spouse.

C)        For purposes of determining whether property is acquired by purchase only, a controlled group has the same meaning as in IRC Section 1563(a), except stock ownership of only 50% or more is required (also see 26 C.F.R. 1.179-4).

D)        Property that the taxpayer constructs, reconstructs or erects is generally considered acquired by purchase.

E)        A lessee of tangible property may never claim the credit because a lessee has not acquired the property by purchase.

4)         is used at the site of the REV Illinois Project by the taxpayer; and

A)        The term "used at the site of the REV Illinois Project" means that the property for which the credit is being claimed is physically located within the boundaries of a REV Illinois Project site certified by DCEO. Storage of property in a REV Illinois Project site will not constitute use. The taxpayer must make use of, convert to its service, avail itself of, or employ the property in the REV Illinois Project site in order to demonstrate use of the property.

B)        Mobile property, such as vehicles, must be used predominantly at the REV Illinois Project site in order to qualify for the credit.

i)          Removal of such property from the REV Illinois Project site for a temporary or transitory purpose will not disqualify the property so long as it continues to be used predominantly in the Illinois operation of the taxpayer at the REV Illinois Project site.

ii)         Mobile property is considered to be predominantly used at the REV Illinois Project site if usage at the site exceeds usage outside the site. For example, if a taxpayer sometimes uses its trucks based at a REV Illinois Project site to deliver goods both in Illinois and out-of-state, then the temporary absence of its trucks from the REV Illinois Project site does not disqualify them as qualified property used at the site by the taxpayer.

C)        A lessor may claim the credit for otherwise qualified property if the property is physically located in a REV Illinois Project site from the time it is placed in service and all other conditions of eligibility for the credit are met.

5)         has not been previously used in Illinois in such a manner and by such a person as would qualify for the credit provided by this Section. (IITA Section 237(b))

A)        Generally, used property will not qualify for the credit if it was previously used in Illinois in such a manner and by such a person that it could have qualified for the credit.

B)        However, property that would otherwise qualify for the credit will not be disqualified because it was previously used in Illinois in such a manner and by such a person that it could have qualified for the credit, if that use pre-dated the effective date of the law (11/16/21) that established the credit.

EXAMPLE 1:  Corporation A purchases a used pickup truck for use at its REV Illinois Project site from an Illinois resident who used the truck for personal purposes in Illinois. If the truck meets all other requirements for the credit, it will not be disqualified because it has been previously used in Illinois for a non-qualifying purpose.

EXAMPLE 2:  Corporation A purchases a used pickup truck from Corporation B. Corporation B used the truck in its business in a qualifying manner and could have claimed the credit for the truck, but did not. Corporation A may not claim the credit for the truck because the truck has been previously used in Illinois in such a manner that it could have qualified for the credit.

g)         The basis of qualified property shall be the basis used to compute the depreciation deduction for federal income tax purposes. (IITA Section 237(c))

1)         In computing the amount of credit available for a taxable year, the credit rate will be applied to the total basis of all qualified property that is placed in service at the site of the REV Illinois Project during the taxable year, provided the property continues to qualify on the last day of the taxable year.

2)         If the basis of the property for federal income tax depreciation purposes is increased after it has been placed in service at the site of the REV Illinois Project by the taxpayer, the amount of such increase shall be deemed property placed in service on the date of such increase in basis. (IITA Section 237(d))

3)         Property that has been fully expensed under IRC Section 179 has no federal depreciable basis with which to compute the credit. Property not fully expensed under IRC Section 179 can still qualify for the credit.

h)         The term "placed in service" shall have the same meaning as under IRC Section 46 (also see IRS Regulation Section 1.46-3). (IITA Section 237(e)) Property is placed in service for purposes of the credit in the earlier of the following taxable years:

1)         The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such property begins, or

2)         The taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

i)          If during any taxable year, any property ceases to be qualified property in the hands of the taxpayer within 48 months after being placed in service, or the situs of any qualified property is moved from the REV Illinois Project site within 48 months after being placed in service, the tax imposed under IITA Section 201(a) and (b) for such taxable year shall be increased.  (IITA Section 237(f))

1)         Any property disposed of by the taxpayer within 48 months after being placed in service ceases to qualify for the credit.

A)        A taxpayer disposes of property when the taxpayer sells the property, exchanges or trades-in worn-out property for new property, abandons the property or retires it from use.

B)        Property destroyed by casualty, stolen, or transferred as a gift is disposed of property.

C)        Property that is mortgaged or used as security for a loan is not disposed of property, provided that the taxpayer continues to use the property in its business at the REV Illinois Project site.

D)        Property transferred to a trustee in bankruptcy is considered disposed of property in the year the property is transferred to the trustee.

E)        A transfer of property by foreclosure is a disposition of property.

F)         A reduction of the basis of qualified property resulting from a redetermination of the purchase price of the property is a disposition of qualified property to the extent of such reduction in basis in the year in which the reduction takes place.  (IITA Section 237(F))  For example, this would occur when property is purchased and placed in service in one year, and in a later year the taxpayer receives a refund of a portion of the original purchase price.

2)         Any property converted to personal use ceases to qualify for the credit.

3)         The increase in tax shall be determined by:

A)        recomputing the investment credit which would have been allowed for the year in which credit for such property was originally allowed by eliminating such property from such computation, and

B)        subtracting such recomputed credit from the amount of credit previously allowed. (IITA Section 237(f)) The difference between the recomputed credit and the credit actually claimed is added to the income tax for the year in which the property ceased to qualify.

EXAMPLE:  In 2021, taxpayer places qualifying property with a basis of $55,000 into service at the site of a REV Illinois Project and computes a credit for the year of $275 ($55,000 x 0.5%). Taxpayer's 2021 income tax is $275. After application of the credit, taxpayer has no remaining income tax liability. In the following year, taxpayer moved a qualifying asset having a basis of $5,000 from Illinois to Missouri and is required to recapture a portion of the credit applied against its 2021 income tax liability. The credit applied against taxpayer's income tax must be recaptured because the property was moved outside of Illinois and no longer qualifies for the credit. In order to determine its additional income tax for 2022, taxpayer must recompute its 2021 credit by eliminating the disqualified property (($55,000 - $5,000) x 0.5% = $250). This recomputed credit is subtracted from the credit actually used in 2021 against the income tax ($275 - $250 = $25) and the difference is added to taxpayer's 2022 income tax.

j)          Partnerships and Subchapter S Corporations

1)         For taxable years ending before December 31, 2023, for partners, shareholders of Subchapter S corporations, and owners of limited liability companies, if the liability company is treated as a partnership for purposes of federal and State income taxation, there shall be allowed a credit under this Section to be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the IRC. (IITA Section 237(a)) Partnership has the meaning prescribed in IITA Section 1501(a)(16).  In the case of a credit earned by a partnership or subchapter S corporation, the credit passes through to the owner as provided in the partnership agreement under IRC Section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC Section 1366(a).

2)         For taxable years ending on or after December 31, 2023, if the taxpayer is a partnership or a Subchapter S corporation, then the credit is allowed to pass through to the partners and shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule. Partnership has the meaning prescribed in Section 1501(a)(16). (IITA Section 251)

3)         The credit earned by a partnership or a subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 100 of the REV Illinois Act.

4)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

5)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

k)         To claim the credit, a taxpayer shall attach to its Illinois income tax return:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued.

l)          Any taxpayer qualifying for the REV Illinois Investment Tax Credit shall not be eligible for the investment tax credits in Section 201(e), (f), or (h) of the IITA. (20 ILCS 686/100)

(Source:  Amended at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2136  MICRO Investment Tax Credit (IITA Section 239)

a)         For tax years beginning on or after January 1, 2025, a taxpayer shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b) for investment in qualified property which is placed in service at the site of a project that is subject to an agreement between the taxpayer and the Department of Commerce and Economic Opportunity (DCEO) pursuant to the Manufacturing Illinois Chips for Real Opportunity (MICRO) Act [35 ILCS 45] (MICRO Act). (IITA Section 239(a))

b)         For the purposes of the MICRO Investment Tax Credit, "Project" or "MICRO Illinois Project" shall have the same meaning as when used in Section 110-10 of the MICRO Act.

c)         The credit shall be 0.5% of the basis for such property. (IITA Section 239(a))

d)         The credit shall be available only in the taxable year in which the property is placed in service and shall not be allowed to the extent that it would reduce a taxpayer's liability for the tax imposed by IITA Section 201(a) and (b) to less than zero. The credit shall be allowed for the tax year in which the property is placed in service, or if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a liability.  If there is credit from more than one tax year that is available to offset a liability, the earlier credit shall be applied first. (IITA Section 239(a))

e)         The credit allowed under this Section shall be taken in the taxable year that includes the date of the tax credit certificate issued by DCEO under Section 110-100 of the MICRO Act.

f)         The term "qualified property" means property which:

1)         is tangible, whether new or used;

A)        Tangible property includes objects or things that are physically capable of being touched and seen and over which a person may assert rights of ownership.

B)        Tangible property consists of personal or real property and includes such items as buildings, structural components of buildings, machinery, equipment, and vehicles.

C)        Items such as stock certificates, bonds, notes and the like are not tangible personal property. While the certificate or paper may be tangible, the item itself, the share of ownership of a corporation or the promise to pay, is an intangible that is memorialized by the paper.

D)        The terms "new or used" shall have their commonly ascribed meanings.

2)         is depreciable pursuant to Internal Revenue Code (IRC) Section 167, except that "3-year property" as defined in IRC Section 168 is not eligible for the credit provided by IITA Section 239;

A)        Depreciable property is property used in the trade or business of a taxpayer, or held for production of income, which is subject to wear and tear, exhaustion, or obsolescence.

B)        Property that is depreciated under the Modified Accelerated Cost Recovery System (MACRS), as provided by IRC Section 168, is considered depreciable pursuant to IRC Section 167 for purposes of this credit.

C)        Examples of tangible property that is not depreciable include land, inventories or stock-in-trade, natural resources, and coin or currency.

D)        The provisions of Internal Revenue Service (IRS) Regulation Section 1.167(a)-4 will be utilized in making determinations as to whether particular leasehold improvements are depreciable.

E)        IRC Section 179 allows taxpayers, under certain circumstances, to expense a designated dollar amount of equipment purchased in a single tax year. Based on this provision, if the total cost of the property was equal to or less than the amount specified under IRC Section 179, the taxpayer has the option of expensing the cost all in one year as a depreciation expense. While the property does have a useful life of four or more years, since the election was made to completely expense the cost of the property in one year, the property has no federal depreciable basis and does not have a basis upon which to compute the MICRO Investment Tax Credit. Property not fully expensed under IRC Section 179 would qualify for the credit based on the cost of the depreciable property reduced by the IRC Section 179 deduction.

3)         is acquired by purchase as defined in IRC Section 179(d);

A)        A purchase is any acquisition of property except:

i)          an acquisition from a person whose relationship to the acquiring person is such that a resulting loss would be disallowed under IRC Sections 267 or 707(b);

ii)         an acquisition by one component member of a controlled group from another component member of the same controlled group;

iii)        an acquisition of property if the basis of the property in the hands of the person acquiring it is determined in whole or in part by its adjusted basis in the hands of the person from whom the property was acquired; or

iv)        an acquisition of property, the basis of which is determined under IRC Section 1014(a). IRC Section 1014(a) covers property received from a decedent. Property acquired by bequest or demise is not acquired by purchase.

B)        For purposes of determining whether property is acquired by purchase as defined by IRC Section 179(d), the family of an individual includes only the individual's spouse and the ancestral and lineal descendants of the individual and the individual's spouse.

C)        For purposes of determining whether property is acquired by purchase only, a controlled group has the same meaning as in IRC Section 1563(a), except stock ownership of only 50% or more is required (also see 26 C.F.R. 1.179-4).

D)        Property that the taxpayer constructs, reconstructs or erects is generally considered acquired by purchase.

E)        A lessee of tangible property may never claim the credit because a lessee has not acquired the property by purchase.

4)         is used at the site of the MICRO Illinois Project by the taxpayer; and

A)        The term "used at the site of the MICRO Illinois Project" means that the property for which the credit is being claimed is physically located within the boundaries of a MICRO Illinois Project site certified by DCEO.  Storage of property in a MICRO Illinois Project site will not constitute use.  The taxpayer must make use of, convert to its service, avail itself of, or employ the property in the MICRO Illinois Project site in order to demonstrate use of the property.

B)        Mobile property, such as vehicles, must be used predominantly at the MICRO Illinois Project site in order to qualify for the credit. 

i)          Removal of such property from the MICRO Illinois Project site for a temporary or transitory purpose will not disqualify the property so long as it continues to be used predominantly in the Illinois operation of the taxpayer at the MICRO Illinois Project site. 

ii)         Mobile property is considered to be predominantly used at the MICRO Illinois Project site if usage at the site exceeds usage outside the site.  For example, if a taxpayer sometimes uses its trucks based at a MICRO Illinois Project site to deliver goods both in Illinois and out-of-state, then the temporary absence of its trucks from the MICRO Illinois Project site does not disqualify them as qualified property used at the site by the taxpayer.

C)        A lessor may claim the credit for otherwise qualified property if the property is physically located in a MICRO Illinois Project site from the time it is placed in service and all other conditions of eligibility for the credit are met.

5)         has not been previously used in Illinois in such a manner and by such a person as would qualify for the credit provided by this Section. (IITA Section 239(b))

A)        Generally, used property will not qualify for the credit if it was previously used in Illinois in such a manner and by such a person that it could have qualified for the credit.

B)        However, property that would otherwise qualify for the credit will not be disqualified because it was previously used in Illinois in such a manner and by such a person that it could have qualified for the credit, if that use pre-dated the effective date of the law that established the credit.

EXAMPLE 1:  Corporation A purchases a used pickup truck for use at its MICRO Illinois Project site from an Illinois resident who used the truck for personal purposes in Illinois. If the truck meets all other requirements for the credit, it will not be disqualified because it has been previously used in Illinois for a non-qualifying purpose.

EXAMPLE 2:  Corporation A purchases a used pickup truck from Corporation B. Corporation B used the truck in its business in a qualifying manner and could have claimed the credit for the truck, but did not. Corporation A may not claim the credit for the truck because the truck has been previously used in Illinois in such a manner that it could have qualified for the credit.

g)         The basis of qualified property shall be the basis used to compute the depreciation deduction for federal income tax purposes.  (IITA Section 239(c))

1)         In computing the amount of credit available for a taxable year, the credit rate will be applied to the total basis of all qualified property that is placed in service at the site of the MICRO Illinois Project during the taxable year, provided the property continues to qualify on the last day of the taxable year.

2)         If the basis of the property for federal income tax depreciation purposes is increased after it has been placed in service at the site of the project by the taxpayer, the amount of such increase shall be deemed property placed in service on the date of such increase in basis. (IITA Section 239(d))

3)         Property that has been fully expensed under IRC Section 179 has no federal depreciable basis with which to compute the credit. Property not fully expensed under IRC Section 179 can still qualify for the credit.

h)         The term "placed in service" shall have the same meaning as under IRC Section 46 (also see IRS Regulation Section 1.46-3). (IITA Section 239(e)) Property is placed in service for purposes of the credit in the earlier of the following taxable years:

1)         The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such property begins, or

2)         The taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function.

i)          If during any taxable year, any property ceases to be qualified property in the hands of the taxpayer within 48 months after being placed in service, or the situs of any qualified property is moved from the project site within 48 months after being placed in service, the tax imposed under IITA Section 201(a) and (b) for such taxable year shall be increased.

1)         Any property disposed of by the taxpayer within 48 months after being placed in service ceases to qualify for the credit.

A)        A taxpayer disposes of property when the taxpayer sells the property, exchanges or trades-in worn-out property for new property, abandons the property or retires it from use.

B)        Property destroyed by casualty, stolen, or transferred as a gift is disposed of property.

C)        Property that is mortgaged or used as security for a loan is not disposed of property, provided that the taxpayer continues to use the property in its business at the MICRO Illinois Project site.

D)        Property transferred to a trustee in bankruptcy is considered disposed of property in the year the property is transferred to the trustee.

E)        A transfer of property by foreclosure is a disposition of property.

F)         A reduction of the basis of qualified property resulting from a redetermination of the purchase price of the property is a disposition of qualified property to the extent of such reduction in basis in the year in which the reduction takes place. (IITA Section 239(f)) For example, this would occur when property is purchased and placed in service in one year, and in a later year the taxpayer receives a refund of a portion of the original purchase price.

2)         Any property converted to personal use ceases to qualify for the credit.

3)         The increase in tax shall be determined by:

A)        recomputing the investment credit which would have been allowed for the year in which credit for such property was originally allowed by eliminating such property from such computation; and

B)        subtracting such recomputed credit from the amount of credit previously allowed. (IITA Section 239(f)) The difference between the recomputed credit and the credit actually claimed is added to the income tax for the year in which the property ceased to qualify.

EXAMPLE:  In 2025, taxpayer places qualifying property with a basis of $65,000 into service at the site of a MICRO Illinois Project and computes a credit for the year of $325 ($65,000 x 0.5%). Taxpayer's 2025 income tax is $325. After application of the credit, taxpayer has no remaining income tax liability.  In the following year, taxpayer moved a qualifying asset having a basis of $5,000 from Illinois to Missouri and is required to recapture a portion of the credit applied against its 2025 income tax liability. The credit applied against taxpayer's income tax must be recaptured because the property was moved outside of Illinois and no longer qualifies for the credit. In order to determine its additional income tax for 2026, taxpayer must recompute its 2025 credit by eliminating the disqualified property (($65,000 - $5,000) x 0.5% =$300). This recomputed credit is subtracted from the credit actually used in 2025 against the income tax ($325 - $300 = $25) and the difference is added to taxpayer's 2026 income tax.

j)          Partnerships and Subchapter S Corporations

1)         If the taxpayer is a partnership or a Subchapter S corporation, the credit shall be allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the IRC, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule. Partnership has the meaning prescribed in IITA Section 1501(a)(16). (IITA Section 251)

2)         The credit earned by a partnership or a subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 110-100 of the MICRO Act.

3)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

4)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

k)         To claim the credit, a taxpayer shall attach to its Illinois income tax return:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued.

l)          Any taxpayer qualifying for the MICRO Investment Tax Credit shall not be eligible for the investment tax credits in Section 201(e), (f), or (h) of the IITA. (35 ILCS 45/110-100)

(Source:  Added at 48 Ill. Reg. 10281, effective June 25, 2024)

Section 100.2140  Credit Against Income Tax for Replacement Tax (IITA 201(i))

a)         Section 201(c) imposes the Personal Property Tax Replacement Income Tax.  This tax is measured by net income of every corporation (including Sub-chapter S corporations), partnership and trust, for each taxable year.  The tax is imposed on the privilege of earning or receiving income in this State.   The tax is in addition to the income tax imposed under IITA Sections 201(a) and (b).   IITA Section 201(d) lists the tax rates for the Personal Property Tax Replacement Income Tax.

b)         For tax years ending prior to December 31, 2003, a credit is allowed against the Income Tax for Personal Property Tax Replacement Income Tax.

1)         For tax years ending before January 1, 1989, the credit is computed by multiplying the tax imposed by IITA Sections 201(c) and (d) by the apportionment percentage (or by 1 if the entity is non-apportioning).  The result is further multiplied by the tax rate imposed by IITA Sections 201(a) and (b).

2)         For tax years ending on or after January 1, 1989, the credit is computed by multiplying the tax imposed by IITA Sections 201(c) and (d) by a fraction, the numerator of which is base income allocable to Illinois and the denominator of which is Illinois base income.  The result is further multiplied by the tax rate imposed by IITA Sections 201(a) and (b).

c)         Any credit earned on or after December 31, 1986, under this subsection which is unused in the year the credit is computed because it exceeds the tax liability imposed under IITA Sections 201(a) and (b) for that year (whether it exceeds the original liability or the liability as later amended) may be carried forward and applied to the tax liability imposed by IITA Sections 201(a) and (b) for the 5 taxable years following the excess credit year, provided that no credit may be carried forward to any year ending on or after December 31, 2003.  The credit shall be applied first to the earliest year for which there is a liability. If there is a credit for more than one tax year that is available to offset a liability, the earliest credit shall be applied first.

d)         If, during any taxable year, the tax imposed by IITA Sections 201(c) and (d) for which a taxpayer has claimed the credit is reduced, the amount of credit for such tax shall also be reduced.  Such reduction shall be determined by recomputing the credit to take into account the reduced tax imposed by IITA Sections 201(c) and (d).  If any portion of the reduced amount of credit has been carried forward to a different taxable year, an amended return shall be filed for such taxable year to reduce the amount of credit claimed.

(Source:  Amended at 29 Ill. Reg. 20516, effective December 2, 2005)

Section 100.2150  Training Expense Credit (IITA 201(j))

a)         Beginning with tax years ending on or after December 31, 1986 and prior to December 31, 2003, a taxpayer shall be allowed a credit against the tax imposed by IITA Sections 201(a) and (b) for all amounts paid or accrued, on behalf of all persons employed by the taxpayer in Illinois, or Illinois residents employed outside of Illinois by a taxpayer, for  educational or vocational training in semi-technical or technical fields or semi-skilled or skilled fields, which were deducted from gross income in the computation of taxable income (IITA Section 201(j)).

b)         The credit against the tax imposed by IITA Sections 201(a) and (b) shall be 1.6% of eligible training expenses (IITA Section 201(j)).

c)         All amounts paid for educational or vocational training in semi-technical or technical fields or semi-skilled or skilled fields are eligible for the credit.  No particular fields of employment are presumptively eligible or ineligible for the credit.

1)         The Training Expense Credit was originally enacted into law as a training expense deduction by P.A. 83-650, the Prairie State 2000 Authority Act, and was later converted into the current Training Expense Credit by P.A. 84-1405.  The Illinois General Assembly found that there existed a large surplus of workers throughout the State who are ready, willing and able to work but who lack the appropriate skills to perform the specialized tasks for modern business and industry....The General Assembly found that a substantial impediment to attracting new businesses and encouraging the modernization of existing businesses has been the shortage of workers who can perform the specialized tasks required by the new technologies of modern business. [20 ILCS 4020/2]

2)         The credit is for the amounts paid or accrued for educational or vocational training in semi-technical or technical or semi-skilled or skilled fields.

A)        The terms "semi-technical or technical fields or semi-skilled or skilled fields" do not refer to any particular occupation. This statutory language authorizes the credit for the costs of training of an employee to improve that employee's job skills within the scope of his or her employment.

B)        The credit will be authorized for the costs of job-linked training that offers special skills for career advancement or that is preparatory for, and leads to, a job with definite career potential.

C)        The credit will be authorized for amounts expended for training necessary to implement Total Quality Management or improvement systems within the workplace.

D)        The credit will be authorized for training related to machinery or equipment.

E)        The credit will be authorized for job-linked basic skills, which may include English as a second  language and remedial training, necessary for employees to function effectively and safely in the workplace, or as a prerequisite for other training.

EXAMPLES:  Training of a machine operator in skills necessary to operate a computer-assisted manufacturing machine would qualify for the credit.   Training of the employees of a retailer in the operation of a cash register system that is designed to aid the retailer by resulting in faster sales and greater inventory control because of centralized linkage of the system to the retailer's headquarters would, assuming all other requirements are met, qualify for the credit.  A course in how to supervise employees required of supervisors because of the installation of a computer system at the business with terminals in the homes of that supervisor's subordinates that allows those subordinates to work from their homes would qualify for the credit.

F)         Training does not have to occur in a classroom.  Training may be given by an employer to his or her employees, an employer may contract with a third party to provide the training, or an employer may reimburse an employee for the costs of training purchased by an employee.  Eligible training may include self-study courses. Self-study courses will qualify if the employer demonstrates that the self-study coursework is training in semi-technical or technical or semi-skilled or skilled fields. Self-study training must be contrasted with the type "down time" reading which, as stated in subsection (d)(2)(B), below, does not qualify for the credit.

G)        Training does not have to occur on the premises of the employer.  Training does not have to occur in the State of Illinois. However, in order to claim costs of employee travel and lodging, an employer must document that the costs of travel were related to the training and were deducted in determining the employer's federal taxable income.

H)        A training expense that would otherwise not qualify for the credit will not be deemed to qualify for the credit because of a designation of an employee as a probationary employee, a trainee, or a similar designation of that nature.

d)         Only amounts expended for eligible training will qualify as eligible training expenses.  Such costs may or may not constitute "direct expenses" as that term is used in normal accounting parlance.  Capitalized costs will not qualify for the credit.  However, as noted below, depreciation expenses associated with capital expenditures may qualify for the credit.  The term "compensation" used in this Section is defined in IITA Section 1501(a)(3).

1)         The following costs qualify as eligible training expenses:

A)        Compensation of employees for time spent in training others in in-house training will qualify as eligible training expenses, but the compensation must be prorated based on the amount of time actually spent in conducting the training.

B)        Compensation of an employee for time spent in preparing for in-house training as or for an instructor will qualify because such compensation is an expense of the training.

C)        Compensation of an employee for time spent in training will qualify for the credit.

D)        The cost of materials (i.e., slides, hand-outs, etc.) for in-house training  will qualify for the credit because such costs are expenses of the training.

E)        Pro-rata rent of a training facility is an expense eligible for the credit.  Similarly, depreciation expenses for a training facility owned by a taxpayer or for equipment used for training are eligible expenses.

F)         Costs of registration (including allocable wages of employees performing the registration) with state, federal or industry authorities may be eligible expenses, if such costs are related to eligible training.

G)        Tuition reimbursement is an eligible expense provided that the tuition amounts were deducted in determining the employer's federal taxable income.

H)        Costs of travel and lodging for eligible training provided that the costs were deducted in determining the employer's federal taxable income.

2)         The following costs do not qualify as eligible training expenses:

A)        The cost of the training facility and equipment is not an eligible expense.  Capital costs are not eligible for the credit.  However, as noted above, depreciation expense is eligible.

B)        Compensation of an employee for "down time" spent informally training (i.e., a mechanic with no machinery on which to work reading about new equipment, or a mechanic reading about specifications of equipment never before encountered) is not an eligible expense.

C)        Compensation of an employee for time spent supervising another employee is not an eligible expense.  For instance, a supervisor spending an hour a day reviewing and discussing a new employee's progress and planning the new employee's future work schedule would not be an eligible expense.

D)        Cost of a meal (breakfast or lunch) provided in the course of a brief training session is not an eligible expense.  Similarly, the cost of meals provided to an employee during an all-day training session is not an eligible expense.

3)         Employers must maintain records sufficient to document that the training is eligible training.  Employers must maintain records that document the amounts expended for eligible training expenses.  An employer may maintain documentation as required for the Industrial Training Program of the Illinois Department of Commerce and Community Affairs (see 56 Ill. Adm. Code 2650.120), or as maintained by employers in compliance with the requirements of the Illinois Secretary of State's Workplace Literacy Program (see 23 Ill. Adm. Code 3040.220 and 3040.240) for purposes of documentation for the Training Expense Credit.  Employers may claim the credit based upon average or standard costs of training each employee.  The documentation of amounts expended for eligible training expenses, or documentation maintained to claim the credit based upon average or standard costs, must be sufficient to demonstrate that the training for which the credit is claimed is on behalf of persons employed by the taxpayer in Illinois, or Illinois residents employed outside of Illinois by the taxpayer, the training qualifies for the credit under the standards of subsection (b) of this Section above, and the expenditures are eligible training expenses under the standards of subsection (d)(1) above.  In the event an employer claims the credit based upon average or standard costs, this documentation must include detailed information concerning the methodology utilized in determining the average or standard costs.

e)         For purposes of the training expense credit and this rule, the term "persons employed by the taxpayer in Illinois" shall include both employees whose compensation is subject to withholding under IITA Section 701 (including employees who are exempt from withholding pursuant to IITA Section 701(d)).  A person is employed in Illinois by the taxpayer if that person has "compensation paid in this State" as that term is defined in IITA Section 304(a)(2)(B).  Sole proprietors, partners of partnerships, shareholders of corporations, beneficiaries of trusts or estates, or other individuals who own an interest in the employer are not employees for purposes of this credit, unless in the case of shareholders or beneficiaries, they are able to demonstrate that, separate and apart from their ownership status, they are also employees of the concern.

f)         For partners and shareholders of subchapter S corporations, there shall be allowed a credit under IITA Section 201(j) to be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code (IITA Section 201(j)).

g)         Any credit allowed under this subsection which is unused in the year the credit is earned may be carried forward to each of the 5 taxable years following the year for which the credit is computed until it is used.  This credit shall be applied first to the earliest year for which there is a liability.  If there is a credit under this subsection from more than one tax year that is available to offset a liability, the earliest credit arising under this subsection shall be applied first.  No carryforward credit may be claimed in any tax year ending on or after December 31, 2003. (IITA Section 201(j))

(Source:  Amended at 29 Ill. Reg. 20516, effective December 2, 2005)

Section 100.2160  Research and Development Credit (IITA Section 201(k))

a)         For tax years ending after July 1, 1990 and prior to December 31, 2003, and tax years ending on or after December 31, 2004 and prior to January 1, 2027, each taxpayer shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b) for increasing research activities in this State. It is the intent of the General Assembly that the research and development credit under IITA Section 201(k) applies continuously for all tax years ending on or after December 31, 2004 and ending prior to January 1, 2032, including, but not limited to, the period beginning on January 1, 2016, the date on which the credit expired prior to enactment of PA 100-22, and ending on July 6, 2017, the effective date of PA 100-22. All actions taken in reliance on the continuation of the credit under IITA Section 201(k) by any taxpayer are hereby validated. (IITA 201(k))

b)         The credit allowed shall be equal to 6½% of the qualifying expenditures for increasing research activities in this State. (IITA Section 201(k))

c)         Not all "research" will qualify for the credit.  Nor will every expenditure associated with research qualify for the credit.  Qualified research is defined in IRC section 41(d).  Qualifying expenditures means the qualifying expenditures as defined for the federal credit for increasing research activities which would be allowable under IRC section 41 and which are conducted in this State.

1)         IRC section 41(b) defines "qualifying research expenses" as the sum of the in-house research expenses and the contract research expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer.

2)         Qualifying expenditures also include basic research payments.  Basic research payments are defined in IRC section 41(e).

d)         Qualifying expenditures for increasing research activities in this State means the excess of qualifying expenditures for the taxable year in which incurred over qualifying expenditures for the base period. Qualifying expenditures for the base period means the average of the qualifying expenditures for each year in the base period.

e)         Base period means the 3 taxable years immediately preceding the taxable year for which the determination is being made.  For purposes of computing the average qualifying expenditures for the base period:

1)         For taxable years after a taxpayer has succeeded to the tax items of a corporation under IITA Section 405(a), qualifying expenditures incurred by the corporation during the base period shall be deemed to be qualifying expenditures of the taxpayer. 

2)         If the taxpayer incurred no qualifying expenditures during a base period year, the qualifying expenditures for that year are zero, even if the taxpayer was not in existence or conducting any business in this State during that year.

3)         If the taxpayer was doing business in this State for only part of a base period year, the qualifying expenditures for that year shall be equal to the qualifying expenditures actually incurred, multiplied by 365 and divided by the number of days in the portion of the taxable year during which the taxpayer was doing business in this State.

4)         Qualifying expenditures incurred in taxable years in which the taxpayer did not qualify for the credit, including taxable years ending on or after December 31, 2003 and prior to December 31, 2004 must be included in the computation of qualifying expenditures for the base period.

f)         Any credit in excess of the tax liability for the taxable year may be carried forward to offset the income tax liability of the taxpayer for the next 5 years or until it has been fully utilized, whichever occurs first (IITA Section 201(k)), provided that no credit earned in a tax year ending prior to December 31, 2003 may be carried forward to any year ending on or after December 31, 2003.  If an unused credit is carried forward to a given year from 2 or more earlier years, that credit arising in the earliest year is applied first.  If a tax liability for the given year remains, the credit from the next earliest year is applied.  Any remaining unused credit or credits can be carried forward to the next following year in which a tax liability exists.  However, the credit can only be carried forward 5 years from the year in which the taxpayer incurred the expense for which the credit was given.  Any unused credit is then forfeited.

g)         Combined Returns.  In the case of taxpayers filing combined returns, Section 100.5270(d) details the manner in which the credit is determined.

h)         Pass-through of Credits to Partners and Subchapter S Corporation Shareholders 

1)         For tax years beginning on and after January 1, 1999, partners and shareholders of subchapter S corporations shall be allowed a credit under this Section to be determined in accordance with the determination of income and distributive share of income under IRC sections 702 and 704 and subchapter S of the Internal Revenue Code. (IITA Section 201(k))  No inference shall be drawn from the enactment of PA 91-644, which expressly allows this pass-through of credits, in construing IITA Section 201(k) for tax years beginning prior to January 1, 1999.

2)         Repeal and re-enactment of the credit.  Due to the repeal of the credit for taxable years ending on or after December 31, 2003, and the re-enactment of the credit for taxable years ending on or after December 31, 2004:

A)        A partner or shareholder may not claim a credit passed through from a partnership or subchapter S corporation for any taxable year of the partner or shareholder ending on or after December 31, 2003 and prior to December 31, 2004, even if the credit was earned in a taxable year of the partnership or subchapter S corporation ending prior to December 31, 2003.

B)        No credit may be earned by a partnership or subchapter S corporation for a taxable year ending on or after December 31, 2003 and prior to December 31, 2004, and passed through to a partner or shareholder, even if the partner or shareholder would have reported the credit for a taxable year ending on or after December 31, 2004.

(Source:  Amended at 49 Ill. Reg. 1295, effective January 15, 2025)

Section 100.2161  Quantum Computing Campuses Tax Credit (IITA Section 241)

a)         For tax years ending on or after June 26, 2024 (the effective date of Public Act 103-0595), each taxpayer who has been awarded a credit by the Department of Commerce and Economic Opportunity (DCEO) is allowed a credit against the taxes imposed under IITA Section 201(a) and (b) in an amount equal to 20% of the wages paid by the taxpayer during the taxable year to a full-time or part-time employee of a construction contractor employed in the construction of an eligible facility located on a quantum computing campus.  (IITA Section 241(a))

b)         For purposes of this Section, the term "quantum computing campus" shall have the same meaning as when used in Section 605-1115(a) of the Civil Administrative Code of Illinois ((Department of Commerce and Economic Opportunity Law) (DCEO Law)) [20 ILCS 605].

c)         An "eligible facility" means a building used primarily to house one or more of the following:

1)         A quantum computer operator;

2)         A research facility;

3)         A data center (as defined in Section 605-1115(a) of the DCEO Law);

4)         A manufacturer and assembler of quantum computers and component parts;

5)         A cryogenic or refrigeration facility; or

6)         Any other facility determined, by industry and academic leaders, to be fundamental to the research and development of quantum computing for practical solutions. (IITA Section 241(e))

d)         The amount of the credit shall be determined by DCEO and shall be the amount shown on the tax credit certificate issued by DCEO to the taxpayer.

e)         In no event shall a credit under IITA Section 241 reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 241(b))

f)         Partnerships and Subchapter S Corporations

1)         If the taxpayer is a partnership or a Subchapter S corporation, the credit shall be allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule.  Partnership has the meaning prescribed in IITA Section 1501(a)(16).  (IITA Section 251)

2)         The credit earned by a partnership or a subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate is issued by DCEO under Section 605-1115(c) of the DCEO Law.

3)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

4)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

g)         To claim the credit, a taxpayer shall attach to its Illinois income tax return for the taxable year:

1)         a copy of the tax credit certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the tax credit certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued.  (IITA Section 241(c))

h)         The credit may not be transferred or sold.

i)          This credit is exempt from the sunset provisions of IITA Section 250.  (IITA Section 241(f))

(Source:  Added at 49 Ill. Reg. 1861, effective January 31, 2025)

Section 100.2163  Environmental Remediation Credit (IITA 201(l))

a)         For tax years ending after December 31, 1997, and on or before December 31, 2001, a taxpayer shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b) for unreimbursed environmental remediation costs incurred. [IITA Section 201(l)]

b)         The credit allowed shall be equal to 25% of the unreimbursed remediation costs incurred and approved by the Illinois Environmental Protection Agency in excess of $100,000 per cleanup site. The $100,000 deductible does not apply if the remediation site is within an enterprise zone.  [IITA Section 201(l)]

c)         The credit is earned in the year the Illinois Environmental Protection Agency issues a No Further Remediation Letter with respect to the site and may not exceed $150,000 per site. The credit shall not exceed $40,000 per year and the credit may not reduce the taxpayer's liability for the tax imposed by IITA Section 201(a) and (b) below zero.  [IITA Section 201(l)]

d)         The credit is not allowed to a person who is responsible for the pollution of the remediation site or who is related to the responsible person. A person is related to a responsible person if deductions for losses incurred on transactions between them would be disallowed under IRC Section 267(b), (c), or (f)(1).  [IITA Section 201(l)]

e)         Any credit in excess of either the tax liability for the taxable year or the $40,000 per year limitation may be carried forward to offset the income tax liability of the taxpayer for the next 5 years or until it has been fully utilized, whichever occurs first.  Credit in excess of the $150,000 per site limitation may not be carried over to another year.  If a credit from more than one year is carried forward to a particular tax year, the credit arising in the earliest tax year is applied first.

f)         If the site is sold, any unused credit passes to the purchaser, unless the purchaser is disqualified under subsection (d) of this Section.

g)         In the case of a credit earned by a partnership or Subchapter S corporation, the credit passes through to the owners for use against their regular income tax liabilities in the same proportion as other items of the taxpayer are passed through to its owners for federal income tax purposes.

h)         A taxpayer claiming the credit who has deducted any of the expenses on which the credit is based for federal income tax purposes must add those expenses back in computing base income.

(Source:  Added at 26 Ill. Reg. 192, effective December 20, 2001)

Section 100.2164  Data Center Construction Employment Tax Credit (IITA Section 229)

a)         For taxable years beginning on or after January 1, 2019, a taxpayer who has been awarded a credit by the Department of Commerce and Economic Opportunity (DCEO) under Section 605-1025(b) of the Department of Commerce and Economic Opportunity Law of the Civil Administrative Code of Illinois [20 ILCS 605] (DCEO Law) is entitled to a credit against the taxes imposed under IITA Section 201 (a) and (b). (IITA Section 229(a))

b)         Data Center.  For the purposes of the data center construction employment tax credit, "data center" shall have the same meaning as when used in Section 605-1025(c) of the DCEO Law.

c)         The credit shall be computed as established in this subsection.  The amount of the credit shall be 20% of the wages paid during the taxable year to a full-time or part-time employee of a construction contractor employed by a certified data center if those wages are paid for the construction of a new data center in a geographic area that meets any one of the following criteria:

1)         the area has a poverty rate of at least 20%, according to the U.S. Census Bureau American Community Survey 5-year Estimates;

2)         75% or more of the children in the area participate in the federal free lunch program, according to reported statistics from the State Board of Education;

3)         20% or more of the households in the area receive assistance under the Supplemental Nutrition Assistance Program (SNAP), according to data from the U.S. Census Bureau American Community Survey 5-year Estimates; or

4)         the area has an average unemployment rate, as determined by the Department of Employment Security, that is more than 120% of the national unemployment average, as determined by the U.S. Department of Labor, for a period of at least 2 consecutive calendar years preceding the date of the application. (IITA Section 229(a))

d)         Year in Which Credit is Taken.  The credit allowed under this Section shall be taken in the taxable year that includes the date of the tax credit certificate issued by DCEO under Section 605-1025(b) of the DCEO Law.

e)         Partnerships and Subchapter S Corporations

1)         For taxable years ending before December 31, 2023, if the taxpayer is a partnership, a Subchapter S corporation, or a limited liability company that has elected partnership tax treatment, the credit shall be allowed to the partners, shareholders, or members in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code, as applicable. (IITA Section 229(a))  Partnership has the meaning prescribed in IITA Section 1501(a)(16).  In the case of a credit earned by a partnership or subchapter S corporation, the credit passes through to the owners as provided in the partnership agreement under IRC section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC section 1366(a).

2)         For taxable years ending on or after December 31, 2023, if the taxpayer is a partnership or a Subchapter S corporation, then the credit is allowed to pass through to the partners and shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code, or as otherwise agreed by the partners or shareholders, provided that such agreement shall be executed in writing prior to the due date of the return for the taxable year and meet such other requirements as the Department may establish by rule. Partnership has the meaning prescribed in IITA Section 1501(a)(16). (IITA Section 251)

3)         The credit earned by a partnership or subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the tax credit certificate was issued by DCEO under Section 605-1025(b) of the DCEO Law.

4)         The credit shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends and may be carried forward to the 5 succeeding taxable years of the owner until used.

5)         Any credit passed through to a partnership or subchapter S corporation under this subsection shall pass through to its partners or shareholders in the same manner as a credit earned by the partnership or subchapter S corporation.

f)         In no event shall a credit under this Section reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 229(b))

g)         Revocation.  No credit shall be allowed with respect to any certification for any taxable year ending after the revocation of the certification by DCEO. Upon receiving notification by DCEO of the revocation of certification, the Department shall notify the taxpayer that no credit is allowed for any taxable year ending after the revocation date, as stated in the notification. (IITA Section 229(c))

h)         If any credit has been allowed with respect to a certification for a taxable year ending after the revocation date, any refund paid to the taxpayer for that taxable year shall be, to the extent of that credit allowed, an erroneous refund within the meaning of IITA Section 912. (IITA Section 229(c))

i)          Documentation of the Credit. A claimant shall attach to its Illinois income tax return:

1)         a copy of the Tax Credit Certificate and annual certification (if any) issued by DCEO; and

2)         in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating:

A)        the portion of the total credit shown on the Tax Credit Certificate that is allowed to that partner or shareholder; and

B)        the taxable year of the partnership or subchapter S corporation in which the Tax Credit Certificate was issued.

j)          This Section is exempt from the automatic sunset provisions of IITA Section 250. (IITA Section 229(a))

(Source:  Amended at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2165  Education Expense Credit (IITA 201(m))

a)         Beginning with tax years ending after December 31, 1999, a taxpayer who is the custodian of one or more qualifying pupils shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b) for qualified education expenses incurred on behalf of the qualifying pupils (the "education expense credit").  The education expense credit shall be equal to 25% of qualified education expenses, but the maximum education expense credit allowed to a family that is the custodian of qualifying pupils shall not exceed $500 in any tax year ending prior to December 31, 2017, or $750 for any tax year ending on or after December 31, 2017, regardless of the number of qualifying pupils.  The education expense credit taken shall not reduce a taxpayer's liability under the Act to less than zero. Notwithstanding any other provision of law, for taxable years beginning on or after January 1, 2017, if the taxpayer's adjusted gross income for the taxable year exceeds $500,000, in the case of spouses filing a joint federal tax return or $250,000, in the case of all other taxpayers, the credit allowed under this Section shall be zero. (IITA Section 201(m)) For purposes of this provision, each spouse is a separate taxpayer. No part of the education expense credit is refundable to the custodian in the event the custodian's tax liability is reduced to zero.

b)         For a taxpayer to claim the education expense credit, the taxpayer must be the custodian of one or more qualifying pupils and have incurred qualified education expenses on behalf of the qualifying pupils.

1)         Qualifying Pupils

A)        "Qualifying pupils" shall mean individuals who are:

i)          residents of the State of Illinois;

ii)         under the age of 21 at the close of the school year for which a credit is sought; and

iii)        full time pupils enrolled in a kindergarten through twelfth grade education program at any school during the school year for which a credit is sought. (IITA Section 201(m))

B)        An individual under the age of 21 and graduating from the twelfth grade during a school year shall be considered a qualifying pupil for the year but only to the extent of qualified education expenses incurred by the custodian due to the qualifying pupil's enrollment in the twelfth grade.

2)         "Custodian" of qualifying pupils shall mean an Illinois resident(s) who is a parent, the parents, a legal guardian, or the legal guardians of the qualifying pupils. (IITA Section 201(m))

A)        A foster parent, or the foster parents, or an adoptive parent, or the adoptive parents shall be included within the meaning of parent or legal guardian for purposes of determining the custodian of qualifying pupils.

B)        Custodian shall not include a parent or the parents of qualifying pupils whose parental rights over the qualifying pupils have been legally terminated.

C)        A custodian incurring qualified education expenses on behalf of qualifying pupils may claim the education expense credit only to the extent of qualified education expenses actually paid for by that custodian.

D)        The education expense credit claimed shall not exceed the applicable $500 or $750 credit limit allowable to a family that is the custodian of qualifying pupils.  Therefore, the divorced or unmarried parents of qualifying pupils, each of whom is the custodian of the qualifying pupils and each of whom incurs education expenses on behalf of such pupils, shall be considered the family of such qualifying pupils for purposes of the applicable $500 or $750 credit limit.

3)         "School", for purposes of the education expense credit, means any public or nonpublic elementary or secondary school in Illinois that is in compliance with Title VI of the Civil Rights Act of 1964 and attendance at which satisfies the requirements of Section 26-1 of the School Code [105 ILCS 5/26-1], except that nothing shall be construed to require a child to attend any particular public or nonpublic school in order to qualify for the education expense credit (IITA Section 201(m)). Schools that are not required to be in compliance with the Title VI of the Civil Rights Act of 1964 but attendance at which meets the compulsory education requirements of Section 26-1 of the School Code are included within the meaning of "school" for purposes of the education expense credit. Private schools providing educational instruction in the home, attendance at which meets the compulsory education requirements of Section 26-1 of the School Code, are included within the meaning of "school" for purposes of the education expense credit. For school years prior to the 2014-2015 school year, Section 26-1 of the School Code required attendance beginning with 7-year-olds, who were required to attend first grade or higher.  A school that provided kindergarten, but not first grade or higher, did not qualify as a school for which the credit is allowed under this Section. PA 98-544 amended Section 26-1 of the School Code to require attendance in kindergarten or higher for 6-year-olds, starting with the 2014-2015 school year.  Accordingly, beginning with the 2014-2015 school year, a school providing kindergarten may qualify, even if it does not provide first grade or higher.

4)         Qualified Education Expenses

A)        "Qualified education expenses" shall mean amounts incurred on behalf of a qualifying pupil in excess of $250 for tuition, book fees, and lab fees at the school in which the qualifying pupil is enrolled during the regular school year. (IITA Section 201(m))  Amounts incurred for tuition, book fees and lab fees by a family that is the custodian of more than one qualifying pupil may aggregate all tuition, book fees and lab fees incurred by the family in arriving at qualified education expenses eligible for the credit.

i)          Tuition is the amount paid to a school as a condition of enrollment for a quarter, semester or year term in a kindergarten through twelfth grade education program of the school. Enrollment in an education program shall mean admission to the full and regular schedule of classroom instruction of the school during the designated period.  Tuition also includes amounts paid as a condition of enrollment on behalf of a school to cover costs of implementing and administering an education program.

ii)         Book fees are amounts paid for the use of books that are essential to a qualifying pupil's participation in the education program of the school.  A book is essential when the school or an instructor of the school requires its use by the qualifying pupil in order to participate in and complete a course of the education program.

iii)        Lab fees are amounts paid for the use of supplies, equipment, materials or instruments that are essential to a qualifying pupil's participation in a lab course of the school's education program. Supplies, equipment, materials or instruments are essential when the school or an instructor of the school requires their use by the qualifying pupil in order to participate in and complete a lab course of the education program.  Lab courses include those courses that, in addition to classroom instruction by a teacher, provide an environment of organized activity involving observation, experimentation or practice in a course of study. Lab courses of study include those courses with a scientific, musical, artistic, technical or language skill content.  Lab fees may be in the nature of a rental fee for supplies, equipment, materials or instruments that are used in the lab course.  Fees incurred for the purchase of supplies, equipment, materials or instruments used in a lab course and which are substantially consumed by the assignments and activities of the lab are also considered qualifying lab fees.

B)        Any amount paid for the purchase of items that would be considered qualified education expenses but for the fact that the items are not substantially consumed during the school year and will remain the tangible personal property of a qualifying pupil or a custodian at the conclusion of the school year shall not be considered qualified education expenses.  For purposes of this Section, an item is substantially consumed when, during the school year, the item is used to the extent that its fair market value has been reduced to a de minimis amount.

c)         Examples.  Calculation of the education expense credit may be illustrated by the following examples.  For each example, it is assumed that the taxpayer's adjusted gross income for the taxable year is not greater than $500,000 (in the case of each spouse filing a joint federal income tax return) or $250,000 (in the case of all other taxpayers).

EXAMPLE 1.  Family A is the custodian of 2 qualifying pupils. Family A incurs a total of $6,000 in tuition, book fees and lab fees for the education of both pupils during the calendar year.  The first $250 incurred for tuition, book fees and lab fees is not included as a qualified education expense.  The balance of $5,750 ($6,000 - $250) multiplied by 25% equals $1,437.50.   Family A may only claim the maximum tax credit allowable of $500 (for taxable years ending prior to December 31, 2017) or $750 (for taxable years ending on or after December 31, 2017).

EXAMPLE 2.  Family B is the custodian of one qualifying pupil. Family B incurs a total of $2,250 in tuition, book fees and lab fees for the education of the qualifying pupil during the calendar year.  Family B also incurs $200 for the purchase of a musical instrument used by the qualifying pupil while participating in the school band.  The $200 incurred for the purchase of a musical instrument is an expense that does not qualify for the credit.  The first $250 incurred for tuition, book fees and lab fees is not included as a qualified education expense.  The balance of $2,000 ($2,250-$250) multiplied by 25% equals $500. Family B may claim a credit for the entire $500.

EXAMPLE 3.  Family C is the custodian of 4 qualifying pupils. Family C incurs a total of $1,000 in book fees and lab fees for the education of all 4 qualifying pupils during the calendar year. Family C also incurs a total of $50 for the purchase of books used in completing book reports required by the school.  The $50 incurred for the purchase of books is an expense that does not qualify for the credit. The first $250 incurred for book fees and lab fees is not included as a qualified education expense.  The balance of $750 ($1,000 - $250) multiplied by 25% equals $187.50.  Family C may claim a tax credit of $187.50.

d)         To aid a custodian in claiming the education expense credit, a school should provide to the custodian a written receipt documenting education expenses paid to the school by the custodian on behalf of qualifying pupils during the calendar year.  The written receipt should be provided to the custodian on or before January 31 of the succeeding calendar year. When a school provides a written receipt to a custodian, it should use the form prescribed by the Department and include the following information:

1)         the designated calendar year during which the education expenses were paid;

2)         the name and address of the school;

3)         the name and address of the custodian;

4)         the name and social security number of the qualifying pupil or pupils;

5)         a list of education expense amounts paid for tuition, book fees and lab fees during the calendar year; and

6)         the total of all such education expenses paid during the calendar year. All information contained on the written receipt provided by a school is deemed confidential information for use as supporting documentation of the education expense credit claimed and shall not be used for any other purpose.

e)         A custodian filing a return claiming the education expense credit shall maintain records of proof as to the education expenses paid for by the custodian.  The custodian shall maintain the records for a period of not less than 3 years after the date the return on which the custodian claimed the education expense credit was filed. Records maintained by the custodian shall be subject to inspection by the Department and its duly authorized agents and employees.

f)         The education expense credit for qualified education expenses incurred must be claimed for the tax year in which the qualified education expenses are actually paid.  Any part of the education expense credit not claimed or allowed in a given tax year shall not be carried forward or back to any other tax year.  Likewise, where qualified education expenses are incurred in excess of the allowable education expense credit for any given tax year, the excess of qualified education expenses shall not be used in claiming the education expense credit for any other tax year.

g)         This Section is exempt from automatic sunset under IITA Section 250.

(Source:  Amended at 44 Ill. Reg. 2845, effective January 30, 2020)

Section 100.2170  Tax  Credits  for  Coal  Research  and  Coal Utilization Equipment (IITA 206)

a)         Until January 1, 2005, each corporation subject to the Illinois Income Tax Act shall be entitled to a credit against the tax imposed under IITA Sections 201(a) and (b) in an amount equal to 20% of the amount donated to the Illinois Center for Research on Sulfur in Coal (IITA Section 206).

b)         Until January 1, 2005, each corporation subject to the Illinois Income Tax Act shall be entitled to a credit against the tax imposed under IITA Sections 201(a) and (b) in an amount equal to 5% of the amount spent during the taxable year by the corporation on equipment purchased for the purpose of maintaining or increasing the use of Illinois coal at any Illinois facility owned, leased or operated by the corporation.

1)         Such equipment shall be limited to direct coal combustion equipment and pollution control equipment necessary thereto.

2)         For purposes of this credit, the amount spent on qualifying equipment shall be defined as the basis of the equipment used to compute the depreciation deduction for federal income tax purposes.  This amount spent is the adjusted basis of each item of equipment as determined pursuant to IRC 167(g).  Generally, the adjusted basis will be the purchase price of the property plus any capital expenditures less any rebates (IITA Section 206).

3)         In order to show that the equipment was purchased with the intent to maintain or increase the use of Illinois coal at any Illinois facility owned, leased or operated by the taxpayer, the taxpayer must demonstrate that the equipment was used for the combustion of Illinois coal during the taxable year or could reasonably have been so used but was not due to circumstances beyond the taxpayer's control.

c)         The credit shall be allowed for the tax year in which the amount is donated or the equipment purchased is placed in service, or, if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit years.  The credit may not reduce a taxpayer's liability below zero, nor may excess credit be carried to another year for years ending prior to December 31, 1987.  The credit shall be applied to the earliest year for which there is a liability.  If there is credit from more than one tax year that is available to offset a liability, the earlier credit shall be applied first.

(Source:  Amended at 26 Ill. Reg. 1274, effective January 15, 2002)

Section 100.2171  Angel Investment Credit (IITA 220)

a)         For taxable years beginning on and after January 1, 2011, and ending on or before December 31, 2026, a claimant (as defined under 14 Ill. Adm. Code 531.20) may claim a credit against the tax imposed under IITA Sections 201(a) and (b) in an amount equal to 25% of the Angel Investment (as defined under 14 Ill. Adm. Code 531.20) made by the claimant and that is shown on the Tax Credit Certificate issued by the Department of Commerce and Economic Opportunity (DCEO) under 14 Ill. Adm. Code 531.70. A claimant may not sell or otherwise transfer a credit awarded under this Section to another person. (IITA Section 220(g))

b)         Year in Which Credit is Taken.  The credit allowed under this Section shall be taken in the taxable year that includes the date of the Tax Credit Certificate issued by DCEO under 14 Ill. Adm. Code 531.70.

c)         In the case of a credit earned by a partnership or subchapter S corporation, the credit passes through to the owners as provided in the partnership agreement under IRC section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC section 1366(a). The credit earned by a partnership or subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the Tax Credit Certificate is issued by DCEO under 14 Ill. Adm. Code 531.70, and shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends.

d)         The credit under this Section may not exceed the taxpayer's Illinois income tax liability under IITA Section 201(a) and (b) for the taxable year. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 220(b))

e)         Recapture. If, as determined by DCEO, an investment for which a claimant is allowed a credit under this Section is held by the claimant for less than 3 years, or, if within that period of time the qualified new business venture is moved from the State, the claimant shall pay to the Department of Revenue, on forms prescribed by the Department of Revenue, the amount of the credit that the claimant received related to the investment. DCEO shall annually certify that the claimant's investment has been made and remains in the qualified new business venture for no less than 3 years. (IITA Section 220(d))

f)         Documentation of the Credit. A claimant shall attach to its Illinois income tax return a copy of the Tax Credit Certificate and/or annual certification (if any) issued by DCEO and, in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating the portion of the total credit shown on the Tax Credit Certificate that is allowed to that partner or shareholder and the taxable year of the partnership or subchapter S corporation in which the Tax Credit Certificate was issued.

(Source:  Amended at 46 Ill. Reg. 14550, effective August 2, 2022)

Section 100.2175  Invest in Kids Credit (IITA 224)

a)         For taxable years beginning on and after January 1, 2018, and ending before January 1, 2023, a taxpayer may claim a credit against the income tax imposed under IITA Section 201(a) and (b) in an amount equal to 75% of the qualified contribution amount awarded under the Invest in Kids Act that is shown on the Certificate of Receipt issued by an approved scholarship granting organization under 86 Ill. Adm. Code 1000.500.  The credit may not be applied against the personal property replacement tax imposed under IITA Section 201(c) and (d).

b)         The credit allowed under this Section may be taken in the taxable year that includes the date of the Certificate of Receipt issued by an approved scholarship granting organization under 86 Ill. Adm. Code 1000.500.  The credit may not be transferred.  The credit may not be carried back and may not reduce the taxpayer's liability to less than zero.  If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year.  The credit shall be applied to the earliest year for which there is a tax liability.  If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first.  (IITA Section 224(c))

c)         In the case of a credit earned by a partnership or subchapter S corporation, the credit passes through to the owners as provided in the partnership agreement under IRC section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC section 1366(a).  The credit earned by a partnership or subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the Certificate of Receipt is issued by an approved scholarship granting organization under 86 Ill. Adm. Code 1000.500, and shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends.

d)         A credit awarded under the Invest in Kids Act may not be claimed for any qualified contribution for which the taxpayer claims a federal income tax deduction.  (IITA Section 224(d))

e)         A taxpayer shall retain and provide at the request of the Department the Certificate of Receipt issued by an approved scholarship granting organization and, in the case of a partner in a partnership or shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating the portion of the total credit shown on the Certificate of Receipt that is allowed to that partner or shareholder and the taxable year of the partnership or subchapter S corporation in which the Certificate of Receipt was issued.

f)         EXAMPLE 1: Individual A contributes $5,000 to an approved scholarship granting organization on January 25, 2018.  Individual A receives a Certificate of Receipt in the amount of $5,000.  On April 1, 2019, Individual A files a 2018 U.S. Form 1040 with Schedule A Itemized Deductions.  Individual A does not include any part of the $5,000 contribution under Gifts to Charity on Schedule A.  Individual A is entitled to claim an Invest in Kids tax credit in the amount of $3,750 on Individual A's 2018 Form IL-1040, Schedule 1299-C.

EXAMPLE 2: Individual B contributes $5,000 to an approved scholarship granting organization on January 25, 2018.  Individual B receives a Certificate of Receipt in the amount of $5,000.  On April 1, 2019, Individual B files a 2018 U.S. Form 1040 with Schedule A Itemized Deductions.  Individual B includes $1,250 (25% of the qualified contribution) under Gifts to Charity on Schedule A.  Individual B is not entitled to claim any Invest in Kids tax credit on Individual B's 2018 Form IL-1040, Schedule 1299-C.

EXAMPLE 3: Corporation C contributes $1 million to an approved scholarship granting organization on January 5, 2018.  Corporation C receives a Certificate of Receipt in the amount of $1 million.  On October 15, 2019, Corporation C files a 2018 U.S. Form 1120 and excludes the $1 million from the charitable contributions line of the return.  Corporation C is entitled to claim an Invest in Kids tax credit in the amount of $750,000 on Corporation C's 2018 Form IL-1120, Schedule 1299-D.

EXAMPLE 4: Corporation D contributes $5 million to an approved scholarship granting organization on January 5, 2018.  Corporation D receives a Certificate of Receipt in the amount of $1,333,333 (the maximum qualified contribution).  On October 15, 2019, Corporation D files a 2018 U.S. Form 1120 and includes $3,666,667 ($5 million less the maximum qualified contribution) on the charitable contributions line of the return.  Corporation D is entitled to claim an Invest in Kids tax credit in the amount of $1 million on Corporation D's 2018 Form IL-1120, Schedule 1299-D.

(Source:  Added at 42 Ill. Reg. 4953, effective February 28, 2018)

Section 100.2179  Volunteer Emergency Worker Credit (IITA Section 234)

a)         For taxable years beginning on or after January 1, 2023, and beginning before January 1, 2028, a taxpayer shall be allowed a credit against the tax imposed by subsections (a) and (b) of Section 201 of the Illinois Income Tax Act in the amount of $500 if the taxpayer:

1)         Served as a volunteer emergency worker for at least nine months during the taxable year,

2)         Did not receive more than $5,000 in compensation for serving as a volunteer emergency worker during the taxable year, and

3)         Is registered with the Office of the State Fire Marshal (OSFM) as having met criteria (1) and (2), or is reported to the Illinois Emergency Management Agency and Office of Homeland Security (IEMA-OHS) by local emergency services and disaster agencies as having met criteria (1) and (2) and served at least 100 hours during the taxable year, by January 12 of the following calendar year.

If the taxpayer described in subsection (a) is a volunteer member of a county emergency services and disaster agency under the Illinois Emergency Management Agency Act, or is a volunteer member of a municipality enrolled with a county emergency services and disaster agency, then the taxpayer must serve as a volunteer emergency worker with the county or municipal emergency services and disaster agency for at least 100 hours during the taxable year. (IITA Section 234(a))

b)         Beginning on February 1 of each year, taxpayers meeting the criteria in subsection (a) shall submit an application for volunteer emergency worker income tax credit through the Department's website. After verifying the application against the information provided pursuant to subsections (c) and (d), the Department shall issue to the taxpayer a volunteer emergency worker credit certificate. If the application does not match the information provided pursuant to subsection (c) or (d), the Department will contact the taxpayer by telephone or email to request additional support, and the Department will work with the taxpayer and OSFM or IEMA-OHS during the next ten business to resolve any verification issues. If eligibility has not been verified after 10 business days, the Department will send the taxpayer an email indicating that the application has been denied.

c)         For volunteer emergency workers other than volunteer members of a county or municipal emergency services and disaster agency, the chief of the fire department, fire protection district, or fire protection association shall be responsible for notifying the OSFM by January 12 of each year of the volunteer emergency workers who met the criteria in subsection (a)(1) and (2) during the preceding calendar year. By January 24 of each year, the OSFM shall provide the Department with an electronic file containing the name, address, State Fire Marshal identification number and fire department identification number for the individuals who have been reported to the OSFM by the chief of the fire department, fire protection district, or fire protection association as meeting the criteria in subsection (a)(1) and (2) and who meet the criteria of subsection (a)(3).

d)         For volunteer members of a county or municipal emergency services and disaster agency, the coordinator of the emergency services and disaster agency shall be responsible for notifying the IEMA-OHS by January 12, 2025, and January 12 of each succeeding year of the volunteer emergency workers who met the criteria in subsections (a)(1) and (2) and served at least 100 hours during the preceding calendar year. By January 24, 2025, and January 24 of each succeeding year,  IEMA-OHS shall provide the Department with an electronic file containing the name, address, and assigned  identification number for the individuals who have been reported to IEMA-OHS by the coordinator of the emergency services and disaster agency as meeting the criteria in subsections (a)(1) and (2), and having served at least 100 hours during the taxable year.

e)         Volunteer emergency worker credit certificates shall be awarded on a first-come, first-served basis in accordance with the receipt of applications, and they shall not exceed $5,000,000 in the aggregate. Taxpayers may not claim the volunteer emergency worker credit on any income tax return unless they receive a valid certificate number from the Department.

f)         A credit awarded under this Section shall not reduce a taxpayer's liability to less than zero.

g)         As used in this Section, "volunteer emergency worker" means a person who serves as a member, other than on a full-time career basis, of a fire department, fire protection district, or fire protection association that has a Fire Department Identification Number issued by the Office of the State Fire Marshal and who does not serve as a member on a full-time fire service career basis for another fire department, fire protection district, fire protection association, or governmental entity. For taxable years beginning on or after January 1, 2024, "volunteer emergency worker" also means a person who is a volunteer member of a county emergency services and disaster agency pursuant to the Illinois Emergency Management Agency Act or is a volunteer member of a municipality enrolled with a county emergency services and disaster agency. (IITA Section 234(d))

(Source:  Amended at 49 Ill. Reg. 6621, effective April 22, 2025)

Section 100.2180  Credit  for Residential  Real Property  Taxes (IITA 208)

a)         Beginning with tax years ending on or after December 31, 1991, every individual taxpayer shall be entitled to a tax credit equal to 5% of real property taxes paid by the taxpayer during the taxable year on the principal residence of the taxpayer.  In the case of multi-unit or multi-use structures and farm dwellings, the taxes on the taxpayer's principal residence shall be that portion of the total taxes that is attributable to the principal residence.

1)         Notwithstanding any other provision of law, for taxable years beginning on or after January 1, 2017, no taxpayer is allowed a credit under this Section if the taxpayer's adjusted gross income for the taxable year exceeds:

A)        $500,000, in the case of spouses filing a joint federal tax return; or

B)        $250,000, in the case of all other taxpayers. (IITA Section 208)

2)         For purposes of this provision, each spouse is a separate taxpayer.

b)         A taxpayer will qualify for the property tax credit if:

1)         the taxpayer's principal residence during the year preceding the tax year at issue was in Illinois; and

2)         the taxpayer owned the residence; and

3)         the property tax billed in the tax year at issue has been paid.   This is the amount paid after factoring in any applicable exemptions.

c)         Basis of the Credit

1)         The credit may be based on the entire property tax bill if:

A)        the taxpayer lived in the same residence during all of the year preceding the tax year at issue; and

B)        the tax bill included property used only for the taxpayer's personal residence, yard, garage, or other structure used for personal purposes.  If the property tax bill included not only taxpayer's personal residence, but also business, rental, or farm property, that credit may be calculated only on that portion of the property tax bill that is for the personal residence.

2)         The credit may not be taken for a vacation home.

3)         Credit may not be taken for mobile home privilege tax.

d)         If taxpayer sold a principal residence in the year preceding the tax year at issue, he or she may not take a credit for the tax year at issue.  In this situation, taxpayer will not have paid property taxes during the taxable year on that principal residence. Property taxes in Illinois are assessed on a property in one year and paid in the next year.  In other words, in 1994 taxpayers pay 1993 taxes.  In order to qualify for the credit granted by  IITA Section  208 during 1994,  a taxpayer must have ownership of an Illinois principal residence during 1993.  An amount representing property taxes for the period of ownership of the taxpayer in the year preceding the tax year at issue will have been paid to the buyer of the taxpayer's former residence.  Therefore, taxpayer will be authorized to take an additional amount of credit for property taxes paid to buyer upon sale of the residence in the year preceding the tax year at issue, but will have no credit in the subsequent year.

EXAMPLE:  Taxpayer A sells his or her principal residence to B on July 1, 1991.  Taxpayer A owned and resided in the principal residence for all of 1990, and for the first 6 months of 1991. Taxpayer A is entitled to a credit for residential real property taxes on his or her 1991 return in an amount equal to the amount of 1990 taxes paid in 1991.   In addition, Taxpayer A is entitled to a credit for 6 months of the 1991 taxes that were paid over to B upon sale of the principal residence on July 1, 1991.  Taxpayer A is not entitled to a credit for property taxes paid on this property on his or her 1992 return because no taxes were paid on this residence in 1992. However, if Taxpayer A bought another residence in 1991, Taxpayer A may calculate a credit for that portion of 1991 during which he or she owned and lived at the new property.

(Source:  Amended at 44 Ill. Reg. 2845, effective January 30, 2020)

Section 100.2181 Credit for Instructional Materials and Supplies. (IITA Section 225)

a)         For taxable years beginning on and after January 1, 2017, a taxpayer shall be allowed a credit in the amount paid by the taxpayer during the taxable year for instructional materials and supplies with respect to classroom based instruction in a qualified school, or $250, whichever is less, provided that the taxpayer is a teacher, instructor, counselor, principal or aide in a qualified school for at least 900 hours during a school year. The credit may not be carried back and may not reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit carried forward is applied to the earliest year for which there is a tax liability. If credits for more than one year are available to offset a liability, the earlier credit shall be applied first. (IITA Section 225)

b)         For purposes of this Section:

1)         The term "qualified school" means a public school or non-public school located in Illinois. (IITA Section 225) IITA Section 102 provides that, except as otherwise expressly provided or clearly appearing from the context, any term used in the Act has the same meaning as when used in a comparable context in the IRC or any successor law or laws relating to federal income taxes and other provisions of federal statutes relating to federal income taxes, as that Code, laws and statutes are in effect for the taxable year. Accordingly, "school" means a school that provides elementary education or secondary education (kindergarten through grade 12), as provided in the federal income tax deduction allowed to teachers for classroom supplies under IRC section 62(a)(2)(D) and (d)(1). 

2)         The term "materials and supplies" means amounts paid for instructional materials or supplies that are designated for classroom use in any qualified school. (IITA Section 225) Expenses qualifying for the federal income tax deduction for classroom books, supplies, equipment and other materials under IRC section 62(a)(2)(D) also qualify for this credit, except that the express provision in IRC section 62(a)(2)(D)(ii) that nonathletic supplies for courses of instruction in health or physical education do not qualify, does not apply for purposes of this credit. 

3)         A "school year" includes any summer school conducted in the summer immediately following the end of the spring term of the school year.

c)         This Section is exempt from automatic sunset under IITA Section 250. (IITA Section 225)

(Source:  Added at 44 Ill. Reg. 2845, effective January 30, 2020)

Section 100.2185  Film Production Services Credit (IITA Section 213)

a)         For taxable years beginning on or after January 1, 2004, and prior to January 1, 2027, a person awarded a credit under the Film Production Services Tax Credit Act of 2008 [35 ILCS 16] is entitled to a credit against the taxes imposed under IITA Section 201(a) and (b) in an amount determined by the Department of Commerce and Economic Opportunity. (IITA Section 213)  The amount of the credit shall be the amount shown on the Tax Credit Certificate issued by the Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.70 or the Certificate of Transfer issued by the Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.85.

b)         Year in which Credit is Taken.  The credit allowed under this Section shall be taken in the taxable year that includes the date of the Tax Credit Certificate issued by the Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.70.

c)         In the case of a credit earned by a partnership or subchapter S corporation, the credit passes through to the owners as provided in the partnership agreement under IRC section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC section 1366(a).  The credit earned by a partnership or subchapter S corporation will be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the Tax Credit Certificate is issued by the Department of Commerce and Economic Opportunity under 14 Ill. Adm. Code 528.70 and shall be allowed to each owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends.

d)         For tax years ending prior to July 11, 2005 (the effective date of PA 94-171), the credit may not be carried forward or back.  For tax years ending on or after July 11, 2005, if the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first.  In no event shall a credit under this Section reduce the taxpayer's liability to less than zero.  (IITA Section 213)

e)         Transfer of Credit.  A transfer of this credit may be made by the person earning the credit within one year after the credit is awarded in accordance with rules adopted by the Department of Commerce and Economic Opportunity. (IITA Section 213) 

1)         Transfers shall be made pursuant to 14 Ill. Adm. Code 528.85.

2)         A credit may be transferred to a partnership or subchapter S corporation, in which case the partners or shareholders of the transferee shall be entitled to the transferred credit in the amounts determined under subsection (c).

3)         A credit may be transferred after the end of the taxable year of the transferee in which the credit is to be taken under subsection (b).  If the transferee has already filed its return for that taxable year, it will need to file a corrected or amended return, for that taxable year, claiming the credit. 

f)         Documentation of the Credit.  A person claiming the credit allowed under this Section shall attach to its Illinois income tax return a copy of the Tax Credit Certificate or the Certificate of Transfer issued by the Department of Commerce and Economic Opportunity and, in the case of a partner in a partnership or a shareholder of a subchapter S corporation that earned the credit, a Schedule K-1-P or other written statement from the partnership or subchapter S corporation stating the portion of the total credit shown on the Tax Credit Certificate or Certificate of Transfer that is allowed to that partner or shareholder and the taxable year of the partnership or subchapter S corporation in which the Tax Credit Certificate was issued.

(Source:  Amended at 44 Ill. Reg. 2845, effective January 30, 2020)

Section 100.2190  Tax Credit for Affordable Housing Donations (IITA Section 214)

a)         For tax years ending on or after December 31, 2001 and on or before December 31, 2026, a taxpayer who makes a donation under Section 7.28 of the Illinois Housing Development Act [20 ILCS 3805/7.28] is entitled to a credit under IITA Section 214.

b)         The credit shall be equal to 50% of the value of the donation, but in no event shall exceed the amount reserved by the administrative housing agency for that project pursuant to Section 7.28 of the Illinois Housing Development Act and 47 Ill. Adm. Code 355.209.

c)         Year in which credit is taken.  At the election of the taxpayer, the credit shall be taken:

1)         in the tax year in which the donation is made; provided that such election may not be made for any tax year ending after December 31, 2016;

2)         in the tax year in which the reservation letter is issued by the administrative housing agency under 47 Ill. Adm. Code 355.209, provided that the credit may not be claimed until the donation is made and, if the donation is not made before the taxpayer files its Illinois income tax return for the tax year in which the effective date occurs, the credit may not be claimed on the original return, but rather must be claimed on an amended return or claim for refund after the donation is made; or

3)         in the tax year in which the credit is transferred to the taxpayer; provided that, if the taxpayer elects under this subsection (c)(3) to take the credit in any tax year after the tax year in which the donation was made, the 5-year carryforward period allowed to the taxpayer in subsection (d) shall be reduced by the number of tax years of the taxpayer that ended on or after the date of the donation and on or before the date of the transfer to the taxpayer. The election shall be made in the manner directed by the Department and, once made, shall be irrevocable.

EXAMPLE:  The administrative housing agency issues a reservation letter for a qualifying project in December 2003.  A calendar-year donor makes a qualifying donation in January 2004.  Under this subsection (c), the donor may elect to take the credit in 2003 or 2004.  If, in 2008, the donor transfers any unused credit to a calendar-year taxpayer, the taxpayer may also elect to claim the transferred amount as a credit in 2003 or 2004.  However, because the statute of limitations might prevent the taxpayer from deriving any benefit from claiming the credit in 2003 or 2004, subsection (c)(3) allows the taxpayer to claim the credit in 2008, the year of the transfer.  If the taxpayer elects to claim the credit in 2008, it may carry forward any credit in excess of its liability only until 2009, 5 years after the year of the donation.

d)         If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset a liability, the earlier credit shall be applied first.  (IITA Section 214(b))

e)         Transfer of Credit

1)         Under IITA Section 214(c), the credit allowed under this Section may be transferred:

A)        to the purchaser of land that has been designated solely for affordable housing projects in accordance with the Illinois Housing Development Act; or

B)        to another donor who has also made a donation in accordance with Section 7.28 of the Illinois Housing Development Act.

2)         Persons or entities not subject to the tax imposed by IITA Section 201(a) and (b) and who make a donation under Section 7.28 of the Illinois Housing Development Act are entitled to a credit as described in this Section and may transfer that credit as provided in this subsection (e).  (IITA Section 214(a))

3)         Transfer of the credit shall be made pursuant to 47 Ill. Adm. Code 355.309.

4)         Transfer may be made of all or of any portion of the credit allowable to the transferor.  However, any portion of a credit that has already been used to reduce the tax of a transferor may not be transferred.

f)         In the case of a credit earned by or transferred to a partnership or Subchapter S corporation, the credit passes through to the owners for use against their regular income tax liabilities in the same proportion as other items of the taxpayer are passed through to its owners for federal income tax purposes.  (See IITA Section 214(a).)  The partners and shareholders shall be treated for all purposes as if their shares of the credit had been earned by or transferred to them directly, except that the election under subsection (c) of the tax year in which to take the credit shall be made by the partnership or Subchapter S corporation.  Any credit passed through to a partner or shareholder under this subsection (f) may be used in the taxable year of the partner or shareholder in which ends the taxable year of the pass-through entity in which the entity would be allowed to claim the credit under subsection (c).  In the case where the pass-through entity is the donor, the credit may be carried forward to the five succeeding taxable years of the partner or shareholder in the manner provided in subsection (d) until used.  In the case where the pass-through entity is a transferee, the partner or shareholder shall be entitled to use the credit in the same number of taxable years as the pass-through entity would have been allowed to use the credit under subsection (c)(3).

g)         Documentation of the credit. A taxpayer claiming the credit provided by this Section must maintain and record any information that the Department may require by regulation regarding the affordable housing project for which the credit is claimed. (IITA Section 214(d)) When claiming the credit provided by this Section, the taxpayer must provide the following information regarding the taxpayer's donation to the development of affordable housing under the Illinois Housing Development Act. 

1)         For the taxable year for which the credit is allowed under subsection (c), a donor (or a partner or Subchapter S corporation shareholder of the donor) claiming the credit shall attach to its Illinois income tax return a copy of the reservation letter issued by the administrative housing agency stating the amount of credit allocated to the affordable housing project under 47 Ill. Adm. Code 355.209.

2)         For the taxable year in which a credit is transferred, the transferee (or a partner or Subchapter S corporation shareholder of the transferee) shall attach to its Illinois income tax return a copy of the certificate showing the names of the original donor and of the transferee, as provided in 47 Ill. Adm. Code 355.309.

h)         For purposes of this credit, the terms "administrative housing agency", "affordable housing project" and "certificate" shall have the meanings given to those terms in Section 7.28 of the Illinois Housing Development Act and 47 Ill. Adm. Code 355.

(Source:  Amended at 46 Ill. Reg. 14550, effective August 2, 2022)

Section 100.2193  Student-Assistance Contributions Credit (IITA 218)

a)         For taxable years ending on or after December 31, 2009 and on or before December 31, 2029, each taxpayer is allowed a credit against the taxes imposed under IITA Section 201(a) and (b) in an amount equal to 25% of each matching contribution made by the taxpayer during the taxable year. (See IITA Section 218(a).)

b)         Matching Contribution.  For purposes of this Section, the term "matching contribution" means the total amount paid by the taxpayer during the taxable year to an individual Illinois College Savings Pool account or Illinois Prepaid Tuition Trust Fund account for the benefit of a designated beneficiary, to the extent the amount paid does not exceed the total contributions made by an employee of the taxpayer during the taxpayer's taxable year to the same account for the benefit of the same designated beneficiary.

c)         Limitation.  The maximum credit allowed under IITA Section 218 and this Section with respect to any contributing employee shall not exceed $500 per taxable year.

EXAMPLE:  Taxpayer is a calendar year taxpayer. Employee A is an employee of Taxpayer for the entire 2009 calendar year. During 2009, Employee A makes contributions totaling $6,000 each to three separate College Savings Pool accounts established for the benefit of each of Employee A's three children. During 2009, Taxpayer makes payments totaling $2,000 each to the same three accounts. Under subsection (a) of this Section, Taxpayer would be allowed a $500 credit for each of the three $2,000 matching contributions made during the taxable year, for a total credit of $1,500. However, under this subsection (c), Taxpayer may claim a maximum credit of only $500 in respect of the total of its contributions that match contributions made by Employee A. Therefore, the allowable credit is reduced from $1,500 to $500.

d)         In the case of a partnership or subchapter S corporation, the credit passes through to the owners as provided in the partnership agreement under IRC Section 704(a) or in proportion to their ownership of the stock of the subchapter S corporation under IRC Section 1366(a). (See IITA Section 218(b).) The credit earned by a partnership or subchapter S corporation shall be treated as earned by its owners as of the last day of the taxable year of the partnership or subchapter S corporation in which the matching contribution is made, and shall be allowed to the owner in the taxable year of the owner in which the taxable year of the partnership or subchapter S corporation ends.

e)         In no event shall a credit under this Section reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset a liability, the earlier credit shall be applied first. (IITA Section 218(c))

f)         Documentation of the Credit.  A taxpayer claiming the credit allowed under IITA Section 218 and this Section must maintain records sufficient to document the date and amount of each payment made to an individual College Savings Pool account or Illinois Prepaid Tuition Trust Fund account, as well as documentation regarding the contribution the payment matches. (See IITA Section 218(d).) Documentation regarding the contribution the payment matches must include the employee's name, the account, and the amount and date of the employee's contribution.

(Source:  Amended at 49 Ill. Reg. 1295, effective January 15, 2025)

Section 100.2195  Dependent Care Assistance Program Tax Credit (IITA 210)

a)         Beginning with tax years ending on or after June 30, 1995, each taxpayer who is primarily engaged in manufacturing is entitled to a credit against the tax imposed by subsections (a) and (b) of Section 201 of the Act in an amount equal to 5% of the amount of expenditures by the taxpayer in the tax year for which the credit is claimed, reported pursuant to Section 129(d)(7) of the Internal Revenue Code, to provide in the Illinois premises of the taxpayer's workplace an on-site facility dependent care assistance program under Section 129 of the Internal Revenue Code (see IITA Section 210(a)).

b)         The term manufacturing is defined, for purposes of this credit, in the same manner as that term is defined for purposes of the Replacement Tax Investment Credit (see IITA Section 201(e)(3)). Manufacturing is the material staging and production of tangible personal property by procedures commonly regarded as manufacturing, processing, fabrication or assembling which changes some existing material into new shapes, new qualities, or new combinations.  It is not necessary that such procedures result in a finished consumer product.  Procedures commonly regarded as manufacturing, processing, fabrication or assembling are those so regarded by the general public.

c)         A taxpayer is primarily engaged in manufacturing if more than 50% of the gross receipts of the taxpayer are received from the sale of items manufactured by the taxpayer.

d)         Any credit allowed under this Section which is unused in the year the credit is earned may be carried forward to each of the 2 taxable years following the year for which the credit is computed until it is used.

1)         This credit shall be applied first to the earliest year for which there is a liability.  If there is a credit under this Section from more than one tax year that is available to offset a liability, the earliest credit arising under this Section shall be applied first [35 ILCS 5/210(b)].

2)         If a taxpayer has a Dependent Care Assistance Program Credit and credit(s) under any other provision of the Illinois Income Tax Act with a 5 year carryforward, the taxpayer may apply the Dependent Care Assistance Program Credit to tax otherwise due for a particular tax year, prior to applying the credit with the 5 year carryforward.

e)         In determining the amount of the credit claimed by the employer, the employer shall claim the same fair market value of dependent care assistance in the form of on-site day care facility services, as is determined by the employer for federal purposes under the terms of Cumulative Bulletin Notice 89-11, 1989-2 CB 449.  For this purpose fair market value of on-site dependent care assistance shall mean the employer's estimate of the fair market value of in-kind dependent care assistance provided to employees which shall be 125 percent of reasonably estimated direct costs.  For this purpose, direct costs are food, expendable materials and supplies, transportation, staff training, special or additional insurance directly attributable to the day care facility, periodic consulting or management fees directly related to the operation of the day care facility, and the cost of labor for personnel whose services relating to the facility are performed primarily on the premises of the day care facility.

f)         A taxpayer claiming the credit provided by Section 210 of the IITA needs to maintain records sufficient to document the costs associated with the provision of an on-site facility dependent care assistance program under Section 129 of the Internal Revenue Code.  To the extent that the taxpayer determines the cost of the on-site facility for federal purposes in a manner different from that set forth in subsection (e) above, the taxpayer shall maintain books and records in a form sufficient to document all costs claimed under subsection (e).

(Source:  Added at 22 Ill. Reg. 2234, effective January 9, 1998)

Section 100.2196  Employee Child Care Assistance Program Tax Credit (IITA Section 210.5)

a)         Eligibility for Credit

1)         Beginning with tax years ending on or after December 31, 2000, each corporate taxpayer is entitled to a credit against the tax imposed by subsections (a) and (b) of Section 201 of the Act in: 

A)        an amount equal to 30% of the start-up costs expended by the corporate taxpayer to provide a child care facility for the children of its employees; plus

B)        5% of the annual amount paid by the corporate taxpayer in providing the child care facility for the children of its employees.  (IITA Section 210.5(a))

2)         The 30% credit for start-up costs is allowed only for tax years ending on or before December 31, 2004, and on or after December 31, 2007.  The 5% credit for annual expenses is allowed for all years ending on or after December 31, 2000.  Both parts of the credit are exempt from the sunset provisions of IITA Section 250.

b)         To receive the tax credit under IITA Section 210.5, a corporate taxpayer must either independently provide and operate a child care facility for the children of its employees or join in a partnership with one or more other corporations to jointly provide and operate a child care facility for the children of employees of the corporations in the partnership.  (IITA Section 210.5(a))  Amounts paid to a child care facility that is not operated by the taxpayer or by such a partnership do not qualify for the credit.  For purposes of this credit, a "child care facility" is limited to a child care facility located in Illinois.  (IITA Section 210.5(c))

c)         For purposes of this credit, the term "start-up costs" qualifying for the 30% credit means the cost of planning, site-preparation, construction, renovation, or acquisition of a child care facility.  (IITA Section 210.5(c))  Such costs are the capital expenditures incurred in creating a new facility or expanding an existing facility, both tangible and intangible.  In the case of a capitalized asset, the 30% credit is allowed in the year the asset is placed in service in the child care facility.

1)         Uncapitalized expenses incurred in connection with the child care facility prior to commencing operations are start-up costs.  For example, salaries paid prior to the opening of the facility to the employees hired to operate the facility are start-up costs.  Such expenses qualify for the 30% credit in the tax year expensed, even if the facility is not in operation by the end of the tax year.

2)         Capital expenditures that are expensed rather than depreciated under IRC section 179 qualify as start-up costs in the same manner as expenditures that are actually capitalized and amortized.

3)         In the case of property previously acquired by the taxpayer and later converted to use in the child care facility, the start-up cost shall be the adjusted basis of such property at the time of conversion, plus any capital costs of renovation or modification to make the property ready for use in the child care facility.

4)         Any expenditure that qualifies for the federal employer-provided child care credit as an amount paid or incurred to acquire, construct, rehabilitate or expand property to be used in a new or expanded child care facility under the provisions of IRC section 45F(c)(1)(A)(i) shall qualify for the 30% credit, even if the requirements of IRC section 45F(c)(1)(A)(i)(II) or (III) are not met and provided that the facility is operated by the employer corporation or a partnership described in subsection (b).

EXAMPLE:  An employer acquires a building to be used as a child care facility and the land on which the building is located.  The cost of the building qualifies for the federal credit, but the cost of the land does not qualify because IRC section 45F(c)(1)(A)(i)(II) provides that only depreciable property may qualify for the federal credit.  The cost of both the building and the land will qualify for the credit allowed under this IITA Section 210.5.

d)         The annual amount paid by the employer qualifying for the 5% credit shall include all expenses (including depreciation and amortization) incurred in connection with the operation of the child care facility that are deducted during the taxable year.  Depreciation and amortization of capitalized items and IRC section 179 deductions qualify for the credit whenever the original expenditure qualified as a start-up cost for the 30% credit, provided that the asset continues to be used in the operation of the child care facility.  In the year the facility commences operations, only expenses deductible in the period after the commencement of operations qualify for the 5% credit.  Expenses of the facility deducted prior to the commencement of operations qualify only for the 30% credit as start-up costs.  Any expense qualifying for the federal employer-provided child care credit under IRC section 45F(c)(1)(A)(ii) for a tax year shall also qualify for the 5% credit in the same tax year.  Any expense for which the employer claims the 5% credit authorized under this Section cannot qualify for the 5% Dependent Care Assistance Program Credit under IITA Section 210.  (See IITA Section 210.5(a))

e)         Any credit allowed under this Section that is unused in the year the credit is earned may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year until it is used.  (IITA Section 210.5(b))  Any 30% credit earned in tax years ending on or before the December 31, 2004 sunset date may be carried forward to tax years ending after that date.  The credit must be applied to the earliest year for which there is a tax liability.  If there are credits from more than one tax year that are available to offset a liability, then the earlier credit must be applied first.  (IITA Section 210(b))

f)         A corporate taxpayer claiming the credit provided by IITA Section 210.5 needs to maintain records sufficient to document the costs associated with the provision of a child care facility and the "start-up costs" expended to provide a child care facility.  Documentation must take the form of vouchers paid, cancelled checks or other proof of payment.  Should the expenditure not be solely for child care, the documentation should explain how the amount allocated for child care was determined.  If the child care provided includes care for non-employee children, the costs must be allocated between employee children and non-employee children.  The method of allocation used must be reasonable and documented.

g)         The credit is allowed only to corporations subject to tax under IITA Section 201(a) and (b).  Neither subchapter S corporations nor shareholders of subchapter S corporations are allowed to claim the credit.

(Source:  Amended at 32 Ill. Reg. 13223, effective July 24, 2008)

Section 100.2197  Foreign Tax Credit (IITA Section 601(b)(3))

a)         IITA Section 601(b)(3) provides that the aggregate amount of tax which is imposed upon or measured by income and which is paid by a resident for a taxable year to another state or states on income which is also subject to the tax imposed by IITA Section 201(a) and (b) shall be credited against the tax imposed by IITA Section 201(a) and (b) otherwise due under the IITA for that taxable year.  (IITA Section 601(b)(3))

b)         Definitions applicable to this Section.

1)         Tax qualifying for the credit.  A tax qualifies for the credit only if it is imposed upon or measured by income and is paid by an Illinois resident to another state on income which is also subject to Illinois income tax.  

A)        A tax "imposed upon or measured by income" shall mean an income tax or tax on profits imposed by a state and deductible under IRC section 164(a)(3).  The term shall not include penalties or interest imposed with respect to the tax.

B)        A tax is "paid by an Illinois resident" to another state "on income which is also subject to Illinois income tax" only to the extent the income included in the tax base of the other state is also included in base income computed under IITA Section 203 during a period in which the taxpayer is an Illinois resident.  Thus, for example, income tax paid to another state on retirement income excluded from base income under IITA Section 203(a)(2)(F) does not qualify for the credit, nor would income derived from a partnership or Subchapter S corporation whose tax year ends during a period in which the taxpayer is not an Illinois resident.  See IRC section 706(a) and IRC section 1366(a)(1).  If tax is paid to another state on income that is not included in base income or on income attributable to a period when the taxpayer was not a resident of Illinois, as well as on income that is included in base income and attributable to a period in which the taxpayer was a resident of Illinois, the amount of tax qualifying for the credit shall be determined by multiplying the tax paid by a fraction equal to the income taxed by the other state that is included in base income and attributable to a period in which the taxpayer was a resident of Illinois divided by the total tax base on which the other state's tax was computed.

2)         For purposes of IITA Section 601(b)(3), "state" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States, or any political subdivision of any of the foregoing.  (IITA Section 1501(a)(22)) This definition is effective for tax years ending on or after December 31, 1989.  The term "state" does not include foreign countries or any political subdivision of a foreign country.

3)         "Resident" is defined at IITA Section 1501(a)(20) and in Section 100.3020.

4)         Base income subject to tax both by another state and by this State or "double-taxed income" means items of income minus items deducted or excluded in computing the tax for which credit is claimed, to the extent those items of income, deduction or exclusion are taken into account in the computation of base income under IITA Section 203 for the person claiming the credit.  However, under IITA Section 601(b)(3), as in effect prior to January 1, 2006 (the effective date of Public Act 94-247), no compensation received by a resident which qualifies as compensation paid in this State as determined under IITA Section 304(a)(2)(B) shall be considered income subject to tax by another state or states.

A)        Under IITA Section 203(a), base income of an individual is computed without allowing the standard deduction allowed in computing federal taxable income, and without allowing the exemptions provided in IITA Section 204.  Double-taxed income is therefore computed without reduction for any standard deductions or exemptions allowed by the other state.

B)        An item of income is not included in double-taxed income to the extent it is excluded or deducted in computing the tax for which the credit is claimed.  For example, State X allows a deduction or exclusion equal to 60% of long-term capital gains and for 100% of winnings from the State X lottery.  Only 40% of long-term capital gains is subject to tax in that state.  Similarly, an individual subject to the Washington, D.C. unincorporated business tax is allowed to deduct from taxable income a reasonable allowance for compensation for personal services rendered.  This deduction is in fact an exclusion for the "personal income" of the individual, which Congress has forbidden Washington, D.C. to tax except in the case of residents.  Accordingly, double-taxed income is net of this deduction.

C)        An item of income that is excluded, subtracted or deducted in the computation of base income under IITA Section 203 cannot be included in double-taxed income.  For example, IITA Section 203(a)(2)(L) allows a subtraction for federally-taxed Social Security and Railroad Retirement benefits, while dividends received from a Subchapter S corporation are excluded from federal gross income and therefore from base income. Accordingly, even if another state taxes those benefits or dividends, these amounts are not included in double-taxed income.

D)        An item of expense is deducted or subtracted in computing double-taxed income only to the extent that item is deducted or subtracted in computing the tax base in the other state and in computing base income under IITA Section 203.  For example, State Y allows deductions for federal itemized deductions and for individual federal income taxes paid.  No deduction for federal income taxes is allowed in computing base income under IITA Section 203, and so that deduction is not taken into account in computing base income subject to tax in State Y.  Also, IITA Section 203(a) generally does not allow a deduction for federal itemized deductions, and so federal itemized deductions are generally not taken into account in computing base income subject to tax in State Y.  However, IITA Section 203(a)(2)(V) allows self-employed individuals a subtraction modification for health insurance premiums, which can be taken as an itemized deduction in computing federal taxable income in some taxable years.  Accordingly, in the case of a self-employed individual eligible for the Illinois subtraction, any itemized deduction for health insurance premiums taken into account in computing the State Y tax base is also taken into account in computing double-taxed income.

E)        For taxable years beginning prior to January 1, 2006, compensation paid in Illinois under IITA Section 304(a)(2)(B), as further explained in Section 100.3120 as in effect for the taxable year, is not included in double-taxed income, even if another state taxes that compensation.  For example, an Illinois resident whose base of operations is in Illinois during 2005, but whose employment requires him or her to work in Illinois and for a substantial period of time in State Z, must treat all compensation from his or her employment as paid in Illinois under IITA Section 304(a)(2)(B)(iii) as in effect for 2006.  None of that compensation may be included in double-taxed income, even if State Z actually taxes the compensation earned for periods during which the resident was working in State Z.  Public Act 94-247 (effective January 1, 2006) repealed the provision in IITA Section 601(b)(3) that stated compensation paid in Illinois may not be included in double-taxed income, and so compensation paid in Illinois may be included in double-taxed income in taxable years beginning on or after January 1, 2006.

F)         Some states impose an alternative minimum tax similar to the tax imposed by IRC section 55, under which a taxpayer computes a regular taxable income and also computes an alternative minimum taxable income by reducing some exclusions or deductions, and eliminating other exclusions and deductions entirely.  The taxpayer applies different rate structures to regular taxable income and to alternative minimum taxable income, and is liable for the higher of the two taxes so computed.  An item of income included in a state's alternative minimum taxable income but not in the regular taxable income of that state is not included in base income subject to tax in that state unless the taxpayer is actually liable for alternative minimum tax in that state.  For example, a state allows a 60% capital gains exclusion for regular tax purposes, but includes 100% of the capital gains in its alternative minimum taxable income.  If a taxpayer incurs alternative minimum tax liability in that state, 100% of the capital gains is included in double-taxed income.  If only regular tax liability is incurred, only 40% of capital gains is included in double-taxed income.

G)        Some states compute the tax liability of a nonresident by first computing the tax on all income of the nonresident from whatever source derived, and then multiplying the resulting amount by a percentage equal to in-state sources of income divided by total sources of income or by allowing a credit based on the percentage of total income from sources outside the state.  Other states determine the tax base of a nonresident by computing the tax base as if the person were a resident and multiplying the result by the percentage equal to in-state sources of income divided by total sources of income.  The use of either of these methods of computing tax does not mean that income from all sources is included in double-taxed income.  (See Comptroller of the Treasury v. Hickey, 114 Md. App. 388, 689 A.2d 1316 (1997); Chin v. Director, Division of Taxation, 14 N.J. Tax 304 (T.C. N.J. 1994)).  When a state uses either of these methods of computation, double-taxed income shall be the base income of the taxpayer from all sources subject to tax in that state, as computed in accordance with the rest of this subsection (b)(4), multiplied by the percentage of income from sources in that state, as computed under that state's law; provided, however, that no compensation paid in Illinois under IITA Section 304(a)(2)(B) shall be treated as income from sources in that state in computing that percentage in any taxable year beginning prior to January 1, 2006.

EXAMPLE 1:  Individual, an Illinois resident, has federal adjusted gross income of $80,000 in Year 1, comprised of $75,000 in wages, $1,000 in taxable interest and $4,000 in net rental income.  Taxable interest includes $200 in interest on federal government obligations and excludes $500 in municipal bond interest.  The rental income is from property in State X.  Individual is subject to $6,000 in federal income tax in Year 1.

Individual's Illinois base income is $80,300: his $80,000 in adjusted gross income, plus $500 in municipal bond interest, minus $200 in federal government obligation interest.

State X computes Individual's income subject to its tax by starting with the $4,000 in net rental income included in his federal adjusted gross income, and requiring him to add back $3,000 in depreciation allowed on his rental property under IRC Section 168 in excess of straight-line depreciation, and subtracting the portion of his federal income tax liability allocable to his State X income.  State X also allows Individual an exemption of $1,000.

Double-taxed income in this case is $7,000:  the $4,000 in net rental income plus the $3,000 addition modification for excess depreciation.  The $3,000 addition modification for excess depreciation is a deduction allowed by Illinois but not by State X, and only the amount of depreciation deductible in both states is taken into account.  The subtraction for federal income tax and the exemption are not taken into account in computing base income under IITA Section 203(a), and therefore are not taken into account in computing double-taxed income.

EXAMPLE 2:  Assume the same facts as in Example 1, except that State X requires Individual to compute income tax as if he were a resident of State X, and then multiply the result by a fraction equal to his federal adjusted gross income from State X sources divided by total federal adjusted gross income.  Under this method, Individual has State X taxable income of $76,300 ($80,000 in federal adjusted gross income, plus $500 in municipal bond interest and $3,000 in excess depreciation, minus $200 in federal government obligation interest, $6,000 in federal income taxes, and the $1,000 exemption).  The fraction actually taxed by State X is 5% (the $4,000 in rental income divided by $80,000 in federal adjusted gross income).

Under subsection (b)(4)(G), double-taxed income is $4,165, computed as follows.  First, State X taxable income is computed using only those items of income and deduction taken into account by both State X and Illinois.  Accordingly, the $6,000 in federal income taxes and the $1,000 exemption are not taken into account.  The State X taxable income so computed is $83,300 ($80,000 federal adjusted gross income plus $3,000 in excess depreciation and $500 in municipal bond interest minus $200 in federal government obligation interest).  Multiplying that amount by the 5% fraction used by State X yields double-taxed income of $4,165.

EXAMPLE 3:  Assume the same facts as in Example 2, except that State X deems $10,000 of Individual's wages to be earned in State X.  Under IITA Section 304(a)(2)(B)(iii), all of Individual's wages are considered "compensation paid in this State", even though Individual performs services in State X, because Individual's base of operations is in Illinois. Accordingly, Individual's State X taxable income is $76,300, just as in Example 2, but his fraction allocated to State X is 17.5% ($10,000 in wages plus $4,000 in net rental income, the total divided by $80,000 in federal adjusted gross income).

For taxable years beginning prior to January 1, 2006, Individual's double-taxed income is $4,165, the same as in Example 2. Because compensation deemed "paid in this State" cannot be treated as double-taxed income, the State X fraction must be computed under subsection (b)(4)(G) without treating the $10,000 in wages as allocable to State X.  Accordingly, double-taxed income is the $83,300 total of all items taxed by both states minus deductions allowed by both states, times 5% (the $4,000 in net rental income divided by the $80,000 in federal adjusted gross income).

For taxable years beginning on or after January 1, 2006, Individual's double-taxed income is $14,578, which is the $83,300 total of all items taxed by both states minus deductions allowed by both states, times 17.5% (the $10,000 in wages taxed by both states plus the $4,000 in net rental income, divided by the $80,000 in federal adjusted gross income).

c)         Amount of the credit.  Subject to limitations described in subsections (d) and (e), the amount of the credit for a taxable year is the aggregate amount of tax paid by a resident for the taxable year.  (IITA Section 601(b)(3)) Because the credit is allowed for taxes paid for the taxable year, rather than for taxes paid in or during the taxable year:

1)         The amount of tax withheld for another state, estimated payments made to that state and overpayments from prior years applied against the current liability to that state are not relevant to the computation of the credit.

2)         Any credit (including a credit for taxes paid to Illinois or another state, but not including a credit that is allowed for an actual payment of tax, such as a credit for income taxes withheld, for estimated taxes paid or for an overpayment of income tax in another taxable year) that is taken into account in determining the amount of tax actually paid or payable to another state shall reduce the amount of credit to which the taxpayer is entitled under this Section.  In a case in which the taxpayer claims a transferable credit purchased by the taxpayer on the other state's return, the amount of the credit allowed is treated as an actual payment of tax, and does not reduce the amount of credit to which the taxpayer is entitled under this Section.

3)         Any increase or decrease in the amount of tax paid to another state for a taxable year, as the result of an audit, claim for refund, or other change, shall increase or decrease the amount of credit for that taxable year, not for the taxable year in which the increase or decrease is paid or credited.

d)         Limitations on the amount of credit allowed for taxable years ending prior to December 31, 2009.  The aggregate credit allowed under IITA Section 601(b)(3) shall not exceed that amount which bears the same ratio to the tax imposed by IITA Section 201(a) and (b) otherwise due as the amount the taxpayer's base income subject to tax both by that other state or states and by this State bears to his total base income subject to tax by this State for the taxable year.  (IITA Section 601(b)(3)) The credit allowed under this Section for taxable years ending prior to December 31, 2009 is therefore the smaller of either the total amount of taxes paid to other states for the year or the product of Illinois income tax otherwise due (before taking into account any Article 2 credit or the foreign tax credit allowed under IITA Section 601(b)(3)) multiplied by a fraction equal to the aggregate amount of the taxpayer's double-taxed income, divided by the taxpayer's Illinois base income.

1)         In computing the aggregate amount of the taxpayer's double-taxed income, any item of income or deduction taken into account in more than one state shall be taken into account only once.  For example, an individual subject to tax on his or her compensation by both State X and by a city in State X shall include the amount of that compensation only once in computing the aggregate amount of double-taxed income.

2)         Because base income subject to tax both in another state and in Illinois cannot exceed 100% of base income, the credit cannot exceed 100% of the tax otherwise due under IITA Section 201(a) and (b).

3)         No carryover of any amount in excess of this limitation is allowed by the IITA.

e)         Limitations on the amount of credit allowed for taxable years ending on or after December 31, 2009.

1)         The credit allowed under IITA Section 601(b)(3) for tax paid to other states shall not exceed that amount which bears the same ratio to the tax imposed by IITA Section 201(a) and (b) otherwise due under the IITA as the amount of the taxpayer's base income that would be allocated or apportioned to other states if all other states had adopted the provisions in Article 3 of the IITA bears to the taxpayer's total base income subject to tax by this State for the taxable year. (IITA Section 601(b)(3)) The credit allowed under this Section for taxable years ending on or after December 31, 2009 is therefore the smaller of either the total amount of taxes paid to other states for the year or the product of Illinois income tax otherwise due (before taking into account any Article 2 credit or the foreign tax credit allowed under IITA Section 601(b)(3)) multiplied by a fraction equal to the amount of the taxpayer's base income that is sourced outside Illinois using the allocation and apportionment provisions of Article 3 of the IITA, divided by the taxpayer's Illinois base income.

2)         For purposes of this subsection (e), the 30-day threshold in IITA Section 304(a)(2)(B)(iii) (as in effect for taxable years ending on or after December 31, 2020) and Section 100.3120(a)(1)(E) does not apply in determining the number of working days in which services are performed in another state during the year. (See IITA Section 601(b)(3).) However, the provisions for employees providing services in this State during a disaster period in IITA Section 304(a)(2)(B)(iii)(c) and Section 100.3120(a)(1)(E)(ii) of this Part do apply. 

EXAMPLE 4:  Individual is an Illinois resident whose only income is employee compensation.  Individual's employment requires him or her to spend a substantial amount of time each year working in other states, but Individual's base of operations under IITA Section 304(a)(2)(B)(iii) is in Illinois.  For taxable years ending prior to December 31, 2020, because all of Individual's base income is employee compensation that is sourced to Illinois under IITA Section 304(a)(2)(B)(iii) as in effect for that period, the limitation under this subsection (e) on Individual's credit for taxes paid to other states will be zero, even if some or all of the employee compensation is actually taxed by another state.  For taxable years ending on or after December 31, 2020, the amount of Individual's compensation allocated to other states is determined by using the working days formula under IITA Section 304(a)(2)(B)(iii), as in effect for the taxable year, and the number of working days Individual performed services in other states, without regard to whether Individual actually owed tax to any of those states or to the provision in IITA Section 304(a)(2)(B)(iii) that the working days formula applies only if the employee performs services in this State for more than 30 working days during the taxable year.  However, working days during which Individual performed services in other states do not include any working day to which the disaster period provisions in IITA Section 304(a)(2)(B)(iii)(c) and Section 100.3120(a)(1)(E)(ii) of this Part would apply if the other states had adopted those provisions.

EXAMPLE 5:  Individual is an Illinois resident whose only income is employee compensation.  Individual's employment requires him or her to spend a substantial amount of time each year working in several states, but Individual's base of operations under IITA Section 304(a)(2)(B) is in a state that imposes no personal income tax.  For taxable years ending prior to December 31, 2020, because all of Individual's base income is employee compensation that is sourced outside Illinois under IITA Section 304(a)(2)(B), his or her credit for taxes paid to other states may offset 100% of his or her Illinois income tax liability, even if some of his or her employee compensation is not actually taxed by another state.  For taxable years ending on or after December 31, 2020, the amount of Individual's compensation allocated to other states is determined by using the working days formula under IITA Section 304(a)(2)(B)(iii), as in effect for the taxable year, and the number of working days Individual performed services in other states, without regard to whether Individual actually owed tax to any of those states or to the provision in IITA Section 304(a)(2)(B)(iii) that the working days formula applies only if the employee performs services in this State for more than 30 working days during the taxable year.  However, working days during which Individual performed services in other states do not include any working day to which the disaster period provisions in IITA Section 304(a)(2)(B)(iii)(c) and Section 100.3120(a)(1)(E)(ii) of this Part would apply if the other states had adopted those provisions.

EXAMPLE 6: Individual is an Illinois resident partner in a partnership engaged in multistate business activities, and his or her only income is business income derived from the partnership.  The partnership apportions 25% of its business income to Illinois under IITA Section 304(a).  Individual's credit may offset 75% of his or her Illinois income tax liability, regardless of how much of his or her income from the partnership is actually taxed by other states. 

f)         Disallowance of credit for taxes deducted in computing base income. The credit provided by IITA Section 601(b)(3) shall not be allowed if any creditable tax was deducted in determining base income for the taxable year.  (IITA Section 601(b)(3)) A trust that has deducted the amount of a state tax imposed upon or measured by net income may include that tax in the computation of the credit allowed under this Section, but IITA Section 203(c)(2)(F) requires that trust to add back to its federal taxable income an amount equal to the tax deducted pursuant to IRC section 164 if the trust or estate is claiming the same tax for purposes of the Illinois foreign tax credit.  The amount that must be added back for a taxable year shall be the amount of tax deducted for that taxable year on the trust's federal income tax return.  Because no similar provision is made for individuals, an individual who has deducted taxes paid to another state in computing his or her federal adjusted gross income may not claim a credit for those taxes on his or her Illinois tax return.

g)         Credit for taxes paid on behalf of the taxpayer.  An Illinois resident individual who is a shareholder or partner claiming a foreign tax credit for the shareholder's or partner's share of personal income taxes paid to a foreign state on his or her behalf by a Subchapter S corporation or a partnership, respectively, must attach to his or her Illinois return a written statement from the Subchapter S corporation or partnership containing the name and federal employee identification number of the Subchapter S corporation or partnership and clearly showing the paid amount of foreign tax attributable to the shareholder or partner, respectively.  Additionally, for taxable years ending prior to December 31, 2009, the statement must include the shareholder's or partner's share of the Subchapter S corporation's or partnership's items of income, deduction and exclusion in sufficient detail to allow computation of the amount of base income subject to tax under subsection (b)(4) of this Section.  Taxes imposed directly on the Subchapter S corporation or the partnership are not eligible for the credit.

h)         Documentation required to support claims for credit.  Any person claiming the credit under IITA Section 601(b)(3) shall attach a statement in support thereof and shall notify the Director of any refund or reductions in the amount of tax claimed as a credit under IITA Section 601(b)(3) all in the manner and at the time as the Department shall by regulations prescribe.  For taxable years ending on or after December 31, 2009, the documentation required to be provided with the taxpayer's return in order to support the credit shall be as stated in the forms or instructions.  For taxable years ending prior to December 31, 2009, no credit shall be allowed under this Section for any tax paid to another state nor shall any item of income be included in base income subject to tax in that state except to the extent the amount of the tax and income is evidenced by the following documentation attached to the taxpayer's return (or, in the case of an electronically-filed return, to the taxpayer's Form IL-8453, Illinois Individual Income Tax Electronic Filing Declaration), amended return or claim for refund:

1)         Unless otherwise provided in this subsection (h), a taxpayer claiming the credit must attach a copy of the tax return filed for taxes paid to the other state or states to the taxpayer's Illinois income tax return, Form IL-8453, amended return or claim for refund.

2)         If the tax owed to the other state is satisfied by withholding of the tax from payments due to the taxpayer without the necessity of a return filing by the taxpayer, the taxpayer must attach a copy of the statement provided by the payor evidencing the amount of tax withheld and the amount of income subject to withholding.

3)         A taxpayer claiming a credit for taxes paid by a Subchapter S corporation or partnership on the taxpayer's behalf must attach a copy of the statement provided to the taxpayer by the Subchapter S corporation or partnership pursuant to subsection (g), showing the taxpayer's share of the taxes paid and the income of the taxpayer on which the taxes were paid.

(Source:  Amended at 44 Ill. Reg. 10907, effective June 10, 2020)

Section 100.2198  Economic Development for a Growing Economy Credit (IITA 211) (Renumbered)

(Source:  Section 100.2198 renumbered to Section 100.2110 at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2199  Illinois Earned Income Tax Credit (IITA Section 212)

a)         With respect to the federal earned income tax credit allowed for the taxable year under Section 32 of the federal Internal Revenue Code, each individual taxpayer shall be allowed a credit against the tax imposed by IITA Section 201(a) and (b). (IITA Section 212(a)) The amount of the credit allowed shall be equal to:

1)         5% of the federal tax credit for each taxable year beginning on or after January 1, 2000 and ending prior to December 31, 2012;

2)         7.5% of the federal tax credit for each taxable year beginning on or after January 1, 2012 and ending prior to December 31, 2013;

3)         10% of the federal tax credit for each taxable year beginning on or after January 1, 2013 and beginning prior to January 1, 2017;

4)         14% of the federal tax credit for each taxable year beginning on or after January 1, 2017 and beginning prior to January 1, 2018;

5)         18% of the federal tax credit for each taxable year beginning on or after January 1, 2018 and beginning prior to January 1, 2023; and

6)         20% of the federal tax credit for each taxable year beginning on or after January 1, 2023. (IITA Section 212(a))

b)         Credit in Excess of Liability

1)         For tax years beginning before January 1, 2003, the credit allowed for the taxable year may not reduce the taxpayer's liability under the IITA to less than zero.  Therefore, no part of the credit is refundable in the event the tax liability of the taxpayer is reduced to zero.  (IITA Section 212(b))

2)         For tax years beginning on or after January 1, 2003 and ending prior to August 21, 2007 (the effective date of PA 95-333), if the amount of the credit exceeds the income tax liability for the applicable tax year, then the excess credit shall be refunded to the taxpayer.  (IITA Section 212(b))

3)         For tax years ending on or after August 21, 2007, if the amount of the credit exceeds the income tax liability for the applicable tax year, then the excess credit shall be refunded to the taxpayer.  (IITA Section 212(b))

4)         Excess credit may not be carried over to other tax years. 

c)         In the case of a nonresident or part-year resident, the Illinois earned income tax credit shall be equal to the applicable fraction under subsection (a) of that portion of the federal earned income tax credit allowed pursuant to Section 32 of the federal Internal Revenue Code that bears the same ratio as the taxpayer's base income allocable to Illinois bears to the taxpayer's base income everywhere.  (See IITA Section 212(a))

d)         For taxable years beginning on or after January 1, 2023, each individual taxpayer who has attained the age of 18 during the taxable year but has not yet attained the age of 25 is entitled to the credit under subsection (a) based on the federal tax credit for which the taxpayer would have been eligible without regard to any age requirements that would otherwise apply to individuals without a qualifying child in Section 32(c)(1)(A)(ii) of the federal Internal Revenue Code. (IITA Section 212(b-5)) Taxpayers will need to complete a pro forma U.S. Form 1040, Line 27 as if they had a qualifying child in order to compute the allowable amount of federal tax credit.

e)         For taxable years beginning on or after January 1, 2023, each individual taxpayer who has attained the age of 65 during the taxable year is entitled to the credit under subsection (a) based on the federal tax credit for which the taxpayer would have been eligible without regard to any age requirements that would otherwise apply to individuals without a qualifying child in Section 32(c)(1)(A)(ii) of the federal Internal Revenue Code. (IITA Section 212(b-10)) Taxpayers will need to complete a pro forma U.S. Form 1040, Line 27 as if they had a qualifying child in order to compute the allowable amount of federal tax credit.

f)         For taxable years beginning on or after January 1, 2023, each individual taxpayer filing a return using an individual taxpayer identification number (ITIN) as prescribed under Section 6109 of the Internal Revenue Code, other than a Social Security number issued pursuant to Section 205(c)(2)(A) of the Social Security Act, is entitled to the credit under subsection (a) based on the federal tax credit for which the taxpayer would have been eligible without applying the restrictions regarding Social Security numbers in Section 32(m) of the federal Internal Revenue Code. (IITA Section 212(b-15)) Taxpayers will need to complete a pro forma U.S. Form 1040, Line 27 as if they had a Social Security number in order to compute the allowable amount of federal tax credit.

(Source:  Amended at 48 Ill. Reg. 1677, effective January 10, 2024)

Section 100.2200  Net Operating Losses Occurring Prior to December 31,  1986, of  Unitary Business  Groups:  Treatment by Members of  the Unitary  Business Group.(IITA  Section 202) - Scope

a)         This section states rules for the allocation of net operating losses that were incurred in taxable years ending prior to December 31, 1986.  These rules apply to various situations in which the combined method of apportionment has been employed by the corporation incurring the loss either in the year of the loss, or in the year to which the loss is carried back or forward.  For rules applicable to net operating losses occurring on or after December 31, 1986, see Sections 100.2300 through 100.2350.

b)         The rules are equally applicable to situations involving the combined apportionment method:

1)         as it existed prior to Public Act 82-1029 (which applies to taxable years ending on or after December 31,1982, and which provides the Illinois statutory definition for unitary business group), and

2)         as it exists after Public Act 82-1029, but before Public Act  84-1042  (which applies to taxable years ending on or after December 31, 1986, and which provides for Illinois net losses and Illinois net loss deductions).

(Source:  Amended at 11 Ill. Reg. 11782, effective October 16, 1987)

Section 100.2210  Net Operating Losses Occurring Prior to December 31,  1986, of  Unitary Business  Groups:  Treatment by Members of  the Unitary  Business Group  (IITA Section  202) -- Definitions

Federal taxable income for Illinois income tax purposes and Federal NOL for Illinois income tax purposes mean:

a)         in the case of a corporation that files its own (unconsolidated) federal income tax return for the year, the amount of taxable income or NOL reflected on such return or if altered by IRS audit or amended return, as finally determined for federal income tax purposes within the meaning of IITA Section 506(b) increased in any case by the amount of any net operating loss deduction (for carryback or carryforward of net operating losses from other years) actually reflected by the corporation on that federal return.

b)         in the case of a corporation that is a member of an affiliated group filing a consolidated federal income tax return for the year, the amount of taxable income or NOL which such corporation would have had it filed a separate return for federal income tax purposes for the taxable year and each preceding taxable year for which it was a member of an affiliated group, such calculation being made as if the elections of 26 USC 243(b)(2) and 172(b)(3)(C) had been in effect for all such years, the amount calculated hereunder being increased in any case by the amount of any net operating loss deduction (for carryback or carryforward of any net operating losses from other years) to which the corporation would otherwise be entitled under this subsection.

c)           in the case of the corporation that is not required to file a federal income tax return for the year, the equivalent federal taxable income which it computes under IITA Section 203(e); increased in any case by the amount of any net operating loss deduction (for carryback or carryforward of net operating losses from other years) to which the corporation would otherwise be entitled under that section.

(Source:  Amended at 26 Ill. Reg. 13237, effective August 23, 2002)

Section 100.2220  Net Operating Losses Occurring Prior to December 31, 1986, of Unitary Business Groups:  Treatment by Members of the Unitary Business Group.  (IITA Section 202) –  Current Net Operating Losses:  Offsets Between Members

The computation of combined federal taxable income of a unitary business group may include federal NOLs for Illinois income tax purposes of various members of the group.  These federal NOLs for Illinois income tax purposes of group members will be used in the year they occur to offset federal taxable incomes for Illinois income tax purposes of other members of the group in arriving at combined federal taxable income.

EXAMPLE:  Corporations A, B, C and D are members of a unitary business group.  Corporations A, B and C had 1982 federal taxable incomes for Illinois income tax purposes of $100,000, $200,000, and  $300,000, respectively.  Corporation D had a 1982 federal net operating loss for Illinois income tax purposes of $150,000. The group's 1982 combined federal taxable income is $450,000.

(Source:  Amended at 11 Ill. Reg. 17782, effective October 16, 1987)

Section 100.2230 Net Operating Losses Occurring Prior to December 31, 1986, of Unitary Business Groups: Treatment by Members of the Unitary Business Group. (IITA Section 202) – Carrybacks and Carryforwards

a)         The Illinois income tax treatment of net operating loss carrybacks and carryforwards will generally follow that of the Internal Revenue Code. However, to the extent that a federal net operating loss for Illinois income tax purposes of a member is absorbed in the computation of combined federal taxable income in the year that it arose, no carryback or carryforward of that loss will be allowed. This prohibition is mandated by IITA Section 203(g) which precludes deducting the same item more than once.

EXAMPLE: Corporations A, B, C and D are members of a unitary business group for calendar year 1982.In that year, Corporations A, B and C had federal taxable incomes for Illinois income tax purposes of $200,000, $300,000 and $500,000, respectively, while Corporation D had a federal net operating loss for Illinois income tax purposes of $250,000. Since Corporation D's 1982 federal net operating loss for Illinois income tax purposes is used to offset the 1982 federal taxable incomes for Illinois income tax purposes of the other group members in the computation of 1982 combined federal taxable income, Corporation D will not be able to carry back to 1979 or carry forward to 1983 or later years any portion of its 1982 federal net operating loss for Illinois income tax purposes. In these circumstances,Corporation D would not be entitled to a refund of 1979 Illinois income tax based on a net operating loss carryback from 1982 even if it received a refund of its 1979 federal income tax on that basis. In addition, if Corporation D carried forward the 1982 net operating loss to 1983 or later years in computing federal taxable income for federal income tax purposes, it is obligated to adjust that figure upward by those carryforward amounts in calculating its federal taxable income for Illinois income tax purposes for those carryforward years.

b)         In the event that the group members' federal taxable incomes for Illinois income tax purposes and federal net operating losses for Illinois income tax purposes result in a combined federal net operating loss, this loss will be divided among those group members which incur federal net operating losses for Illinois income tax purposes. This division will be made pro rata based on the relative size of the federal net operating losses for Illinois income tax purposes of the members having such losses. The members will then individually carryback or carryforward their respective shares of the combined federal net operating loss in conformity with the applicable provisions of 26 U.S.C. Section 172, i.e. generally 3 year carryback and 15 year carryforward; for financial institutions, 10 year carryback and a 5 year carryforward; for real estate investment trusts, no carryback and a 15 year carryforward, etc. However, the amount of the loss that the individual member (hereinafter sometimes referred to as the "loss member") can carryback or forward to any year shall be limited to the lesser of the following amounts computed with respect to the carryback or carryforward year.

1)         (hereinafter sometimes referred to as Limitation No. 1) The sum of the federal taxable incomes and federal net operating losses for Illinois income tax purposes in that year for the loss member and any other person that was a member of the same unitary business group as the loss member in that year and in the year that the loss was incurred by the loss member.

2)         (hereinafter sometimes referred to as Limitation No. 2) The combined federal taxable income for that year of any unitary business group to which the loss member belonged.

c)         This means that a member of a unitary business group will not be permitted to carry a loss to a year in which it belonged to a unitary business group that had a combined federal net operating loss for Illinois income tax purposes or zero combined federal taxable income for Illinois income tax purposes. In addition, a member of a unitary business group will not be permitted to carry a loss to a year in which it and other common members – persons that were members of its unitary business group in both the loss year and the carryback or carryforward year – had an aggregate federal net operating loss or zero taxable income among themselves for Illinois income tax purposes. In the case of losses arising in non-unitary years (years in which a unitary return was not filed), members will be permitted to carry such non-unitary losses to their unitary years (other conditions being met), but the maximum amount of non-unitary loss that any member may carry to a unitary year shall be limited to that member's federal taxable income for Illinois income tax purposes in that year (Limitation No. 1), and by the combined federal taxable income for that year of the unitary group to which the member belongs (Limitation No. 2) whichever is less.

d)         When two or more persons carry losses back or forward to the same taxable year and both (all) were members of the same unitary business group in the carryback or carryforward year, the limitations described in the previous paragraph subsection will be applied as follows. First, if the persons were both subject to Limitation No. 1 relative to the same common members in the carryback or carryforward year and if their losses, when added together, exceed Limitation No. 1, then each of the persons is deemed to have used a proportionate share of its loss in the carryback or carryforward year, based on the size of its loss as compared to the total of the losses of the persons subject to the same Limitation No. 1. Second, if the total combined loss of the persons, otherwise eligible to be used in the carryback or carryforward year, exceeds Limitation No. 2, each of the persons is deemed to have used a proportionate share of its loss, based on the size of its loss, otherwise eligible for use, as compared to the total combined loss of the persons, otherwise eligible for use. (See Examples 4 and 5 below.)

e)         When losses are carried back or forward from two or more loss years against the combined federal taxable income of a unitary business group for a particular taxable year, losses originating in the earliest year shall be used first. Appropriate adjustments shall be made to Limitation No. 1 and Limitation No. 2 in determining the amounts of losses that may be used in that particular year from later loss years.

1)         EXAMPLE 1:

A)        FACTS:

i)          In 1983, Corporations X, Y, Z, and Q are members of a unitary business group with federal taxable incomes (NOL) for Illinois tax purposes as follows:

Corporation X $10 million

Corporation Y $10 million

Corporation Z $10 million

Corporation Q ($40 million)

ii)         As a consequence, there is a $10 million unabsorbed net operating loss originating in 1983.

iii)        In 1980, Corporations X, Y, Z, Q, and R were members of a unitary business group with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation R $10 million

Corporation Z($5 million)

Corporation Y($5 million)

Corporation Q $10 million

Corporation X($5 million)

iv)        As a consequence, the unitary business group X, Y, Z, Q and R had a combined federal taxable income in 1980 of $5 million.

B)        ANALYSIS AND CONCLUSION: As a result of Limitation No. 1, the $10 million unabsorbed loss of Corporation Q, originating in 1983, cannot be used to any extent in computing the liabilities of Corporations Q, X, Y, Z, or R for 1980. The entire $10 million unabsorbed loss of Corporation Q originating in 1983 may be tested against 1981 income and loss figures of Corporation Q and other members of its unitary business group in that year.

2)         EXAMPLE 2:

A)        FACTS:

i)          Corporations A, B, C, D and E are members of a unitary business group in 1981, 1982, and 1983. In 1983, they have federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A $30,000

Corporation B $60,000

Corporation C $70,000

Corporation D ($150,000)

Corporation E ($50,000)

ii)         The group's combined federal net operating loss is ($40,000) which will be divided between Corporations D and E for purposes of carryback and carryforward:

Corp. D: $150,000/$200,000 x ($40,000) = ($10,000)

Corp. E: $50,000/$200,000 x ($40,000) = ($10,000)

iii)        In 1980 Corporations A, D, E and F were members of a unitary business group with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A $6,000

Corporation D $7,000

Corporation E $7,000

Corporation F 30,000

iv)        As a consequence, the unitary business group A, D, E, and F had combined federal taxable income for 1980 of $50,000.

B)        ANALYSIS AND CONCLUSION: Under Limitation No. 1, no more than $20,000 of the net operating loss of Corporations D and E originating in 1983 may be used in computing 1980 liabilities. Of the $20,000 in 1983 net operating losses that may be used in 1980, Corporation D is deemed to have provided $15,000 and Corporation E is deemed to have provided $5,000, this being the ratio indicated by the relative amounts of their respective net operating losses originating in 1983. As a consequence, Corporation D will have an unabsorbed loss of $15,000, which it may test against its income figures and those of other members of its unitary business group for 1981; Corporation E will have the same opportunity with respect to its $5,000 of unabsorbed loss.

3)         EXAMPLE 3:

A)        Same facts as Example 2, except Corporation F had a $25,000 net operating loss in 1982 and Corporation E had a $3,000 net operating loss in 1982. Neither Corporations F nor E were members of unitary business groups in 1982; both had zero taxable income in 1979, and neither was a member of a unitary business group in 1979.

B)        ANALYSIS AND CONCLUSION: The entire $25,000 net operating loss of Corporation F originating in 1982 may be used in computing the liabilities of all four members of the unitary business groups for 1980. Also, the entire $3,000 net operating loss of Corporation E originating in 1982 may be used in computing the 1980 liabilities of all four members of the unitary business group. As a result of the application of Corporation E's 1982 net operating loss to the group's income in 1980, Limitation No. 1, as it applies to the net operating losses of Corporations D and E originating in 1983 is $17,000, i.e., the 1980 federal taxable income for Illinois income tax purposes less absorption of the 1982 loss for Corporation A is $6,000, for Corporation D is $7,000, for Corporation E is $4,000. The $17,000 of 1983 net operating loss will be divided between Corporations D and E in accordance with the 3 to 1 ratio in which they incurred losses in 1983, with the result that $12,750 of Corporation D's 1983 net operating loss will be used in 1980 and $4,250 of Corporation E's net operating loss will be used in 1980 with the remaining unabsorbed amounts potentially available for application to 1981 and later years.

4)         EXAMPLE 4:

A)        FACTS:

i)          Corporations A, B, C and D are members of a unitary business group in 1983. In that year, they have federal taxable income (NOL) for Illinois income tax purposes as follows:

A – $20,000

B – $40,000

C – $40,000

D – ($150,000)

ii)         As a consequence, there is a $50,000 unabsorbed loss for Corporation D originating in 1983.

iii)        Corporations W, X, Y and Z are members of a different unitary business group in 1983 and have the following amounts of federal taxable income (NOL) for Illinois income tax purposes in that year.

W – $20,000

X – $40,000

Y – $40,000

Z – ($150,000)

iv)        As a consequence, there is a $50,000 unabsorbed loss for Corporation Z originating in 1983.

v)         In 1980 Corporations A, B, C, D, V, X, Y and Z were all members of the same unitary business group with the following amounts of federal taxable income (NOL) for Illinois income tax purposes.

A – $10,000

B – $10,000

C – $10,000

D – $5,000

V – ($40,000)

X – $15,000

Y – $15,000

Z – $15,000

vi)        As a consequence, the combined federal taxable income of the unitary business group, A, B, C, D, V, X, Y and Z in 1980 was $40,000.

B)        ANALYSIS AND CONCLUSION:

i)          Limitation No. 2 against which the loss carrybacks relating to both Corporations D and Z must be tested is $40,000. Limitation No. 1 for the loss carryback of Corporation D is $35,000 (the 1980 federal taxable incomes for Illinois income tax purposes of Corporations A, B, C and D) and Limitation No. 1 for the loss carryback of Corporation Z is $45,000 (the 1980 federal taxable incomes for Illinois income tax purposes of Corporations X, Y and Z). Even though Corporations D and Z had identical $50,000 unabsorbed net operating losses originating in 1983, different amounts of those losses will be absorbed in 1980. In D's case, $17,500 will be absorbed in 1980, computed as follows:

ii)         Corp. D's Limitation No. 1 for 1980/Limitation No. 2 x Combined Limitation No. 1 for 1980 of corporations D and Z

35,000/80,000 x 40,000 = 17,500

iii)        and $32,500 will be available for use in other years. In Z's case $22,500 will be absorbed in 1980, computed as follows:

iv)        Corp. Z's Limitation No. 1 for 1980/Limitation No. 2 x Combined Limitation No. 1 for 1980 of Corporations Z and D

45,000/80,000 x 40,000 = 22,500

and $27,500 will available for use in future years.

5)         EXAMPLE 5:

A)        FACTS:

i)          Corporations A, B, C and D are members of a unitary business group in 1983. In that year, they have federal taxable income (NOL) for Illinois income tax purposes as follows:

Corporation A – $20,000

Corporation B – $40,000

Corporation C – $40,000

Corporation D – ($150,000)

ii)         As a consequence, there is a $50,000 unabsorbed loss for Corporation D originating in 1983. Corporations W, X, Y and Z are members of a different unitary business group in 1983 and have the following amounts of federal taxable income (NOL) for Illinois income tax purposes in that year:

Corporation W – $20,000

Corporation X – $10,000

Corporation Y – $30,000

Corporation Z – ($140,000)

iii)        As a consequence, there is an $80,000 unabsorbed loss for Corporation Z originating in 1983. In 1980, Corporations A, B, C, D, V, X, Y and Z were all members of the same unitary business group with the following amounts of federal taxable income (NOL) for Illinois income tax purposes:

Corporation A – $10,000

Corporation B – $10,000

Corporation C – $10,000

Corporation D – ( $5,000)

Corporation V – ($25,000)

Corporation X – $50,000

Corporation Y – $10,000

Corporation Z – ($30,000)

iv)        As a consequence, the combined federal taxable income of the unitary business group A, B, C, D, V, X, Y and Z in 1980 was $30,000.

B)        ANALYSIS AND CONCLUSION:

i)          Limitation No. 2 against which the loss carrybacks relating to both Corporations D and Z must be tested is $30,000. Limitation No. 1 for the loss carryback of Corporation D is $25,000 (the 1980 federal taxable incomes and net operating losses for Illinois income tax purposes of Corporations A, B, C and D). Limitations No. 1 for the loss carryback of Corporation Z is $30,000 (the 1980 federal taxable incomes and net operating losses for Illinois income tax purposes of Corporations X, Y and Z).

ii)         Corporation D will be deemed to have used $13,636 of its net operating loss in 1980, computed as follows:

Corp. D's Limitation No. 1/Limitation No. 1 of Corps. D and Z x Limitation No. 2

25,000/55,000 x 30,000

iii)        and $36,364 will be available for use in other years. Corporation Z will be deemed to have used $16,364 of its net operating loss in 1980 computed as follows:

Corp. Z's Limitation No. 1/Limitation No. 1 of Corps. Z and D x Limitation No. 2

30,000/55,000 x 30,000

iv)        and will have $63,636 of its net operating loss available for use in future years.

f)         Application of the loss in the carryback and/or carryforward year.

1)         Limitations Nos. 1 and 2 do not obviate the necessity for determining the amount of federal taxable income remaining to each group member in the carryback or carryforward year after application of the loss. This computation is necessary so that the limitation on loss carried from other years can be determined.

2)         When the total loss allowed to be carried back or forward is less than the total federal taxable income of the common group members in the carryback or carryforward year, each loss member's share of the total loss shall be used first to offset its own income in the carryback or carryforward year. Any remaining loss (up to the limitation) shall be attributed to each of the common members having federal taxable income in the carry over year pro rata based on each member's income over the total income of the common group members.

3)         EXAMPLE:

A)        FACTS:

i)          In 1983, Corporations A, B, C, D and G are members of the unitary business group with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A – ($10,000)

Corporation B – $30,000

Corporation C – $5,000

Corporation D – ($60,000)

Corporation G – $5,000

ii)         As a consequence, there is a $30,000 unabsorbed net operating loss originating in 1983 which will be divided between Corporation A and Corporation D for carry back or carry forward purposes as follows:

Corp. A:  $10,000/$70,000 x ($30,000) = ($4,286)

Corp. D:  $60,000/$70,000 x ($30,000) = ($25,714)

iii)        In 1980, Corporations A, B, D and F were members of a unitary business group with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A – $15,000

Corporation B – $10,000

Corporation D – $16,000

Corporation F – $20,000

iv)        As a consequence, the unitary business group A, B, D and F had combined federal taxable income for 1980 of $61,000.

B)        ANALYSIS AND CONCLUSION:

i)          As a result of the Limitation No. 1, Corporation A and Corporation D can carryback the entire amount of unabsorbed federal net operating loss originating in 1983 to offset their 1980 income as well as the 1980 income of the other common group member, Corporation B. After application of this 1983 carryback, the unitary business group consisting of Corporations A, B, D and F will have a combined federal taxable income in 1980 of $31,000, i.e., the original 1980 combined federal taxable income of $61,000 less the loss carried back from 1983 to $30,000.

ii)         The $30,000 loss carried back from 1983 will be attributed to each of the common group members in 1980 in the following manner. Corporation D will use $16,000 of the $25,714 1983 unabsorbed loss assigned to it to reduce its 1980 federal taxable income to zero. Corporation A will use the entire amount of its 1983 loss of $4,286 against its 1980 federal taxable income of $15,000 resulting in a balance of $10,714. Corporation A and Corporation B will share D's remaining loss between them based on their income in 1980. Thus, Corporation A will be allowed to use $5,828 of Corporation D's remaining loss, resulting in a balance of federal taxable income in 1980 of $4,886. Corporation B will be allowed to use $3,886 of Corporation D's remaining loss against its 1980 federal taxable income of $10,000, resulting in a balance of federal taxable income in 1980 of $6,114.

iii)        Corporation A and Corporation's B share of Corporation D's remaining loss carryback from 1983 is computed as follows:

Corp. A: $15,000/$25,000 x ($9,714) = ($5,828)

Corp. B: $10,000/$25,000 x ($9,714) = ($3,886)

g)         A further additional complication arises where a member of a unitary business group filing an Illinois income tax return is also a member of an affiliated group filing a consolidated return for federal income purposes. In any such case, the member having a federal net operating loss for Illinois income tax purposes which contributes to the combined federal net operating loss will be required to carry forward (may not carryback) its pro rata share of that combined net operating loss (see IITA Section 203(e)(2)(E)).

h)         A schedule shall be attached to the pro form a U.S. 1120 showing the computation of the amount of the carryforward and its derivation, i.e., original federal net operating loss for Illinois income tax purposes less amounts absorbed in the loss year and in previous carryforward years. The taxpayer shall also provide any other documentation required by the Department to support the amount of the carryforward. As indicated with respect to carrybacks, per Limitation No. 1 and Limitation No. 2, the maximum amount of pro rata share of combined federal net operating loss that can be individually carried forward to any year by a member shall be limited to the lesser of the aggregate total of federal taxable incomes and federal net operating losses for Illinois income tax purposes of the loss member and other common members of the unitary business group in the carryforward year or the entire unitary business group's combined federal taxable income in the carryforward year. This means that a member of a unitary business group will not be permitted to carry a loss forward to a year in which the group's combined federal taxable income (without the loss carryforward) is already zero or less nor may it carry a loss forward to a year in which the group had combined federal taxable income if its federal taxable income or federal net operating loss for Illinois income tax purposes in the carryforward year, when added to comparable figures for other common members, did not exceed zero. Unabsorbed losses may be saved for use as appropriate in future years up to the maximum number of years permitted under IRC Section 172.

1)         EXAMPLE 1:

A)        FACTS:

i)          In 1983, Corporations A, B, C and D are members of a unitary business group with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A – $100,000

Corporation B –   40,000

Corporation C –   40,000

Corporation D – (200,000)

ii)         As a consequence, there is a $20,000 unabsorbed loss for Corporation D originating in 1983. All four corporations are members of an affiliated group filing a consolidated federal income tax return for 1983.

iii)        In 1984, Corporation D is an unaffiliated corporation filing an unconsolidated federal income tax return. In filing its own unconsolidated federal income tax return for 1984, Corporation D reflected a federal taxable income of $100,000, being $200,000 taxable income less a federal net operating loss deduction carryforward of $100,000. Corporation D's federal taxable income for Illinois income tax purposes is $200,000, computed by adding to its federal taxable income on its unconsolidated federal income tax return of $100,000 the amount of its net operating loss deduction of $100,000. In 1984, Corporation D was a member of the same unitary business group as in 1983, with federal taxable incomes (NOL) for Illinois income tax purposes as follows:

Corporation A – $ 30,000

Corporation B –   30,000

Corporation C –   30,000

Corporation D – 200,000

iv)        As a consequence, there is a $290,000 combined federal taxable income for the group for 1984, prior to any net operating loss carryforward under these rules.

B)        ANALYSIS AND CONCLUSION: Because it was a member of an affiliated group filing a consolidated federal income tax return in 1983, Corporation D could not carryback any part of its unabsorbed $20,000 loss for Illinois income tax purposes. The entire amount of that loss can be carried forward to 1984 to reduce the combined federal taxable income of the unitary business group A, B, C and D to $270,000, since neither Limitation No.1 or Limitation No. 2 applies.

2)         EXAMPLE 2:

A)        FACTS: Same facts as Example6 in subsection (f)(3) above except that in 1984 Corporations A, B, C and D are members of a unitary business group with Corporation E and the five corporations have federal taxable income (NOL) for Illinois income tax purposes as follows:

Corporation A – $ 40,000

Corporation B –    40,000

Corporation C –    40,000

Corporation D – (130,000)

Corporation E –     40,000

B)        ANALYSIS AND CONCLUSION: No part of Corporation D's $20,000 unabsorbed loss originating in 1983 may be used in 1984 since Limitation No. 1 against which this loss must be tested is ($10,000), the aggregate total of the federal taxable income for Illinois income tax purposes of Corporations A, B and C and the federal Net operating loss for Illinois income tax purposes of Corporation D.

(Source: Amended at 11 Ill. Reg. 17782, effective October 16, 1987)

Section 100.2240 Net Operating Losses Occurring Prior to December 31, 1986, of Unitary Business Groups: Treatment by Members of the Unitary Business Group: (IITA Section 202) – Effect of Combined Net Operating Loss in Computing Illinois Base Income

a)         For purposes of computing the group's combined Illinois base income or equivalent, the group's combined net operating loss (after giving effect to inter member eliminations) can be used to offset the group's combined excess addition modifications. This combined net operating loss (after giving effect to inter member eliminations) can be used to offset the group's combined excess addition modifications. The group's combined excess addition modifications is defined as the total of all addition modifications required by IITA Section 203 (except that prescribed by IITA Section 203(b)(2)(E) and Section 203(c)(2)(E)) for all members of the group, less the total of all subtraction modifications required by IITA Section 203 for all members of the group.

b)         However, each group member allowed to carryback or forward a portion of the group's combined federal net operating loss from a year in which that combined federal net operating loss was used to offset any portion of the group's combined excess addition modifications, must take as an addition modification in the carryback and carryforward year its respective share of the NOL addition modification required by IITA Section 203(b)(2)(E) and (c)(2)(E). These respective shares shall be determined in the same manner that the share of the combined federal net operating loss of each member was determined under Section 100.2230(b) of this Part. The amount of the NOL addition modification actually required to be shown in the carryback or carryforward year by any member of the group shall, however, be limited to the amount of loss actually carried to such year by the group member.

1)         EXAMPLE 1:

A)        FACTS:

i)          For 1981, Corporation A filed a separate federal income tax return showing a federal taxable income of $35,000 and an Illinois income tax return reflecting Illinois liability calculated from the $35,000 federal taxable income on a non-combined apportionment basis. For 1984, Corporation A filed a separate federal income tax return showing a net operating loss of $100,000 and an Illinois income tax return reflecting that Corporation A was a member of the same unitary business group as three other corporations – B, C and D – each of which was formed on the first day of the 1984 taxable year. The federal taxable incomes (NOL) for the Illinois income tax purposes and the addition and subtraction modifications of Corporations A, B, C and D for 1984 are as follows:

ii)         Shortly after filing its 1984 return, Corporation A filed an amended federal income tax return for 1981 claiming on appropriate refund based on the carryback of the $100,000 NOL from 1984 against the 1981 taxable income. The refund was paid shortly after the claim was filed and Corporation A is now engaged in preparing an appropriate parallel claim for refund of Illinois income tax liability under 86 Ill. Adm. Code 100.2200.

B)        ANALYSIS AND CONCLUSION:

i)          The group's combined federal net operating loss for 1984 is (50,000) which will be divided between Corporations A and C (the loss members) for purposes of carryback and carryforward:

Corp. A: $100/$130 x ($50,000) = ($38,462)

Corp. C: $30/$130 x ($50,000) = ($11,538)

ii)         The group's excess addition modifications for 1984 will be divided between the loss members in the same proportion as the group's combined federal net operating loss:

Corp. A: $100/$130 x $25,000 = ($19,230)

Corp. C: $30/$130 x $25,000 = ($5,770)

iii)        Corporation A's claim for refund of Illinois income tax for 1981 is premised on the NOL carryback of $38,462 from 1984. The amended return which embodies that claim must also reflect an addition modification of $19,230.

2)         EXAMPLE 2:

A)        FACTS:

i)          Same facts as in Example 1 except that Corporation A has a federal net operating loss in 1984 of $65,000 instead of $100,000. Therefore, the federal taxable incomes (NOL) for Illinois income tax purposes and the addition and subtraction modifications of Corporations A, B, C and D for 1984 are as follows:

ii)         Shortly after filing its 1984 return, Corporation A filed an amended federal income tax return for 1981 claiming an appropriate refund based on the carryback of the $65,000 NOL from 1984 against the 1981 taxable income. The refund was paid shortly after the claim was filed and Corporation A is now engaged in preparing an appropriate amended Illinois income tax return for 1981 under Section 100.2200 of this Part.

B)        ANALYSIS AND CONCLUSION:

i)          The group's combined federal net operating loss for 1984 is ($15,000) and the group's excess addition modifications equal $25,000, resulting in a combined 1984 Illinois base income of $10,000, i.e., (15,000) plus $25,000. The group's combined federal net operating loss for 1984 will be divided between Corporations A and C (the loss members) for purposes of carryback and carryforward of Illinois net operating loss:

Corp. A: $65/$95 x ($15,000) = ($10,263)

Corp. C: $30/$95 x ($15,000) = ($4,737)

ii)         The amount of the group's excess addition modifications for 1984 that were offset by the group's combined federal net operating loss for 1984 will be divided between the loss members in the same proportion as the group's combined federal net operating loss is divided to compute each loss member's respective share of the 1981 NOL addition modification required by IITA Section 203(b)(2) namely:

Corp. A: $65/$95 x $15,000 = $10,263

Corp. C: $30/$95 x $15,000 = $4,737

iii)        Corporation A's amended Illinois income tax for 1981 would reflect an NOL carryback of $10,263 from 1984 and an addition modification of $10,263.

(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2250  Net Operating Losses Occurring Prior to December 31,  1986, of  Unitary Business  Groups:  Treatment by Members of  the Unitary  Business Group:  (IITA Section 202) –  Deadline for Filing Claims Based on Net Operating Losses Carried Back From a Combined Apportionment Year

A claim for refund based upon the carryback of a share of a combined federal net operating loss may be filed at any time within the period stated by IITA Section 911(b).  This section generally requires that such a claim be filed no later than 2 years and 20 days after the date the "federal change" was finalized by IRS payment to the taxpayer.  If taxpayer does not have occasion to receive an IRS refund on the NOL because it was absorbed for federal income tax purposes by incomes of other members of the federal affiliated groups, or because the refund was a consolidated refund for federal purposes, then the period of limitation for filing the Illinois claim is as stated in Section 100.5030 of this Part.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2300  Illinois  Net  Loss  Deduction  for  Losses Occurring On or After December 31, 1986 (IITA 207)

a)         In General  - For  taxable years  ending on  or  after December 31,  1986,  IITA  Section  207  provides  for computation of  Illinois net  losses for  corporations (including Subchapter S Corporations), trusts, estates and partnerships.  If,  after  applying  all  of  the modifications provided for in IITA Sections 203(b)(2), 203(c)(2)  or 203(d)(2)  and the  allocation and apportionment  provisions of  IITA  Article  3,  the taxpayer's net income results in an Illinois net loss, such loss shall be allowed as a carryback or carryover deduction in  the manner  allowed under Section 172 of the Internal Revenue Code, as in effect during the loss year for tax years ending prior to December 31, 1999.  For losses incurred in tax years ending on or after December 31, 1999, the Illinois net loss is allowed as a carryback to the 2 preceding taxable years and as a carryforward to the 20 succeeding tax years.  The rules for members of a unitary  business group  are  set  out  in  Sections 100.2340 and 100.2350.  Sections 100.2200 through 100.2250 which  also relate to net operating losses of unitary business  groups are only applicable to losses incurred in taxable years ending prior to December 31, 1986.  Section 100.9410(f)  sets forth the statute of limitations  for reporting  an Illinois  net  loss carryback.  An Illinois  net loss  deduction  is  not available  for individuals. Losses  incurred  by individuals are  recognized for  Illinois tax purposes in  the  computation  of  adjusted  gross  income  for federal tax purposes.

b)         Definitions

1)         "Illinois net  loss" means  the  amount  of  loss determined under  IITA Section  207.  That is, it is the amount of loss, if any, after applying the modifications and  allocation  and  apportionment provisions of  the Act,  as  calculated  for  tax years occurring on or after December 31, 1986.

2)         "Illinois net loss deduction" means the deduction which may  be carried  pursuant to  IITA  Section 207.

3)         "Net operating loss" means either:  The amount of net operating  loss determined  for  federal  tax purposes;  or for  losses  occurring  prior  to December 31,  1986,  the  amount  recognized  for Illinois tax purposes.

4)         "Net operating loss deduction" means either:  The amount of  deduction recognized  for federal  tax purposes;  or for  losses  occurring  prior  to December 31,  1986,  the  amount  recognized  for Illinois tax purposes.

5)         The following  terms have the following meanings:  NOL -  Net Operating Loss NOLD  - Net  Operating Loss Deduction  corp.  -  corporation  Treas.  - Treasury Reg. - Regulation Sec. - Section Apport. - Apportionment  Ill. -  Illinois sep. - separate comb. - combined

c)         Treatment of capital losses of corporations.  The treatment of capital losses is separate and apart from the rules governing Illinois net losses and Illinois net loss deductions.  Capital losses will continue to be governed by federal provisions.  For federal purposes, capital losses are permitted only to the extent of capital gains and the carryback of capital losses is permitted only to the extent of capital gains in the carryback year.  Since the federal carryback of capital losses changes federal taxable income, Illinois claims for refund based on such a federal change are permitted pursuant to IITA Section 506(b).  A change in federal taxable income resulting from a federal capital loss carryback would be given effect before applying an Illinois net loss deduction to the same year.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.2310  Computation of the Illinois Net Loss Deduction for Losses Occurring On or After December 31, 1986 (IITA 207)

a)         The amount of the Illinois net loss deduction allowed by IITA Section 207 for any taxable year is the aggregate of the Illinois net loss carryovers and Illinois net loss carrybacks to that taxable year. The steps to be taken in determining the amount of the deduction are as follows:

1)         Compute the Illinois net loss in accordance with Section 100.2320 (adjusted as may be required under subsection (c) of this Section) for any preceding or succeeding taxable year from which a net loss may be carried.

2)         Compute the Illinois net loss carryovers and carrybacks from the preceding or succeeding taxable years in accordance with Section 100.2330 (adjusted as may be required under subsection (c) of this Section).

3)         Add the Illinois net loss carryovers and carrybacks.

b)         Every taxpayer claiming an Illinois net loss deduction for any taxable year shall file, in accordance with the tax return instructions for that year, a concise statement in such form as the Department shall require setting forth the amount of the net loss deduction claimed and all material and pertinent facts required by the instructions.  The Illinois net loss for any taxable year shall be determined under the law applicable to that year.

c)         Adjustment in the Case of Discharge of Indebtedness Income. Under IRC section 108(a), income from discharge of indebtedness may be excluded from gross income in certain circumstances. When discharge of indebtedness income is excluded under this provision, IRC section 108(b) requires the taxpayer to reduce certain "tax attributes", including net operating losses incurred in the year of the discharge or carried over to that year, basis in assets, and net capital losses incurred in the year of discharge or carried over to that year. These reductions generally have the effect of including the discharge of indebtedness income in gross income at some later time. This effective inclusion of the discharge of indebtedness income in gross income automatically causes the discharge of indebtedness income to be included in base income, except in the case of reductions in net operating losses incurred in taxable years ending on or after December 31, 1986, by taxpayers other than individuals. In those cases, the taxpayer would never include the discharge of indebtedness income in its base income because the IITA did not allow deduction of federal net operating losses, but instead provided for computation and carryover of Illinois net losses under IITA Section 207 and, prior to the enactment of Public Act 95-0233, that Section had no provision for reduction of net losses when a taxpayer had discharge of indebtedness income. IITA Section 207(c) provides that a taxpayer required to reduce a federal net operating loss or federal net operating loss carryover under IRC section 108(b)(2)(A), on account of discharge of indebtedness income excluded from gross income under IRC section 108(a) with respect to a taxable year ending on or after December 31, 2008, must reduce its Illinois net loss incurred in the year of the discharge or any Illinois net losses carried over to that year, to the extent provided in this subsection.

1)         Amount of Reduction

A)        Illinois Net Loss. A taxpayer must reduce any Illinois net loss incurred in a taxable year under Section 100.2320 by an amount equal to the amount of the reduction to the taxpayer's federal net operating loss under IRC section 108(b)(2)(A) for the same taxable year that is allocable to Illinois.

B)        Illinois Net Loss Carryover. A taxpayer must reduce any Illinois net loss carryover to a taxable year under Section 100.2330 by an amount equal to the amount of the reduction to the taxpayer's federal net operating loss carryover under IRC section 108(b)(2)(A) for the same taxable year that is allocable to Illinois.

C)        The Illinois net losses or net loss carryovers may not be reduced below zero.

2)         Attribute Reduction Allocable to Illinois.  For purposes of subsection (c)(1), the portion of the reduction to a federal net operating loss or federal net operating loss carryover allocable to Illinois shall be determined by multiplying the reduction required to that loss or loss carryover under IRC section 108(b)(2)(A) by a fraction, the numerator of which is the amount of income excluded from gross income for the taxable year under IRC section 108(a) that would have been allocated to Illinois and the denominator of which is the total income excluded from gross income under IRC section 108(a) for the taxable year. The amount of income excluded from gross income under IRC section 108(a) that would have been allocated to Illinois shall be determined by applying the provisions of Article 3 of the IITA as if that income had not been excluded from gross income.

3)         Ordering Rules

A)        Reduction Required after Determination of Tax. The reduction required under this subsection (c) shall be made after the determination of the tax imposed under the IITA for the taxable year of the discharge. Accordingly, any Illinois net loss carryover available for the taxable year in which income is excluded under IRC section 108(a) is taken into account in computing the Illinois net loss deduction for that taxable year under subsection (a), and only the amount of the loss remaining to carry forward to the next taxable year, if any, is reduced under this subsection (c).

B)        Any reduction required under this subsection (c) to Illinois net loss carryovers shall be made first to the net loss carryover whose carryforward period will expire first, then to the carryover that will expire next, and so forth, until the entire reduction is made or until all carryforwards are reduced to zero.

4)         Partnerships and Subchapter S Corporations. Under IRC section 108(d)(6), the provisions of IRC section 108(a), (b), (c) and (g) are applied at the partner level. Accordingly, a partnership does not exclude discharge of indebtedness income and is not required to make any reduction under this subsection (c). Under IRC section 108(d)(7), the provisions of IRC section 108(a), (b), (c) and (g) are applied at the corporate level in the case of a Subchapter S corporation, including by treating any loss or deduction that is disallowed for the taxable year of the discharge under IRC section 1366(d)(1) as a net operating loss for that taxable year. Accordingly, a Subchapter S corporation may be required to make a reduction under this subsection (c).

5)         Examples. The provisions of this subsection may be illustrated by the following examples.

A)        EXAMPLE 1. For its taxable year ending December 31, 2008, Taxpayer has $50,000 of discharge of indebtedness income excluded from gross income under IRC section 108(a). Under Article 3 of the IITA, but for the exclusion the entire $50,000 would have been included in the Taxpayer's business income and a total of $10,000 of the income would have been apportioned to Illinois. The Taxpayer has a federal net operating loss of $40,000 for its December 31, 2008 taxable year, and an Illinois net loss of $8,000. Under IRC section 108(b)(2)(A), Taxpayer is required to reduce its federal net operating loss from $40,000 to $0. Under this subsection, Taxpayer is required to reduce its Illinois net loss from $8,000 to $0 ($8,000 - [$40,000 × ($10,000/$50,000)]).

B)        EXAMPLE 2. Assume the same facts as Example 1, except that the Taxpayer makes an election under IRC section 108(b)(5) to reduce its basis in depreciable property, with the result that no reduction is made to the taxpayer's federal net operating loss. No reduction is required under this subsection (c) to the Taxpayer's Illinois net loss.

C)        EXAMPLE 3. For its taxable year ending December 31, 2009, Taxpayer has $200,000 of discharge of indebtedness income excluded from gross income under IRC section 108(a). Under Article 3 of the IITA, but for the exclusion the entire $200,000 would have been included in the Taxpayer's business income and a total of $100,000 of that income would have been apportioned to Illinois. The Taxpayer has $50,000 of federal taxable income for its December 31, 2009 taxable year before application of a federal net operating loss carryover in the amount of $75,000 from its December 31, 2006 taxable year, leaving $25,000 of that loss to carry forward to 2010. In addition, the Taxpayer has an Illinois net loss for its December 31, 2009 taxable year of $10,000, but no Illinois net loss carryovers to that year. Under IRC section 108(b)(4)(A) and (b)(2)(A), the Taxpayer is required to reduce its 2006 federal net operating loss remaining to carry forward to 2010 from $25,000 to $0. Since no reduction is made to a federal net operating loss incurred in 2009 under IRC section 108(b)(2)(A), no reduction is required to be made to the Taxpayer's 2009 Illinois net loss under this subsection (c).

D)        EXAMPLE 4. Assume the same facts as in Example 3, except that the Taxpayer has $25,000 of Illinois net income for its December 31, 2009 taxable year and has Illinois net loss carryovers of $20,000 from its December 31, 2007 taxable year and $20,000 from its December 31, 2008 taxable year. Under subsection (c)(3)(B), the $20,000 Illinois net loss carryover from 2007 and $5,000 of the 2008 Illinois net loss carryover are first applied to reduce Taxpayer's Illinois net income to $0 for its December 31, 2009 taxable year. The remaining $15,000 Illinois net loss carryover from 2008 is reduced under this subsection to $2,500 ($15,000 - [$25,000 × ($100,000/$200,000)]). Reduction is required even though the Taxpayer's federal net operating loss carryover relates to its December 31, 2006 taxable year while the Illinois net loss carryover is from Taxpayer's December 31, 2008 taxable year.

E)        EXAMPLE 5. For its taxable year ending December 31, 2009, Taxpayer has $200,000 of discharge of indebtedness income excluded from gross income under IRC section 108(a). Under Article 3 of the IITA, but for the exclusion the entire $200,000 would have been included in the Taxpayer's business income and a total of $100,000 of that income would have been apportioned to Illinois. The Taxpayer has a $50,000 federal net operating loss for the 2009 taxable year and federal net operating loss carryovers of $25,000 from its December 31, 2006 taxable year and $75,000 from its December 31, 2007 taxable year. Taxpayer has an Illinois net loss of $25,000 for its December 31, 2009 taxable year, and Illinois net loss carryovers of $6,000 from its December 31, 2006 taxable year and $30,000 from its December 31, 2007 taxable year. Under IRC section 108(b)(2)(A), Taxpayer's $50,000 federal net operating loss for 2009 and $25,000 net operating loss carryover from 2006 are each reduced to $0. In addition, the $75,000 net operating loss carryover from 2007 is reduced to $50,000. Under this subsection, the Taxpayer's Illinois net loss is reduced to $0 ($25,000 - [$50,000 × ($100,000/$200,000)]). In addition, the Taxpayer's Illinois net loss carryover from 2006 is reduced to $0, and its Illinois net loss carryover from 2007 is reduced to $11,000 Under subsection (c)(3)(B), the $25,000 reduction to the Taxpayer's Illinois net loss carryover is first applied to reduce the carryover from 2006 from $6,000 to $0, and the remaining reduction is applied to reduce the carryover from 2007 from $30,000 to $11,000.

(Source:  Amended at 33 Ill. Reg. 1195, effective December 31, 2008)

Section 100.2320  Determination of the Amount of Illinois Net Loss for Losses Occurring On or After December 31, 1986

a)         Add back of federal net operating loss deduction.  The starting point in calculating Illinois net income or loss is taxable income.  IITA Section 203(e)(1) provides that  taxable income shall mean the amount of taxable income  properly reportable for federal income tax purposes, and that taxable income may be less than zero.  The IITA requires that certain addition and subtraction modifications be made to taxable income to arrive at base income. In order to avoid the recognition of a federal net operating loss in more than one taxable year, IITA Sections 203(b)(2)(E) and 203(c)(2)(E) require an addition modification for corporations, trusts and estates.  Thus, the amount of any federal net operating loss deduction (arising from a loss incurred in a taxable year ending on or after December 31, 1986), taken in arriving at federal taxable income must be added back in the computation of Illinois base income.  Since partnership and S corporations are not allowed a net operating loss deduction for federal purposes, this type of add back does not apply to them.  The add back is illustrated by the following Example.

EXAMPLE:  In 1986, Corporation A reported a ($100) federal net operating loss.  Corporation A carried this loss back for federal purposes and claimed a federal NOL deduction in 1983 of $100.On its Illinois amended return for 1983, since the federal NOL deduction taken on its amended 1983 U.S. return relates to an NOL incurred in a tax year ending on or after December 31, 1986, the $100 federal NOLD must be treated as an addition modification on Corporation A's amended 1983 Illinois return.

b)         Other modifications, allocation and apportionment. The  other addition  and  subtraction  modifications provided in  IITA Sections  203(b)(2), 203(c)(2),  and 203(d)(2)  must be  taken  into  account  before  an Illinois net  loss  can  be  determined.  Also, the allocation ad apportionment provisions of IITA Article 3 must be applied before an Illinois net loss can be determined.  This is illustrated in the following Example.

EXAMPLE:  In 1987, Corporation A has federal taxable income of $200, less a $100 federal NOLD relating to a NOL incurred in 1986.  In 1987, Corporation A also has $300 of  Illinois addition  modifications relating  to income from  State obligations,  $200  of  subtraction modifications relating to income from U.S. obligations, $400  of nonbusiness  loss  allocable  to Illinois, and  a 50% apportionment factor in Illinois. Corporation A would compute its 1987 Illinois net loss as follows:

c)         Net operating losses occurring prior to December 31, 1986, carried into tax years ending on or  after December 31, 1986

1)         Effect on taxable income in the carryforward year. Any federal net operating losses occurring prior to  December 31,  1986 and carried into tax years ending  on or after December 31, 1986, will be treated  as an  adjustment to  federal taxable income (an  adjustment before apportionment), and any such  federal net  operating  loss  deduction will  not be  required  to  be  added  back  in computing Illinois  base income  unless such loss has already  been used for Illinois purposes (see paragraph 3, below).

2)         Effect on  excess addition  modifications in  the carryforward year.  Furthermore,  IITA  Section 203(e)(1), as  amended by  P.A. 84-1400,  permits net  operating loss  carryforwards from  pre- December 31,1986,  tax years  to tax years ending on or  after December  31, 1986,  to  offset  the excess of  Illinois addition  modifications  over subtraction modifications in such years.  This is illustrated in the following Example.

EXAMPLE:  Corporation A had a $1,000 federal net operating loss in 1985.  The loss could not be carried back to a prior year and none of it was absorbed in 1986.In 1987, Corporation A had federal taxable income before special deductions of $200, and it had $100 of excess Illinois addition modifications over subtraction modifications.  As a result, the $1,000 federal net operating loss will offset the $200 of taxable income before special deductions and the $100 of excess addition modifications.  For Illinois income tax purposes, Illinois base income and Illinois net income will be zero for 1987, and  there will remain a $700 federal net operating loss  carryforward for  1988 and  later years.

3)         NOL addition modification in carryforward years. For taxable years in which a net operating loss carryforward from a taxable year ending prior to December 31, 1986, is an element of taxable income, IITA Sections 203(b)(2)(F) and 203(c)(2)(F) provide a special addition modification if that loss carryforward originated in a loss year in which it was used to offset excess Illinois addition modifications in calculating Illinois base income.  See Schedule NL or NL-1 (for members of unitary business groups) of the IL-1120.

(Source:  Added at 11 Ill. Reg. 17782, effective October 16, 1987)

Section 100.2330  Illinois Net Loss Carrybacks and Net Loss Carryovers for Losses Occurring On or After December 31, 1986 (IITA Section 207)

a)         IITA Section 207(a) provides for carryover deductions of any losses that result after applying all of the modifications provided for in Section 203(b)(2), (c)(2) and (d)(2) and the allocation and apportionment provisions of Article 3 of the Act.

b)         Years to Which Illinois Net Losses May be Carried

1)         In General. Under IITA Section 207(a)(2), an Illinois net loss incurred in a tax year ending on or after December 31, 1999 and prior to December 31, 2003 may be carried back to the two preceding tax years or carried forward to the 20 succeeding tax years.  Under IITA Section 207(a)(3)-(4), for any taxable year ending on or after December 31, 2003 and prior to December 31, 2021, the loss is allowed as a carryover to each of the 12 taxable years following the taxable year of the loss, provided that any such loss not having yet expired as of November 16, 2021, the effective date of Public Act 102-0669, shall be allowed as a carryover to each of the 20 taxable years following the taxable year of the loss.  For any taxable year ending on or after December 31, 2021, the loss is allowed as a carryover to each of the 20 taxable years following the taxable year of the loss.  For tax years ending prior to December 31, 1999, IITA Section 207(a)(1) provides that a carryback or carryover deduction is allowed in the manner allowed under Internal Revenue Code section 172.  The federal rules concerning the years to which a loss may be carried are contained in IRC section 172(b) and in Treas. Reg. Sec. 1.172-4(a)(1). These rules, as now in effect or hereafter amended, are followed for Illinois income tax purposes and apply to corporations, partnerships, trusts and estates.  In general, for Illinois net losses incurred in tax years beginning prior to August 6, 1997, the net loss is first carried back to the three preceding taxable years and then is carried over to the 15 succeeding taxable years.  For Illinois net losses incurred in tax years beginning on or after August 6, 1997 and ending prior to December 31, 1999, the loss generally is first carried back to the two preceding tax years and then is carried forward to the 20 succeeding tax years.  In taxable years ending prior to December 31, 1999, special provisions applied to regulated transportation companies, financial institutions, product liability losses and other entities or situations, and the provisions in IRC section 172(b) and the related Treasury Regulations relating to the years to which a loss incurred in one of those years may be carried are followed.

2)         Specific Rules for Losses Incurred in Taxable Years Ending Prior to December 31, 1999.  IITA Section 207(a)(1) provides that, for losses incurred in any taxable year ending prior to December 31, 1999, the loss is allowed as a carryover or carryback deduction in the manner allowed under IRC section 172. Pursuant to this provision:

A)        For losses incurred in taxable years beginning prior to August 6, 1997, a loss generally is first carried back to each of the 3 taxable years preceding the taxable year in which the loss was incurred and then to each of the 15 taxable years following the taxable year in which the loss was incurred. (From IRC section 172(b)(1)(A), as in effect prior to enactment of P.L. 105-34.)

B)        For losses incurred in taxable years beginning after August 5, 1997, a loss generally is first carried back to each of the 2 taxable years preceding the taxable year in which the loss was incurred and then to each of the 20 taxable years following the taxable year in which the loss was incurred. (From IRC section 172(b)(1)(A), as in effect after enactment of P.L. 105-34.)

C)        Special carryover periods allowed under IRC section 172(b) for specific kinds of losses or taxpayers also apply.  For example:

i)          "Specified liability losses" may be carried back to each of the 10 taxable years preceding the taxable year in which the loss was incurred. (From IRC section 172(b)(1)(C).)

ii)         For losses incurred in taxable years beginning after December 31, 1986, and ending before January 1, 1994, bad debt losses of commercial banks may be carried back to each of the 10 taxable years preceding the taxable year in which the loss was incurred and to each of the 5 taxable years following the taxable year in which the loss was incurred. (From IRC section 172(b)(1)(D).)

c)         Election to Forgo Carryback Period

1)         For losses incurred in tax years ending prior to December 31, 2003, IITA Section 207(a-5)(A) allows the taxpayer to elect to relinquish the entire carryback period with respect to the loss. The election is made on the taxpayer's return for the taxable year in which the loss is incurred. The election may be made only on or before the due date (including extensions of time) for filing the return.  If an election is made, the loss is carried forward and deducted only in years subsequent to the taxable year in which the loss was incurred. The election, once made, is irrevocable. (IITA Section 207(a-5)(A))

2)         If the election is made on any combined return filed in accordance with IITA Section 502(e), the election will be considered to be in effect for all eligible members of the combined group filing the return for the taxable year for which the election is made.

3)         If the timely return for the taxable year reflects Illinois income and:

A)        a finalized federal change eliminates Illinois income thereby creating an Illinois net loss for the year, the taxpayer may make the election to relinquish the entire carryback period for the Illinois net loss on an amended return or form prescribed by the Department within the 120 day time period prescribed by IITA Section 506(b); or

B)        an Illinois audit or other Illinois change eliminates Illinois income thereby creating an Illinois net loss for the year, the taxpayer may make the election to relinquish the entire carryback period for the Illinois net loss on forms prescribed by the Department at the time the loss is first reported to Illinois.

d)         Portion of Illinois Net Loss That Is a Carryback or a Carryover to the Taxable Year in Issue. Pursuant to IITA Section 207(a-5)(B), the entire amount of a loss is carried to the earliest taxable year to which the loss may be carried.  The amount of the loss, which is carried to each of the other taxable years, is the excess, if any, of the amount of the loss over the sum of the deductions for carryback or carryover of the loss allowable for each of the prior taxable years to which the loss may be carried.  This is illustrated in the following Example.

EXAMPLE:  A taxpayer that makes its return on the calendar year basis has an Illinois net loss for 1986. Under the provisions of IRC section 172(b) as in effect in that year, the entire net loss for 1986 may be carried back to 1983.  The amount of the carryback to 1984 is the excess of the 1986 loss over the net income for 1983. The amount of the carryback to 1985 is the excess of the 1986 loss over the aggregate of the net incomes for 1983 and 1984.  The amount of the carryover to 1987 is the excess of the 1986 loss over the aggregate of the net incomes for 1983, 1984, and 1985, etc.

e)         Carryover of Pre-12/31/86 Losses and Post-12/30/86 Losses. Net operating losses incurred prior to December 31, 1986, can be carried over into years in which Illinois net losses (incurred on or after December 31, 1986) are also carried.  In these cases, the losses incurred in tax years ending prior to December 31, 1986 are treated as an adjustment to taxable income (i.e., before apportionment) while the losses incurred in tax years ending after December 30, 1986 are subtracted in computing Illinois net income (i.e., after apportionment). This is illustrated in the following Example.

EXAMPLE:  Corporation A is a calendar year taxpayer. It has no partnership income and no nonbusiness income.  In 1985, it reported a federal net operating loss of $1,000, and on its Illinois return for 1986, it reported an Illinois net loss of $50, neither of which could be carried back to prior years due to losses existing in those years.  In 1987, A had federal taxable income (before special deductions) of $200, and Illinois addition modifications of $100. Corporation A would compute its Illinois net income in 1987 as follows:  The $1,000 net operating loss from 1985 would offset the $200 of 1987 federal taxable income and would offset the $100 of 1987 Illinois addition modifications.  In 1988, Corporation A would have remaining $700 of net operating loss carryover from 1985 and $50 of Illinois net loss carryover from 1986.

f)         Special Rules

1)         IITA Section 207(b) provides that any loss determined under subsection (a) of this Section is carried back or carried forward in the same manner for purposes of both the regular income tax imposed by IITA Section 201(a) and (b) and the personal property replacement income tax imposed under IITA Section 201(c) and (d).

2)         For the carryforward of losses incurred prior to certain corporate or partnership reorganizations or acquisitions, see Section 100.4500.

3)         IITA Section 207(a) provides that losses that may be carried over and deducted in other years are those losses that result after the modifications of IITA Section 203(b)(2), (c)(2) and (d)(2) are made, and after the allocation and apportionment rules of IITA Article 3 are applied.  Accordingly:

A)        No exemption allowed under IITA Section 204 is taken into account in computing a loss that may be carried over and deducted under IITA Section 207; and

B)        No deduction for any loss carried over pursuant to IITA Section 207 is taken into account in computing a loss that may be carried to and deducted in another taxable year under IITA Section 207.

4)         Subchapter S Corporations and Partnerships

A)        IITA Section 207(a) allows the carryover of losses that result after the modifications of IITA Section 203(b)(2) and (d)(2) are made.  IITA Section 203(b) applies to subchapter S corporations and IITA Section 203(d) applies to partnerships.  Accordingly, IITA Section 207 allows subchapter S corporations and partnerships carryover deductions for losses incurred.

B)        Neither IITA Section 207 nor IRC section 172 distinguishes between subchapter S corporations and corporations governed by subchapter C of the Internal Revenue Code.  IRC section 1363(b)(2) provides that no net operating deduction allowable under IRC section 172 is allowed in the computation of taxable income of a subchapter S corporation and IRC section 1371(b) prohibits any carryforward or carryback between a taxable year in which a corporation is a subchapter S corporation and a taxable year in which it is not.  Neither IRC section 1363 nor IRC section 1371 is applicable to the carryover and deduction of losses under IITA Section 207.  Accordingly, subject to the other provisions of this Section, a loss incurred in a taxable year in which a corporation is a subchapter S corporation shall be carried to and deducted in any taxable year in which it is not a subchapter S corporation in the same manner as if the corporation were a subchapter S corporation in that year, and a loss incurred in a taxable year in which a corporation is not a subchapter S corporation may likewise be carried to and deducted in any taxable year in which it is a subchapter S corporation.

EXAMPLE:  X Corporation is a subchapter S corporation throughout the calendar year 1998.  Effective for 1999, X Corporation's subchapter S election is terminated.  In 2000, X Corporation incurs an Illinois loss.  Unless X Corporation elects to carry the loss forward only, the loss is first carried back and deducted in 1998 and only the amount of loss in excess of 1998 taxable income is carried to 1999 and subsequent years.

C)        Losses carried over pursuant to IITA Section 207 are deductible only under that Section, and that Section allows the deduction only of losses that result when the taxpayer's own taxable income is less than zero.  Accordingly, no loss carried over and deducted by a partnership or subchapter S corporation in a taxable year may reduce the taxable income of any partner or shareholder of the taxpayer in that taxable year.

5)         Suspension of Illinois Net Loss Deductions.  In the case of a corporation (other than a subchapter S corporation),

A)        no carryover deduction shall be allowed under IITA Section 207 for any taxable year ending after December 31, 2010 and prior to December 31, 2012;

B)        no carryover deduction shall exceed $100,000 for any taxable year ending on or after December 31, 2012 and prior to December 31, 2014, and for any taxable year ending on or after December 31, 2021 and prior to December 31, 2024; and

C)        no carryover deduction shall exceed $500,000 for any taxable year ending on or after December 31, 2024 and prior to December 31, 2027,

For the purposes of determining the taxable years to which a net loss may be carried under IITA Section 207(a), any taxable year for which a deduction is disallowed under this subsection (f)(5), or for which the deduction would exceed $100,000 or $500,000, as applicable, if not for this subsection (f)(5), is not counted. (IITA Section 207(d))

EXAMPLE:  Pursuant to this subsection (f)(5), in determining the taxable years to which a loss incurred by C Corporation in its taxable year ending December 31, 2009 may be carried:

A)        the taxable year ending December 31, 2011 is not counted even if C Corporation's net income for the year is a negative;

B)        the taxable year ending December 31, 2012 is not counted if C Corporation's net income (before any net loss deduction) is greater than $100,000; and

C)        the taxable year ending December 31, 2012 is counted if C Corporation's net income (before any net loss deduction) is $100,000 or less or is negative.

6)         Holders of Residual Interests in Real Estate Mortgage Investment Companies (REMICs)

A)        Under IRC section 860E(a)(1), the taxable income of a holder of a residual interest in a REMIC may not be less than the amount of "excess inclusion" income from the REMIC for that taxable year.  If the residual interest holder's federal net income would otherwise be less than the excess inclusion amount, the residual interest holder carries over the excess of its actual federal taxable income over the amount of its federal taxable income computed without regard to IRC section 860E(a)(1) as a net operating loss under IRC section 172. 

B)        IITA Prior to PA 97-507. Under IITA Section 207, the net loss of a taxpayer (other than an individual) for a taxable year is its taxable income for the year, as properly reportable for federal income tax purposes, after modifications in IITA Section 203(b)(2), (c)(2) and (d)(2). Under IITA Section 203(b)(2)(D) and (c)(2)(D), corporations, trusts and estates add back to their taxable income any net operating loss deduction claimed under IRC section 172 for a loss incurred in a taxable year ending on or after December 31, 1986.  As a result, a corporation, trust or estate whose excess inclusion amount exceeded its federal taxable income computed without regard to IRC section 860E(a)(1) for a taxable year would receive no tax benefit from the deductions or losses that caused the excess, because those deductions or losses could not reduce its federal taxable income in the year incurred and any resulting IRC section 172 carryover deduction would need to be added back to taxable income in the carryover years under IITA Section 203(b)(2)(D) or (c)(2)(D).

C)        In order to allow a corporation the benefit of deductions otherwise disallowed by IRC section 860E(a)(1) and IITA Section 203(b)(2)(D) and (c)(2)(D), PA 97-507 added subsection (e) to IITA Section 207 to allow a residual interest holder an Illinois net loss carryover computed in the same manner as the federal net operating loss carryover allowed under IRC section 860E.  IITA Section 207(e) provides that, in the case of a residual interest holder in a REMIC subject to IRC section 860E, the net loss in IITA Section 207(a) is equal to:

i)          the amount computed under IITA Section 207(a), without regard to IITA Section 207(e) or, if that amount is positive, zero;

ii)         minus an amount equal to the amount computed under IITA Section 207(a), without regard to IITA Section 207(e), minus the amount that would be computed under IITA Section 207(a) if the taxpayer's federal taxable income were computed without regard to IRC section 860E and without regard to IITA Section 207(e).

D)        IITA Section 207(e) applies to all taxable years and is exempt from automatic sunset under IITA Section 250.

(Source:  Amended at 49 Ill. Reg. 1295, effective January 15, 2025)

Section 100.2340 Illinois Net Losses and Illinois Net Loss Deductions for Losses Occurring On or After December 31, 1986, of Corporations that are Members of a Unitary Business Group: Separate Unitary Versus Combined Unitary Returns

a)         In general. IITA Section 502(f) allows corporations (other than Subchapter S corporations) that are members of the same unitary business group to elect to be treated as one taxpayer for certain purposes including the filing of returns (combined returns) and the determination of the group's tax liability. Consequently, if an election under Section 502(f) is in effect, any Illinois net loss and Illinois net loss deduction of the unitary business group shall be determined as if the group were one taxpayer. If such an election is not in effect, any Illinois net loss and Illinois net loss deduction shall be determined separately on the facts shown on the separate corporate returns of each member of the group. In general, the Section 502(f) election will not affect total amount of net loss or net loss deduction that is available, but it may affect how quickly the loss is absorbed. In general, if an election is in effect, net losses are absorbed more quickly. The rules for determining a net loss or net loss deduction set forth in Sections 100.2310 through 100.2330 apply in the same manner whether or not such an election is in effect. If the business income of a unitary business group results in a loss, the amount of that loss will be the same whether or not a combined return is filed. If a combined return is not filed, any such loss will be apportioned among all members of the group based on each member's apportionment factors in Illinois as compared to their combined apportionment factors everywhere. This is illustrated by the following Example:

EXAMPLE: Assume that Corporation A and Corporation B constitute a unitary business group and there is no nonbusiness income or loss. Under the facts given below, if A and B file separate returns in 1986, using combined apportionment, A will have an Illinois net loss of $100 and B will have an Illinois net loss of $400, and if a combined return is filed, the group will report a combined Illinois net loss of $500.

b)         Determination of the amount of Illinois net loss. The election provided under IITA Section 502(f) may affect whether or not an Illinois net loss is incurred by particular members of the unitary business group if some members have nonunitary income or loss. This is illustrated in the following Example.

EXAMPLE: Assume that Corporation A and Corporation B constitute a unitary business group in 1986. Under the facts given below, if A and B file separate returns in 1986, using the combined apportionment method, A will have an Illinois net loss of $170 and B will report Illinois net income of $520. If a combined return is filed, the group will report combined Illinois net income of $350.

c)         Illinois net loss carrybacks and carryovers. The election provided in IITA Section 502(f) may affect the amount of Illinois net loss deduction that can be absorbed in a particular year. If a combined return is filed, any Illinois net loss deductions are combined and subtracted from combined Illinois net income, whereas if a separate return is filed, the Illinois net loss deduction of that member only would be subtracted from that member's separate Illinois net income. This is illustrated in the following Example.

EXAMPLE: Assume that Corporation A and Corporation B constitute a unitary business group, that in 1986 there is a $170 Illinois net loss entirely attributable to Corporation A because Corporation B had no property, payroll, or sales in Illinois, and that the loss must be carried forward because of losses in prior years. Assume further that in 1987 both A and B have property, payroll and sales in Illinois. The separate and combined absorption of the loss in 1987 is illustrated below. Under the facts given, if A and B file separate returns, the $170 Illinois net loss deduction will be recognized on A's return only, and A will have a $70 net loss carryover to 1988. B will have to pay tax on net income of $400. If a combined return is filed in 1987, the $170 Illinois net loss from 1986 will be fully absorbed in 1987, and the combined group will pay tax on combined net income of $330.

(Source: Added at 11 Ill. Reg. 17782, effective October 16, 1987)

Section 100.2350  Illinois  Net Losses  and Illinois  Net  Loss Deductions, for  Losses Occurring  On or After December 31, 1986, of Corporations  that are  Members of  a Unitary Business Group:   Changes in Membership

a)         Member entering the group from a separate return year. IITA Section  207 provides that the amount of Illinois net loss that is available as a carryback or carryover is determined after applying the allocation  and apportionment provisions of Article 3.  That Section does not  limit the amount of Illinois net loss that may be carried into  a given year.  As a consequence, no such limitation shall apply.

1)         Example 1:

A)        In 1986, Corporation A was not a member of a unitary business, and it reported a $170 Illinois net loss on a separate return.  The loss could not be carried back.  Also in 1986, Corporation B and Corporation constituted a unitary business group, and they reported Illinois net income.  On January 1, 1987, B purchased the stock of A, and due to their operations A became part of the unitary business group with B and C.  The following facts apply for 1987:

B)        If A, B, and C file separate returns using the combined  apportionment method, A's $170 Illinois net loss deduction will be applied against A's income for that year, and A will have a  $70 Illinois  net loss  carryover to 1988.B and C will report $150 and $250 of Illinois net income, respectively.  If A, B, and C file a combined return, A's $170 Illinois net loss deduction will be applied against the group's combined income, and the combined group will report $330 of combined Illinois net income.

2)         Example 2:

A)        Same facts as Example 1 except that in 1986 A reported Illinois net income instead of an Illinois net loss, and B and C reported Illinois  net losses of $200 and $400, respectively, which could not be carried back.  Consequently, the following facts apply for 1987:

B)        If A, B and C file separate returns in 1987, A will report $100 of Illinois net income, and B and C will have Illinois net losses of $50 and $150, respectively.  If A, B and C file a combined return in 1987,  the group will have a combined net loss of $100.

b)         Member leaving the group during a separate or combined return year.  If a corporation ceases to be a member of  a unitary business group during the year, regardless of whether it filed a separate or combined return, the amount of net loss  attributable to that member for that portion of the tax year prior to leaving shall be determined in accordance with Section 100.5270(f)(2) of this Part.

c)         Carryover and Carryback of Combined Net Losses to Separate Return Years

1)         This subsection applies to unitary members that have made an election to file a combined return under IITA Section 502(f).  If a combined Illinois net loss (as defined in Section 100.5270(b)(3) of this Part) can be carried under the principles of Section 172(b) to a separate return year of a corporation (or could have been so carried if such corporation were in existence) which was a member of a unitary business group in the year in which such loss arose, then the portion of such combined Illinois net loss attributable to such corporation (as determined under subsection (c)(3) below) shall be assigned to such corporation and shall be an Illinois net loss carryover or carryback to such separate return year; accordingly, such portion shall not be included in the combined Illinois net loss carryovers or carrybacks to the equivalent combined return year.  Thus, for example, if a member filed a separate return for the third year preceding a combined  return year in which a combined Illinois net loss was sustained and if any portion of such loss is assigned to such member for such separate return  year, such portion may not be carried back by the group to its third year preceding such combined return year.

2)         Nonassignment to certain members not in existence.  Notwithstanding subsection (c)(1), the portion of a combined Illinois net loss attributable to a member shall not be assigned to a prior separate return year for which such member was not in existence and shall be included in the combined Illinois net loss carrybacks to the equivalent combined return year of the group (or, if such equivalent year is a separate return year, then to such separate return year), provided that such member was a member of the unitary business group immediately after its organization.

3)         Portion of combined Illinois net loss attributable to a member.  The portion of a combined Illinois net loss attributable to a member of a group  is an amount equal to the combined Illinois net loss of the group multiplied by a fraction, the numerator of which is what would have been the separate Illinois net loss of such corporation had a combined return not been filed, and the denominator of which is the sum of what would have been the separate Illinois net losses of all members of the group in such year having such losses.  The separate Illinois net loss of a member of the group shall be determined pursuant to Sections 100.2320 and 100.2340 above.

4)         Examples.  The provisions of this subsection (c) may be illustrated by the following examples:

A)        Example 1:

i)          In 1986, Corporations A and B were not members of a unitary business group and each filed separate Illinois returns.  Both A and B reported net income in 1986 and prior years.  On January 1, 1987, B purchased all the stock of A, and due to their operations A became part of the unitary business group with B.  In 1987 A and B file a combined return and the following facts apply:

ii)         The portion of the 1987 $60 combined Illinois net loss which will be attributable to A and B will be as follows:

iii)        It should be noted that where a combined net loss such as in this Example results entirely from a unitary business loss (i.e. there are no nonbusiness or separate apportionment partnership items of income or loss), and where there are no prior year losses being carried over (compare to Example 2), then each member's portion of the combined net loss can also be calculated by multiplying the combined business loss by each member's separate apportionment percentage (i.e. based on each member's factors in Illinois as compared to the group's combined factors everywhere).  This is illustrated by the following calculations:

B)        Example 2:

i)          In 1986, Corporation A and Corporation B were not members of a  unitary business group and each filed separate Illinois returns.  A reported a $100 Illinois net loss in 1986 and B reported net income.  Corporation A's net loss could not be carried back because of losses in prior years.  On January 1, 1987, B purchased all the stock of A, and due to their operations A became part of the unitary business group with B.  In 1987 A and B file a combined return and the following facts apply:

ii)         If A and B file separate returns in 1988, the portion of the 1987 $40 combined Illinois net loss which will be attributable to A and B in 1988 will be as follows:

C)        Example 3:

i)          Corporation P was formed on January 1, 1986.  P filed a separate return for the calendar year 1986.  On March 15, 1987, P formed Corporation S.  P and S filed a combined return for 1987.  On January 1, 1988, P purchased all the stock of Corporation T, which had been formed in 1987 and had filed a separate return for its taxable year  nding December 31, 1987.

ii)         P, S, and T join in the filing of a combined return for 1988, which return reflects a combined Illinois net loss of $11,000.  $2,000 of such combined net loss is attributable to P, $3,000 to S, and $6,000 to T.  Such attribution of the combined net loss was made on the basis of the separate net losses of each member as determined under subsection (c) (3).

iii)        $5,000 of the 1988 combined Illinois net loss can be carried back to P's separate return for 1986.  Such amount is the portion of the combined net loss attributable to P and S.  Even though S was not in existence in  986, the portion attributable to S can be carried back to P's separate return year, since S (unlike T) was a member of the group immediately after its organization.  The 1988 combined net loss can be carried back against the group's income in 1987 except to the extent (i.e., $6,000) that it is apportioned to T for its 1987 separate return year and to  the extent that it was absorbed in P's 1986 separate return year.  The portion of the 1988 combined net loss attributable to T ($6,000) is a net loss carryback to its 1987 separate return.

D)        Example 4:

i)          Assume the same facts as in Example 3.  Assume further that on June 15, 1989, P sells all the stock of T to an outsider, that   and S file a combined return for 1989 (which includes the income of T for the period January 1 through June  5), and that T files a separate return for the period June 16 through December 31, 1989.

ii)         The 1988 combined Illinois net loss, to the extent not absorbed in prior years, must first be carried to the short period ending June 15, 1989.  Any portion of the $6,000 amount attributable to T which is not absorbed in T's 1987 separate return year or in the short combined period ending June 15, 1989, shall then be carried to T's separate short return year ending December 31, 1989.

(Source:  Amended at 26 Ill. Reg. 13237, effective August 23, 2002)

Section 100.2360  Illinois Net Losses and Illinois Net Loss Deductions for Losses of Cooperatives Occurring On or After December 31, 1986 (IITA Section 203(e)(2)(F)) 

a)         Under Internal Revenue Code section 1382(b), cooperatives are allowed to deduct distributions of profits made to their members, or "patronage dividends".  The deduction may only be taken against a cooperative's taxable income from transactions with its members, or "patronage income".  If patronage income is negative, the cooperative may not offset that "patronage loss" against its income from transactions with nonmembers, or "nonpatronage income", but instead carries the patronage loss over as a net operating loss under IRC section 172 to offset patronage income in the carryover year.  (See Farm Service Cooperative v. Commissioner, 615 F.2d 1235 (8^th Cir. 1980).) 

b)         IITA Prior to PA 96-932.  Under IITA Section 203(b), the base income of a cooperative for a taxable year is its taxable income for the year, as properly reportable for federal income tax purposes, after modifications in IITA Section 203(b)(2).  IITA Section 203(b)(2)(D) requires a cooperative to add back to its taxable income any net operating loss deduction claimed under IRC section 172 for a loss incurred in a taxable year ending on or after December 31, 1986.  As a result, a cooperative that incurred a patronage loss in the same year it had positive nonpatronage income would receive no tax benefit from the deductions or losses that caused the patronage loss, because the patronage loss could not offset its nonpatronage income in the year it was incurred and any deduction of a carryover of the loss would be added back to taxable income in the carryover years under IITA Section 203(b)(2)(D).

c)         PA 96-932 amended IITA Section 203(e)(2)(F) to provide that the taxable income of a cooperative is determined in accordance with the provisions of IRC sections 1381 through 1388, but without regard to the prohibition against offsetting losses from patronage activities against income from nonpatronage activities, However, IITA Section 203(e)(2)(F) provides that a cooperative may make an election to follow its federal income tax treatment of patronage losses and nonpatronage losses. In the event the election is made, the losses are computed and carried over in a manner consistent with IITA Section 207(a) and apportioned by the apportionment factor reported by the cooperative on its Illinois income tax return filed for the taxable year in which the losses are incurred. PA 96-932 provided that it is declaratory of existing law.

d)         Making the Election. The election to follow the federal income tax treatment of patronage losses is made by the cooperative checking the appropriate box on Schedule INL, Illinois Net Loss Adjustment for Cooperatives and REMIC Owners, on its original return for its first taxable year ending on or after December 31, 2010 to which it intends the election to apply.  The election may be made for years ending prior to December 31, 2010 by filing an amended return for any open year, claiming a deduction under IITA Section 207 for any patronage loss carryover to that year, as allowed under PA 96-932 for those making the election. 

1)         Effect of Making the Election.  If an election has been made, patronage losses carried forward under subsection (c) may be used to offset only patronage income, and nonpatronage losses carried forward under subsection (c) may be used to offset only nonpatronage income. The election is effective for all taxable years, with original returns due on or after the date of the election. Once made, the election may only be revoked upon approval of the Director. (IITA Section 203(e)(2)(F))  Requests for approval of a revocation of the election are made by asking for a private letter ruling approving the revocation under 2 Ill. Adm. Code 1200.110. The request shall give the reasons for the request and state the first taxable year to which the election will no longer apply. The request will be granted or denied by private letter ruling.  If a request is denied, the taxpayer may challenge the denial by filing a return in accordance with the election and then filing an amended return that does not apply the election and claiming a refund for overpayment. 

2)         Effect of Revoking an Election. If an election is revoked, patronage and nonpatronage losses incurred in taxable years to which the election applied under subsection (c), and that are otherwise available to carry over, may be used to offset both patronage and nonpatronage income in taxable years ending on or after the date stated in the private letter ruling request. A cooperative that has revoked an election under this subsection (d) may again make the election for any taxable year after the first taxable year to which the revocation applied.  If a subsequent election is made under this subsection (d)(2), any patronage or nonpatronage loss carryover under subsection (c) from a taxable year to which the earlier election applied may be used only to offset patronage or nonpatronage income, respectively, in any taxable year to which the new election applies. 

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2405  Gross Income, Adjusted Gross Income, Taxable Income and Base Income Defined; Double Deductions Prohibited; Legislative Intention (IITA Section 203(e), (g) and (h))

a)         General Definitions.  For the purposes of IITA Sections 203 and 803(e), and subject to the exceptions discussed in this Section, a taxpayer's gross income, adjusted gross income or taxable income for the taxable year mean the amount of gross income, adjusted gross income or taxable income properly reportable for federal income tax purposes for the taxable year under the provisions of the Internal Revenue Code.  (IITA Section 203(e)(1))

b)         Taxable Income Less than Zero.  Taxable income may be less than zero. (IITA Section 203(e)(1))  Accordingly, when the computation of a taxpayer's base income begins with its taxable income and its taxable income is negative, it may offset that negative amount against any addition modifications required to be made under IITA Section 203, consistent with the provisions of this subsection (b).

1)         Taxable Years Ending On or After December 31, 1986.  For taxable years ending on or after December 31, 1986, net operating loss carry-forwards from taxable years ending prior to December 31, 1986 may not exceed the sum of federal taxable income for the taxable year before net operating loss deduction, plus the excess of addition modifications for the taxable year.  (IITA Section 203(e)(1))

EXAMPLE:  In its taxable year ending December 31, 1986, Corporation A properly reports a federal net operating loss (FNOL) of $100,000, all of which is available to carry forward to its taxable years ending on or after December 31, 1987 for federal income tax purposes.  Corporation A has addition modifications for its taxable year ending December 31, 1986 that exceed its subtraction modifications for that year by $5,000.  For Illinois income tax purposes, the federal net operating loss available to carry forward is $95,000 (the $100,000 federal net operating loss minus the $5,000 in excess addition modifications).  In its taxable year ending December 31, 1987, Corporation A deducts $97,000 of the federal net operating loss.  The remainder is deducted in its taxable year ending December 31, 1988.  For purposes of IITA Section 203, Corporation A's taxable income for the taxable year ending December 31, 1987 is computed without allowing $2,000 of the federal net operating loss deduction taken in that year and its taxable income for December 31, 1988 is computed without allowing any of the $3,000 federal net operating deduction. In order to avoid a double benefit, Corporation A adds back the ineligible $2,000 and $3,000 of FNOL for Illinois purposes on its Illinois return for 1987 and 1988, respectively.

2)         Taxable Years Ending Before December 31, 1986

A)        For taxable years ending prior to December 31, 1986, taxable income may never be an amount in excess of the net operating loss for the taxable year as defined in Internal Revenue Code section 172(c) and (d), provided that when taxable income of a corporation (other than a subchapter S corporation), trust, or estate is less than zero and addition modifications, other than those provided by IITA Section 203(b)(2)(E) or (c)(2)(E) for trusts and estates, exceed subtraction modifications, an addition modification is made under those subsections for any other taxable year to which taxable income less than zero (net operating loss) is applied under IRC section 172 or IITA Section 203(e)(2)(E) in conjunction with IRC section 172.  (IITA Section 203(e)(1))

B)        For application of this provision, see Sections 100.2230 and 100.2410.

3)         Pre- and post-1986 net losses are discussed in detail in Sections 100.2200 through 100.2250 and individual net losses are specifically discussed at Section 100.2410.

c)         Special Rules Regarding Certain Taxpayers.  Many taxpaying entities do not calculate federal taxable income on a federal taxable return or use a special variation of federal taxable income. For these taxpayers, IITA Section 203(e)(2) defines federal taxable income.  Thus, for purposes of IITA Section 203, the taxable income properly reportable by the following taxpayers for federal income tax purposes means:

1)         Certain Life Insurance Companies – for life insurance companies taxable under IRC section 801, life insurance company taxable income, plus the amount of distribution from pre-1984 policyholder surplus accounts as calculated under IRC section 815a.  (IITA Section 203(e)(2)(A));

2)         Mutual Insurance Companies – for mutual insurance companies taxable under IRC section 831, insurance company taxable income.  (IITA Section 203(e)(2)(B));

3)         Regulated Investment Companies (RICs) – for RICs taxable under IRC section 852, investment company taxable income.  (IITA Section 203(e)(2)(C));

4)         Real Estate Investment Trusts (REITs) – for REITs taxable under IRC section 857, REIT taxable income.  (IITA Section 203(e)(2)(D));

5)         Consolidated Corporations – for a corporation that is a member of an affiliated group of corporations filing a federal consolidated income tax return for the taxable year, taxable income determined as if that corporation had filed a separate return federally for the taxable year and for each preceding taxable year for which it was a member of an affiliated group and also determined as if the election provided under IRC section 243(b)(2) had been in effect for all years.  (IITA Section 203(e)(2)(E)).  However, for purposes of computing the combined taxable income and combined base income of a unitary business group for purposes of IITA Sections 304(e) and 502(e), Section 100.5270 provides that the unitary business group generally applies the federal consolidated return regulations;

6)         Cooperatives – for cooperative corporations or associations, taxable income of such organization determined in accordance with IRC sections 1381 through 1388, inclusive, but without regard to the prohibition against offsetting losses from patronage activities against income from nonpatronage activities; except that a cooperative corporation or association may make an election to follow its federal income tax treatment of patronage losses and nonpatronage losses. In the event the election is made, patronage losses and nonpatronage losses are computed and carried over in a manner consistent with IITA Section 207(a) and apportioned by the apportionment factor reported by the cooperative on its Illinois income tax return filed for the taxable year in which the losses are incurred.  (IITA Section 203(e)(2)(F)) (see PA 96-932). (See Section 100.2360 for more guidance.);

7)         Subchapter S Corporations – Subchapter S corporations are not generally subject to federal income tax but instead act as conduits through which items of gain, loss, income and deduction flow to their owners. Accordingly, a special rule for computing "taxable income" is necessary to enable them to compute their Illinois base income for purposes of determining their Illinois Personal Property Tax Replacement Income Tax liability under IITA Section 201(c) and (d).

A)        Election in Effect. For subchapter S corporations for which there is in effect an election for the taxable year under IRC section 1362, "taxable income" means taxable income determined in accordance with IRC section 1363(b), except that taxable income takes into account those items that are separately stated under IRC section 1363(b)(1).  (IITA Section 203(e)(2)(G)(i))

B)        Items that are separately stated under IRC section 1363(b)(1), as listed in 26 CFR 1.1366-1(a)(2), include: 

i)          The corporation's combined net amount of gains and losses from sales or exchanges of capital assets;

ii)         The corporation's combined net amount of gains and losses from sales or exchanges of property used in the trade or business and involuntary conversions;

iii)        Charitable contributions paid by the corporation within the taxable year of the corporation;

iv)        The taxes described in IRC section 901 that have been paid (or accrued) by the corporation to foreign countries or to possessions of the United States;

v)         Each of the corporation's separate items involved in the determination of credits against tax allowable under IRC part IV, subchapter A (section 21 et seq.), except for any credit allowed under IRC section 34 (relating to certain uses of gasoline and special fuels);

vi)        Each of the corporation's separate items of gains and losses from wagering transactions (IRC section 165(d)); soil and water conservation expenditures (IRC section 175); deduction under an election to expense certain depreciable business expenses (IRC section 179); medical, dental, etc., expenses (IRC section 213); the additional itemized deductions for individuals provided in part VII of subchapter B of the Internal Revenue Code (IRC section 212 et seq.); and any other itemized deductions for which the limitations on itemized deductions under IRC section 67 or IRC section 68 applies;

vii)       Any of the corporation's items of portfolio income or loss, and related expenses, as defined in 26 CFR 1.469-0 through 11 (2007) under IRC section 469;

viii)      The corporation's tax-exempt income. For purposes of subchapter S, tax-exempt income is income that is permanently excludible from gross income in all circumstances in which the applicable provision of the Internal Revenue Code applies.  For example, income that is excludible from gross income under IRC section 101 (certain death benefits) or IRC section 103 (interest on state and local bonds) is tax-exempt income, while income that is excludible from gross income under IRC section 108 (income from discharge of indebtedness) or IRC section 109 (improvements by lessee on lessor's property) is not tax-exempt income; and

ix)        Any other item identified in guidance (including forms and instructions) issued by the Commissioner of Internal Revenue as an item required to be separately stated.

C)        Treatment of Items That Are Separately Stated Under IRC Section 1363(b)(1).  Many items are separately stated because their deduction is limited by the taxable income or adjusted gross income of the taxpayer, and this limitation is determined by each shareholder rather than by the subchapter S corporation.  IITA Section 203(e)(2)(G) permits the deduction of these items without imposing the limitations that could apply to the shareholder.  For example, charitable deductions that are separately stated are deductible by a subchapter S corporation without regard to the limitations under IRC section 170(b). 

D)        Items that are not separately stated under IRC section 1363(b), and that are not taken into account in computing "taxable income" for purposes of IITA Section 203, include:

i)          IRC section 199(d)(1)(A) provides that the deduction under IRC section 199 for the domestic production activities income of a subchapter S corporation are taken at the shareholder level, rather than by the corporation.  Because these deductions are separately stated under this provision and not under IRC section 1363(b)(1), a subchapter S corporation shall not take these deductions in computing its taxable income for purposes of IITA Section 203. 

ii)         IRC section 613A(c)(11) provides that percentage depletion deductions for oil and gas property of a subchapter S corporation are computed separately for each shareholder.  Because these deductions are separately stated under this provision and not under IRC section 1363(b)(1), a subchapter S corporation shall not take these deductions in computing its taxable income for purposes of IITA Section 203.  However, in the case of any subchapter S corporation that deducted percentage depletion on oil and gas properties on any return filed prior to March 31, 2008 in reliance on the return instructions for the Form IL-1120-ST, any increase in Illinois income tax liability that would result from disallowing the percentage depletion deduction for oil and gas property for that year is abated under Section 4(c) of the Taxpayers' Bill of Rights Act [20 ILCS 2520/4(c)].

E)        Election Not in Effect. For subchapter S corporations for which there is in effect an election to opt out of the provisions of the Subchapter S Revision Act of 1982 and that have applied instead the prior federal subchapter S rules as in effect on July 1, 1982, "taxable income" means the taxable income of such corporation determined in accordance with the federal subchapter S rules as in effect on July 1, 1982.  (IITA Section 203(e)(2)(G)(ii));

8)         Partnerships – Partnerships are not generally subject to federal income tax, but instead act as conduits through which items of gain, loss, income and deduction flow to their owners.  Accordingly, a special rule for computing "taxable income" is necessary to enable partnerships to compute their Illinois base income for purposes of determining their Illinois Personal Property Tax Replacement Income Tax liability under IITA Section 201(c) and (d).  For partnerships, "taxable income" is taxable income determined in accordance with IRC section 703, except that taxable income shall take into account those items that are separately stated under IRC section 703(a)(1), but would be taken into account by an individual in calculating his or her taxable income.  (IITA Section 203(e)(2)(H))

A)        Items That Are Separately Stated Under IRC Section 703(a)(1).  IRC section 703(a)(1) provides that items listed in IRC section 702(a) are separately stated.  These items are:

i)          gains and losses from sales or exchanges of capital assets held for not more than 1 year;

ii)         gains and losses from sales or exchanges of capital assets held for more than 1 year;

iii)        gains and losses from sales or exchanges of property described in IRC section 1231 (relating to certain property used in a trade or business and involuntary conversions);

iv)        charitable contributions (as defined in IRC section 170(c));

v)         dividends entitled to capital gains treatment under IRC section 1(h)(11) or to the corporate dividends-received deduction under part VIII of subchapter B of the Internal Revenue Code;

vi)        taxes for which the foreign tax credit may be allowed under IRC section 901, paid or accrued to foreign countries and to possessions of the United States; and

vii)       other items of income, gain, loss, deduction or credit to the extent provided by regulations prescribed by the Secretary of the Treasury (see 26 CFR 1.702-1). 

B)        Treatment of Items That Are Separately Stated Under IRC Section 703(a)(1).  Many items are separately stated because their deduction is limited by the taxable income or adjusted gross income of the taxpayer, and this limitation is determined by each partner rather than by the partnership.  IITA Section 203(e)(2)(H) permits the deduction of these items without imposing the limitations that could apply to the partner.  For example, charitable deductions that are separately stated are deductible by a partnership without regard to the limitations under IRC section 170(b). 

C)        Items not separately stated under IRC section 703(a)(1), and that are not taken into account in computing "taxable income" for purposes of IITA Section 203, include:

i)          IRC section 199(d)(1)(A) provides that the deduction under IRC section 199 for the domestic production activities income of a partnership is taken at the partner level, rather than by the partnership.  Because these deductions are separately stated under this provision and not under IRC section 703(a)(1), a partnership does not take these deductions in computing its taxable income for purposes of IITA Section 203; 

ii)         IRC section 613A(c)(11) provides that percentage depletion deductions for oil and gas property of a partnership is computed separately for each partner.  Because these deductions are separately stated under this provision and not under IRC section 703(a)(1), a partnership does not take these deductions in computing its taxable income for purposes of IITA Section 203.  However, in the case of any partnership that deducted percentage depletion on oil and gas properties on any return filed prior to March 31, 2008 in reliance on the return instructions for the Form IL-1065, any increase in Illinois income tax liability that would result from disallowing the percentage depletion deduction for oil and gas property for that year is abated under Section 4(c) of the Taxpayers' Bill of Rights Act  [20 ILCS 2520/4(c)]; and

iii)        IRC section 108(a) provides that a taxpayer in bankruptcy or that is insolvent does not recognize income from discharge of indebtedness.  IRC section 108(d)(6) provides that, when indebtedness of a partnership is discharged, this exemption applies only at the partner level.  Accordingly, the exemption in IRC section 108(a) does not apply in determining the taxable income of a partnership;

9)         Electing Small Business Trust (ESBT).  An ESBT that owns both stock in one or more subchapter S corporations and other property is treated as two separate trusts under IRC section 641.  However, the IRS practice is to require the ESBT to file a single return and pay tax on the income from both sources.  In these cases, the income of the ESBT derived by the ESBT from investments in subchapter S corporations is not reported, but rather the tax liability attributable to that income is computed separately and added to the tax liability computed for the other property of the ESBT.  In order to allow the ESBT to file a single Illinois income tax return, an ESBT that owns both stock in subchapter S corporations and other property shall include income from both sources in its taxable income for purposes of IITA Section 203.  

d)         Special Rule Regarding Recapture of Business Expenses on Disposition of Asset or Business.  Notwithstanding any other law to the contrary, if in prior years income from an asset or business has been classified as business income and in a later year is demonstrated to be non-business income, then all expenses, without limitation, deducted in such later year and in the two immediately preceding taxable years related to that asset or business that generated the non-business income, are added back and recaptured as business income in the year of the disposition of the asset or business.  The amount of the add-back is apportioned to Illinois using the greater of the apportionment fraction computed for the business under IITA Section 304 for the taxable year or the average of the apportionment fractions computed for the business under IITA Section 304 for the taxable year and for the two immediately preceding taxable years.  (IITA Section 203(e)(3)) This provision is effective for tax years ending on or after July 30, 2004 (the effective date of PA 93-840).

1)         IITA Section 203(e)(3) requires recapture of expenses treated as business expenses in a taxable year for which the taxpayer has made an election under IITA Section 1501(a)(1) to treat all of its income (other than employee compensation) as business income whenever, in a subsequent year, the taxpayer fails to make that election, so that income from an asset is treated as business income in the earlier year and as nonbusiness income in the subsequent year. 

2)         IITA Section 203(e)(3) does not require  recapture of business expenses passed through to a partner in any taxable year by a partnership that qualifies as an investment partnership under IITA Section 1501(a)(11.5) in a subsequent taxable year, causing all income of the partnership to be characterized as nonbusiness income under IITA Section 305(c-5). 

3)         IITA Section 203(e)(3) does not require  recapture of business expenses passed through to a partner, a shareholder in a subchapter S corporation, or a beneficiary of a trust or estate by the partnership, subchapter S corporation, trust or estate for a taxable year merely because nonbusiness income is passed through the partnership, subchapter S corporation, trust or estate in a subsequent year.  However, recapture of those business expenses passed through in a taxable year shall be required by the partner, shareholder or beneficiary if the partnership, subchapter S corporation, trust or estate is required to recapture business expenses for that taxable year or if the business expenses were passed through in the same year that the partnership, subchapter S corporation, trust or estate also passed through nonbusiness income that the partner, shareholder or beneficiary elected to treat as business income under IITA Section 1501(a)(1) and the partner, shareholder or beneficiary fails to make that election with respect to nonbusiness income passed through by the partnership, subchapter S corporation, trust or estate in a subsequent year. 

e)         Illinois Base Income Defined.  "Illinois base income" is the amount determined by applying addition and subtraction modifications specifically authorized under the IITA to either federal adjusted gross income (in the case of individuals) or federal taxable income (in the case of all other taxpayers).  An item taken into account on the federal income tax return after the computation of federal taxable income or federal adjusted gross income is not taken into account on the corresponding Illinois income or replacement income tax return unless specifically authorized in the IITA.  For example, itemized deductions, which are taken on Schedule A to the U.S. 1040 after federal adjusted gross income has already been calculated, are not reflected in Illinois base income.

f)         Double Deductions Prohibited.  No item of deduction may be taken into account twice in the calculation of Illinois base income unless specifically authorized under the IITA.  If a subtraction modification applies to an item that is already excluded or deducted in computing adjusted gross income or federal taxable income, or to which another subtraction applies, it will be disallowed.  (See IITA Section 203(g).)

g)         Legislative Intention. IITA Section 203(h) provides that, unless specifically authorized under the IITA Section 203, no modifications or limitations on the amounts of income, gain, loss or deduction are taken into account in determining gross income, adjusted gross income or taxable income for federal income tax purposes for the taxable year, or in the amount of such items entering into the computation of Illinois base income and net income (defined at Section 100.2050) for the taxable year, whether in respect of property values as of August 1, 1969 or otherwise.

(Source:  Amended at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2410  Net Operating Loss Carryovers for Individuals, and Capital Loss and Other Carryovers for All Taxpayers (IITA Section 203)

a)         Scope.  IITA Section 203 requires all taxpayers other than individuals to add back to their base income any carryover deduction taken in computing federal taxable income for a net operating loss incurred in a tax year ending prior to December 31, 1986.  IITA Section 203(e) provides for adjustments to taxable income of taxpayers, other than individuals, related to deductions of net operating losses incurred in tax years ending prior to December 31, 1986.  IITA Section 203(h) provides that, except as expressly provided by that subsection, there shall be no modifications or limitations on the amounts of income, gain, loss or deduction taken into account in determining gross income, adjusted gross income or taxable income for federal income tax purposes for the taxable year, or in the amount of such items entering into the computation of base income and net income.  Accordingly, no taxpayer shall make any adjustment to, or otherwise increase or decrease, the amount properly allowed in computing adjusted gross income (for individuals) or taxable income (for all other taxpayers) on the taxpayer's federal income tax return for:

1)         in the case of an individual, any net operating loss deduction carried over under IRC section 172; provided that (notwithstanding the amount of the federal net operating deduction claimed by the individual or allowed by the Internal Revenue Service), in order to prevent the double deduction of the same carryover as required by IITA Section 203(g) and Madison Park Bank v. Zagel, 97 Ill.App.3d 743 (1981), aff'd 91 Ill.2d 231 (1982), the deduction properly allowed in computing federal adjusted gross income in a taxable year may not exceed the amount that reduces the taxpayer's taxable income for that year to zero, after making the modifications specified in IRC section 172(b)(2)(A), and therefore shall not include any amount available to carry over to other taxable years under IRC section 172(b)(2);

2)         capital losses carried over under IRC section 1212;

3)         deductions allowed to a partner under IRC section 704(d) for his distributive share of a partnership loss that exceeded the adjusted basis in his partnership interest as of the end of the tax year in which the loss was incurred;

4)         deductions allowed to a shareholder under IRC section 1366(d)(2) for his share of a loss or deduction of a Subchapter S corporation that exceeded his adjusted basis in the stock or indebtedness of the Subchapter S corporation in the year the loss or deduction was incurred;

5)         passive activity losses allocated to tax years subsequent to the year in which the loss was incurred under IRC section 469(b);

6)         deductions for losses in excess of amounts at risk allocated to years subsequent to the year incurred under IRC section 465(a)(2); and

7)         losses recognized as the result of adjustment events subsequent to a transaction governed by IRC section 338 and carried back pursuant to Treas. Reg. § 1.338(b)-3T(h)(2)(ii)(B).

b)         Allocation and Apportionment of Deductions.

1)         Deductions described in subsection (a) of this Section that are taken into account in a taxable year shall be allocated and apportioned according to the facts and circumstances of that taxable year.  A taxpayer may request alternative apportionment of business losses or deductions by filing a petition pursuant to Section 100.3390 of this Part.

Example 1:  An individual incurs a federal net operating loss in 1995, when he is a nonresident.  None of the individual's 1995 income is allocated or apportioned to Illinois.  At the beginning of 1996, the individual moves to Illinois and becomes a resident.  Any net operating loss carried forward from 1995 and deducted in computing the individual's 1996 federal adjusted gross income is allocated to Illinois pursuant to IITA Section 301(a), which in the case of a resident allocates to Illinois all items of income or deduction which were taken into account in the computation of base income for the taxable year.

Example 2:  A nonresident individual conducts a business as a sole proprietorship.  During 1998, the individual apportions 20% of his business income from the proprietorship to Illinois pursuant to IITA Section 304(a).  In 2000, the business is conducted entirely outside Illinois and has no Illinois apportionment factor.  If the individual incurs net operating loss in 2000 from the sole proprietorship and carries the loss back to 1998, 20% of the loss will be apportioned to Illinois.

Example 3:  In 1999, a resident individual incurs a passive activity loss from rental of real estate located in Indiana.  The individual's income from the property is nonbusiness income.  At the beginning of 2000, the individual moves away from Illinois and becomes a nonresident.  For federal income tax purposes, the individual is allowed to deduct the loss in 2000.  Because the individual is not a resident, the deduction allowed in 2000 is allocated to Indiana under IITA Section 303(c)(1).

Example 4:  A nonresident individual incurs a federal net operating loss in 1995 from his investment in Partnership A.  Partnership A has only business income.  For 1995, Partnership A's Illinois apportionment factor under IITA Section 304 is 50%.  For federal income tax purposes, the individual carries the net operating loss back to 1992.  Partnership A's Illinois apportionment factor under IITA Section 304 is 25% for 1992.  Accordingly, 25% of the individual's 1992 net operating loss is apportioned to Illinois.

2)         Deductions arising in the same taxable year and subject to apportionment or allocation under different rules.  When two or more deductions to which this Section applies arise in the same taxable year, but are apportioned or allocated under different rules, the amount of each such deduction carried over from that year shall be in proportion to the total of all such deductions arising in that year, and the amount of each such deduction allowed in a carryover year shall be in proportion to the total amount of such deductions carried over to that year from the same taxable year.

Example 5:  In 2000, Corporation A engages in three capital transactions.  In the first, it realizes $700 in capital gain, which is characterized as business income.  In the second, it incurs $400 in capital loss, which is characterized as business income from the same business as the gain in the first transaction.  In the third, it incurs $600 in capital loss on real property located in Illinois, which is characterized as nonbusiness income allocable entirely to Illinois.  Corporation A's apportionment factor in 2000 is 20%.

On its federal income tax return for 2000, Corporation A reports net capital gain of zero, because corporations are not allowed to deduct capital losses in excess of capital gains.  In actuality, it is allowed to deduct $700 in capital losses and carry over $300 to be deducted in another year. 

In 2000, Corporation A is treated as deducting $280 in business loss from the second transaction ($400 in loss, divided by the $1,000 in total capital losses, multiplied by the $700 capital loss deduction allowed) and $420 in nonbusiness capital loss ($600 in loss, divided by $1,000, and multiplied by $700).  The $280 in business loss would be combined with Corporation A's other business income, and 20% would be apportioned to Illinois.  The entire $420 in nonbusiness capital loss will be allocated to Illinois.

If Corporation A carries the $300 excess loss back to offset $200 in capital gains realized in 1997, $80 of the 1997 deduction will be business loss (the $120 excess loss attributable to the business transaction, divided by the entire $300 in excess loss, times $200) and $120 will be nonbusiness loss ($180 divided by $300, times $200).  The $80 of business loss will be combined with Corporation A's other business income from 1997 and apportioned according to Corporation A's 1997 apportionment factor.  The entire $120 in nonbusiness loss will be allocated to Illinois.

Example 6:  Assume the same facts as in Example 5, except that the $600 nonbusiness capital loss was incurred on the sale of an intangible asset, and so is allocated to the commercial domicile of Corporation A.  At the time the loss was realized in 2000, Corporation A's commercial domicile was in State X, so the $420 in nonbusiness capital loss deducted in that year would be allocated to State X.  However, in 1997, Corporation A's commercial domicile was in Illinois.  The $120 in nonbusiness capital loss deducted in 1997 would be allocated entirely to Illinois, because that is the commercial domicile of Corporation A at the time the deduction is taken.

Example 7:  In 2002, Taxpayer, a nonresident individual, has $20,000 in federal net losses from Partnership A and $180,000 in net losses from Partnership B.  Taxpayer has $100,000 in income from other sources, and so Taxpayer's adjusted gross income for 2002 is a net operating loss of $100,000.  Taxpayer carries the entire $100,000 loss back to 2000, when Partnership A's Illinois apportionment factor is 30% and Partnership B's apportionment factor is zero.  In determining Taxpayer's Illinois net income for 2000, 10% of the federal net operating loss carryback ($20,000 loss from Partnership A divided by $200,000 in total losses incurred from partnerships in 2002), $3,000 of the net operating loss deduction in 2000 is apportioned to Illinois (Partnership A's 30% apportionment factor times the 10% of the $100,000 federal net operating loss carryback attributable to Partnership A's loss).  The remaining 90% of the net operating loss deduction is from Partnership B, and none of that loss is apportioned to Illinois.

c)         Special Issues.

1)         Taxpayers with taxable income (adjusted gross income, in the case of an individual) that is less than zero for a taxable year may offset such negative amount against any net addition modifications for the taxable year, but only to the extent the negative income has not been carried back to and deducted in any prior taxable year as a loss or deduction governed by this Section.  (See IITA Section 203(g) (prohibiting double deductions) and Madison Park Bank v. Zagel, 97 Ill.App.3d 743 (1981), aff'd 91 Ill.2d 231 (1982).)  The sum of carryover deductions taken in all years, plus the net addition modifications offset against the loss in the year incurred, may not exceed the amount of the loss.  Notwithstanding subsection (a) of this Section, whenever a carryover deduction taken in any year plus the net addition modifications offset against a loss in the year incurred plus all carryover deductions of that loss allowed in prior years exceeds the loss incurred, such excess must be added back.

Example 8:  In 1996, an individual's adjusted gross income is a loss of $10,000, $5,000 of which the taxpayer carries back to prior years as federal net operating loss deductions.  The individual's 1996 addition modifications exceed his subtraction modifications by $7,000.  The individual's base income for 1996 is $2,000 (negative $10,000 in adjusted gross income, reduced by the $5,000 carried back to prior years, plus $7,000 in net addition modifications).  The taxpayer has used up all of the loss and, for Illinois income tax purposes, may not carry any of the loss forward.  Any carryforward deduction claimed for the 1996 loss in a subsequent year must be added back.

2)         Any change in federal taxable income (adjusted gross income, in the case of an individual) that results from a deduction or change in the amount of a deduction of an item governed by this Section is a federal change subject to the reporting requirements of IITA Section 506(b).

3)         Net loss carryforwards under IITA Section 207.  The allocation of losses under this Section can result in a nonresident's net income being less than zero. Under IITA Section 207, a taxpayer (other than an individual, to whom IITA Section 207 does not apply) may carry over any Illinois net loss resulting from the allocation of losses under this Section to other taxable years.

Example 9: For federal income tax purposes, a corporation partially offsets a $100,000 nonbusiness capital gain allocated to Missouri with a $70,000 nonbusiness capital loss carryforward allocated to Illinois.  If the corporation has no other income and no Illinois modifications, it would have base income of $30,000, but would allocate a $70,000 loss to Illinois. The resulting negative net income computed under IITA Section 207 may be carried over pursuant to that provision.

Example 10: For federal income tax purposes, a nonresident individual has positive adjusted gross income for a taxable year.  For that year, the individual has $200,000 in base income from sources outside Illinois and a $20,000 loss, all of which is allocable to Illinois.  The individual's Illinois net income for the year is therefore less than zero.  Because IITA Section 207 does not apply to individuals, and there is no other provision for carryovers of losses or deductions, the individual may not carry that negative amount over to any other taxable year.  

(Source:  Added at 28 Ill. Reg. 1378, effective January 12, 2004)

Section 100.2430  Addition and Subtraction Modifications for Transactions with 80/20 and Noncombination Rule Companies

a)         For taxable years ending on or after December 31, 2004, IITA Section 203 requires a taxpayer, in computing base income, to add back deductions allowed in computing federal taxable income or adjusted gross income for interest expenses and intangible expenses incurred in transactions with a person who would be a member of a unitary business group with the taxpayer, if not for the 80/20 test.  These provisions were expanded by Public Act 95-233 and Public Act 95-707 to also require the add-back of deductions for interest expenses, intangible expenses and insurance premium expenses when incurred in taxable years ending on or after December 31, 2008, in transactions with a person who would be a member of a unitary business group with a taxpayer if not for the prohibition in IITA Section 1501(a)(27) against including in a single unitary business group taxpayers who use different apportionment formulas under IITA Section 304 (the "noncombination rule").  The noncombination rule was repealed by Public Act 100-22, so that the expansions of the add-back provisions in Public Act 95-233 and Public Act 95-707 have no application for taxable years ending on or after December 31, 2017.  Taxpayers are also allowed subtraction modifications that would ensure that the addition modifications do not result in double taxation. Exceptions are provided for instances in which requiring the addition modifications would not be appropriate.

b)         Definitions

1)         Dividend Included in Base Income. "Dividend" means any item defined as a dividend under 26 USC 316 and any other item of income characterized or treated as a dividend under the Internal Revenue Code, and includes any item included in gross income under Sections 951 through 964 of the Internal Revenue Code and amounts included in gross income under Section 78 of the Internal Revenue Code.  (IITA Section 203(a)(2)(D-17), (D-18) and (D-19), (b)(2)(E-12), (E-13) and (E-14), (c)(2)(G-12), (G-13) and (G-14), and (d)(2)(D-7), (D-8) and (D-9))  A dividend is included in base income of a taxpayer only to the extent the dividend is neither deducted in computing the federal taxable or adjusted gross income of the taxpayer nor subtracted from federal taxable income or adjusted gross income under IITA Section 203. 

2)         Foreign Person.  A "foreign person" is any person who would be included in a unitary business group with the taxpayer if not for the fact that 80% or more of that person's business activities are conducted outside the United States.  (IITA Section 1501(a)(30))

3)         Interest.  "Interest" means "compensation for the use or forbearance of money".  (See Deputy v. du Pont, 308 U.S. 488, 498 (1940).)  Interest includes the amortization of any discount at which an obligation is purchased and is net of the amortization of any premium at which an obligation is purchased. 

4)         Intangible Expense.  "Intangible expense" includes expenses, losses, and costs for, or related to, the direct or indirect acquisition, use, maintenance or management, ownership, sale, exchange, or any other disposition of intangible property; losses incurred, directly or indirectly, from factoring transactions or discounting transactions; royalty, patent, technical, and copyright fees; licensing fees; and other similar expenses and costs. (IITA Section 203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8))

5)         Intangible Income.  "Intangible income" means the income received or accrued by a person from a transaction that generates intangible expense for the other party to the transaction.

6)         Intangible Property.  "Intangible property" includes patents, patent applications, trade names, trademarks, service marks, copyrights, mask works, trade secrets, and similar types of intangible assets.  (IITA Section 203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8))

7)         Related Party.  "Related parties" means persons disallowed a deduction for losses by section 267(b), (c) and (f) of the Internal Revenue Code, as well as a partner and its partnership and each of the other partners in that partnership. 

8)         Noncombination Rule Company.  "Noncombination rule company" means any person who would be a member of a unitary business group with a taxpayer if not for the prohibition in IITA Section 1501(a)(27) against including in a single unitary business group persons who use different apportionment formulas under IITA Section 304. 

9)         Insurance Premiums.  "Insurance premiums" means the total amount paid or accrued during the taxable year, net of refunds or abatements, for coverage against any risk under a policy issued by an entity that is required to apportion its business income under the provisions of IITA Section 304(b) or that would be required to do so if it were subject to Illinois income taxation.

10)        Federal Deduction Allowed for Interest Paid to a Foreign Person

A)        Under 26 USC 163(j), for taxable years beginning after December 31, 2017, a taxpayer's federal income tax deduction for business interest paid is limited to an amount equal to the sum of the taxpayer's business interest income plus 30% of its adjusted taxable income plus its floor plan financing interest.  Business interest in excess of that limitation is carried forward under 26 USC 163(j)(2) and treated as interest paid in the following taxable year.  For purposes of this Section, in the case of a taxpayer whose federal income tax deduction for business interest expense for a taxable year beginning after December 31, 2017 is subject to limitation by 26 USC 163(j):

i)          the deduction allowed in computing federal taxable income for business interest paid to a foreign person for that taxable year equals the business interest paid to that foreign person for that taxable year (including any amount of business interest paid to that foreign person in the preceding taxable year and carried forward from the preceding taxable year under 26 USC 163(j)(2)) times a fraction equal to the deduction allowed under 26 USC 163(j) in computing federal taxable income for business interest paid for that taxable year divided by the total business interest paid for that taxable year (including any amount of business interest paid in the preceding taxable year and carried forward from the preceding taxable year under 26 USC 163(j)(2)); and

ii)         the amount of business interest paid to a foreign person for a taxable year and carried forward to the next taxable year under 26 USC 163(j)(2) equals the business interest paid to that foreign person for that taxable year (including any amount of business interest carried forward from the preceding taxable year under 26 USC 163(j)(2)) times a fraction equal to the total amount of business interest to be carried forward to the next taxable year under 26 USC 163(j)(2) divided by the total business interest paid for that taxable year (including any amount of business interest carried forward from the preceding taxable year and carried forward to that taxable year under 26 USC 163(j)(2)).

B)        EXAMPLE:

i)          In Year 1, Taxpayer paid $100 in business interest to Foreign Person and $1,000 in total business interest.  There was no carryforward under 26 USC 163(j)(2) from the prior year.  Under 26 USC 163(j), Taxpayer's federal income tax deduction for business interest in Year 1 was limited to $800.  In Year 2, Taxpayer paid $130 in business interest to Foreign Person and $1,800 in total business interest. Taxpayer's federal income tax deduction for business interest in Year 2 was limited under 26 USC 163(j) to $1,200.

ii)         For purposes of this Section, the federal income tax deduction allowed to Taxpayer for interest paid to Foreign Person in Year 1 equals $80: the $100 actually paid multiplied by 80% (the $800 federal income tax deduction allowed for business interest divided by the $1,000 in total business interest paid).  The carryforward of interest paid to Foreign Person in Year 1 to Year 2 equals $20: the $100 actually paid to Foreign Person multiplied by 20% (the $200 carryforward to Year 2 divided by the $1,000 in total business interest paid in Year 1).

iii)        For purposes of this Section, the federal income tax deduction allowed to Taxpayer for interest paid to Foreign Person in Year 2 equals $90:  the $130 in interest actually paid to Foreign Person in Year 2 plus the $20 paid to Foreign Person in Year 1 and carried forward to Year 2, or $150, multiplied by 60% (the $1,200 federal income tax deduction allowed for business interest divided by the $2,000 in total business interest for Year 2, which equals the $1,800 actually paid plus the $200 carryover from Year 1).  The carryforward of interest paid to Foreign Person in Year 2 to Year 3 equals $60:  the $150 paid to Foreign Person in Year 2 or carried forward from Year 1, multiplied by 40% (the $800 carryforward to Year 3 divided by the $2,000 in total business interest paid in Year 2 or carried forward from Year 1).

c)         Addition Modifications 

1)         Interest.  Except as otherwise provided in this subsection (c)(1), every taxpayer must add back to its base income any deduction otherwise allowed in the taxable year for interest paid to a foreign person or (for taxable years ending on or after December 31, 2008 and prior to December 31, 2017) to a noncombination rule company, to the extent the interest exceeds the amount of dividends received from the foreign person or noncombination rule company by the taxpayer and included in base income for the same taxable year.  (See IITA Section 203(a)(2)(D-17), (b)(2)(E-12), (c)(2)(G-12) and (d)(2)(D-7).)  This addition modification shall not apply to an item of interest expense if:

A)        The foreign person or noncombination rule company is subject in a foreign country or state, other than a state that requires mandatory unitary reporting by the taxpayer and the foreign person or noncombination rule company, to a tax on or measured by net income with respect to the interest.  The foreign person or noncombination rule company is subject to a tax on or measured by net income with respect to the interest if the interest is included in its tax base, even if the tax base is offset in whole or in part by deductions for expenses incurred in the production of income or by generally-applicable exemptions, or if the tax imposed by the foreign country or state is offset in whole or in part by credits that are not contingent on the receipt of the interest.  If the foreign person or noncombination rule company is a partnership, subchapter S corporation or trust, the foreign person or noncombination rule company is subject to a tax on or measured by net income with respect to the interest to the extent that the interest is included in the tax base of a partner, shareholder or beneficiary who is subject to a tax on or measured by net income in a foreign country or state.  For purposes of this subsection (c)(1)(A), it is irrelevant that, under the laws of the foreign country or state, the interest is included in the tax base in a period other than the taxable year in which the deduction is otherwise allowable. 

B)        The taxpayer can establish, based on a preponderance of the evidence, both of the following:

i)          the foreign person or noncombination rule company (during the same taxable year in which the taxpayer paid the interest) paid, accrued, or incurred the interest to a person that is not a related party; and

ii)         the transaction giving rise to the interest expense between the taxpayer and the foreign person or noncombination rule company did not have as a principal purpose the avoidance of Illinois income tax, and interest is paid pursuant to a contract or agreement that reflects an arms-length interest rate and terms. 

C)        The taxpayer can establish, based on clear and convincing evidence, that the item of interest relates to a contract or agreement entered into at arms-length rates and terms and the principal purpose for the payment is not federal or Illinois tax avoidance.

D)        The taxpayer establishes by clear and convincing evidence that the adjustment would be unreasonable.

E)        The taxpayer has received permission under Section 100.3390 to use an alternative method of apportionment allowing the deduction of the item. 

2)         Intangible Expenses.  Except as otherwise provided in this subsection (c)(2), every taxpayer must add back to its base income any deduction otherwise allowed in the taxable year for intangible expenses incurred with respect to transactions with a foreign person or (for taxable years ending on or after December 31, 2008 and prior to December 31, 2017) with a noncombination rule company, to the extent the intangible expenses exceed the amount of dividends received from the foreign person or noncombination rule company by the taxpayer and included in base income for the same taxable year.  If a taxpayer incurs both interest and intangible expenses with the same foreign person or noncombination rule company, any dividends received from that foreign person or noncombination rule company shall be applied first against interest under subsection (c)(1) and only the excess (if any) of the dividends over the interest expenses shall be applied against intangible expenses under this subsection (c)(2).  (See IITA Section 203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8).)  This addition modification shall not apply to an item of intangible expense if:

A)        The item arises from a transaction with a foreign person or noncombination rule company who is subject in a foreign country or state, other than a state that requires mandatory unitary reporting by the taxpayer and the foreign person or noncombination rule company, to a tax on or measured by net income with respect to the intangible income related to the item.  The foreign person or noncombination rule company is subject to a tax on, or measured by net income with respect to, the intangible income if the intangible income is included in its tax base, even if the tax base is offset in whole or in part by deductions for expenses incurred in the production of income or by generally-applicable exemptions or if the tax imposed by the foreign country or state is offset in whole or in part by credits that are not contingent on the receipt of the intangible income.  If the foreign person or noncombination rule company is a partnership, subchapter S corporation or trust, the foreign person or noncombination rule company is subject to a tax on or measured by net income with respect to the intangible income to the extent that the intangible income is included in the tax base of a partner, shareholder or beneficiary who is subject to a tax on or measured by net income in a foreign country or state.  For purposes of this subsection (c)(2)(A), it is irrelevant that, under the laws of the foreign country or state, the intangible income is included in the tax base in a period other than the taxable year in which the deduction for the intangible expense is otherwise allowable. 

B)        The taxpayer can establish, based on a preponderance of the evidence, both of the following:

i)          the foreign person or noncombination rule company (during the same taxable year in which the taxpayer paid the intangible expense) paid, accrued, or incurred the intangible expense to a person that is not a related party; and

ii)         the transaction giving rise to the intangible expense between the taxpayer and the foreign person or noncombination rule company did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects arms-length terms. 

C)        If the taxpayer establishes, by clear and convincing evidence, that the adjustments are unreasonable. 

D)        The taxpayer has received permission under Section 100.3390 to use an alternative method of apportionment, allowing the deduction of the item. 

3)         Insurance Premiums.  For taxable years ending on or after December 31, 2008 and prior to December 31, 2017, every taxpayer must add back to its base income any deduction otherwise allowed in the taxable year for insurance premiums paid to a noncombination rule company, to the extent the insurance premium expense exceeds the amount of dividends received from the noncombination rule company by the taxpayer and included in base income for the same taxable year. If a taxpayer incurs both interest or intangible expenses and insurance premium expenses with the same noncombination rule company, any dividends received from that noncombination rule company shall be applied first against interest under subsection (c)(1), then against intangibles expenses under subsection (c)(2), and only the excess (if any) of the dividends over the interest expenses and intangible expenses shall be applied against insurance premium expenses under this subsection (c)(3).  (See IITA Section 203(a)(2)(D-19), (b)(2)(E-14), (c)(2)(G-14) and (d)(2)(D-9).)

d)         Subtraction Modifications

1)         Interest Income of a Foreign Person or Noncombination Rule Company.  If interest paid to a foreign person or noncombination rule company is added back by a taxpayer under subsection (c)(1), the foreign person or noncombination rule company is allowed a subtraction for the amount of that interest included in its base income for the taxable year, net of deductions allocable to that income.  The subtraction allowed under this subsection (d)(1) shall not exceed the amount of the corresponding addition under subsection (c)(1).  (See IITA Section 203(a)(2)(CC), (b)(2)(V), (c)(2)(T) and (d)(2)(Q).) 

2)         Intangible Income of a Foreign Person or Noncombination Rule Company.  If intangible expense incurred in a transaction with a foreign person or noncombination rule company is added back by a taxpayer under subsection (c)(2), the foreign person or noncombination rule company is allowed a subtraction for the amount of the intangible income from that transaction included in its base income for the taxable year, net of deductions allocable to that income.  The subtraction allowed under this subsection (d)(2) shall not exceed the amount of the corresponding addition under subsection (c)(2).  (See IITA Section 203(a)(2)(CC), (b)(2)(V), (c)(2)(T) and (d)(2)(Q).) 

3)         Interest Income from a Foreign Person or Noncombination Rule Company.  A taxpayer who receives interest income from a foreign person or noncombination rule company is allowed a subtraction for the amount of that interest income, net of deductions allocable to that income.  The subtraction allowed in this subsection (d)(3) for a taxable year may not exceed the amount of the addition modification for the taxable year under subsection (c)(1) for interest paid by the taxpayer to the foreign person or noncombination rule company.  (See IITA Section 203(a)(2)(DD), (b)(2)(W), (c)(2)(U) and (d)(2)(R).) 

4)         Intangible Income from a Foreign Person or Noncombination Rule Company.  A taxpayer who receives intangible income from a transaction with a foreign person or noncombination rule company is allowed a subtraction for the amount of the intangible income, net of deductions allocable to that income.  The subtraction allowed in this subsection (d)(4) for the taxable year may not exceed the amount of the addition modification for the taxable year under subsection (c)(2) for intangible expenses incurred by the taxpayer in transactions with the foreign person or noncombination rule company.  (See IITA Section 203(a)(2)(EE), (b)(2)(X), (c)(2)(V) and (d)(2)(S).) 

5)         Insurance Premium Income of a Noncombination Rule Company.  If insurance premium expense incurred in a transaction with a noncombination rule company is added back by a taxpayer under subsection (c)(3), the noncombination rule company is allowed a subtraction for the amount of the insurance premium income from that transaction included in its base income for the taxable year, net of deductions allocable to that income.  The subtraction allowed under this subsection (d)(5) shall not exceed the amount of the corresponding addition under subsection (c)(3).  (See IITA Section 203(b)(2)(V).)

6)         Insurance Paid by a Noncombination Rule Company.  For taxable years ending on or after December 31, 2011, in the case of a taxpayer who added back any insurance premiums under subsection (c)(3), the taxpayer may elect to subtract that part of a reimbursement received from the insurance company to which the premiums were paid equal to the amount of the expense or loss (including expenses incurred by the insurance company) that would have been taken into account as a deduction for federal income tax purposes if the expense or loss had not been insured by the policy for which the premiums were paid.  If a taxpayer makes the election provided for by this subsection (d)(6), the insurer to which the premiums were paid must (if required to file an Illinois income tax return) add back to its taxable income the amount subtracted by the taxpayer under this subsection (d)(6).  (See IITA Section 203(a)(2)(GG), (b)(2)(Y) (c)(2)(Y) and (d)(2)(T).)

e)         Unitary Business Groups.  The provisions of this Section apply both to persons who are members of a unitary business group and to persons who are not members of a unitary business group because of the application of the 80/20 rule or (for taxable years ending on or after December 31, 2008 and prior to December 31, 2017) because of the prohibition in IITA Section 1501(a)(27) against including in a single unitary business group taxpayers using different apportionment formulas under IITA Section 304(a) through (d).  In applying the provisions of this Section in the case of a unitary business group, any reference to the "taxpayer" in this Section shall be deemed to refer to the unitary business group. 

(Source:  Amended at 44 Ill. Reg. 10907, effective June 10, 2020)

Section 100.2435  Addition Modification for Student-Assistance Contribution Credit (IITA Sections 203(a)(2)(D-23), (b)(2)(E-16), (c)(2)(G-15), (d)(2)(D-10))

a)         For taxable years ending on or after December 31, 2009, IITA Section 203 requires a taxpayer to make an addition modification in computing base income equal to the credit allowable to the taxpayer under IITA Section 218(a), determined without regard to IITA Section 218(c). (IITA Section 203(a)(2)(D-23), (b)(2)(E-16), (c)(2)(G-15), (d)(2)(D-10)) IITA Section 218 allows a credit for certain amounts paid by an employer to an Illinois qualified tuition program. (See Section 100.2510 of this Part.)

b)         For purposes of IITA Section 203 and this Section, the "credit allowable to the taxpayer" that must be added to base income is the amount of the credit under IITA Section 218 eligible to be claimed by the taxpayer for a taxable year on a return filed with the Department, without reduction for any part of the credit that must be carried forward to taxable years following the credit year because the credit exceeds the taxpayer's liability. (See IITA Section 203(a)(2)(D-23), (b)(2)(E-16), (c)(2)(G-15), (d)(2)(D-10).)

(Source:  Added at 35 Ill. Reg. 15092, effective August 24, 2011)

Section 100.2450  IIT Refunds (IITA Section 203(a)(2)(H), (b)(2)(F), (c)(2)(J) and (d)(2)(F))

a)         The "tax benefit rule" codified in Internal Revenue Code section 111 applies when a taxpayer receives a tax benefit from claiming a deduction for an expense in one year and recovers or is compensated or reimbursed for the expense in a subsequent taxable year.  Under the tax benefit rule, the recovery or compensation for the expense is included in income in the year it is received.  Thus, when the taxpayer deducts State income taxes paid in one taxable year and receives a refund of some or all of the payment in a subsequent year, the tax benefit rule requires the taxpayer to include the refund in federal taxable income or adjusted gross income for the taxable year of the refund.  If, however, the expense did not reduce the taxpayer's federal income tax, the recovery or compensation is excluded from income under Internal Revenue Code section 111(a).

b)         The regular income tax imposed directly on an individual is allowed only as an itemized deduction for federal income tax purpose and so is not deducted in computing adjusted gross income.  Because Illinois does not allow itemized deductions, and any Personal Property Tax Replacement Income Tax deducted in computing adjusted gross income because it is passed through from a partnership, Subchapter S corporation, or trust is added back under IITA Section 203(a)(2)(B), IITA Section 203(a)(2)(H) allows individuals to subtract any such refund included in adjusted gross income.  The purpose of this subtraction and the addition of IITA Section 203(a)(2)(B) is to render the payment of Illinois income tax and replacement income tax neutral in the computation of adjusted gross income.

c)         All other taxpayers are required to add back any Illinois regular income tax or replacement tax deducted in computing their federal taxable income.  (See IITA Section 203(b)(2)(B) (corporations), (c)(2)(C) (trusts and estates) and (d)(2)(B) (partnerships)).  Because these taxpayers receive no Illinois income tax benefit from these deductions, any refund of Illinois regular income tax or replacement tax that is included in the taxpayer's federal taxable income may be subtracted under IITA Section 203(b)(2)(F) (corporations), (c)(2)(J) (trusts and estates) and (d)(2)(F) (partnerships).

(Source:  Added at 32 Ill. Reg. 3400, effective February 25, 2008)

Section 100.2455  Subtraction Modification:  Federally Disallowed Deductions (IITA Sections 203(a)(2)(M), 203(b)(2)(I), 203(c)(2)(L) and 203(d)(2)(J))

a)         Taxpayers are entitled to subtract from taxable income (adjusted gross income, in the case of an individual), an amount equal to the sum of all amounts disallowed as deductions by sections 171(a)(2) and 265(2) of the Internal Revenue Code of 1954, and all amounts of expenses allocable to interest and disallowed as deductions by section 265(1) of the Internal Revenue Code of 1954, and, for taxable years ending on or after August 13, 1999, sections 171(a)(2), 265, 280C, 291(a)(3) and 832(b)(5)(B)(i) of the Internal Revenue Code.  (IITA Section 203) In order to prevent double deductions, no subtraction is allowed under these provisions for amounts already subtracted because of an exemption from taxation by virtue of Illinois law or the Illinois or U.S. Constitution, or by reason of U.S. treaties or statutes (see Section 100.2470).

b)         Section 171 of the Internal Revenue Code requires amortization of premiums paid for a tax-exempt bond over the period between the purchase date and either the maturity date or, if earlier, the first date on which the bond may be called.  Section 171(a)(2) of the Internal Revenue Code states that, when the interest of a tax-exempt bond is excludable from gross income, there shall be no deduction for the amortizable bond premium for the taxable year.  The IITA allows taxpayers to subtract the bond premium amortization required by section 171 of the Internal Revenue Code for that year to the extent the taxpayer was prohibited from deducting the amortization by section 171(a)(2) of the Internal Revenue Code.  Illinois does not provide any adjustment to federal taxable income (adjusted gross income in the case of an individual) related to gains or losses on the sales of bonds.  The only subtraction is for the amortization of bond premium that is allocable to that particular tax year.  If the bond is called before maturity, then there is no subtraction for periods after the call date.

c)         Section 265 of the Internal Revenue Code provides that no deduction shall be allowed from federal taxable income (adjusted gross income in the case of an individual) for expenses relating to tax-exempt income (section 265(a)(1) of the Internal Revenue Code), and for interest relating to tax-exempt income (section 265(a)(2) of the Internal Revenue Code).  These expense and interest amounts, determined in a manner consistent with the provisions of the Internal Revenue Code, are allowable subtractions for Illinois income tax purposes.

d)         Section 280C(a) of the Internal Revenue Code provides that no deduction shall be allowed for that portion of wages or salaries paid or incurred for the taxable year that is equal to the sum of the credits determined for the taxable year under sections 45A (the Indian Employment Credit), 51(a) (the Work Opportunity Credit), 1396(a) (the Empowerment Zone Employment Credit), 1400P(b) (employer provided housing for individuals affected by Hurricane Katrina), and 1400R (employee retention by employers affected by hurricanes) of the Internal Revenue Code.  Section 280C(b) of the Internal Revenue Code provides that no deduction shall be allowed for that portion of the qualified clinical testing expenses for certain drugs for rare diseases or conditions otherwise allowable as a deduction for the taxable year that is equal to the amount of the credit allowable for the taxable year under section 45(C) of the Internal Revenue Code.  Section 280(C)(c) of the Internal Revenue Code provides that no deduction or credit shall be allowed for that portion of the qualified research expenses or basic research expenses otherwise allowable as a deduction or credit for the taxable year that is equal to the amount of the credit determined for such taxable year under section 41(a) of the Internal Revenue Code.

e)         Section 291(a)(3) of the Internal Revenue Code provides that the amount allowable as a deduction with respect to certain financial institution preference items shall be reduced by 20%.  Illinois provides a subtraction modification for the remaining 20% not deducted federally with respect to those financial institution preference items.

f)         Section 835(b)(5)(B)(i) of the Internal Revenue Code provides that the amount of federal deduction for losses incurred on insurance company contracts shall be reduced by an amount equal to 15% of the sum of tax-exempt interest received or accrued during the taxable year.  Illinois provides a subtraction modification for the remaining 15% not deducted federally with respect to the tax-exempt interest received or accrued during the taxable year from insurance company contracts.

(Source:  Added at 32 Ill. Reg. 10170, effective June 30, 2008)

Section 100.2465  Claim of Right Repayments (IITA Section 203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and (d)(2)(M))

a)         In computing base income, a taxpayer may subtract from federal taxable income or adjusted gross income an amount equal to the amount of the deduction used to compute the federal income tax credit for restoration of substantial amounts held under claim of right for the taxable year pursuant to IRC section 1341 or of any itemized deduction taken from adjusted gross income in the computation of taxable income for restoration of substantial amounts held under claim of right for the taxable year.  (IITA Section 203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and (d)(2)(M))

b)         For federal income tax purposes, if a taxpayer is required to include a receipt in taxable income under the "claim of right" principle because the taxpayer had an unrestricted right to the item when received, and is subsequently required to repay the item, the taxpayer must deduct the repayment in the year of repayment, rather than exclude the receipt from income.  However, IRC section 1341 allows some taxpayers to claim a credit against their federal income tax liability in the year of repayment equal to the tax attributable to the inclusion of the receipt in taxable income, in lieu of the deduction.  In order to avoid taxing income received under a claim of right that is subsequently repaid, IITA Section 203(a)(2)(P), (b)(2)(Q), (c)(2)(P) and (d)(2)(M) allows a taxpayer who claimed a credit under IRC section 1341 for a taxable year to subtract an amount equal to the amount of the repayment that would otherwise have been deductible in that taxable year.

c)         In the case of an individual, the deduction allowed for repayment of claim of right income is an itemized deduction taken from adjusted gross income.  Because, in the case of an individual, the computation of base income begins with the taxpayer's adjusted gross income, an individual is allowed no deduction for repayment of claim of right income unless expressly provided in IITA Section 203.  (See IITA Section 203(a)(1) and (h).)  In 2011, Public Act 97-0507 amended IITA Section 203(a)(2)(P) to allow individuals who had claimed an itemized deduction for repayment of claim of right income to subtract the amount of that deduction from their adjusted gross income.  This amendment is not, by its terms, required to be applied prospectively only, and the subtraction will be allowed for any taxable year, subject to the statute of limitations for claims for refund.

(Source:  Added at 40 Ill. Reg. 14762, effective October 12, 2016)

Section 100.2470  Subtraction of Amounts Exempt from Taxation by Virtue of Illinois Law, the Illinois or U.S. Constitutions, or by Reason of U.S. Treaties or Statutes (IITA Sections 203(a)(2)(N), 203(b)(2)(J), 203(c)(2)(K) and 203(d)(2)(G))

a)         In calculating base income, taxpayers are entitled to subtract an amount equal to all amounts included in such total which are exempt from taxation by this State either by reason of its statutes or Constitution or by reason of the Constitution, treaties or statutes of the United States; provided that, in the case of any statute of this State that exempts income derived from bonds or other obligations from the tax imposed under this Act, the amount exempted shall be the interest net of bond premium amortization (IITA 203(a)(2)(N)).  There are also provisions of Illinois law that exempt the income of certain obligations of state and local governments from Illinois income taxation (see subsection (f)).

b)         Interest on obligations of the United States.  A federal statute exempts stocks and obligations of the United States Government, as well as the interest on the obligations, from state income taxation (see 31 USC 3124(a)).

1)         "Obligations of the United States" are those obligations issued "to secure credit to carry on the necessary functions of government."  Smith v. Davis (1944) 323 U.S. 111, 119, 89 L. Ed. 107, 113, 65 S. Ct. 157, 161.  The exemption is aimed at protecting the "Borrowing" and "Supremacy" clauses of the Constitution.  Society for Savings v. Bowers (1955) 349 U.S. 143, 144, 99 L. Ed. 2d 950, 955, 75 S. Ct. 607, 608. Hibernia v. City and County of San Francisco (1906) 200 U.S. 310, 313, 50 L. Ed. 495, 496, 26 S. Ct. 265, 266.

A)        Tax-exempt credit instruments possess the following characteristics:

i)          they are written documents;

ii)         they bear interest;

iii)        they are binding promises by the United States to pay specified sums at specified dates;

iv)        they have congressional authorization which also pledges the faith and credit of the United States in support of the promise to pay.  Smith v. Davis, supra.

B)        A governmental obligation that is secondary, indirect, or contingent, such as a guaranty of a nongovernmental obligor's primary obligation to pay the principal amount of and interest on a note, is not an obligation of the type exempted under 31 USC Section 3124(a).  Rockford Life Ins. Co. v. Department of Revenue, 107 S. Ct. 2312 (1987).

2)         Based on the above, the following types of income are exempt under 31 USC Section 3124(a):

A)        Interest on U.S. Treasury bonds, notes, bills, certificates, and savings bonds.

B)        Income from GSA Public Building Trust Participation Certificates:  First Series, Series A through E; Second Series, Series F; Third Series, Series G; Fourth Series H and I.

c)         Income exempted by reason of other federal statutes.  Federal statutes provide exemption from state income taxation with respect to various specifically named types of income.  Following is a list (intended to be exhaustive) of exempt income and the specific statutes to which each item relates:

1)         Banks for Cooperatives − Income from notes, debentures, and other obligations issued by Banks for Cooperatives (12 USC 2134).

2)         Commodity Credit Corporation − Interest derived from bonds, notes, debentures, and other similar obligations issued by Commodity Credit Corporation (15 USC 713a-5).

3)         Farm Credit System Financial Assistance Corporation (Financial Assistance Corporation) − Income from notes, bonds, debentures, and other obligations issued by the Financial Assistance Corporation (12 USC 2278b-10(b)).

4)         Federal Deposit Insurance Corporation − Interest derived from notes, debentures, bonds, or other such obligations issued by Federal Deposit Insurance Corporation (12 USC 1825).

5)         Federal Farm Credit Banks − Income from consolidated system-wide notes, bonds, debentures, and other obligations issued jointly and severally under 12 USC 2153 by Banks of the Federal Farm Credit System (12 USC 2023; 12 USC 207; 12 USC 2098; and 12 USC 2134).

6)         Federal Home Loan Banks − Interest derived from notes, debentures, bonds, and other such obligations issued by Federal Home Loan Banks and from consolidated Federal Home Loan bonds and debentures (12 USC 1433).

7)         Federal Intermediate Credit Banks − Income from notes, debentures, bonds, and other obligations issued by Federal Intermediate Credit Banks (12 USC 2079).

8)         Federal Land Banks and Federal Land Bank Association − Income from notes, debentures, bonds, and other obligations issued by Federal Land Banks and Federal Land Bank Associations (12 USC 2055).

9)         Federal Savings and Loan Insurance Corporation − Interest derived from notes, bonds, debentures, and other such obligations issued by Federal Savings and Loan Insurance Corporation (12 USC 1725(e)).

10)        Financing Corporation (FICO) − Income from obligations issued by the Financing Corporation (12 USC 1441(e)(8)).

11)        General Insurance Fund

A)        Interest derived from debentures issued by General Insurance Fund under the War Housing Insurance Law (12 USC 1739(d)); or

B)        Interest derived from debentures issued by General Insurance Fund to acquire rental housing projects (12 USC 1747g(g)); or

C)        Interest derived from Armed Services Housing Mortgage Insurance Debentures issued by the General Insurance Fund (12 USC Section 1748b(f)).

12)        Guam − Interest derived from bonds issued by the government of Guam (48 USC 1423a).  This income is not presently included in federal taxable income.  Under Illinois law, it must be added back to federal taxable income and then claimed as a subtraction on an Illinois income tax return.

13)        Mutual Mortgage Insurance Fund − Income from such debentures as are issued in exchange for property covered by mortgages insured after February 3, 1988 (12 USC 1710(d)).  This income is not presently included in federal taxable income.  Under Illinois law, it must be added back to federal taxable income and then claimed as a subtraction on an Illinois income tax return.

14)        National Credit Union Administration Central Liquidity Facility − Income from the notes, bonds, debentures, and other obligations issued on behalf of the Central Liquidity Facility (12 USC 1795K(b)).

15)        Production Credit Association − Income from notes, debentures, and other obligations issued by Production Credit Association (12 USC 2098).

16)        Puerto Rico − Interest derived from bonds issued by the Government of Puerto Rico (48 USC 745).  This income is not presently included in federal taxable income.  Under Illinois law, it must be added back to federal taxable income and then claimed as a subtraction on an Illinois income tax return.

17)        Railroad Retirement Act − Annuity and supplemental annuity payments as qualified under the Railroad Retirement Act of 1974 (45 USC 231m).  Please be sure to use the line specified on your Illinois return for this item.

18)        Railroad Unemployment Insurance Act − Unemployment benefits paid pursuant to the Railroad Unemployment Insurance Act (45 USC 352(e)).

19)        Resolution Funding Corporation − Interest from obligations issued by the Resolution Funding Corporation (12 USC 1441b(f)(7)(A)).

20)        Special Food Service Program − Assistance to children under the Special Food Service Program (42 USC 1760(e)).

21)        Student Loan Marketing Association − Interest derived from obligations issued by the Student Loan Marketing Association (20 USC 1087-2(h)(221)).

22)        Tennessee Valley Authority − Interest derived from bonds issued by the Tennessee Valley Authority (16 USC 831n-4(d).

23)        United States Postal Service − Interest derived from obligations issued by the United States Postal Service (39 USC 2005(d)(4)).

24)        Virgin Islands − Interest derived from bonds issued by the Government of the Virgin Islands (48 USC 1574(b)(ii)(A)).  This income is not presently included in income taxable federally.  Under Illinois law, it must be added back to federal taxable income and then claimed as a subtraction on an Illinois income tax return.

25)        American Samoa − Interest on bonds issued by the Government of American Samoa (48 USC 1670(b)).

26)        Northern Mariana Islands − Interest on bonds issued by the Government of the Northern Mariana Islands (48 USC 1801 note).

d)        Distributions from money market trusts (mutual funds).  Taxpayers may subtract income received from any of the obligations listed in subsections (b) and (c), even if the obligations are owned indirectly through owning shares in a mutual fund.

1)         If the fund invests exclusively in these state tax exempt obligations, the entire amount of the distribution (income) from the fund may be subtracted.

2)         If the fund invests in both exempt and non-exempt obligations, the amount represented by the percentage of the distribution that the mutual fund identifies as exempt may be subtracted.

3)         If the mutual fund does not identify an exempt amount or percentage, taxpayers may figure the subtraction by multiplying the distribution by the following fraction:  as the numerator, the amount invested by the fund in state-exempt U.S. obligations; as the denominator, the fund's total investment. Use the year-end amounts to figure the fraction if the percentage ratio has remained constant throughout the year.  If the percentage ratio has not remained constant, take the average of the ratios from the fund's quarterly financial reports.

e)         Getting a refund of tax you already paid.  If you paid Illinois income tax on these state tax exempt distributions, you may file an amended return to claim a refund for any year still within the statute of limitations.

f)         Interest on obligations of state and local governments.  Income from state and local obligations is not exempt from Illinois income tax except where authorizing legislation adopted after August 1, 1969, specifically provides for an exemption.  To date, authorizing legislation provides exemption for the income from the securities listed below.  Taxpayers must show income from these exempt bonds as an addition and then as a subtraction on the Illinois income tax return.  Income from these bonds is not exempt if the bonds are owned indirectly through owning shares in a mutual fund.

1)         Notes and bonds issued by the Illinois Housing Development Authority (except housing-related commercial facilities notes and bonds) [20 ILCS 3805/31].

2)         Bonds authorized pursuant to the Export Development Act of 1983 (former Ill. Rev. Stat. 1991, ch. 127, par. 2513, repealed by P.A. 87-860, effective July 1, 1992).

3)         Bonds issued by the Illinois Development Finance Authority pursuant to Sections 7.50 through 7.61 (venture fund and infrastructure bonds) [20 ILCS 3505/7.61], (repealed by P.A. 93-205, effective January 1, 2004, which provides in 20 ILCS 3501/845-60 that bonds issued under this provision continue to be exempt from taxation).

4)         Bonds and notes issued by the Quad Cities Regional Economic Development Authority, if the Authority so determines [70 ILCS 510/11 and13 and 70 ILCS 515/11 and 12].

5)         College Savings Bonds issued under the General Obligation Bond Act in accordance with the Baccalaureate Savings Act [110 ILCS 920/7].

6)         Bonds issued by the Illinois Sports Facilities Authority [70 ILCS 3205/15].

7)         Bonds issued on or after September 2, 1988, pursuant to the Higher Education Student Assistance Act [110 ILCS 947/145] (transferred from 105 ILCS 5/30-15.18 by P.A. 87-997).

8)         Bonds issued by the Illinois Development Finance Authority or the Illinois Finance Authority under the Asbestos Abatement Finance Act [20 ILCS 3510/8].

9)         Bonds and notes issued under the Rural Bond Bank Act [30 ILCS 360/3-12] (repealed by P.A. 93-205, effective January 1, 2004, which provides in 20 ILCS 3501/845-60 that bonds issued under this provision continue to be exempt from taxation).

10)        Bonds issued pursuant to Sections 7.80 through 7.87 of the Illinois Development Finance Authority Act [20 ILCS 3505/7-86] (repealed by P.A. 93-205, effective January 1, 2004, which provides in 20 ILCS 3501/845-60 that bonds issued under this provision continue to be exempt from taxation).

11)        Bonds issued by the Quad Cities Interstate Metropolitan Authority under the Quad Cities Interstate Metropolitan Authority Act [45 ILCS 35/110].

12)        Bonds issued by the Southwestern Illinois Development Authority pursuant to the Southwestern Illinois Development Authority Act [70 ILCS 520/7.5].

13)        Bonds issued by the Illinois Finance Authority under the Local Government Article and the Financially Distressed City Program in the Illinois Finance Authority Act [20 ILCS 3501/820-60 and 825-55].

14)        Illinois Power Agency bonds issued by the Illinois Finance Authority under the Other Powers Article of the Illinois Finance Authority Act [20 ILCS 3501/825-90], if the Authority so determines.

15)        Bonds issued by the Central Illinois Economic Development Authority under the Central Illinois Economic Development Authority Act [70 ILCS 504/40], if the Authority so determines.

16)        Bonds issued by the Eastern Illinois Economic Development Authority under the Eastern Illinois Economic Development Authority Act [70 ILCS 506/40], if the Authority so determines.

17)        Bonds issued by the Southeastern Illinois Economic Development Authority under the Southeastern Illinois Economic Development Authority Act [70 ILCS 518/40], if the Authority so determines.

18)        Bonds issued by the Southern Illinois Economic Development Authority under the Southern Illinois Economic Development Authority Act [70 ILCS 519/5‑45], if the Authority so determines.

19)        Bonds issued by the Upper Illinois River Valley Development Authority under the Upper Illinois River Valley Development Authority Act [70 ILCS 530/7.1], if the Authority so determines.

20)        Bonds issued by the Illinois Urban Development Authority under the Illinois Urban Development Authority Act [70 ILCS 531/11], if the Authority so determines.

21)        Bonds issued by the Western Illinois Economic Development Authority under the Western Illinois Economic Development Authority Act [70 ILCS 532/45], if the Authority so determines.

22)        Bonds issued by the Downstate Illinois Sports Facilities Authority under the Downstate Illinois Sports Facilities Authority Act [70 ILCS 3210/60], if the Authority so determines.

23)        Bonds issued by the Will-Kankakee Regional Development Authority under the Will-Kankakee Regional Development Authority Law [70 ILCS 535/14], if the Authority so determines.

24)        Bonds issued by the Tri-County River Valley Development Authority under the Tri-County River Valley Development Authority Law [70 ILCS 525/2007.1], if the Authority so determines.

25)        Bonds issued by the New Harmony Bridge Authority under the New Harmony Bridge Authority Act [45 ILCS 185/5-50]. This exemption is subject to sunset under IITA Section 250, and does not apply to taxable years beginning on or after August 19, 2023, the fifth anniversary of the effective date of P.A. 100-981.

26)        Bonds issued by the New Harmony Bridge Bi-State Commission under the New Harmony Bridge Interstate Compact Act [45 ILCS 190/10-5]. This exemption is subject to sunset under IITA Section 250, and does not apply to taxable years beginning on or after August 19, 2023, the fifth anniversary of the effective date of P.A. 100-981.

g)         Other income exempt from Illinois income taxation by reason of Illinois statute:

1)         Income earned by certain trust accounts established under the Illinois Pre-Need Cemetery Sales Act [815 ILCS 390/16] or the Illinois Funeral or Burial Funds Act [225 ILCS 45/4a(c)].  Section 16(f) of the Illinois Pre-Need Cemetery Sales Act and Section 4a(c) of the Illinois Funeral or Burial Funds Act provide that:  because it is not known at the time of deposit or at the time that income is earned on the trust account to whom the principal and the accumulated earnings will be distributed, for purposes of determining the Illinois Income Tax due on these trust funds, the principal and any accrued earnings or losses relating to each individual account shall be held in suspense until the final determination is made as to whom the account shall be paid.

2)         Income in the form of education loan repayments made for health care providers who agree to practice in designated shortage areas for a specified period of time under the terms of the Family Practice Residency Act [110 ILCS 935/4.10].

3)         Income earned by nuclear decommissioning trusts established pursuant to Section 8-508.1 of the Public Utilities Act [220 ILCS 5/8-508.1].  The terms "Decommissioning trust" or "trust" means a fiduciary account in a bank or other financial institution established to hold the decommissioning funds provided pursuant to Section 8-508.1(b)(2) of the Public Utilities Act for the eventual purpose of paying decommissioning costs, which shall be separate from all other accounts and assets of the public utility establishing the trust.  [220 ILCS 5/8-508.1(a)(3)]

4)         Income from the Illinois prepaid tuition program, other than disbursements to beneficiaries which are not used in accordance with the applicable prepaid tuition contract under the Illinois Prepaid Tuition Act [110 ILCS 979].  The Illinois prepaid tuition program was created in 1997 for the express purpose of allowing savings for higher education to earn tax-exempt returns under IRC section 529.  If a prepaid tuition contract qualifies under IRC section 529, earnings on contributions made to the Illinois Prepaid Tuition Trust Fund under the contract are exempt from federal income taxation (and therefore Illinois income taxation) until distributed.  The legislative intent in creating the Illinois prepaid tuition program does not guarantee that every prepaid tuition contract will qualify under IRC section 529 and there is no guarantee that IRC section 529 will continue in effect.  However, Section 55 of the Illinois Prepaid Tuition Act [110 ILCS 979/55] provides that assets of the Illinois Prepaid Tuition Trust Fund and its income and operation shall be exempt from all taxation by the State and that disbursements to a beneficiary shall be similarly exempt from all taxation by the State of Illinois and any of its subdivisions, so long as they are used for educational purposes in accordance with the provisions of an Illinois prepaid tuition contract.  Under this provision, any undistributed earnings of the Illinois Prepaid Tuition Trust which are included in a taxpayer's federal taxable income or adjusted gross income because a prepaid tuition contract does not qualify under IRC section 529 may be subtracted in computing the taxpayer's base income, and all disbursements included in a beneficiary's adjusted gross income may be subtracted to the extent used in accordance with the Illinois prepaid tuition contract under which the disbursements are made, regardless of whether the prepaid tuition contract qualifies under IRC section 529.

5)         Income from the College Savings Pool, other than disbursements to beneficiaries that are not used to pay qualified expenses under the State Treasurer Act [15 ILCS 505/16.5].  Under the State Treasurer Act, distributions from the College Savings Pool must generally be used for qualified expenses, which are defined to mean tuition, fees, and the costs of books, supplies, and equipment required for enrollment or attendance at an eligible educational institution and certain room and board expenses.  Distributions made for qualified expenses must be made directly to the eligible educational institution, directly to a vendor, or in the form of a check payable to both the beneficiary and the institution or vendor.  The College Savings Pool was created in PA 91-607 for the express purpose of allowing savings for higher education to earn tax-exempt returns under IRC section 529.  If an investment in the College Savings Pool qualifies under IRC section 529, earnings on that investment are exempt from federal income taxation (and therefore Illinois income taxation) until distributed.  The legislative intent in creating the College Savings Pool does not guarantee that investments will qualify under IRC section 529 and there is no guarantee that IRC section 529 will continue in effect.  However, the State Treasurer Act [15 ILCS 505/16.5], as amended in PA 91-829, provides that assets of the College Savings Pool and its income and operation shall be exempt from all taxation by the State and that disbursements to a beneficiary shall be similarly exempt from all taxation by the State of Illinois and any of its subdivisions, so long as they are used for qualified expenses.  Under this provision, any undistributed earnings of the College Savings Pool that are included in a taxpayer's federal taxable income or adjusted gross income because a College Savings Pool investment does not qualify under IRC section 529 may be subtracted in computing the taxpayer's base income, and all disbursements included in a beneficiary's adjusted gross income may be subtracted to the extent used to pay qualified expenses, regardless of whether the College Savings Pool investment qualifies under IRC section 529.

6)         Income earned on investments made pursuant to the Home Ownership Made Easy Program [310 ILCS 55/5.1].

7)         Up to $2,000 of income derived by individuals from investments made in accordance with College Savings Programs established under Section 75 of the Higher Education Student Assistance Act [110 ILCS 947/75]. This subtraction is allowed only for taxable years ending prior to August 9, 2013, the effective date of PA 98-0251, which repealed Section 75 of the Higher Education Student Assistance Act.

h)         Income not exempt from Illinois income taxation.  The following types of income are not exempt from Illinois income taxation:

1)         Income from securities commonly known as GNMA "Pass-Through Securities" and also known as GNMA "Mortgage-Backed Securities" issued by approved issuers under 12 USC 1721(g) and guaranteed by GNMA under 12 USCA 1721(g) (Rockford Life Insurance Co. v. Department of Revenue, 112 Ill.2d 174, 492 N.E. 2d 1278 (1986), reh. den. June 2, 1986) and income from debentures, notes, and bonds issued by the Federal National Mortgage Association including mortgage-backed bonds issued under authority of 12 USCA 1719(d) and guaranteed by GNMA under 12 USC 1721(g).

2)         Accumulated interest on Internal Revenue Service tax refunds.  Illinois Department of Revenue Letter Ruling No. 86-0640, dated July 11, 1986, citing Glidden Co. v. Glander, 151 Ohio St. 344, 86 N.E. 2d 1, 9 A.L.R. 2d 515 (1949).

3)         Income from U.S. securities acquired by a taxpayer under a repurchase agreement ("repo") with a bank or similar financial organization.  The Department takes the position that, for income tax purposes, such agreements are generally to be treated as loans.  That is, the taxpayer "loans" money to the bank and receives interest in return.  The securities subject to repurchase by the bank serve as collateral for the loan.  The bank remains legally entitled to receive the interest payments from the issuing authority and remains the actual owner of the securities.  Therefore, any tax benefit attributable to the "exempt" income paid by the issuing authority accrues to the bank and not to the investor.

4)         Section 514(a) of the Employee Retirement Income Security Act of 1974 (ERISA, 29 USC 1144(a)) does not preempt the taxation of unrelated business income of an Employee Benefit Plan governed by ERISA.  Buono v. NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806, 808 (1997).  Taxpayers that relied upon the Department's letter rulings IT 90-0073, IT 93-0017 and IT 93-0187, prior to July 1, 2002, shall not incur liability for taxes or penalties pursuant to Section 4(c) of the Taxpayers' Bill of Rights Act [20 ILCS 2520].

i)          Method for computing the subtraction of exempt income.  The Department emphasizes that before a taxpayer may subtract an item of exempt income, the taxpayer must be sure that he or she has included the item in Illinois income.  Some tax-exempt items are "automatically" included in base income because they are included in federal adjusted gross income, which is a part of base income.  Interest on U.S. Treasury notes is in this category.  Other exempt items must be included as an addition on the Illinois tax return in figuring base income.  In other words, the taxpayer must list certain tax-exempt items as additions and then as subtractions in figuring base income.  Interest on the state and local government bonds described in subsection (f) is in this category.

(Source:  Amended at 44 Ill. Reg. 2845, effective January 30, 2020)

Section 100.2480  Enterprise Zone and River Edge Redevelopment Zone Dividend Subtraction (IITA Sections 203(a)(2)(J), 203(b)(2)(K), 203(c)(2)(M) and 203(d)(2)(K))

a)         Taxpayers are entitled to subtract from taxable income (adjusted gross income, in the case of an individual) an amount equal to dividends paid by a corporation which conducts business operations in an enterprise zone or zones created under the Illinois Enterprise Zone Act or in a river edge redevelopment zone or zones created under the River Edge Redevelopment Zone Act, and conducts all or substantially all of its operations in the enterprise zone or zones or the river edge redevelopment zone or zones (IITA Section 203(a)(2)(J), 203(b)(2)(K), 203(c)(2)(M) and 203(d)(2)(K)).

1)         Dividends received from a corporation that conducts all or substantially all of its operations in a river edge redevelopment zone or zones are eligible for subtraction under this Section only if received after July 12, 2006, the effective date of PA 94-1021, which enacted this subtraction.

2)         Dividends received from a corporation that conducts all or substantially all of its operations in an enterprise zone or zone are eligible for subtraction under this Section only if received prior to August 7, 2012, the effective date of PA 97-905, which repealed this subtraction.

b)         A corporation conducts substantially all of its business within an enterprise zone or river edge redevelopment zone when 95% or more of its total business activity during a taxable year is operated within an enterprise zone or river edge redevelopment zone.  For the purpose of this Section, business activity within an enterprise zone or river edge redevelopment zone shall be measured by means of the factors ordinarily applicable to the corporation under IITA Section 304 (a),(b),(c) or (d), except that, in the case of a corporation ordinarily required to apportion business income under IITA Section 304(a), the corporation shall not use the sales factor in the computation. Thus, for example, for taxable years ending on or after December 31, 2000, for purposes of determining whether dividends may be subtracted under this Section, a corporation that apportions its business income under IITA Section 304(a) using only the sales factor in accordance with  IITA Section (h) 304 must still compute its property and payroll factors.  In measuring the business activity of a corporation within an enterprise zone or river edge redevelopment zone, the apportionment factors of that corporation shall be determined without regard to the factors or business activity of any other corporation and, in the case of a corporation engaged in a unitary business with any other person, the apportionment factors of that corporation shall be determined as if it were not engaged in a unitary business with such other person.

1)         Section 304(a) Corporations:  A corporation using Section 304(a) to apportion business income to Illinois shall compare the corporation's property and payroll within an enterprise zone or river edge redevelopment zone to the corporation's property and payroll everywhere.  The result of the property and payroll factor computations shall be divided by 2 (by one if either the property or payroll factor has a denominator of zero).  If the amount so computed is 95% or greater, the dividends paid by the corporation shall qualify for this subtraction.  In the case where a corporation does not have any payroll or property within an enterprise zone or river edge redevelopment zone, the corporation is not conducting any of its business operations within an enterprise zone or river edge redevelopment zone for the purpose of this Section.

2)         All Other Corporations:  A corporation using a 1-factor apportionment formula under IITA Section 304(b),(c) or (d) shall determine business activity conducted within an enterprise zone or river edge redevelopment zone by comparing business income from sources within the enterprise zone or river edge redevelopment zone and everywhere else pursuant to its ordinarily applicable factor under IITA Section 304(b), (c) or (d).  A corporation using an alternative method of apportionment under Section 304(f) shall petition the Department for approval of an appropriate method of determining its qualification under this Section, and only upon the Department's approval shall the corporation be allowed to use a method not provided in this Section.

3)         EXAMPLE:  In the tax year ending December 31, 1995, Taxpayer received dividends from a bank holding company, whose sole asset was the stock in a bank with which it was conducting a unitary business.  Both the bank holding company and the bank are headquartered in an enterprise zone created under the Illinois Enterprise Zone Act.  During 1995, the operations of the bank consisted of accepting deposits, making loans and purchasing investments.  The bank conducted business in its branches located throughout the State.  However, the bank holding company's sole source of income on a separate-company basis was the dividends it received from the bank, and all of this income was received within the enterprise zone.  In determining its business income apportionable to Illinois in 1995, the bank holding company and the bank used the apportionment formula under IITA Section 304(c) on a combined basis.  In order to determine whether 95% or more of its income is from sources within the enterprise zone, the bank holding company is required to use the same apportionment formula under IITA Section 304(c) as if it were not engaged in a unitary business with the bank.  Pursuant to the formula, dividends which are received within this State are apportionable to Illinois. As a result, the bank holding company in this case must compute the percentage of dividends  which are received within the enterprise zone to determine income apportionable to the enterprise zone.  Since it received all of its business income from sources within the enterprise zone, the bank holding company would meet the 95% test.

c)         Taxpayers are entitled to this subtraction in the taxable year in which qualifying dividends are paid by corporations.

1)         Corporations paying dividends shall be deemed to have started business operations within an enterprise zone from the later of:

A)        The date the enterprise zone in which the corporation paying the dividends is located was officially designated by the Department of Commerce and Economic Opportunity;

B)        The date the corporation paying dividends commenced operations in the enterprise zone; or

C)        The effective date of the Public Act enacting this subtraction (December 7, 1982).

2)          Corporations paying dividends shall be deemed to have started business operations within a river edge redevelopment zone from the later of:

A)        The date the river edge redevelopment zone in which the corporation paying the dividends is located was officially designated by the Department of Commerce and Economic Opportunity;

B)        The date the corporation paying dividends commenced operations in the river edge redevelopment zone; or

C)        July 12, 2006, the effective date of PA 94-1021, which enacted this subtraction.

d)         Limitations

1)         This Section allows taxpayers to subtract distributions from a corporation only to the extent:

A)        such distributions are characterized as dividends;

B)        such dividends are included in federal taxable income (in the case of an individual, adjusted gross income) of the taxpayer; and

C)        the taxpayer has not subtracted such dividends from federal taxable income (in the case of an individual, adjusted gross income) under any other provision of IITA Section 203.

2)         EXAMPLE:  Taxpayer, a Subchapter S corporation shareholder, receives a distribution from an S corporation which conducts substantially all of its business in an enterprise zone.  Although the Subchapter S corporation satisfies the 95% test, Taxpayer is not entitled to this subtraction modification since a distribution by a Subchapter S corporation is generally not characterized as a dividend. See section 1368 of the Internal Revenue Code.

3)         EXAMPLE:  Taxpayer, a corporation, receives a dividend from another corporation that qualifies for the 70% dividends received deduction under section 243(a)(1) of the Internal Revenue Code.  Because only 30% of the dividend is included in Taxpayer's federal taxable income, this Section allows Taxpayer to subtract only 30% of the dividend from its federal taxable income.

(Source:  Amended at 38 Ill. Reg. 9550, effective April 21, 2014)

Section 100.2490 Foreign Trade Zone/High Impact Business Dividend Subtraction (IITA Sections 203(a)(2)(K), 203(b)(2)(L), 203(c)(2)(O), 203(d)(2)(M))

a)         Taxpayers are entitled to subtract from taxable income (adjusted gross income, in the case of an individual) an amount equal to dividends paid by a corporation that:

1)         conducts business operations in a federally designated Foreign Trade Zone or Sub-Zone, and

2)         is designated by the Department of Commerce and Community Affairs as a High Impact Business located in Illinois.

However, only dividends not eligible for the subtraction provided in Section 100.2480 of this Part may be subtracted under this Section.

b)         A corporation conducts business operations in a federally designated Foreign Trade Zone or Sub-Zone when any portion of its total business activity during a taxable year is operated within a federally designated Foreign Trade Zone or Sub-Zone. For the purpose of this Section, business activity within a federally designated Foreign Trade Zone or Sub-Zone shall be measured by means of the factors ordinarily applicable to the corporation under IITA Section 304(a), (b), (c) or (d); except that, in the case of a corporation ordinarily required to apportion business income under Section 304(a), such corporation shall not use the sales factor in the computation. Thus, for example, for taxable years ending on or after December 31, 2000, for purposes of determining whether dividends may be subtracted under this Section, a corporation that apportions its business income under Section 304(a) using only the sales factor in accordance with  Section 304(h) must still compute its property and payroll factors. In measuring the business activity of a corporation within a federally designated Foreign Trade Zone or Sub-Zone, the apportionment factors of that corporation shall be determined without regard to the factors or business activity of any other corporation and, in the case of a corporation engaged in a unitary business with any other person, the apportionment factors of that corporation shall be determined as if it were not engaged in a unitary business with such other person.

1)         304(a) Corporations. A corporation using Section 304(a) to apportion business income to Illinois shall determine the ratio of the corporation’s property and payroll within a federally designated Foreign Trade Zone or Sub-Zone to the corporation’s property and payroll everywhere. If the ratio so computed is greater than 0%, and the other requirements of this Section are met, the dividends paid by the corporation shall qualify for this subtraction. In the case where a corporation does not have any property or payroll within a federally designated Foreign Trade Zone or Sub-Zone, the corporation is not conducting any portion of its business operations within a federally designated Foreign Trade Zone or Sub-Zone for the purpose of this Section.

A)        Example 1: In the tax year ending December 31, 1995, Taxpayer received dividends from X corporation (hereafter referred to as "X"). X, a calendar year taxpayer, manufactures and sells widgets at wholesale in Illinois and various other states. The widgets are manufactured at X’s plant in Illinois, which is not located in a federally designated Foreign Trade Zone or Sub-Zone. X does not have employees who perform any services in a federally designated Foreign Trade Zone or Sub-Zone. X owns 100% of the stock of A corporation (hereafter referred to as "A"), whose sole business activity consists of the distribution of X’s widgets. A’s trucks take delivery of the widgets at X’s plant, and then deliver the widgets to customers of X, including customers located in a federally designated Foreign Trade Zone. In determining its business income apportionable to Illinois in 1995, X used the 3-factor formula of property, payroll, and sales under IITA Section 304(a). Thus, in order to determine whether it conducts business operations in a federally designated Foreign Trade Zone or Sub-Zone, X must compute the ratio of its property and payroll in a federally designated Foreign Trade Zone or Sub-Zone to its property and payroll everywhere. In making such computation, it may not use its sales factor, nor may it consider the factors or business activity of A. As a result, regardless of whether X is designated a High Impact Business located in Illinois, Taxpayer may not subtract dividends paid by X. Because X does not have any property or payroll within a federally designated Foreign Trade Zone or Sub-Zone, it is not conducting any portion of its business operations within a federally designated Foreign Trade Zone or Sub-Zone as required by this Section.

B)        Example 2: The facts are the same as in Example 1, except that X rents a warehouse in which it maintains an inventory of widgets pending shipment to customers. The warehouse is located in a federally designated Foreign Trade Zone. Since the ratio of X’s property and payroll within a federally designated Foreign Trade Zone or Sub-Zone to its property and payroll everywhere is greater than 0%, X conducts a portion of its business operations within a federally designated Foreign Trade Zone. Thus, Taxpayer has met the requirement under this Section that it receive dividends from a corporation that conducts business operations within a federally designated Foreign Trade Zone or Sub-Zone.

2)         All Other Corporations.  A corporation using a 1-factor apportionment formula under IITA Section 304(b), (c) or (d) shall determine business activity conducted within a federally designated Foreign Trade Zone or Sub-Zone by comparing business income from sources within a federally designated Foreign Trade Zone or Sub-Zone and everywhere else pursuant to its ordinarily applicable factor under  Section 304(b), (c) or (d). A corporation using an alternative method of apportionment under Section 304(f) shall petition the Department for approval of an appropriate method of determining its qualification under this Section, and only upon the Department’s approval shall the corporation be allowed to use a method not provided in this Section.

A)        Example 3: In the tax year ending December 31, 1996, Taxpayer received dividends from Z Airlines, Inc (hereafter referred to as "Z"). Z provides interstate transportation of passengers and freight. Z’s corporate headquarters is located in a federally designated Foreign Trade Zone in Illinois. Its hub is also located in Illinois, but not in a federally designated Foreign Trade Zone or Sub-Zone. Z’s planes regularly arrive and depart from its hub, and regularly fly over a federally designated Foreign Trade Zone in route to various locations. Z owns 100% of the stock of B corporation (hereafter referred to as "B"). B’s sole business activity consists of transporting freight from Z’s planes to local destinations in Illinois. B’s trucks take delivery of the freight at Z’s hub, and deliver the freight to Z’s customers, including customers located in a federally designated Foreign Trade Sub-Zone. In 1996, B delivered within the federally designated Foreign Trade Sub-Zone at least 1 ton of freight the distance of one mile for a consideration. In determining its business income apportionable to Illinois in 1996, Z and B used the apportionment formula under IITA Section 304(d) on a combined basis. In order to determine whether it conducts business operations within a federally designated Foreign Trade Zone or Sub-Zone, Z is required to use the same apportionment formula under IITA Section 304(d) as if it were not engaged in a unitary business with B. As a result, regardless of whether Z is a High Impact Business located in Illinois, Taxpayer may not subtract dividends paid by Z. Because Z has no business income from sources within a federally designated Foreign Trade Zone or Sub-Zone applying IITA Section 304(d), no portion of Z’s business operations are conducted in a federally designated Foreign Trade Zone or Sub-Zone as required by this Section.

B)        Example 4: The facts are the same as in Example 1, except that Z conducts the activities of B as a division. In determining its business income apportionable to Illinois in 1997, Z used the apportionment formula under IITA Section 304(d). In order to determine whether it conducts business operations within a federally designated Foreign Trade Zone or Sub-Zone, Z must use the same formula. Since Z has business income from sources within a federally designated Foreign Trade Sub-Zone, it conducts a portion of its business operations within a federally designated Foreign Trade Zone or Sub-Zone. Thus, Taxpayer has met the requirement under this Section that it receive dividends from a corporation that conducts business operations within a federally designated Foreign Trade Zone or Sub-Zone.

c)         Taxpayers are entitled to this subtraction in the taxable year in which qualifying dividends are paid by corporations. Dividends are qualifying dividends if paid by the corporation during a taxable year of the corporation with respect to which the requirements of this Section are met. Corporations paying dividends shall be deemed to have started business operations within a federally designated Foreign Trade Zone or Sub-Zone from the later of:

1)         The date the Foreign Trade Zone or Sub-Zone in which the corporation paying the dividends is located was officially federally designated;

2)         The date the corporation paying dividends commenced operations in the federally designated Foreign Trade Zone or Sub-Zone as a designated High Impact Business located in Illinois; or

3)         The effective date of the Public Act enacting this subtraction (January 1, 1986).

d)         See 20 ILCS 655/5.5 regarding designation by the Department of Commerce and Community Affairs as a High Impact Business.

e)         Limitations.

1)         This Section allows taxpayers to subtract distributions from a corporation only to the extent:

A)        The distributions are characterized as dividends;

B)        The dividends are included in federal taxable income (in the case of an individual, adjusted gross income) of the taxpayer;

C)        The dividends are not eligible for the subtraction provided in IITA Section 203(a)(2)(J), IITA Section 203(b)(2)(K), IITA Section 203(c)(2)(M), or IITA Section 203(d)(2)(K) (regarding dividends paid by a corporation that conducts all or substantially all of its operations in an Illinois Enterprise Zone or Zones); and

D)        The taxpayer has not subtracted the dividends from federal taxable income (in the case of an individual, adjusted gross income) under any other provision of Section 203 of the IITA.

2)         Example 5: Taxpayer, an S corporation shareholder, receives a distribution from an S corporation designated a High Impact Business and that conducts business operations in a federally designated Foreign Trade Zone. The Taxpayer is not entitled to the subtraction modification provided under this Section since a distribution by an S corporation is generally not characterized as a dividend. See Section 1368 of the Internal Revenue Code.

3)         Example 6: Taxpayer, a corporation, receives a dividend from another corporation that qualifies for the 70% dividends received deduction under Section 243(a)(1) of the Internal Revenue Code. Because only 30% of the dividend is included in Taxpayer’s federal taxable income, this Section allows Taxpayer to subtract only 30% of the dividend from its federal taxable income.

(Source:  Added at 27 Ill. Reg. 13536, effective July 28, 2003)

Section 100.2510  Subtraction for Contributions to Illinois Qualified Tuition Programs (Section 529 Plans) (IITA Section 203(a)(2)(Y))

a)         IITA Section 203(a)(2)(Y) allows individuals a subtraction modification in the computation of base income for taxable years beginning on and after January 1, 2002 equal to the amount contributed during the taxable year to an Illinois qualified tuition program, subject to the limitation described in subsection (b) of this Section. For purposes of this Section, "Illinois qualified tuition program" means:

1)         A College Savings Pool Account under Section 16.5 of the State Treasurer Act [15 ILCS 505/16.5].

2)         For taxable years beginning on and after January 1, 2005, an Illinois Prepaid Tuition Trust Fund under the Illinois Prepaid Tuition Act [110 ILCS 979].

b)         For taxable years beginning on or after January 1, 2005, the total subtraction modification allowed a taxpayer under IITA Section 203(a)(2)(Y) and subsection (a) of this Section shall not exceed $10,000 ($20,000 if married filing jointly) per taxable year.

c)         "Contribution" Defined.  For purposes of IITA Section 203(a)(2)(Y) and this Section, the term "contribution" means any payment directly allocated to an account for the benefit of a designated beneficiary or used to pay late fees or administrative fees associated with the account. In the case of a College Savings Pool Account, the contribution is the amount paid by the taxpayer to the College Savings Pool. In the case of an Illinois prepaid tuition contract, the contribution is the amount paid by the taxpayer for the contract under Section 45 of the Illinois Prepaid Tuition Act [110 ILCS 979/45].

1)         Rollovers

A)        From an Out-of-State Plan.  In the case of a rollover, as defined under IRC Section 529(c)(3)(C)(i), in which an amount is transferred from a qualified tuition program established and maintained by another state to an Illinois qualified tuition program, only the portion of the rollover that constituted investment in the account for federal income tax purposes shall be considered a contribution for purposes of IITA Section 203(a)(2)(Y) and this Section. (See IITA Section 203(a)(2)(Y).)

B)        From an Illinois Plan.  In the case of a rollover, as defined under IRC Section 529(c)(3)(C)(i), in which an amount is transferred from one Illinois qualified tuition program to another Illinois qualified tuition program, no portion of the rollover shall be considered a contribution for purposes of IITA Section 203(a)(2)(Y) and this Section. The purpose of the subtraction modification for contributions to an Illinois qualified tuition program is to encourage and better enable Illinois families to finance the costs of higher education by increasing savings for higher education. A taxpayer's savings for higher education is not increased when amounts are rolled over from one Illinois plan to another Illinois plan. In addition, IITA Section 203(g) prohibits deduction of the same item more than once.

2)         Change in Beneficiaries.  A change in the beneficiaries of an existing plan shall not be considered a contribution for purposes of IITA Section 203(a)(2)(Y) and this Section.

3)         Employer Contributions.  For purposes of this subtraction, contributions made by an employer on behalf of an employee under IITA Section 218 shall be treated as made by the employee.

d)         Limitations on Subtraction Modification

1)         The subtraction modification under IITA Section 203(a)(2)(Y) is allowed only to individuals. In the case of a contribution to a College Savings Pool Account, the subtraction is allowed only to the account "participant" or "donor" as defined in Section 16.5 of the State Treasurer Act. In the case of a contribution to an Illinois prepaid tuition contract, the subtraction is allowed only to the account "purchaser" as defined in Section 10 of the Illinois Prepaid Tuition Act.

2)         The subtraction modification is allowed only for contributions to either the Illinois College Savings Pool or Illinois Prepaid Tuition Trust Fund. There is no subtraction modification for contributions to a qualified tuition program established and maintained by another state.

(Source:  Added at 35 Ill. Reg. 15092, effective August 24, 2011)

Section 100.2565  Subtraction for Recovery of Itemized Deductions (IITA Section 203(a)(2)(I))

a)         In computing base income, an individual is allowed to subtract from his or her federal adjusted gross income an amount equal to all amounts included in that total pursuant to the provisions of IRC section 111 as a recovery of items previously deducted from adjusted gross income in the computation of taxable income. (IITA Section 203(a)(2)(I))

b)         Under IRC section 111, a taxpayer who is allowed a deduction in computing federal taxable income in one taxable year, and recovers the deductible expenditure in a subsequent taxable year, includes the recovery in gross income in the year of recovery.  For example, an individual who claims an itemized deduction for State income taxes paid in 2015 on his or her 2015 federal income tax return, and in 2016 receives a refund of some of that tax, includes the refund in gross income for 2016.  This procedure prevents the taxpayer from receiving a tax benefit for an expenditure that ultimately did not cost the taxpayer, without requiring the filing of an amended return to remove the deduction from the computation of taxable income in the year the deduction was taken.

c)         Under IITA Section 203(a)(1), the computation of an individual's base income begins with his or her federal adjusted gross income, which is equal to taxable income before itemized deductions, the standard deduction and personal exemptions are taken into account.  As a result, individuals receive no Illinois income tax benefit from federal itemized deductions.  Accordingly, recoveries of federal itemized deductions do not need to be included in an individual's base income to prevent the individual receiving a tax benefit for the item. IITA Section 203(a)(2)(I) therefore allows individuals to subtract recoveries of itemized deductions that are included in their federal adjusted gross income.

d)         IITA Section 203(a)(2)(I) was enacted before the September 16, 1994 effective date of PA 88-660, which enacted the automatic sunset provisions in IITA Section 250.  The automatic sunset provisions therefore do not apply to this Section.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2580  Medical Care Savings Accounts (IITA Sections 203(a)(2)(D-5), 203(a)(2)(S) and 203(a)(2)(T))

a)         For the purposes of this Section, "Act" means the Medical Care Savings Account Act [820 ILCS 152], repealed January 1, 2000, or the Medical Care Savings Account Act of 2000 [820 ILCS 153], which re-enacted the provisions of the repealed Act.

b)         "Medical care savings account" or "account" means an account established in this State pursuant to a medical care savings account program to pay the eligible medical expenses of an employee and his or her dependents.  (Section 5 of the Act)  An employer, except as otherwise provided by statute, contract, or a collective bargaining agreement, may offer a medical care savings account program to the employer's employees.

c)         A medical care savings account program must include the following:

1)         The purchase by an employer of a qualified higher deductible health plan for the benefit of an employee and his or her dependents.  (Section 5 of the Act)

2)         The contribution on behalf of an employee into a medical care savings account by his or her employer of all or part of the premium differential realized by the employer based on the purchase of a qualified higher deductible health plan for the benefit of the employee.  An employer that did not previously provide a health coverage policy, certificate, or contract for his or her employees may contribute all or part of the deductible of the plan purchased pursuant to subsection (c)(1).  For 1994, a contribution under this Section may not exceed $6,000 for 2 taxpayers filing a joint return, if each taxpayer has a medical care savings account but neither is covered by the other's health coverage, or $3,000 in all other cases.  These maximum amounts shall be adjusted annually by the Department of Revenue to reflect increases in the consumer price index for the United States as defined and officially reported by the United States Department of Labor.  (Section 5 of the Act)

A)        The Department will announce adjustments in the maximum amounts, as well as in the minimum higher deductible, by annual publication of a Notice of Public Information in the Illinois Register.

B)        The Consumer Price Index (CPI) annual average for all urban consumers was 144.5 for calendar year 1993 and 148.2 for calendar year 1994.  Therefore, the thresholds established under the Act were adjusted upward by 2% for 1995.  Hence, for 1995, the minimum higher deductible is $1026, the maximum higher deductible is $3078, the maximum contribution for 2 taxpayers filing a joint return is $6156 and the maximum contribution for all others is $3078.

C)        For the years 1994 through 2006, the thresholds are as follows:

3)         An account administrator to administer the medical care savings account from which payment of claims is made.  Not more than 30 days after an account administrator begins to administer an account, the administrator shall notify in writing each employee on whose behalf the administrator administers an account of the date of the last business day of the administrator's business year. (Section 5 of the Act)

d)         Section 5 of the Act contains a number of definitions:

1)         "Account administrator" means any of the following:

A)        A national or state chartered bank, a federal or State chartered savings and loan association, a federal or State chartered savings bank, or a federal or State chartered credit union.

B)        A trust company authorized to act as a fiduciary.

C)        An insurance company authorized to do business in this State under the Illinois Insurance Code or a health maintenance organization authorized to do business in this State under the Health Maintenance Organization Act.

D)        A dealer, salesperson, or investment adviser registered under the Illinois Securities Law of 1953.

E)        An administrator as defined in Section 511.101 of the Illinois Insurance Code who is licensed under Article XXXI¼ of that Code.

F)         A certified public accountant registered under the Illinois Public Accounting Act.

G)        An attorney licensed to practice in this State.

H)        An employer, if the employer has a self-insured health plan under the federal Employee Retirement Income Security Act of 1974 (ERISA).

I)         An employer that participates in the medical care savings account program.

2)         "Deductible" means the total deductible for an employee and all the dependents of that employee for a calendar year.

3)         "Dependent" means the spouse of the employee or a child of the employee if the child is any of the following:

A)        under 19 years of age, or under 23 years of age and enrolled as a full-time student at an accredited college or university,

B)        legally entitled to the provision of proper or necessary subsistence, education, medical care, or other care necessary for his or her health, guidance, or well-being and not otherwise emancipated, self-supporting, married, or a member of the armed forces of the United States, or

C)        mentally or physically incapacitated to the extent that he or she is not self-sufficient.

4)         "Domicile" means a place where an individual has his or her true, fixed, and permanent home and principal establishment, to which, whenever absent, he or she intends to return.  Domicile continues until another permanent home or principal establishment is established.

5)         "Eligible medical expense" means an expense paid by the taxpayer for medical care described in Section 213(d) of the Internal Revenue Code.

6)         "Employee" means the individual for whose benefit or for the benefit of whose dependents a medical care savings account is established.  Employee includes a self-employed individual.

7)         "Higher deductible" means a deductible of not less than $1,000 and not more than $3,000 for 1994.  This minimum and maximum shall be adjusted annually by the Department of Revenue to reflect increases in the consumer price index for the United States as defined and officially reported by the United States Department of Labor.

8)         "Qualified higher deductible health plan" means a health coverage policy, certificate, or contract that provides for payments for covered benefits that exceed the higher deductible and that is purchased by an employer for the benefit of an employee for whom the employer makes deposits into a medical care savings account.

e)         Before making any contribution to an account, an employer that offers a medical care savings account program shall inform all its employees in writing of the federal tax status of contributions made.  (Section 10(b) of the Act) The contributions made pursuant to the Medical Care Savings Account Act will be taxable federally unless and to the extent the medical care savings account qualifies as a tax-favored medical savings account under section 220 of the Internal Revenue Code (26 USC 220).

f)         Use of Account Moneys

1)         The account administrator shall utilize the moneys held in a medical care savings account solely for the purpose of paying the medical expenses of the employee or his or her dependents or to purchase a health coverage policy, certificate, or contract if the employee does not otherwise have health insurance coverage.  Moneys held in a medical care savings account may not be used to cover medical expenses of the employee or his or her dependents that are otherwise covered, including but not limited to medical expenses covered pursuant to an automobile insurance policy, worker's compensation insurance policy or self-insured plan, or another health coverage policy, certificate, or contract.  (Section 15(a) of the Act)

2)         The employee may submit documentation of medical expenses paid by the employee in the tax year to the account administrator, and the account administrator shall reimburse the employee from the employee's account for eligible medical expenses.  (Section 15(b) of the Act)

3)         If an employer makes contributions to a medical care savings account program on a periodic installment basis, the employer may advance to an employee, interest free, an amount necessary to cover medical expenses incurred that exceed the amount in the employee's medical care savings account when the expense is incurred if the employee agrees to repay the advance from future installments or when he or she ceases to be an employee of the employer.  (Section 15(c) of the Act)

4)         Upon the death of the employee, the account administrator shall distribute the principal and accumulated interest of the medical care savings account to the estate of the employee.  (Section 20(d) of the Act)

g)         Illinois Income Tax Consequences

1)         Except as provided in subsection (f)(2), principal contributed to and interest earned on a medical care savings account and money reimbursed to an employee for eligible medical expenses are exempt from taxation under the Illinois Income Tax Act and shall be a modification decreasing federal adjusted gross income in arriving at Illinois taxable income of the employee for the taxable year.

2)         Notwithstanding subsection (f)(3), and subject to subsection (f)(4), an employee may withdraw money from his or her medical care savings account for any purpose other than a purpose described in subsection (f)(1) only on the last business day of the account administrator's business year.  Money withdrawn pursuant to this subsection (g)(2) shall be a modification increasing federal adjusted gross income in arriving at Illinois taxable income of the employee in the taxable year of the withdrawals.  (Section 20(a) of the Act)

3)         If the employee withdraws money for any purpose other than a purpose described in subsection (f)(1) at any other time, all of the following apply:

A)        The amount of the withdrawal shall be a modification increasing federal adjusted gross income in arriving at Illinois taxable income of the employee in the taxable year of the withdrawal.

B)        The administrator shall withhold and on behalf of the employee shall pay a penalty to the Department equal to 10% of the amount of the withdrawal.  (Section 20(a)(2) of the Act) The administrator must remit the penalty to the Department along with a copy of Form IL-601 "Medical Care Savings Account Penalty Payment."

C)        Interest earned on the account during the taxable year in which a withdrawal under this subsection is made shall be a modification increasing federal adjusted gross income in arriving at Illinois taxable income of the employee.

4)         The amount of a disbursement of any assets of a medical care savings account pursuant to a filing for protection under Title 11 of the United States Code, 11 USC 101 to 1330, by an employee or person for whose benefit the account was established is not considered a withdrawal for purposes of this Section.  The amount of a disbursement is not subject to taxation under the Illinois Income Tax Act, and subsection (g)(3) does not apply.  (Section 20(c) of the Act)

5)         In the event that all of the following occur:

A)        an employee is no longer employed by an employer that participates in a medical care savings account program,

B)        the employee, not more than 60 days after his or her final day of employment, transfers the account to a new account administrator or requests in writing to the former employer's account administrator that the account remain with that administrator, and

C)        that account administrator agrees to retain the account, then the money in the medical care savings account may be utilized for the benefit of the employee or his or her dependents subject to this Act, remains exempt from taxation, and shall be a modification decreasing federal adjusted gross income in arriving at Illinois taxable income of the employee or his or her dependents for the taxable year.  Not more than 30 days after the expiration of the 60 days, if an account administrator has not accepted the former employee's account, the employer shall mail a check to the former employee, at the employee's last known address, for an amount equal to the amount in the account on that day, and that amount is subject to taxation pursuant to subsection (g)(3)(A), and shall be a modification increasing federal adjusted gross income in arriving at Illinois taxable income of the employee but is not subject to the penalty under subsection (g)(3)(B).  If an employee becomes employed with a different employer that participates in a medical care savings account program, the employee may transfer his or her medical care savings account to that new employer's account administrator.  (Section 20(e) of the Act)

h)         The Act shall expire on 1/1/2010. As a result of repeal of the Act, for taxable years beginning on and after January 1, 2010:

1)         The subtraction modification provided for in subsection (g)(1) of this Section and IITA Section 203(a)(2)(S) and (T) for principal contributed to and interest earned on a medical care savings account shall not apply;

2)         The subtraction modification provided for in subsection (g)(1) of this Section and Section 10(c) of the Act for money reimbursed to an employee for eligible medical expenses shall not apply;

3)         The addition modification provided for in subsection (g)(2) of this Section and Section 20(a) of the Act for money withdrawn from a medical care savings account for any purpose other than a purpose described in subsection (f)(1) of this Section shall not apply;

4)         The addition modification provided for in subsection (g)(3) of this Section and IITA Section 203(a)(2)(D-5) for the amount of a withdrawal for any purpose other than a purpose described in subsection (f)(1) of this Section and for interest earned on the account during the taxable year of the withdrawal shall not apply;

5)         The penalty provided for in subsection (g)(3) of this Section and Section 20(c) of the Act equal to 10% of the amount of a withdrawal for any purpose other than a purpose described in subsection (f)(1) of this Section shall not apply.

(Source:  Amended at 36 Ill. Reg. 2363, effective January 25, 2012)

Section 100.2590  Taxation of Certain Employees of Railroads, Motor Carriers, Air Carriers and Water Carriers

a)         Federal law affects the authority of the State of Illinois to subject certain employees of railroads, motor carriers, merchant mariners, and air carriers to Illinois income taxation.  By virtue of the provisions of federal laws cited in this Section, compensation that would otherwise be subject to Illinois income taxation and withholding by virtue of IITA Sections 302(a) and 304(a)(2)(B) is subtracted from adjusted gross income in determining Illinois base income (and is not subject to Illinois income tax withholding) pursuant to IITA Section 203(a)(2)(N), which provides a subtraction from adjusted gross income for an amount equal to all amounts included in adjusted gross income that are exempt from taxation by this State by reason of the statutes of the United States.

1)         Railroad Employees.  49 USC 11502(a) states that no part of the compensation paid by a rail carrier subject to the jurisdiction of the Surface Transportation Board to an employee who performs regularly assigned duties as an employee on a railroad in more than one state shall be subject to the income tax laws of any state or subdivision of that state, other than the state or subdivision thereof of the employee's residence.

2)         Motor Carrier Employees.  49 USC 14503(a)(1) states that no part of the compensation paid by a motor carrier providing transportation subject to the jurisdiction of the Surface Transportation Board or by a motor private carrier to an employee who performs regularly assigned duties in 2 or more states as an employee with respect to a motor vehicle shall be subject to the income tax laws of any state or subdivision of that state, other than the state or subdivision thereof of the employee's residence.

3)         Merchant Mariner Employees.  46 USC 11108 states that no part of the compensation paid by a merchant mariner to an employee who performs regularly assigned duties in more than one state shall be subject to the income tax laws of any state or subdivision of that state, other than the state or subdivision of the employee's residence.

4)         Air Carrier Employees.  49 USC 40116(f)(2) states that no part of the compensation paid by an air carrier to an employee who performs regularly assigned duties as an employee on an aircraft in more than one state, shall be subject to the income tax laws of any state or its subdivision other than the state or subdivision of the employee's residence and the state or subdivision in which the employee's scheduled flight time would have been more than 50% of the employee's total scheduled flight time for the calendar year.

b)         Examples

1)         EXAMPLE 1:  A is a locomotive engineer employed by Interstate Railway. Interstate operates a rail yard in Illinois. Interstate also operates in Missouri, where it has a rail yard, as well as its administrative and payroll offices. A is a resident of Missouri. A is assigned to, and primarily reports to, the Illinois rail yard of Interstate and drives locomotives for Interstate on trips that go throughout the United States. However, on occasion, A is required to report to the Missouri rail yard of Interstate and drive locomotives on trips that originate in Missouri. Pursuant to 49 USC 11502(a), Interstate may only withhold the Missouri personal income tax on A's wages, and A is not subject to Illinois income tax on the wages paid by Interstate.

2)         EXAMPLE 2:  A is an airline pilot for World-Wide Airlines. World-Wide provides passenger and freight service to various destinations throughout the United States from an airport in Missouri, as well as from an airport in Illinois. A lives in Missouri, but A reports to and flies out of the World-Wide airport in Illinois. A primarily flies to destinations outside of Illinois. Less than 50% of A's compensation (as determined by flight time in Illinois versus flight time everywhere) is earned within Illinois. Therefore, A is only subject to Missouri income taxation on his or her compensation from World-Wide.

3)         EXAMPLE 3:  The facts are the same as in Example 2, except that A pilots commuter planes between airports in Illinois. In this situation, A will be subject to Illinois income taxation by virtue of the fact that A earns more than 50% of his or her compensation within the State of Illinois.

(Source:  Amended at 44 Ill. Reg. 10907, effective June 10, 2020)

Section 100.2655  Subtraction Modification for Enterprise Zone and River Edge Redevelopment Zone Interest (IITA Section 203(b)(2)(M))

a)         A corporation that is a "financial organization" within the meaning of IITA Section 304(c) may subtract an amount included in its taxable income as interest income from a loan or loans made by such taxpayer to a borrower, to the extent that such a loan is secured by property which is eligible for the enterprise zone investment credit (IITA Section 203(b)(2)(M)) or the river edge redevelopment zone investment credit under IITA Section 201(f).  The subtraction for interest from loans secured by property eligible for the enterprise zone investment credit is allowed only for interest received or accrued prior to August 7, 2012, the effective date of PA 97-905, which repealed this subtraction.

b)         Eligible Property.  For purposes of this Section, "Eligible Property" shall mean:

1)         for tax years ending prior to June 8, 1984 (the effective date of PA 83-1114), property for which the borrower had successfully claimed the credit under IITA Section 201(h) (prior to recodification as IITA Section 201(f) by PA 85-731); and

2)         for tax years ending on or after June 8, 1984, property that is "qualified property" as defined under IITA Section 203(f)(2) and Section 100.2131(e) or that would have been qualified property under those provisions if placed in service in an enterprise zone at the time it was new by a taxpayer otherwise eligible to claim the credit under IITA Section 203(f).

c)         Portion of Loan Secured by Eligible Property.  To determine the portion of a loan that that is secured by Eligible Property, the entire principal amount of the loan between the taxpayer and the borrower should be divided into the basis of the Eligible Property which secures the loan, using for this purpose the original basis of such property on the date it was placed in service in the enterprise zone or the river edge redevelopment zone.  The subtraction modification available to the taxpayer in any year under this Section shall be the portion of the total interest paid by the borrower with respect to such loan attributable to the Eligible Property as calculated under the previous sentence.  (IITA Section 203(b)(2)(M))  There is no limitation to the length of time for which the subtraction may be taken with respect to a particular loan.

d)         Basis.  For purposes of the computation in subsection (c), the basis of Eligible Property shall be its borrower's basis in the Eligible Property for federal income tax purposes, including the costs of any improvements or repairs included in that basis, but without adjustment for depreciation or IRC section 179 deductions claimed with respect to the property.

e)         Examples.  This subsection provides examples of various fact situations and the Department's interpretation of how this subtraction would apply:

1)         EXAMPLE 1.  Bank lends $1,000 to Borrower, secured by Eligible Property with a basis of $900.  The portion of the loan secured by Eligible Property is the $900 basis of the borrower in Eligible Property divided by the $1,000 principal amount of the loan, or 90%.

2)         EXAMPLE 2.  Bank lends $1,000 to Borrower, secured by Eligible Property with a basis of $1,000 and by other property with a basis of $2,000.  The portion of the loan secured by Eligible Property is the $1,000 basis of the borrower in Eligible Property divided by the $1,000 principal amount of the loan, or 100%.  The existence of other property securing the loan is irrelevant.

3)         EXAMPLE 3.  In 1996, ABC Company built a new warehouse in an enterprise zone at the cost of $1,000,000 and is able to claim the enterprise zone investment credit under IITA Section 201(f).  ABC takes out a $2,000,000 loan at Bank A, which then places a lien on the property.  In 1999, when the warehouse had an adjusted basis (after depreciation) of $900,000 and a fair market value of $1,300,000, ABC refinanced the loan for the same principal amount, but at a lower interest rate.  For both loans, the portion of the loan secured by Eligible Property is the $1,000,000 original basis in the warehouse divided by the $2,000,000 principal.  Neither the adjusted basis after depreciation nor the fair market value are relevant to the computation for the refinanced amount.

4)         EXAMPLE 4.  The facts are the same as in Example 3, except that, in 2001, ABC Company again refinanced the loan, this time at Bank B (unrelated to Bank A).  There was no change in the principal amount.  Bank B takes a lien on the warehouse to secure the new loan.  The portion of the Bank B loan that qualifies for the subtraction modification is 50% because the principal amount of the loan and ABC Company's original basis in the property remain unchanged.

5)         EXAMPLE 5.  Same facts as in Example 4, except that Bank B purchased the refinanced loan from Bank A.  The loan is not refinanced.  ABC continues to pay the same amount, but now pays Bank B rather than Bank A.  Bank B does not qualify for the subtraction modification, which is allowed only with respect to a loan "made by such taxpayer to a borrower" and Bank B did not make the loan.

6)         EXAMPLE 6.  X Corp., headquartered outside the river edge redevelopment zone, builds a $100,000,000 warehouse in a river edge redevelopment zone in 2007 and claims the river edge redevelopment zone credit.  X takes out a 20-year loan at Bank A in the principal amount of $1,000,000.  In 2017, X takes out a new $1,750,000 loan at the same bank and uses $1,000,000 of the proceeds to pay off the old loan and spends the remaining $750,000 to renovate its corporate headquarters located outside the zone.  Bank A takes a lien on the warehouse as security for each loan.  Because X Corp.'s $100,000,000 basis in the warehouse exceeds the principal amount of each loan, Bank A is entitled to subtract the entire amount of interest received from each loan.  The portion of the loan whose interest may be subtracted need not be reduced by the $750,000 portion not spent inside the river edge redevelopment zone because use of the borrowed funds is not relevant to the subtraction.

7)         EXAMPLE 7.  The F Church, located in an enterprise zone, decides to borrow $500,000 in 2003 from Bank A for roof repairs and a new addition.  The church cannot claim the enterprise zone credit because it did not have unrelated business taxable income and was not required to file an IL-990-T for 2003.  Bank A may claim the subtraction modification.  The loan is secured by property that is either qualified property or could be qualified property, and the property has been placed in service within an enterprise zone.

(Source:  Amended at 49 Ill. Reg. 3115, effective February 26, 2025)

Section 100.2657  Subtraction Modification for High Impact Business Interest (IITA Section 203(b)(2)(M-1))

a)         A corporation that is a "financial organization" within the meaning of IITA Section 304(c) may subtract an amount included in its taxable income as interest income from a loan or loans made by such taxpayer to a borrower, to the extent that such a loan is secured by property which is eligible for the High Impact Business Investment Credit under IITA Section 201(h). (IITA Section 203(b)(2)(M-1))

b)         Coordination with Subtraction for Enterprise Zone Interest. Notwithstanding subsection (a), a taxpayer may not claim a subtraction modification under IITA Section 203(b)(2)(M-1) and this Section for any taxable year in which the taxpayer is allowed to claim the subtraction modification under IITA Section 203(b)(2)(M) and Section 100.2655 of this Part for interest on a loan secured by property eligible for the enterprise zone investment credit or river edge redevelopment zone investment credit. (IITA Section 203(b)(2)(M-1))

c)         Eligible Property.  For purposes of this Section, "eligible property" shall mean property that is "qualified property", as defined under IITA Section 201(h) and Section 100.2130(e) of this Part, and that is placed in service on or after the date the owner is designated as a high impact business by the Department of Commerce and Economic Opportunity. To be considered eligible property, it is not necessary that the property be placed in service in a federally designated foreign trade zone or subzone.

d)         Portion of Loan Secured by Eligible Property.  To determine the portion of a loan that is secured by eligible property, the entire principal amount of the loan between the taxpayer and the borrower should be divided into the basis of the eligible property which secures the loan, using for this purpose the original basis of such property on the date it was placed in service. The subtraction modification available to the taxpayer in any year under IITA Section 203(b)(2)(M-1) shall be that portion of the total interest paid by the borrower with respect to such loan attributable to the eligible property as calculated under the previous sentence. (IITA Section 203(b)(2)(M-1)) There is no limitation to the length of time for which the subtraction may be taken with respect to a particular loan.

e)         Basis. For purposes of the computation in subsection (d), the basis of eligible property shall be its borrower's basis in the eligible property for federal income tax purposes, including the costs of any improvements or repairs included in that basis, but without adjustment for depreciation or IRC section 179 deductions claimed with respect to the property.

f)         Examples. The provisions of IITA Section 203(b)(2)(M-1) and this Section may be illustrated by the following examples.

1)         EXAMPLE 1.  Bank lends $1,000 to Borrower, secured by eligible property with a basis of $900. The portion of the loan secured by eligible property is the $900 basis of the borrower in eligible property divided by the $1,000 principal amount of the loan, or 90%.

2)         EXAMPLE 2.  Bank lends $1,000 to Borrower, secured by eligible property with a basis of $1,000 and by other property with a basis of $2,000. The portion of the loan secured by eligible property is the $1,000 basis of the borrower in eligible property divided by the $1,000 principal amount of the loan, or 100%. The existence of other property securing the loan is irrelevant.

3)         EXAMPLE 3.  In 2008, DCEO designated ABC Company a high impact business. In 2009, ABC Company built a new warehouse at the cost of $1,000,000 and is able to claim the high impact business investment credit under IITA Section 201(h) with respect to the warehouse. ABC takes out a $2,000,000 loan at Bank A, which then places a lien on the property. In 2010, when the warehouse had an adjusted basis (after depreciation) of $900,000 and a fair market value of $1,300,000, ABC refinanced the loan for the same principal amount, but at a lower interest rate. For both loans, the portion of the loan secured by eligible property is the $1,000,000 original basis in the warehouse divided by the $2,000,000 principal. Neither the adjusted basis after depreciation nor the fair market value is relevant to the computation for the refinanced amount.

4)         EXAMPLE 4.  Assume the facts are the same as in Example 3, except that, in 2011, ABC Company again refinanced the loan, this time at Bank B (unrelated to Bank A). There was no change in the principal amount. Bank B takes a lien on the warehouse to secure the new loan. The portion of the Bank B loan that qualifies for the subtraction modification is 50% because the principal amount of the loan and ABC Company's original basis in the property remain unchanged.

5)         EXAMPLE 5.  The facts are the same as in Example 4, except that Bank B purchased the refinanced loan from Bank A. The loan is not refinanced. ABC continues to pay the same amount, but now pays Bank B rather than Bank A. Bank B does not qualify for the subtraction modification, which is allowed only with respect to a loan "made by such taxpayer to a borrower" and Bank B did not make the loan.

(Source:  Added at 38 Ill. Reg. 9550, effective April 21, 2014)

Section 100.2665  Subtraction for Payments to an Attorney-in-Fact (IITA Section 203(b)(2)(R))

a)         Under an interinsurance or reciprocal insurance arrangement, the members or subscribers are liable to reimburse each other for insured losses.  The operations of an interinsurer or reciprocal insurer are conducted by an attorney-in-fact. Interinsurers and reciprocal insurers are subject to federal income tax as mutual insurance companies.  (See Internal Revenue Code section 832(f).) Under IRC section 835, an interinsurer or reciprocal insurer can elect to limit its deduction for fees paid to its attorney-in-fact to the amount of deductible expenses incurred by the attorney-in-fact that are attributable to those fees. An interinsurer or reciprocal insurer that makes this election is allowed a credit equal to the federal income tax liability of its attorney-in-fact with respect to the fees received from the interinsurer or reciprocal insurer. 

b)         The effect of making an election under IRC section 835 is that the net income of the attorney-in-fact related to the interinsurer or reciprocal insurer that made the election is included in the federal taxable income of both the attorney-in-fact and the interinsurer or reciprocal insurer, but the interinsurer or reciprocal insurer is allowed a federal credit that eliminates the double taxation of that income. Prior to the enactment of PA 91-205, that income would be included in the base incomes of the interinsurer or reciprocal insurer and of the attorney-in-fact. On and after July 20, 1999 (the effective date of PA 91-205), in the case of an attorney-in-fact with respect to whom an interinsurer or a reciprocal insurer has made the election under IRC section 835, the attorney-in-fact is allowed to subtract an amount equal to the excess, if any, of the amounts paid or incurred by that interinsurer or reciprocal insurer in the taxable year to the attorney-in-fact over the deduction allowed to that interinsurer or reciprocal insurer with respect to the attorney-in-fact under IRC section 835 for the taxable year.  (IITA Section 203(b)(2)(R)) The provisions of IITA Section 203(b)(2)(R) are exempt from automatic sunset under the provisions of Section 250.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2668  Subtraction for Dividends from Controlled Foreign Corporations (IITA Section 203(b)(2)(Z))

a)         Under Internal Revenue Code section 965(e), the taxable income of a shareholder of a controlled foreign corporation (CFC) may not be less than the "nondeductible CFC dividends" received from that CFC, as defined in IRC section 965(e)(3).  If the shareholder's federal net income would otherwise be less than the nondeductible CFC dividends, the shareholder carries over the excess of its nondeductible CFC dividends over the amount of its federal taxable income computed without regard to IRC section 965(e) as a net operating loss under IRC section 172. 

b)         IITA Prior to PA 97-507. Under IITA Section 203(b), the base income of a corporation for a taxable year is its taxable income for the year, as properly reportable for federal income tax purposes, after modifications in IITA Section 203(b)(2). Under IITA Section 203(b)(2)(D), any net operating loss deduction claimed by a corporation under IRC section 172 for a loss incurred in a taxable year ending on or after December 31, 1986, is added back to the corporation's taxable income.  Under IITA Section 207, the net loss of a taxpayer (other than an individual) for a taxable year is its taxable income for the year, as properly reportable for federal income tax purposes, after modifications in IITA Section 203(b)(2). As a result, a corporation whose nondeductible CFC dividends exceeded its federal taxable income computed without regard to IRC section 965(e) for a taxable year would receive no tax benefit from the deductions or losses that caused the excess, because those deductions or losses could not reduce its federal taxable income in the year incurred and any resulting IRC section 172 deduction would be added back to taxable income in the carryover years under IITA Section 203(b)(2)(D).

c)         In order to allow a corporation the benefit of deductions otherwise disallowed by IRC section 965(e) and IITA Section 203(b)(2)(D), PA 97-507 added IITA Section 203(b)(2)(Z) to allow a subtraction for the difference between the nondeductible controlled foreign corporation dividends under IRC section 965(e)(3) over the taxable income of the taxpayer, computed without regard to IRC section 965(e)(2)(A), and without regard to any net operating loss deduction. IITA Section 203(b)(2)(Z) applies to all taxable years, and is exempt from automatic sunset under the provisions of Section 250.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2770  Subtraction for Recovery of Itemized Deductions of a Decedent (IITA Section 203(c)(2)(W))

a)         In computing its base income, an estate is allowed to subtract from its federal taxable income an amount equal to all amounts included in that total pursuant to the provisions of IRC section 111 as a recovery of items previously deducted by the decedent from adjusted gross income in the computation of taxable income. (IITA Section 203(c)(2)(W))

b)         Under IRC section 111, a taxpayer who is allowed a deduction in computing federal taxable income in one taxable year, and recovers the deductible expenditure in a subsequent taxable year, includes the recovery in gross income in the year of recovery.  For example, an individual who claims an itemized deduction for State income taxes paid in 2015 on his or her 2015 federal income tax return, and in 2016 receives a refund of some of that tax, includes the refund in gross income for 2016.  This procedure prevents the taxpayer from receiving a tax benefit for an expenditure that ultimately did not cost the taxpayer, without requiring the filing of an amended return to remove the deduction from the computation of taxable income in the year the deduction was taken.

c)         If the estate of a deceased individual recovers an item that the individual had deducted in a taxable year prior to his or her death, the estate must include the recovery in its taxable income.

d)         Under IITA Section 203(a)(1), the computation of an individual's base income begins with his or her federal adjusted gross income, which is equal to taxable income before itemized deductions, the standard deduction and personal exemptions are taken into account.  As a result, individuals receive no Illinois income tax benefit from federal itemized deductions.  Accordingly, recoveries of federal itemized deductions taken by a decedent do not need to be included in the base income of the decedent's estate to prevent receiving a tax benefit for the item. IITA Section 203(c)(2)(W) therefore allows an estate to subtract recoveries of itemized deductions taken by the decedent that are included in the estate's federal taxable income.

e)         IITA Section 203(c)(2)(W) provides that it is exempt from the automatic sunset provisions of IITA Section 250.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2775  Subtraction for Refunds of Taxes Paid to Other States for Which a Credit Was Claimed (IITA Section 203(c)(2)(X))

a)         In computing its base income, an estate is allowed to subtract from its federal taxable income an amount equal to the refund included in that total of any tax deducted for federal income tax purposes, to the extent that deduction was added back under IITA Section 203(c)(2)(F). (IITA Section 203(c)(2)(X))

b)         Under IRC section 111, a taxpayer who is allowed a deduction in computing federal taxable income in one taxable year, and recovers the deductible expenditure in a subsequent taxable year, includes the recovery in gross income in the year of recovery.  For example, a trust or estate that claims a deduction for State income taxes paid in 2015 on its 2015 federal income tax return, and in 2016 receives a refund of some of that tax, includes the refund in gross income for 2016.  This procedure prevents the taxpayer from receiving a tax benefit for an expenditure that ultimately did not cost the taxpayer, without requiring the filing of an amended return to remove the deduction from the computation of taxable income in the year the deduction was taken.

c)         If a trust or estate claims a credit for taxes paid to other states under IITA Section 601(b)(3), the taxpayer adds back to its federal taxable income any deduction taken for payment of a state tax for which the credit is claimed. (See IITA Section 203(c)(2)(F).) If a trust or estate has added back the federal income tax deduction for a state tax, a refund of that tax does not need to be included in the taxpayer's base income to prevent receiving a tax benefit for the item. IITA Section 203(c)(2)(X) therefore allows the taxpayer to subtract refunds of these taxes that are included in the taxpayer's federal taxable income.

d)         IITA Section 203(c)(2)(X) provides that it is exempt from the automatic sunset provisions of IITA Section 250.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)

Section 100.2850  Subtraction Modification for Personal Service Income or Reasonable Allowance for Compensation to Partners (IITA Section 203(d)(2)(H))

a)         In General. A partnership is allowed to subtract from taxable income any income of the partnership that constitutes personal service income as defined in 26 USC 1348(b)(1) (as in effect December 31, 1981) or a reasonable allowance for compensation paid or accrued for services rendered by partners to the partnership, whichever is greater. (IITA Section 203(d)(2)(H))  Therefore, pursuant to this Section, a partnership is allowed a subtraction modification in an amount equal to the greater of the amount computed under subsection (b) or the amount computed under subsection (c).

1)         Purpose. Under the IRC and federal income tax law, a partner is not an employee of the partnership. Consequently, a partnership generally may not deduct in computing the taxable income of the partnership amounts paid to a partner for services rendered to the partnership. (Estate of Tilton, 8 BTA 914 (1927)) Instead, these amounts are considered distributive shares of partnership income (Revenue Ruling 55-30, 1955-1 C.B. 430). In contrast, a shareholder of a corporation may also be employed by the corporation. Amounts paid by the corporation to the shareholder that constitute compensation for services rendered as an employee may be deducted by the corporation in computing its taxable income under 26 USC 162(a)(1). The purpose of the subtraction modification under IITA Section 203(d)(2)(H) and this Section is to allow partnerships, for purposes of computing their liability for the tax imposed under IITA Section 201(c) and (d) (replacement tax), a deduction for compensation paid to partners for services rendered to the partnership similar to the deduction allowed to a corporation for compensation paid a shareholder-employee for services rendered to the corporation.

2)         Amounts that Qualify for Subtraction.

A)        The amounts computed under subsections (b) and (c) are comprised of the distributive shares of the partners in the income of the partnership. Under 26 USC 707(c) to the extent determined without regard to the income of the partnership, payments to a partner for services or the use of capital are considered as made to a person who is not a partner, but only for the purposes of 26 USC 61(a) (relating to gross income) and, subject to 26 USC 263, for purposes of IRC section 162(a) (relating to trade or business expenses). 26 CFR 1.707-1(c) states that, for the other purposes of the IRC, a guaranteed payment is regarded as a distributive share of the ordinary income of the partnership. Accordingly, a guaranteed payment to a partner may be included in the computation of the amounts computed under subsections (b) and (c).

B)        Under 26 USC 707(a), if a partner engages in a transaction with the partnership other than in his or her capacity as a partner, the transaction is generally considered as occurring between the partnership and one who is not a partner. When a partnership pays or accrues an amount to a non-partner for services rendered, the partnership is allowed a deduction in the computation of its taxable income (see, e.g., 26 USC 162). Therefore, a payment to a partner subject to 26 USC 707(a) may not be included in the amounts computed under subsections (b) and (c) (see IITA Section 203(g) and subsection (a)(5) of this Section). A distribution by the partnership subject to 26 USC 731 is treated as a return of capital and/or gain from the sale or exchange of the partnership interest of the distributee partner and, therefore, in no event may a distribution be included in the amounts computed under subsections (b) and (c). However, an allocation of partnership income to a partner may be considered compensation for services for purposes of this Section, whether or not accompanied by a corresponding distribution under 26 USC 731.

3)         Double Deductions Prohibited.  IITA Section 203(g) states that nothing in that Section shall permit the same item to be deducted more than once.

A)        Under IITA Section 203(d)(2)(I), a subtraction modification is allowed to the partnership for income distributable to an entity subject to replacement tax or to organizations exempt from federal income tax by reason of IRC section 501(a). Therefore, neither a guaranteed payment nor a distributive share of net income or gain of a partner subject to replacement tax or exempt from federal income tax under IRC section 501(a) may be included in the subtraction modification allowed under this Section.

B)        In addition, when a partnership pays or accrues an amount to a non-partner for services rendered, the partnership is allowed a deduction in the computation of its taxable income. Therefore, a payment to a partner subject to 26 USC 707(a) because the partner is not acting in his or her capacity as a partner, whether or not the payment is currently deducted by the partnership or capitalized, may not be subtracted under this Section. Similarly, when a person receives a partnership interest for the provision of services, the partnership's deduction is determined under 26 USC 83(h). Therefore, no amount may be deducted by the partnership under this Section for the transfer of a partnership interest in connection with the performance of services.

b)         Personal Service Income.  When the personal service income of the partnership, as defined in this subsection (b), is greater than a reasonable allowance for compensation paid or accrued for services rendered by partners, the subtraction modification under this Section shall be equal to the personal service income of the partnership. The personal service income of the partnership is equal to the aggregate of the distributive shares of the partners in the income of the partnership that would constitute personal service income in the hands of the partners (less deductions allocable to that income as provided in subsection (b)(2)). See Rev. Rul. 74-231, 1974-1 C.B. 240.

1)         Definitions

Personal Service Income. The term "personal service income", as defined in 26 USC 1348(b)(1) (as in effect December 31, 1981) means: "any income which is earned income within the meaning of 26 USC 401(c)(2)(C) or 26 USC 911(b) or which is an amount received as a pension or annuity which arises from an employer-employee relationship or from tax-deductible contributions to a retirement plan. For purposes of this subparagraph, 26 USC 911(b) shall be applied without regard to the phrase, 'not in excess of 30 percent of his share of net profits of such trade or business'. The term 'personal service income' does not include any amount to which 26 USC 72(m)(5), 402(a)(2), 402(e), 403(a)(2), 408(e)(2), 408(e)(3), 408(e)(4), 408(e)(5), 408(f) or 409(c) applies; or which is includible in gross income under 26 USC 409(b) because of the redemption of a bond which was not tendered before the close of the taxable year in which the registered owner attained age 70½." See also 26 CFR 1.1348-3. Under 26 USC 1348, only an individual (or trust or estate in the case of income in respect of a decedent) may receive personal service income. Therefore, only the distributive share of an individual partner (or trust or estate in the case of income in respect of a decedent) may be included in the personal service income of the partnership under this subsection (b).

2)         Personal Service Income is Net of Allocable Expenses. For purposes of determining the subtraction modification under this subsection (b), the personal service income of the partnership shall be the aggregate of the distributive shares of the partners in the income of the partnership that would constitute personal service income in the hands of the partners less deductions allocable to that income. In Treasury Decision 7446, Maximum Tax on Earned Income (August 13, 1976), the IRS stated that, in order to achieve a logical result in applying the maximum tax provisions of Section 1348 and to prevent the conversion of passive income into earned income, a proportional allocation of expenses to earned income is required in the case of a business in which capital is a material income-producing factor. In addition, if passive income is derived from investments held by a trade or business, expenses of the trade or business must be allocated between such passive income and the income available for payment as personal service income. Therefore, when a partnership incurs a loss from a trade or business, it does not have personal services income for purposes of the subtraction modification under this Section.

c)         Reasonable Compensation for Services. When a reasonable allowance for compensation paid or accrued for services actually rendered by partners is greater than the personal service income of the partnership, as defined in subsection (b), the subtraction modification under this Section is equal to that reasonable allowance. The reasonable compensation allowance of the partnership under this subsection is equal to the sum of the distributive shares of all partners who render services to or on behalf of the partnership of the income of the partnership to the extent that the distributive share would have been allowed as a deduction to the partnership under 26 USC 162 if it had been paid to the service partner for services performed in the capacity of an employee of the partnership rather than a partner. No part of the distributive share of a partner who performs no services to or on behalf of the partnership may be included in the reasonable compensation allowance of the partnership under this subsection.

1)         Paid or Accrued.  IITA Section 203(d)(2)(H) limits the subtraction modification for a reasonable allowance for compensation of partners to amounts "paid or accrued" to the partner for services rendered to the partnership. Therefore, the amount allowed under this subsection (c)(1) with respect to any partner may not exceed the increase, if any, in the capital account balance of the partner for the taxable year of the partnership in which the subtraction is claimed, determined under 26 CFR 1.704-1(b) without regard to contributions of money or property by the partner and without regard to distributions of money or property to the partner, but including a guaranteed payment made to the partner.

2)         Reasonable Allowance.  26 USC 162(a)(1) limits the deduction for compensation for services to a reasonable allowance. (See 26 CFR 1.162-7(b)(3).)  Therefore, the amount computed under this subsection (c)(2) with respect to any service partner may not exceed what is reasonable under all the circumstances. 26 CFR 1.162-7(b)(3) states, "it is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances." In addition, in Exacto Spring Corp. v. Commissioner, 196 F.3d 833 (7^th Cir. 1999), the court held that "when…the investors in [the] company are obtaining a far higher return than they had any reason to expect, the owner/employee's salary is presumptively reasonable." (Menard, Inc. v. C.I.R., 560 F.3d 620, 623 (7^th Cir. 2009)). However, this presumption may be rebutted by other evidence showing the amount claimed as compensation exceeds a reasonable amount.  (Menard, Inc., 560 F.3d at 623) Accordingly, when income of the partnership is allocated to partners in amounts that would result in the partners obtaining a far higher return on partnership capital than they had any reason to expect, a rebuttable presumption shall arise that any remaining amount of income allocated to partners for services actually provided to the partnership is a reasonable allowance, and therefore may be included in the amount computed under this subsection (c)(2). The taxpayer shall have the burden of proving that the presumption arises.

d)         Examples.  The provisions of this Section may be illustrated by the following examples.

EXAMPLE 1:  Partnership PB consists of individual partners P and B. The partnership is engaged in a manufacturing business in which capital is a material income-producing factor. The partnership agreement provides that B shall be entitled to a guaranteed payment of $100,000 annually for his services in managing the operations of the partnership. Assume that under IRC section 1348, the amount of the income of PB reasonably attributable to B's services is $30,000. (See Brewster v. C.I.R., 607 F.2d 1369 (D.C. Cir. 1979) and IRS Technical Advice Memorandum 7932010 (1979).) In addition, assume that $100,000 is reasonable compensation, and would be deductible to the partnership under IRC section 162(a)(1) if B rendered his management services as an employee rather than in his capacity as a partner. The partners agree to share all income, gain, losses and deductions equally after taking into account B's guaranteed payment. P does not provide any services to the partnership. For the taxable year, Partnership PB's taxable income, after taking into account B's guaranteed payment, is an ordinary loss of $40,000. Under these facts, Partnership PB is allowed a subtraction modification under this Section equal to the greater of the personal service income of the partnership computed under subsection (b) or a reasonable allowance for compensation for services rendered by partners to the partnership under subsection (c). In this case, the reasonable allowance of $100,000 exceeds the personal service income of the partnership of $0. Therefore, the subtraction modification allowed to PB under this Section is $100,000. Therefore, PB's base income for replacement tax purposes is a loss of $40,000 (i.e., taxable income under IITA Section 203(e)(2)(H) of a loss of $40,000, plus an addition modification of $100,000 under IITA Section 203(d)(2)(C), less a subtraction modification under this Section of $100,000).

EXAMPLE 2:  Assume the same facts as in Example 1, except that the partnership agreement does not provide B with a guaranteed payment, and the partnership's taxable income remains an ordinary loss of $40,000. Because PB incurs a loss in its trade or business, it has no personal services income. In addition, because the loss is shared by the partners, there is no increase in B's capital account balance for the taxable year. Therefore, no amount has been paid or accrued to the partners for services rendered to the partnership. This result is not changed even if the partnership makes distributions to the partners during the taxable year. Partnership PB is not allowed a subtraction modification under this Section. Therefore, PB's base income for replacement tax purposes is a loss of $40,000 (i.e., taxable income under IITA Section 203(e)(2)(H)).

EXAMPLE 3:  Assume the same facts as in Example 1, except that the partnership's taxable income consists of an ordinary loss of $100,000, and a $200,000 capital gain under IRC section 1231. Because Partnership PB incurs a loss in its trade or business and its only item of income is a section 1231 gain of $200,000, it has no personal services income. (See 26 CFR 1.1348-3(a)(1), which states that the term "earned income" does not include gains treated as capital gains under any provision of chapter 1 of the Internal Revenue Code.) However, the partnership is allowed a subtraction modification for reasonable compensation paid to B for services rendered to the partnership. The amount of the subtraction modification is the $100,000 guaranteed payment to B. Because P has not provided any services to the partnership, none of the income allocated to P is reasonable compensation for services.

EXAMPLE 4:  Assume the same facts as in Example 3, except that the partnership agreement does not provide for guaranteed payments. However, B is entitled under the partnership agreement to the first $100,000 of profits, if any, for his services managing the operations of the partnership. As a result, the partnership's taxable income consists solely of a section 1231 gain of $200,000. Because PB does not have income from its trade or business, and its only item of income is a section 1231 gain of $200,000, it has no personal services income. However, it is allowed a subtraction modification for reasonable compensation paid to B for services rendered to the partnership. Under the partnership agreement, $100,000 of gain allocated to B is in exchange for B's services managing the partnership. Provided that amount does not exceed a reasonable allowance for those services, PB is allowed a subtraction modification under this Section of the $100,000 guaranteed payment to B. Since P has not provided any services to the partnership, none of the gain allocated to P is reasonable compensation for services. Therefore, PB's base income for replacement tax purposes is $100,000 (i.e., taxable income under IITA Section 203(e)(2)(H) of $200,000, less a subtraction modification under this Section of $100,000).

EXAMPLE 5:  Partnership ABC is an engineering firm. The partnership's only trade or business is the provision of engineering services to clients, and capital is not a material income-producing factor. Partners A and B are individuals who provide all of the services to clients of the partnership. Partner C is a corporation that provides management services to the partnership. Under the partnership agreement, partners A and B have a 45% share of any income or loss of the partnership, and partner C has a 10% share of any income or loss. For its taxable year the partnership has taxable income from its engineering business of $100,000, plus $4,000 of portfolio interest income (net of allocable expenses). Since capital is not a material income-producing factor in the engineering services business, the partnership's personal services income is equal to the sum of A's and B's distributive share of the $100,000 of taxable income. Because C is not an individual, no part of C's distributive share constitutes personal services income. In addition, because IITA Section 203(g) prohibits double deductions, the partnership's subtraction modification under this Section may not include any part of partner C's distributive share of the partnership's income. Because C is a partner subject to replacement tax, C's distributive share of partnership income is allowed as a subtraction modification under IITA Section 203(d)(2)(I). The partnership is allowed a subtraction modification under this Section of $90,000, which is equal to partner A's and partner B's share of the personal services income of the partnership. Because the entire distributive share of A and B constitutes personal service income, and the computation of a reasonable allowance may not exceed the amount "paid or accrued" to A and B for their services, the subtraction modification is equal to the personal service income of the partnership. Therefore, ABC's base income for replacement tax purposes is $3,600 (i.e., taxable income under IITA Section 203(e)(2)(H) of $104,000, less a subtraction modification under Section 203(d)(2)(I) of $10,400, less a subtraction modification under this Section of $90,000).

EXAMPLE 6:  Partnership DEF consists of individual partners D, E and F. The partnership is engaged in a rental real estate business. DEF has entered into a management contract with G corporation under which, in exchange for a fixed fee, G corporation agrees to manage the daily rental operations of the partnership. G corporation is not a partner of DEF. The shareholders of G corporation are individuals D, E and F, who actually perform the services required under the management contract between the partnership and G corporation. Individuals D, E and F do not perform any other services except those set forth in the management contract. Partnership DEF is not allowed a subtraction modification under this Section because individuals D, E and F have not rendered any services to the partnership in their capacity as partners. Rather, the services rendered by D, E and F were provided to G corporation in their capacity as employees of G corporation.

EXAMPLE 7:  The facts are the same as in Example 6, except that G is a limited liability company (LLC), elects to be taxed as a partnership, and is a general partner of DEF. Individuals D, E and F are limited partners of DEF. The partnership agreement provides that G LLC shall manage the daily rental operations of the partnership. The members of G LLC are individuals D, E and F, who actually perform the services required of G LLC under the partnership agreement. Partnership DEF is not allowed a subtraction modification under this Section because DEF is allowed to subtract G LLC's distributive share of partnership income under IITA Section 203(d)(2)(I), and therefore a subtraction under this Section is disallowed under subsection (a)(3) of this Section, and because individuals D, E and F have not rendered any services to the partnership in their capacity as partners. Rather, the services rendered by D, E and F were provided to G LLC as members of G LLC. Because G LLC is taxed as a partnership, G LLC may be allowed a subtraction modification under this Section in computing its replacement tax liability for services provided to it by individuals D, E, and F.

EXAMPLE 8:  The facts are the same as in Example 7, except that the members of G LLC are D and H LLC, which elects to be taxed as a partnership. The members of H LLC are E and F. D, E and F perform the services required of G LLC under the partnership agreement. Partnership DEF is not allowed a subtraction modification under this Section because DEF is allowed to subtract G LLC's distributive share of partnership income under IITA Section 203(d)(2)(I), and therefore subtraction under this Section is disallowed under subsection (a)(3) of this Section, and because individuals D, E and F have not rendered any services to Partnership DEF in their capacity as partners. Rather, the services rendered by D were provided to G LLC as a member of G LLC and by E and F indirectly to G LLC as members of H LLC. Because G LLC is taxed as a partnership, in computing its replacement tax liability it may be allowed a subtraction modification for D's distributive share of G LLC's income to the extent allowed under this Section, and allowed a subtraction modification under IITA Section 203(d)(2)(I) for H LLC's distributive share of G LLC's income. H LLC may be allowed a subtraction modification for E and F's distributive share of H LLC's income to the extent allowed under this Section.

(Source:  Added at 43 Ill. Reg. 727, effective December 18, 2018)

Section 100.3000  Terms Used In Article 3  (IITA Section 301)

Article 3 of the Illinois Income Tax Act sets forth the rules for determining that portion of a person's base income which is allocable to Illinois in the computation of net income under IITA Section 202.  In the case of a person who is a resident, all items of income or deduction which are taken into account in the computation of base income for the taxable year are allocated to Illinois under IITA Section 301(a) and enter into the computation of such person's net income under IITA Section 202.  In the case of persons who are not residents of Illinois, specific allocation and apportionment rules are provided in Article 3 and the regulations thereunder.  Certain terms appearing throughout the Article to which such rules relate are defined in 86 Ill. Adm. Code 100.3010 through 100.3210.

Section 100.3010  Business and Nonbusiness Income (IITA Section 301)

a)         In general.  For purposes of administration of Article 3 of the Illinois Income Tax Act:

1)         For transactions and activities occurring prior to July 30, 2004 (the effective date of Public Act 93-0840), business income is income arising from transactions and activity in the regular course of a trade or business and includes income from tangible and intangible property constituting integral parts of a person's regular trade or business operations.  (See IITA Section 1501(a)(1), prior to amendment by Public Act 93-0840.)  The classification of income by the labels occasionally used, such as manufacturing income, sales income, interest, dividends, rents, royalties, gains, and operating income, is of no aid in determining whether income is business or nonbusiness income.  Income of any type or class and from any source is business income if it arises from transactions and activity occurring in the regular course of trade or business operations.  Accordingly, the critical element in determining whether income is "business income" or "nonbusiness income" is the identification of the transactions and activity that are the elements of a particular trade or business.  In general, all transactions and activity that are dependent upon or contribute to the operations of the economic enterprise as a whole will be transactions and activity arising in the regular course of a trade or business. 

2)         For transactions or activities occurring on or after July 30, 2004, business income is all income that may be treated as apportionable business income under the Constitution of the United States.  (See IITA Section 1501(a)(1), after amendment by Public Act 93-0840.)  By adopting this definition, the General Assembly overruled the decisions in the following cases:

A)        Blessing/White, Inc. v. Zehnder, 329 Ill. App. 3d 714 (Third Div. 2002) and American States Insurance Co. v. Hamer, 352 Ill. App. 3d 521 (First Div. 2004), which held that the gain on a sale of an entire line of business was nonbusiness income.  This "liquidating sale" exclusion from business income was based on the courts' construction of the statutory definition of business income prior to the enactment of Public Act 93-0840, and not on any principle of the Constitution of the United States.

B)        Hercules, Inc. v. Zehnder, 324 Ill. App. 3d 329 (First Div. 2001), which held that gain realized on the sale of the taxpayer's stock in a subsidiary corporation that it had received in exchange for the contribution of assets used in its business was not business income.  The taxpayer's basis in its stock was determined by its basis in the assets exchanged, so that the gain realized on the sale was attributable, at least in part, to its use of those assets in its business before the exchange.  Accordingly, the investment that produced the gain had an operational function related to that business, and is subject to apportionment under Allied-Signal v. Director, 504 US 768 (1992).  In addition, the court's holding that the taxpayer was not engaged in a unitary business with the subsidiary was based in part on the fact that the taxpayer did not meet the statutory "common ownership" requirement in IITA Section 1501(a)(27), which provides that a corporation must be owned more than 50% in order to be engaged in a unitary business.  There is no such requirement in the Constitution of the United States, and a unitary business may exist with less than 50% common ownership.  See In re Panhandle Eastern Pipe Line Co., 39 P.3d 21 (Ks. 2002) and True v. Heitkamp, 470 NW2d 582 (N.D. 1991).  Accordingly, a taxpayer may be engaged in a unitary business with a subsidiary in which it holds only a minority interest, so that the gain or loss realized on the sale of its stock in the subsidiary is subject to apportionment under Allied-Signal v. Director, 504 US 768 (1992).

3)         For all taxable years:

A)        Business income is net of the deductions allocable thereto and does not include compensation or the deductions allocable thereto (IITA Section 1501(a)(1)).

B)        Nonbusiness income means all income other than business income or compensation (IITA Section 1501(a)(13)).

C)        A person's income is business income unless clearly classifiable as nonbusiness income. 

b)         Two or more businesses of a single person

1)         A person may have more than one "trade or business".  In such cases, it is necessary to determine the business income attributable to each separate trade or business.  In the case of a person other than a resident, the income of each business is then apportioned by a formula that takes into consideration the instate and outstate factors relating to the trade or business the income of which is being apportioned.

2)         Example:  The person is a corporation with three operating divisions.  One division is engaged in manufacturing aerospace items for the federal government.  Another division is engaged in growing tobacco products.  The third division produces and distributes motion pictures for theaters and television.  Each division operates independently; there is no strong central management.  Each division operates in this State as well as in other states.  In this case, it is fair to conclude that the corporation is engaged in three separate "trades or businesses".  Accordingly, the amount of business income attributable to the corporation's trade or business activities in this State is determined by applying an apportionment formula to the business income of each business.

3)         The determination of whether the activities of the person constitute a single trade or business or more than one trade or business will turn on the facts in each case.  In general, the activities of the person will be considered a single business if there is evidence to indicate that the segments under consideration are integrated with, dependent upon, or contribute to each other and the operations of the person as a whole.  The following factors are considered to be good indicia of a single trade or business, and the presence of any one of these factors creates a strong indication that the activities of the person constitute a single trade or business.

A)        Same type of business.  A person is generally engaged in a single trade or business when all of its activities are in the same general line.  For example, a person that operates a chain of retail grocery stores will almost always be engaged in a single trade or business.

B)        Steps in a vertical process.  A person is almost always engaged in a single trade or business when its various divisions or segments are engaged in a vertically structured enterprise.  For example, a person that explores for and mines copper ores; concentrates, smelts and refines the copper ores; and fabricates the refined copper into consumer products is engaged in a single trade or business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the person's executive offices.

C)        Strong centralized management.  A person that might otherwise be considered as engaged in more than one trade or business is properly considered as engaged in one trade or business when there is a strong central management, coupled with the existence of centralized departments for functions such as financing, advertising, research or purchasing.  Thus, some corporations may properly be considered as engaged in only one trade or business when the central executive officers are normally involved in the operations of the various divisions and there are centralized offices that perform for the divisions the normal matters that a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising or financing. Note in this connection that neither the existence of central management authority, nor the exercise of that authority over any particular function (through centralized departments or offices), is determinative in itself; the entire operations of the person must be examined in order to determine whether or not strong centralized management absent other unitary indicia as described in this subsection (b) (i.e., same type of business or steps in a vertical process) justifies a conclusion that the activities of the person constitute a single trade or business.  Both elements of strong centralized management, i.e., strong central management authority and the exercise of that authority through centralized departments or offices, must exist in order to justify a conclusion that the operations of seemingly separate divisions are significantly integrated so as to constitute a single trade or business.

c)         Items referred to in IITA Section 303 and unspecified items under IITA Section 301(c)(2)

1)         In general.  IITA Section 303 provides rules for the allocation by persons other than residents of Illinois of any item of capital gain or loss, and any item of income from rents or royalties from real or tangible personal property, interest, dividends, and patent or copyright royalties, and prizes awarded under the Illinois Lottery Law [20 ILCS 1605], together with any item of deduction directly allocable to that income, to the extent the item constitutes nonbusiness income.  In addition, IITA Section 301(c)(2) provides rules for the allocation by these persons of unspecified items of nonbusiness income.  Any item may, in a given case, constitute either business income or nonbusiness income depending on all the facts and circumstances.  The following are rules and examples for determining whether particular income is business or nonbusiness income.  (The examples used throughout these regulations are illustrative only and do not purport to set forth all pertinent facts.)

2)         Rents from real and tangible personal property.  Rental income from real and tangible property is business income if the property with respect to which the rental income was received is used in the person's trade or business or is attendant to it and is includable in the property factor under Section 100.3350.

A)        Example A:  A corporation operates a multistate car rental business.  The income from car rentals is business income.

B)        Example B:  A corporation is engaged in the heavy construction business in which it uses equipment such as cranes, tractors, and earth moving vehicles.  The corporation makes short-term leases of the equipment when particular pieces of equipment are not needed on any particular project.  The rental income is business income.

C)        Example C:  A corporation operates a multistate chain of men's clothing stores.  The corporation purchases a five-story office building for use in connection with its trade or business.  It uses the street floor as one of its retail stores and the second and third floors for its general corporate headquarters.  The remaining two floors are leased to others.  The rental of the two floors is attendant to the operation of the corporation's trade or business.  The rental income is business income.

D)        Example D:  A corporation operates a multistate chain of grocery stores.  As an investment, it uses surplus funds to purchase an office building in another state, leasing the entire building to others.  The rental is not attendant to, but rather is separate from, the operation of the grocery store trade or business.  The net rental income is nonbusiness income.

E)        Example E:  A corporation operates a multistate chain of men's clothing stores.  The corporation invests in a 20-story office building and uses the street floor as one of its retail stores and second floor for its general corporate headquarters.  The remaining 18 floors are leased to others.  The rental of the 18 floors is not attendant to, but rather is separate from, the operation of the corporation's trade or business.  The net rental income is nonbusiness income.

F)         Example F:  A corporation constructed a plant for use in its multistate manufacturing business and 20 years later the plant was closed and put up for sale.  The plant was rented for a temporary period from the time it was closed by the corporation until it was sold 18 months later.  The rental income is business income and the gain on the sale of the plant is business income.

3)         Gains or losses from sales of assets.  Gain or loss from the sale, exchange or other disposition of real or tangible personal property constitutes business income if the property, while owned by the person, was used in its trade or business.  However, if such property was utilized for the production of nonbusiness income or otherwise was removed from the property factor before its sale, exchange or other disposition, the gain or loss will constitute nonbusiness income.  See Section 100.3350.

A)        Example A:  In conducting its multistate manufacturing business, a corporation systematically replaces automobiles, machines, and other equipment used in the business.  The gains or losses resulting from those sales constitute business income.

B)        Example B:  A corporation constructed a plant for use in its multistate manufacturing business and 20 years later sold the property at a gain while it was in operation by the corporation.  The gain is business income.

C)        Example C:  Same as subsection (c)(3)(B) except that the plant was closed and put up for sale but was not in fact sold until a buyer was found 18 months later.  The gain is business income.

D)        Example D:  Same as subsection (c)(3)(C) except that the plant was rented while being held for sale.  The rental income is business income and the gain on the sale of the plant is business income.

4)         Interest.  Interest income is business income where the intangible with respect to which the interest was received, is held or was created in the regular course of the person's trade or business operations or where the purpose for acquiring or holding the intangible is related or attendant to such trade or business operations.

A)        Example A:  A corporation operates a multistate chain of department stores, selling for cash and on credit.  Service charges, interest, or time-price differentials and the like are received with respect to installment sales and revolving charge accounts.  These amounts are business income.

B)        Example B:  A corporation conducts a multistate manufacturing business.  During the year the taxpayer receives a federal income tax refund and collects a judgment against a debtor of the business.  Both the tax refund and the judgment bore interest.  The interest income is business income.

C)        Example C:  A corporation is engaged in a multistate manufacturing and wholesaling business.  In connection with that business, the corporation maintains special accounts to cover items such as workers' compensation claims, rain and storm damage, machinery replacement, etc.  The moneys in those accounts are invested at interest.  Similarly, the corporation temporarily invests funds intended for payment of federal, state and local tax obligations.  The interest income is business income.

D)        Example D:  A corporation is engaged in a multistate money order and traveler's check business.  In addition to the fees received in connection with the sale of the money orders and traveler's checks, the corporation earns interest income by the investment of the funds pending their redemption.  The interest income is business income.

E)        Example E:  A corporation is engaged in a multistate manufacturing and selling business.  The corporation usually has working capital and extra cash totaling $200,000 that it regularly invests in short-term interest bearing securities.  The interest income is business income.

5)         Dividends.  Dividends are business income where the stock with respect to which the dividends are received, is held or was acquired in the regular course of the person's trade or business operations or where the purpose for acquiring or holding the stock is related or attendant to such trade or business operations.

A)        Example A:  A corporation operates a multistate chain of stock brokerage houses.  During the year the corporation receives dividends on stock it owns.  The dividends are business income.

B)        Example B:  A corporation is engaged in a multistate manufacturing and wholesaling business.  In connection with that business, the corporation maintains special accounts to cover items such as workers' compensation claims, etc.  A portion of the moneys in those accounts is invested in interest-bearing bonds.  The remainder is invested in various common stocks listed on national stock exchanges.  Both the interest income and any dividends are business income.

C)        Example C:  Several unrelated corporations own all of the stock of another corporation whose business operations consist solely of acquiring and processing materials for delivery to the corporate owners of its stock.  The corporations acquired the stock in order to obtain a source of supply of materials used in their manufacturing businesses.  The dividends are business income.

D)        Example D:  A corporation is engaged in a multistate heavy construction business.  Much of its construction work is performed for agencies of the federal government and various state governments.  Under state and federal laws applicable to contracts for these agencies, a contractor must have adequate bonding capacity, as measured by the ratio of its current assets (cash and marketable securities) to current liabilities.  In order to maintain an adequate bonding capacity, the corporation holds various stocks and interest-bearing securities.  Both the interest income and any dividends received are business income.

E)        Example E:  A corporation receives dividends from the stock of its subsidiary or affiliate that acts as the marketing agency for products manufactured by the corporation.  The dividends are business income.

F)         Example F:  A corporation is engaged in a multistate glass manufacturing business.  It also holds a portfolio of stock and interest-bearing securities, the acquisition and holding of which are unrelated to the corporation's trade or business operations.  The dividends and interest income received are nonbusiness income.

6)         Patent and copyright royalties.  Patent and copyright royalties are business income where the patent or copyright with respect to which the royalties were received, is held or was created in the regular course of the person's trade or business operations or where the purpose for acquiring or holding the patent or copyright is related or attendant to such trade or business operations.

A)        Example A:  A corporation is engaged in the multistate business of manufacturing and selling industrial chemicals.  In connection with that business, the corporation obtained patents on some of its products.  The corporation licensed the production of the chemicals in foreign countries in return for which the corporation receives royalties.  The royalties received by the taxpayer are business income.

B)        Example B:  A corporation is engaged in the music publishing business and holds copyrights on numerous songs.  The corporation acquired the assets of a smaller publishing company, including music copyrights.  These acquired copyrights are thereafter used by the corporation in its business.  Any royalties received on these copyrights are business income.

C)        Example C:  Same as Example B, except that the acquired company also held the patent on a type of phonograph needle.  The corporation does not manufacture or sell phonographs or phonograph equipment and the holding of the patent is unrelated to its publishing business operations.  Any royalties received on the patent would be nonbusiness income.

d)         Proration and recapture of deductions

1)         Most of a person's allowable deductions will be attributable only to the business income arising from a particular trade or business or to a particular item of nonbusiness income.  In some cases, an allowable deduction may be attributable to the business income of more than one trade or business and/or to several items of nonbusiness income.

2)         In such cases, the deduction shall be prorated among the trades or businesses and such items of nonbusiness income in a manner that fairly distributes the deduction among the classes of income to which it is attributable.  In filing returns with this State, if a person departs from or modifies the manner of prorating any deduction used in returns for prior years, the taxpayer should disclose in the return for the current year the nature and extent of the modification.  If the returns or reports filed by a person with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the attribution or proration of any deduction, the person shall disclose in its return to this State the nature and extent of the variance.

3)         If in prior years income from an asset or business has been classified as business income and in a later year is demonstrated to be non-business income, then all expenses, without limitation, deducted in such later year and in the 2 immediately-preceding taxable years related to that asset or business that generated the non-business income shall be added back and recaptured as business income in the year of the disposition of the asset or business.  Such amount shall be apportioned to Illinois using the greater of the apportionment fraction computed for the business under IITA Section 304 for the taxable year or the average of the apportionment fractions computed for the business under IITA Section 304 for the taxable year and for the 2 immediately preceding taxable years (IITA Section 203(e)(3)).

e)         Definitions

1)         The term "allocation" refers to the assignment of nonbusiness income to a particular state.

2)         The term "apportionment" refers to the division of business income between states by the use of a formula containing apportionment factors.

3)         The term "business activity" refers to the transactions and activity occurring in the regular course of a particular trade or business.

4)         The term "person" under IITA Section 1501(a)(18) shall be construed to mean and include an individual, trust, estate, partnership, association, firm, company, corporation or fiduciary.

5)         The term "taxpayer" is defined in IITA Section 1501(a)(24) to mean any person subject to the tax imposed by the Act.

6)         For a definition of the term "commercial domicile", see Section 100.3210.

7)         For a definition of the term "resident", see Section 100.3020.

8)         For a definition of the term "state", see Section 100.3110.

9)         For a definition of the term "taxable in another state", see Section 100.3200.

(Source:  Amended at 32 Ill. Reg. 6055, effective March 25, 2008)

Section 100.3015  Business Income Election (IITA Section 1501)

a)         For each taxable year beginning on or after January 1, 2003, a taxpayer may elect to treat all income other than compensation as business income. This election shall be made in accordance with rules adopted by the Department and, once made, shall be irrevocable.  (IITA Section 1501(a)(1))

b)         The election under this Section shall be made on the original return filed by the person making the election for the taxable year to which the election applies or on a corrected return filed prior to the due date (including extensions) for the return pursuant to Section 100.9400(f)(3) of this Part.  An election made on an original return may also be revoked on a timely-filed corrected return.  After the extended due date for filing the return has passed, the election may still be made on an original return, but an election that has been made on the original or corrected return may no longer be revoked.

c)         In the case of a partnership, estate, trust or Subchapter S corporation, for purposes of IITA Section 305, 307 or 308, respectively, an election made by the pass-through entity to treat all of its income as business income shall be binding on its partners, beneficiaries and shareholders. An election by a partner, beneficiary or shareholder to treat all income as business income shall cause all nonbusiness income received by that partner, beneficiary or shareholder from the pass-through entity to be treated as business income received directly by the partner, beneficiary or shareholder.

d)         In the case of a combined group of corporations filing a combined return under Subpart P of this Part, the election shall be made each year by the designated agent of the group and shall apply to all income of the unitary business group required to be shown on the combined return, including income of members who do not join in the filing of the combined return.

(Source:  Added at 30 Ill. Reg. 10473, effective May 23, 2006)

Section 100.3020 Resident (IITA Section 301)

a)         General definition. The term "resident" is defined in IITA Section 1501(a)(20) to mean:

1)         an individual who is in Illinois for other than a temporary or transitory purpose during the taxable year or who is domiciled in Illinois but is absent from Illinois for a temporary or transitory purpose during the taxable year;

2)         the estate of a decedent who, at his or her death, was domiciled in Illinois;

3)         a trust created by the will of a decedent who, at his or her death, was domiciled in Illinois; and

4)         an irrevocable trust, the grantor of which was domiciled in Illinois at the time the trust became irrevocable. For the purpose of this subsection (a)(4), a trust is considered irrevocable to the extent that the grantor is not treated as the owner of the trust under 26 USC 671 through 678.

b)         Individuals. The purpose of the general definition is to include in the category of individuals who are taxable on their entire net income, regardless of whether derived from sources within or without Illinois, and all individuals who are physically present in Illinois enjoying the benefit of its government, except those individuals who are here temporarily, and to exclude from this category all individuals who, although domiciled in Illinois, are outside Illinois for other than temporary and transitory purposes and, hence, do not obtain the benefit of Illinois government. If an individual acquires the status of a resident by virtue of being physically present in Illinois for other than temporary or transitory purposes, he or she remains a resident even though temporarily absent from Illinois. If, however, he or she leaves Illinois for other than temporary or transitory purposes, he or she ceases to be a resident. If an individual is domiciled in Illinois, he or she remains a resident unless he or she is outside Illinois for other than temporary or transitory purposes.

c)         Temporary or transitory purposes. Whether or not the purpose for which an individual is in Illinois will be considered temporary or transitory in character will depend upon the facts and circumstances of each particular case. It can be stated generally, however, that if an individual is simply passing through Illinois on his or her way to another state, or is here for a brief rest or vacation or to complete a particular transaction, perform a particular contract, or fulfill a particular engagement that will require his or her presence in Illinois for but a short period, he or she is in Illinois for temporary or transitory purposes and will not be a resident by virtue of his or her presence here. If, however, an individual is in Illinois to improve his or her health and his or her illness is of such a character as to require a relatively long or indefinite period to recuperate, or he or she is here for business purposes that will require a long or indefinite period to accomplish, or is employed in a position that may last permanently or indefinitely, or has retired from business and moved to Illinois with no definite intention of leaving shortly thereafter, he or she is in Illinois for other than temporary or transitory purposes and, accordingly, is a resident taxable upon his or her entire net income even though he or she may also maintain an abode in some other state.

1)         EXAMPLE 1. X is domiciled in Fairbanks, Alaska, where he had lived for 50 years and had accumulated a large fortune. For medical reasons, X moves to Illinois where he now spends his entire time, except for yearly summer trips of about three or four months duration to Fairbanks. X maintains an abode in Illinois and still maintains, and occupies on visits there, his old abode in Fairbanks. Notwithstanding his abode in Fairbanks, because his yearly sojourn in Illinois is not temporary or transitory, he is a resident of Illinois and is taxable on his entire net income.

AGENCY NOTE:  If, in the foregoing example, the facts are reversed so that Illinois is the state of original domicile and Alaska is the state in which the person is present for the indicated periods and purposes, X is not a resident of Illinois within the meaning of the law, because he is absent from Illinois for other than temporary or transitory purposes.

2)         EXAMPLE 2. Until the summer of 1969, Y admitted domicile in Illinois. At that time, however, to avoid the Illinois income tax, Y declared himself to be domiciled in Nevada, where he had a summer home. Y moved his bank accounts to banks in Nevada and each year thereafter spent about three or four months in Nevada. He continued to spend six or seven months of each year at his estate in Illinois, which he continued to maintain, and continued his social club and business connections in Illinois. The months not spent in Nevada or Illinois he spent traveling in other states. Y is a resident of Illinois and is taxable on his entire net income, for his sojourns in Illinois are not for temporary or transitory purposes.

AGENCY NOTE:  If, in the foregoing example, the facts are reversed so that Nevada is the state of his original domicile and the state in which the person is present for the indicated periods and purposes, Y is not a resident of Illinois within the meaning of the law because he is absent from Illinois for other than temporary or transitory purposes.

3)         EXAMPLE 3. B and C, husband and wife, domiciled in Minnesota where they maintain their family home, come to Illinois each November and stay here until the middle of March. Originally they rented an apartment or house for the duration of their stay here but three years ago they purchased a house here. The house is either rented or put in the charge of a caretaker from March to November. B has retired from active control of his Minnesota business but still keeps office space and nominal authority in it. He belongs to clubs in Minnesota, but to none in Illinois. He has no business interests in Illinois. C has little social life in Illinois, more in Minnesota, and has no relatives in Illinois. Neither B nor C is a resident of Illinois. The connection of each to Minnesota, the state of domicile, in each year is closer than it is to Illinois. Their presence here is for temporary or transitory purposes.

AGENCY NOTE:  If, in the foregoing example, the facts are reversed so that Illinois is the state of domicile and B and C are visitors to Minnesota, B and C are residents of Illinois.

d)         Domicile. Domicile has been defined as the place where an individual has his or her true, fixed, permanent home and principal establishment, the place to which he or she intends to return whenever absent. It is the place in which an individual has voluntarily fixed the habitation of himself or herself and family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce adoption of some other permanent home. Another definition of "domicile" consistent with this is the place where an individual has fixed his or her habitation and has a permanent residence without any present intention of permanently moving. An individual can at any one time have but one domicile. If an individual has acquired a domicile at one place, he or she retains that domicile until he or she acquires another elsewhere. Thus, if an individual who has acquired a domicile in California, for example, comes to Illinois for a rest or vacation or on business or for some other purpose, but intends either to return to California or to go elsewhere as soon as his or her purpose in Illinois is achieved, he or she retains domicile in California and does not acquire domicile in Illinois. Likewise, an individual who is domiciled in Illinois and leaves the State retains Illinois domicile as long as he or she has the definite intention of returning to Illinois. On the other hand, an individual domiciled in California who comes to Illinois with the intention of remaining indefinitely and with no fixed intention of returning to California loses his or her California domicile and acquires Illinois domicile the moment he or she enters the State. Similarly, an individual domiciled in Illinois loses Illinois domicile:

1)         by locating elsewhere with the intention of establishing the new location as his or her domicile; and

2)         by abandoning any intention of returning to Illinois.

e)         Minors. The domicile of a minor is ordinarily the same as the domicile of his or her parents or guardians. If the father is deceased, the domicile of a minor is ordinarily the same as the domicile of the mother and vice versa. In either case, if the minor's parents are divorced, the domicile of the minor is the same as the domicile of the parent having custody.

f)         Presumption of residence. The following create rebuttable presumptions of residence.  These presumptions are not conclusive and may be overcome by clear and convincing evidence to the contrary.

1)         An individual receiving a homestead exemption (see 35 ILCS 200/15-175) for Illinois property is presumed to be a resident of Illinois.

2)         An individual who is an Illinois resident in one year is presumed to be a resident in the following year if he or she is present in Illinois more days than he or she is present in any other state.

g)         Proof of residence or nonresidence

1)         The type and amount of proof that will be required in all cases to establish residency or nonresidency or to rebut or overcome a presumption of residence cannot be specified by a general regulation, but will depend largely on the circumstances of each particular case. The taxpayer may submit any relevant evidence to the Department for its consideration. The evidence may include, but is not limited to, affidavits and evidence of:  location of spouse and dependents; voter registration; automobile registration or driver's license; filing an income tax return as a resident of another state; home ownership or rental agreements; the permanent or temporary nature of work assignments in a state; location of professional licenses; location of medical professionals, other healthcare providers, accountants and attorneys; club and/or organizational memberships and participation; and telephone and/or other utility usage over a duration of time. In appropriate instances, the Department may request any relevant evidence that may assist it in determining the taxpayer's place of residence.

2)         The location of any corporation, foundation, organization or institution that is exempt from taxation under IRC section 503(c)(3) to which the taxpayer makes financial contributions, gifts, bequests, donations or pledges in any amount qualifying for a deduction as an IRC section 170(a) charitable contribution or as an IRC section 2055(a) bequest, legacy, devise or transfer is not evidence used to establish domicile or nondomicile, or residence or nonresidence, in any state.

3)         If an individual is presumed under this Section to be a resident for any taxable year, he or she should file a return for that year even though he or she believes he or she was a nonresident who, as such, would not incur an Illinois income tax liability because he or she would have no income allocable or apportionable to Illinois. The return will enable the individual to avoid the possible imposition of penalties for failure to file under IITA Section 1001 should it later be determined that he or she was a resident for the taxable year. The return should be marked as a nonresident return, though Schedule NR is not required. The return should exhibit the computation of net income as though the individual were a resident. The line on the return provided for entering the tax liability should have the following notation: "No liability – nonresident". The return should be accompanied by a signed statement indicating which presumption of residence the individual was subject to and setting forth in detail the reasons why the individual believes he or she was a nonresident for the taxable year. The return should also be accompanied by any evidence, such as certificates or affidavits, that the individual is able to obtain showing that he or she was a nonresident for the taxable year. If the Department is not satisfied that the individual was a nonresident, it will so inform the individual and provide him or her with an opportunity to submit additional information supporting his or her contention. If the individual fails to submit additional information, or if the additional information submitted does not, when considered with the information appended to the return, overcome the presumption that the individual was a resident for the taxable year, the Department will issue a notice of deficiency asserting a liability against the individual on the following basis:

A)        that the individual is a resident for the taxable year; and

B)        that the individual's net income for the taxable year is:

i)          the amount reflected, with appropriate mathematical error adjustments under IITA Section 903(a)(1), on the return filed by the individual under this subsection (g)(3)(B)(i); or

ii)         whatever other amount the Department has determined by an examination under IITA Section 904.

4)         An individual who, for any taxable year, believes himself or herself to be a nonresident, but who is presumed to be a resident under this Section, may file a return (including a Schedule NR) as a nonresident if, as a nonresident, he or she incurs an Illinois income tax liability due to income allocated or apportioned to Illinois as a nonresident. However, the return should be accompanied by a signed statement indicating which presumption of residence the individual is subject to and setting forth in detail the reasons why the individual believes he or she was a nonresident for the taxable year. The return should also be accompanied by any evidence, such as certificates or affidavits, that the individual is able to obtain showing that he or she was a nonresident for the taxable year. If the Department is not satisfied that the individual was a nonresident, it will so inform the individual and provide him or her with an opportunity to submit additional information supporting his or her contention. If the individual fails to submit additional information, or if the additional information submitted does not, when considered with the information appended to the return, overcome the presumption that the individual was a resident for the taxable year, the Department will issue a notice of deficiency asserting a liability against the individual on the following basis:

A)        that the individual was a resident for the taxable year;

B)        that the individual's net income for the taxable year is:

i)          his or her entire base income, as reflected on the return with appropriate mathematical error adjustments under IITA Section 903(a)(1), less the appropriate standard exemption prescribed by IITA Section 204; or

ii)         his or her entire base income, as determined by the Department in an examination under IITA Section 904, less the appropriate standard exemption prescribed by IITA Section 204.

h)         Military personnel. Under 50 USC App. 571, members of the U.S. Armed Forces (and commissioned officers of the U.S. Public Health Service) will not cease to be domiciled in Illinois solely by reason of their assignment to duty in other states for long periods. Domiciliaries of other states will not become Illinois residents under the Act solely by reason of their presence in Illinois under military orders.

i)          Resident: Legal Definition: Usage. The term "resident" is defined differently for different purposes. For example, an individual may be a "resident" for Illinois income tax purposes but not a "resident" eligible to vote (see IITA Section

15-1501(a)(20) with Sections 3-1 through 3-4 of the Election Code [10 ILCS 5/3-1 through 3-4]). Similarly, a person may be a resident of Illinois for Illinois income tax purposes and also a resident of another state for purposes of that state's income tax law (see IITA Section 15-1501(a)(20) with Ky. Rev. Stat. Ann. Section 141.010(17)).

(Source:  Amended at 37 Ill. Reg. 5823, effective April 19, 2013)

Section 100.3100  Compensation (IITA Section 302)

a)         General Definition

Compensation is defined in IITA Section 1502(a)(3) to mean wages, salaries, commissions and any other form of remuneration paid to employees for personal services. The term is thus comparable to the term "wages" as used in IRC Section 3401(a), except that the exceptions set forth in the Code section are inapplicable for purposes of Article 3 of the Act. (See Section 100.7000 for definition of compensation subject to withholding.)

b)         Employee

Compensation is defined as remuneration for personal services performed by an "employee". If the employer-employee relationship does not exist, remuneration for services performed does not constitute "compensation." The term "employee" includes every individual performing services if the relationship between him or her and the person for whom he or she performs the services is the legal relationship of employer and employee. The term has the same meaning under the Illinois Income Tax Act as under IRC Section 3401(c) and 26 CFR 31.3401(c)-l.

c)         Types of Compensation

The name by which remuneration for services is designated is immaterial. Thus, salaries, fees, bonuses, commissions on sales or on insurance premiums, and pensions and retired pay are compensation within the meaning of the statute if paid for services performed by an employee for his or her employer.

d)         Past Services

Remuneration for personal services constitutes compensation even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them, so long as the relationship existed when the services were rendered.

e)         Examples

The standards set forth in this Section may be illustrated, in part, by the following examples:

1)         EXAMPLE 1:  A is a salesman for B corporation. B conducts a selling contest among its salesmen, first prize being a two-week vacation in Las Vegas. A is the winner of the contest and is awarded the vacation. The fair market value of the trip constitutes compensation.

2)         EXAMPLE 2:  C is employed by D corporation during the month of January 1970 and is entitled to receive remuneration of $100 for services performed for D during the month. C leaves the employ of D at the close of business on January 31, 1970. On February 15, 1970 (when C is no longer an employee of D), D pays C the remuneration of $100 for services performed in January. The $100 is compensation.

3)         EXAMPLE 3:  The facts are the same as in Example 2, except that C is discharged by D at the end of January. In addition to the $100 earned by C for services performed in January, D pays C $50 severance pay. The $50 constitutes compensation.

(Source:  Amended at 44 Ill. Reg. 10907, effective June 10, 2020)

Section 100.3110  State (IITA Section 302)

The term "state" when applied to a jurisdiction other than Illinois is defined in IITA Section 1501(a)(22) to mean any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any Territory or Possession of the United  States, and any foreign country, or any political subdivision of any of the foregoing.

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.3120  Allocation of Compensation Paid to Nonresidents (IITA Section 302)

a)         Compensation Paid in This State – General Rule

1)         In order for items of compensation paid to an individual who is a nonresident of Illinois at the time of payment to be allocated to Illinois, the compensation must constitute "compensation paid in this State".  If the test is met, then all items of the compensation, and all items of deduction directly allocable thereto, are allocated to Illinois under IITA Section 302(a) (except items allocated under IITA Section 301(c)(2), as to which see subsection (d)). Compensation paid to a nonresident, which is allocated to Illinois, enters into the computation of the individual's net income under IITA Section 202 and is generally subject to withholding under IITA Section 701 (see Sections 100.7000, 100.7010 and 100.7020).  The tests for determining whether compensation is paid in Illinois appear in IITA Section 304(a)(2)(B) and are substantially the same as those used to define "employment" in the Illinois Unemployment Insurance Act [820 ILCS 405] (and similar unemployment compensation acts of other states).  Except as provided in this Section, compensation is paid in Illinois if:

A)        The individual's service is localized in Illinois because it is performed entirely within Illinois (IITA Section 304(a)(2)(B)(i));

B)        The individual's service is localized in Illinois although it is performed both within and without Illinois, because the service performed without Illinois is incidental to the individual's service performed within Illinois (see IITA Section 304(a)(2)(B)(ii)); or

C)        For taxable years ending prior to December 31, 2020, the individual's service is not localized in any state under subsections (a)(1)(A) and (B), but some of the service is performed within Illinois and either:

i)          the base of operations, or if there is no base of operations, the place from which the service is directed or controlled is within Illinois; or

ii)         the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in Illinois.  (See IITA Section 304(a)(2)(B)(iii).)

D)        The rules in subsections (a)(1)(A) through (C) are to be applied in a manner so that, if they were in effect in other states, an item of compensation would constitute compensation "paid in" only one state.  Thus, if an item would, under these rules, constitute compensation paid in a state other than Illinois because the individual's service was localized in that other state under subsection (a)(1)(B), it could not also be compensation paid in Illinois. 

E)        For taxable years ending on or after December 31, 2020, the individual's service is not localized in any state under subsection (a)(1)(A) or (B), but some of the individual's service is performed within this State and the individual's service is performed within this State for more than 30 working days during the taxable year, the amount of compensation paid in this State shall include the portion of the individual's total compensation for services performed on behalf of his or her employer during the taxable year that the number of working days spent within this State during the taxable year bears to the total number of working days spent both within and without this State during the taxable year. (IITA Section 304(a)(2)(B)(iii)) For purposes of this subsection (a)(1)(E):

i)          "Working day" means each day during the taxable year in which the individual performs duties on behalf of his or her employer. All days in which the individual performs no duties on behalf of his or her employer (e.g., weekends, vacation days, sick days, and holidays) are not working days. (IITA Section 304(a)(2)(B)(iii)(a))

ii)         A working day is "spent within this State" if:

•           the individual performs service on behalf of the employer and a greater amount of time on that day is spent by the individual performing duties on behalf of the employer within this State, without regard to time spent traveling, than is spent performing duties on behalf of the employer without this State; or

•           the only service the individual performs on behalf of the employer on that day is traveling to a destination within this State, and the individual arrives on that day. (IITA Section 304(a)(2)(B)(iii)(b))

iii)        Working days "spent within this State" do not include any day in which the employee is performing services in this State during a disaster period solely in response to a request made to his or her employer by the government of this State, by any political subdivision of this State, or by a person conducting business in this State to perform disaster or emergency-related services in this State. (IITA Section 304(a)(2)(B)(iii)(c)) For purposes of this subsection (a)(1)(E)(iii):

•           "Declared State disaster or emergency" means a disaster or emergency event for which a Governor's proclamation of a state of emergency has been issued or for which a Presidential declaration of a federal major disaster or emergency has been issued.

•           "Disaster period" means a period that begins 10 days prior to the date of the Governor's proclamation or the President's declaration (whichever is earlier) and extends for a period of 60 calendar days after the end of the declared disaster or emergency period.

•           "Disaster or emergency-related services" means repairing, renovating, installing, building, or rendering services or conducting other business activities that relate to infrastructure that has been damaged, impaired, or destroyed by the declared State disaster or emergency.

•        "Infrastructure" means property and equipment owned or used by a public utility, communications network, broadband and internet service provider, cable and video service provider, electric or gas distribution system, or water pipeline that provides service to more than one customer or person, including related support facilities. "Infrastructure" includes, but is not limited to, real and personal property such as buildings, offices, power lines, cable lines, poles, communications lines, pipes, structures, and equipment. (IITA Section 304(a)(2)(B)(iii)(c))

2)         Localization Tests

A)        If compensation is paid in this State because the service is localized in this State under either of the tests set forth in subsection (a)(1)(A) or (B), the factors in subsections (a)(1)(C) and (D) are not considered. In those cases, the place of the base of operations, the place from which the service is directed or controlled, and the number of working days spent in any state are irrelevant.

B)        In determining whether an individual's service performed outside of this State is incidental to the service performed within this State for purposes of the test set forth in subsection (a)(1)(B), the term "incidental" means any service that is necessary to, or supportive of, the primary service performed by the employee or that is temporary or transitory in nature or consists of isolated transactions. The incidental service may or may not be similar to the individual's normal occupation so long as it is performed within the same employer-employee relationship. That is, an individual who normally performs all of his or her service in this State may be sent by the employer to another state to perform service that is totally different in nature from his or her usual work, or he or she may be sent to do similar work. So long as the service is temporary or consists merely of isolated transactions, it will be considered to be incidental to the service performed within this State, and the employee's entire compensation will be subject to withholding.

C)        In some cases, it may be difficult to determine whether service performed in another state is incidental to service performed within this State. In those cases, the facts (including any contract of employment) should be carefully considered. In many instances, the contract of employment will provide a definite territorial assignment that will be prima facie evidence that the service is localized within that territory. However, the presence or absence of a contract of employment is but one fact to be considered. In every case, the ultimate determination to be made is whether the individual's service was intended to be, and was in fact, principally performed within this State and whether any service that was performed in another state was of a temporary or transitory nature or arose out of special circumstances at infrequent intervals. The amount of time spent or the amount of service performed outside this State should not be regarded as decisive, in itself, in determining whether that service is incidental to service performed within this State. For example, an individual normally performing service within this State might be sent on a special assignment to another state for a period of months. The service in the other state would nevertheless be incidental to service within this State if that special assignment were an isolated transaction.

D)        This subsection (a)(2) may be illustrated by the following examples:

i)          EXAMPLE 1:  A is a resident of State X and a salesman for the B Corporation, located in State X. A's territory covers the northern part of Illinois. Sporadically, A is requested by B corporation to call on particular customers who are located in State X. The compensation for service that A performs in Illinois and State X is paid in Illinois because the service performed in State X is incidental to the service performed in Illinois, since it consists of isolated transactions.

ii)         EXAMPLE 2:  The facts are the same as in Example 1 except that A's regular territory covers several counties in Illinois and one or two towns in State X. A goes to the State X towns on a regular basis even though more than 95% of A's time spent and sales made are in Illinois. The compensation for service that A performs in Illinois and State X is not localized in Illinois under the provisions of subsection (a)(1)(B) because the service performed in State X is regular and permanent in nature and is not necessary to or supportive of sales made in Illinois.

iii)        EXAMPLE 3:  A works for B construction company in Chicago. Occasionally the company obtains a construction job in State X that may last from one to several weeks. A is sent by the company to supervise the construction jobs in State X. The compensation for the service A performs in Illinois and State X is paid in Illinois because the service performed in State X, being temporary in nature, is incidental to the service performed in Illinois.

iv)        EXAMPLE 4:  A is a resident of Illinois and a buyer for a department store located in State X. Regular buying trips by A to Illinois are incidental to the service performed in State X because they are necessary to and supportive of A's primary duties that are localized in State X and not in Illinois. A's compensation is not paid in Illinois under the provisions of subsection (a)(1)(B).

3)         Base of Operations

A)        For taxable years ending prior to December 31, 2020, if the localization tests in subsection (a)(1)(A) or (B) are not determinative of the issue of whether compensation is paid in this State and the individual's base of operations is within this State, his or her entire compensation is paid in Illinois. However, if his or her base of operations is outside this State, none of his or her compensation is paid in this State. (See IITA Section 304(a)(2)(B)(iii).)

B)        The term "base of operations" refers to the place or fixed center from which the individual works. An individual's base of operations may be his or her business office (which may be maintained in the employee's home), or the contract of employment may specify a place at which the employee is to receive directions and instructions. In the absence of more controlling factors, an individual's base of operations may be the place to which the employee has his or her business mail, supplies, and equipment sent or the place where the employee maintains his or her business records. An employee's base of operations may change during a tax year, but only if there is a change in the employee's circumstances that is expected to be permanent. The base of operations does not change when the employee is temporarily assigned to work at a different location.

C)        This subsection (a)(3) may be illustrated by the following examples:

i)          EXAMPLE 1:  A is a salesman for the B corporation located in Chicago. A's territory includes Illinois, State X and State Y. A uses the corporation office in Chicago as a base of operations. The compensation for service performed by A is paid in Illinois because the service is not localized in any of the three states in which it is performed, but part of the service is performed in Illinois and A's base of operations is in Illinois.

ii)         EXAMPLE 2:  A is a salesman for the B corporation located in Chicago. A lives in State X and A's territory includes State X and part of Cook County, Illinois. A starts his or her sales calls from and returns to his or her home daily. A keeps a catalogue and copies of correspondence from customers at his or her home, and writes his or her sales reports there. About once a week, A reports to B's sales office in Chicago for consultation with and directions from the sales manager. Communications from customers to A are addressed to the Chicago sales office. A's letters to customers are on letterheads bearing the Chicago sales office address and are sometimes typed by A at home and sometimes dictated by him or her to a stenographer when he or she is in the Chicago sales office. Correspondence to A and A's paychecks are sometimes picked up by A in Chicago and otherwise are forwarded by the sales office to A's home. The duties that A performs at home are sufficient to make his or her home the base of operations. A's compensation is therefore not paid in Illinois because A's base of operations is in State X, and part of A's service is performed in that state.

iii)        EXAMPLE 3:  A, a resident of Illinois, sells products in Illinois, State X and State Y for B corporation, which is located in State Z. A operates from his or her home, where he or she receives instructions from B corporation, communications from customers, etc. Once a year, A goes to State Z for a 10 day sales meeting. All of A's compensation is paid in Illinois because the service is not localized in any state, but part of the service is performed in Illinois and A's base of operations is A's home in Illinois.

iv)        EXAMPLE 4:  A works for a company whose home office is in State X. A is a regional director working out of a branch office in Illinois. A works mostly in Illinois but spends considerable time in State X. A's base of operations is the branch office in Illinois. Since A performs some service in Illinois and his base of operations is in Illinois, it is immaterial that A's source of direction and control is in State X. All of A's compensation for service is paid in Illinois.

v)         EXAMPLE 5:  A, a resident of Illinois, is a salesman for the B corporation, which has its main office in State X. A works out of the main office and A's territory is divided equally between State X and Illinois. A's compensation is not paid in Illinois because A's base of operations is in State X, and part of A's service is performed in that State.

vi)        EXAMPLE 6:  B, an Indiana resident, is a certified public accountant based in her employer's Chicago office. B is regularly sent to perform auditing services at clients' offices outside Illinois, often for periods of weeks or months. Some of her assignments are recurring, requiring her to perform services at the same client's office for some period or periods every year. B's base of operations is in Illinois, and does not change with any of these temporary assignments.

4)         Place of Direction or Control

A)        For taxable years ending prior to December 31, 2020, if the localization tests in subsection (a)(1)(A) or (B) are not determinative of the issue of whether compensation is paid in this State and the individual has no base of operations or the individual performs no services in the state in which his or her base of operations is located, the permanent place from which an employee's service is directed or controlled is relevant in determining whether the employee's wages are paid in Illinois. In those cases, if the place from which the individual's service is directed or controlled is within this State, and some of the employee's services are performed within this State, then the employee's entire compensation will be paid in Illinois. (See IITA Section 304(a)(2)(B)(iii).) For example, a salesman's territory may be so indefinite and so widespread that the employee will not retain any fixed business office or address but will receive orders or instructions wherever he or she may happen to be. In that case, the location of the permanent place from which direction and control is exercised must be determined, and the employee's compensation will be paid in Illinois if the place of direction and control is in Illinois and the employee performs some services in Illinois.

B)        This subsection (a)(4) may be illustrated by the following examples:

i)          EXAMPLE 1:  A, a resident of State X, is employed as a salesman by B, a corporation with its main office in State Y. B has a permanent branch office and sales supervisor in Cairo, Illinois. A was hired by the branch office and sells merchandise for B in Illinois and other neighboring states as directed by the branch office in telephone calls, but A has no place that is used as a base of operations. All of the compensation for service performed by A for B is paid in Illinois because A's service is not localized in any state and A has no base of operations, but part of A's service is performed in Illinois and the place from which the service is directed is in Illinois.

ii)         EXAMPLE 2:  A is a salesman residing in State X, who works for a concern whose factory and selling office is in Chicago, Illinois. A's territory covers five states, including Illinois. A does not report, start from, or return to the Chicago office, and does not work from his or her residence in State X. State X is the territory of another salesman. A does not have a base of operations, and his or her compensation is paid in Illinois since part of A's service is performed in Illinois and the place from which the service is directed is in Illinois.

iii)        EXAMPLE 3:  A, a contractor whose main office is in Illinois, is regularly engaged in road construction work in Illinois and State X. All operations are under direction of a general superintendent whose permanent office is in Illinois. Work in each state is directly supervised by field supervisors working from temporary field offices located in each of the two states. Each field supervisor has the power to hire and fire personnel; however, all requests for manpower must be cleared through the Illinois office. Employees report for work at the field offices. Time cards are sent weekly to the main office in Illinois where the payrolls are prepared. A is hired by a field supervisor in State X and regularly performs service in both Illinois and State X. In this case, neither the localization nor the base-of-operations test would apply, but A's compensation would be paid in Illinois because part of A's service is performed in Illinois and the place of direction or control is in Illinois because the permanent office from which basic direction and control emanates is the Illinois office.

5)         When Residence Is Important

A)        For taxable years ending prior to December 31, 2020, residence is a factor in determining whether compensation of an employee is paid in Illinois only when the localization tests in subsection (a)(1)(A) or (B) are not determinative of the issue of whether compensation is paid in this State and the individual has no base of operations or the individual performs no services in the state in which his or her base of operations is located, and the employee performs no service in the state from which his or her service is directed or controlled. In these cases, if the individual is a resident of this State, and some of his or her service is performed within this State, the employee's entire compensation will be paid in this State. (See IITA Section 304(a)(2)(B)(iii).)

EXAMPLE:  A is a salesman employed by the B company located in State X. A's services are directed and controlled from the State X office and A has no base of operations. A lives in Illinois but A's territory includes State Y and State Z as well as Illinois. For taxable years ending prior to December 31, 2020, all of A's wages are paid in Illinois because no part of his service is performed in the state (State X) in which the place from which A's services are directed is located, but part of A's service is performed in Illinois and A's residence is in Illinois.

B)        For all taxable years, residence is also important in determining the Illinois income tax obligations of certain employees of railroads, motor carriers, merchant marine and air carriers. (See Section 100.2590.)

b)         Compensation Paid in This State – Nonresident Members of Professional Athletic Teams

1)         Notwithstanding the provisions of subsection (a), compensation of a nonresident individual who is a member of a professional athletic team paid in this State includes the portion of the individual's total compensation for services performed as a member of a professional athletic team during the taxable year which the number of duty days spent within this State performing services for the team in any manner during the taxable year bears to the total number of duty days spent both within and without this State during the taxable year. (IITA Section 304(a)(2)(B)(iv)(a))

2)         For purposes of this subsection (b):

A)        "Professional athletic team" includes, but is not limited to, any professional baseball, basketball, football, soccer, or hockey team. (IITA Section 304(a)(2)(B)(iv)(c)(1))

B)        "Member of a professional athletic team" includes those employees who are active players, players on the disabled list, and any other persons required to travel and who travel with, and perform services on behalf of, a professional athletic team on a regular basis. This includes, but is not limited to, coaches, managers, and trainers. (IITA Section 304(a)(2)(B)(iv)(c)(2))

C)        "Duty days" means all days during the taxable year from the beginning of the professional athletic team's official pre-season training period through the last game in which the team competes or is scheduled to compete. Duty days are counted for the year in which they occur, including instances in which a team's official pre-season training period through the last game in which the team competes or is scheduled to compete occurs during more than one tax year. (IITA Section 304(a)(2)(B)(iv)(c)(3))

i)          "Duty days" includes days on which a member of a professional athletic team performs service for a team on a date that does not fall within the period from the beginning of the professional athletic team's official pre-season training period through the last game in which the team competes or is scheduled to compete (e.g., participation in instructional leagues, the "All Star Game", or promotional "caravans"). Performing a service for a professional athletic team includes conducting training and rehabilitation activities, when those activities are conducted at team facilities. (IITA Section 304(a)(2)(B)(iv)(c)(3)(A))

ii)         "Duty days" includes game days, practice days, days spent at team meetings, promotional caravans, preseason training camps, and days served with the team through all post-season games in which the team competes or is scheduled to compete. (IITA Section 304(a)(2)(B)(iv)(c)(3)(B))

iii)        "Duty days" for any person who joins a team during the period from the beginning of the professional athletic team's official pre-season training period through the last game in which the team competes, or is scheduled to compete, begins on the day that person joins the team. Conversely, "duty days" for any person who leaves a team during this period ends on the day that person leaves the team. When a person switches teams during a taxable year, a separate duty-day calculation is made for each period the person was with each team. (IITA Section 304(a)(2)(B)(iv)(c)(3)(C)) For purposes of this provision, "team" means the employer, so that if a single employer operates more than one club, a player who is transferred from one of the employer's clubs to another is not leaving or joining a team.

iv)        "Duty days" does not include any day for which a member of a professional athletic team is not compensated and is not performing services for the team in any manner, including days when that member has been suspended without pay and prohibited from performing any services for the team. (IITA Section 304(a)(2)(B)(iv)(c)(3)(D))

v)         Days for which a member of a professional athletic team is on the disabled list and does not conduct rehabilitation activities at facilities of the team, and is not otherwise performing services for the team in Illinois, are not duty days spent in this State. All days on the disabled list, however, are considered to be included in total duty days spent both within and outside of this State. (IITA Section 304(a)(2)(B)(iv)(c)(3)(E))

vi)        Travel days that do not involve either a game, practice, team meeting, or other similar team event are not considered duty days spent in this State. However, travel days are considered in the total duty days spent both within and outside of this State. (IITA Section 304(a)(2)(B)(iv)(b))

D)        Total Compensation

i)          "Total compensation for services performed as a member of a professional athletic team" means the total compensation received during the taxable year for services performed:

•           from the beginning of the official pre-season training period through the last game in which the team competes or is scheduled to compete during that taxable year (IITA Section 304(a)(2)(B)(iv)(c)(4)(A)); and

•           during the taxable year on a date that does not fall within the foregoing period (e.g., participation in instructional leagues, the "All Star Game", or promotional caravans). This compensation includes, but is not limited to, salaries, wages, bonuses, and any other type of compensation paid during the taxable year to a member of a professional athletic team for services performed in that year. (IITA Section 304(a)(2)(B)(iv)(c)(4)(B))

ii)         For purposes of this subsection (b)(2)(D), compensation does not include strike benefits, severance pay, termination pay, contract or option year buy-out payments, expansion or relocation payments, or any other payments not related to services performed for the team. (IITA Section 304(a)(2)(B)(iv)(c))

iii)        For purposes of this subsection (b)(2)(D), "bonuses" included in "total compensation for services performed as a member of a professional athletic team" subject to allocation under this subsection (b)(2)(D) are: bonuses earned as a result of play (e.g., performance bonuses) during the season, including bonuses paid for championship, playoff or "bowl" games played by a team, or for selection to all-star or other honorary positions; and bonuses paid for signing a contract, unless the payment of the signing bonus is not conditional upon the signee playing any games for the team or performing any subsequent services for the team or even making the team, payable separately from the salary and any other compensation, and nonrefundable. (IITA Section 304(a)(2)(B)(iv)(c))

c)         Compensation Paid for Past Service

1)         A federal law, P.L. 104-95 (4 USC 114), which applies to amounts received after December 31, 1995, limits the power of states to impose income taxation on certain nonresident pension income.  This limitation also impacts income received by a nonresident in the form of distributions from many deferred compensation plans.  The allocation of distributions to nonresidents from deferred compensation plans which are not governed by that law and which are potentially income taxable in this State is governed by this subsection (c)(1).  For the purpose of determining whether and to what extent compensation paid for past service is "paid in" Illinois and is allocated to Illinois under IITA Section 302(a), that compensation is presumed to have been earned ratably over the employee's last 5 years of service with the employer (or any predecessor or successor of the employer or a parent or subsidiary corporation of the employer), in the absence of clear and convincing evidence that the compensation is properly attributable to a different period of employment or that it was not earned ratably over the appropriate period of employment. Compensation earned in each past year will be deemed compensation paid in Illinois if the individual's service in that year met the tests set forth in subsection (a) applicable to that year. Compensation paid for past service includes amounts paid under deferred compensation agreements where the amount of compensation is unrelated to the amount of service being currently rendered.  Amounts paid to nonresidents under deferred compensation agreements are allocated to Illinois under IITA Section 302(a) in accordance with this subsection (c)(1) notwithstanding the fact that amounts paid to nonresidents are exempted from withholding under Section 100.7010(g).

2)         The standards detailed in this subsection (c)(1) may be illustrated by the following examples:

A)        EXAMPLE 1:  A is a union member employed by B corporation as a factory worker.  During the years 1965-1968, A was employed in B's factory in Illinois; in 1969, A worked in B's factory in State X.  In 1970, as a result of union labor contract negotiations, A received a lump-sum payment of $500 in lieu of a retroactive wage increase.  A is at all times a resident of State X.  Unless A establishes, by clear and convincing evidence, facts to support a different result, $100 is deemed to have been earned in each of the 5 years 1965-1969.  Further, $400 is deemed to have been earned by service localized in Illinois and $100 by service localized in State X (see subsection (a)).  Therefore, $400 is allocable to Illinois under IITA Section 302(a).

B)        EXAMPLE 2:  The facts are the same as in Example 1, except that A is able to establish that the $500 constituted a wage increase retroactive to July 1, 1969.  In this case, no part of the $500 is allocable to Illinois, since it was earned by service in 1969 localized in State X.

C)        EXAMPLE 3:  C is a corporate executive.  On January 1, 1965, C entered into an agreement with D corporation under which he was to be employed by D in an executive capacity for a period of 5 years.  Under the contract C is entitled to a stated annual salary and to additional compensation of $10,000 for each year, the additional compensation to be credited to a bookkeeping reserve account and deferred, accumulated and paid in annual installments of $5,000 on C's retirement beginning January 1, 1970.  In the event of C's death prior to exhaustion of the account, the balance is to be paid to C's personal representative.  C is required to render consultative services to D when called upon after December 31, 1969.  During 1970, C is paid $5,000 while a resident of Florida.  The $5,000 is deemed to have been earned at the rate of $1,000 in each of the years 1965-1969, since the amount paid is unrelated to C's current consultative services.  Whether the $1,000 earned in each year is allocable to Illinois under IITA Section 302(a) must be determined by applying the tests set forth in subsection (a) to that year.

d)         Exceptions to General Allocation Rules

1)         While "compensation" may include items of income taken into account by a nonresident employee under the provisions of IRC sections 401 through 425, such as, for example, amounts received by a beneficiary of an employees' trust (taxable to the employee under IRC section 402, whether the trust is exempt or non-exempt from federal income tax), or income resulting from a disqualifying disposition of stock acquired pursuant to the exercise of a qualified stock option (taxable to the employee under IRC section 421(b)), under the express provision of IITA Section 301(c)(2)(A), that compensation is not allocated to Illinois.  Consequently, a nonresident claiming the compensation that would otherwise constitute compensation paid in Illinois is not allocated to Illinois under IITA Section 301(c)(2)(A) must establish that the compensation was properly taken into account by the individual under the provisions of IRC sections 401 through 425.

2)         Reciprocal Exemptions

In any case in which the Director has entered into an agreement with the taxing authorities of another state which imposes a tax on or measured by income to provide the compensation paid in that state to residents of Illinois is exempt from that state's tax, compensation paid in Illinois to residents of that state will not be allocated to Illinois.

3)         Employees Engaged in Interstate Transportation. Federal law affects the authority of the State of Illinois to subject certain employees of railroads, motor carriers, merchant mariners, and air carriers to Illinois income taxation, even though in the absence of specific federal provisions those employees would be subject to Illinois taxation by virtue of IITA Section 302(a).  (See Section 100.2590.) Compensation that Illinois may not tax under those provisions is not "paid in this State" under this Section.

4)         Military Servicemembers and Spouses of Servicemembers. Pursuant to 50 USC 4001, compensation for military service paid to a nonresident servicemember and compensation paid to a servicemember's spouse, if the spouse is not a resident of Illinois and is in Illinois solely to be with the servicemember serving in compliance with military orders, do not constitute "compensation paid in" Illinois even though it meets the tests set forth in this subsection (d).

(Source:  Amended at 44 Ill. Reg. 10907, effective June 10, 2020)

Section 100.3200  Taxability in Other State (IITA Section 303)

a)         General definition

1)         For purposes of allocation of nonbusiness income and for purposes of the sales factor used in apportioning business income, a taxpayer is taxable in another state if:

A)        in that state he or she is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax [35 ILCS 5/303(f)(1)]; or

B)        that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not subject the taxpayer to such a tax [35 ILCS 5/303(f)(2)].

2)         A taxpayer is subject to one of the specified taxes in subsection (a)(1)(A) in a particular state only if the taxpayer is subject to the tax by reason of income-producing activities in that state. For example, a corporation that pays a minimum franchise tax in order to qualify for the privilege of doing business in a state is not subject to tax by that state within the meaning of subsection (a)(1)(A) if the amount of that minimum tax bears no relation to the corporation's activities within that state. Further, a taxpayer claiming to be taxable in another state under the test set forth in subsection (a)(1)(A) must establish not only that under the laws of that state the taxpayer is subject to one of the specified taxes, but that the taxpayer, in fact, pays the tax. If a taxpayer is subject to one of the taxes specified in subsection (a)(1)(A) but does not, in fact, pay the tax, the taxpayer may not claim to be taxable in the state imposing the tax under the test set forth in subsection (a)(1)(A) or (a)(1)(B). (See Dover Corp. v. Dept. of Revenue, 271 Ill. App. 3d 700 (1995).)  On the other hand, if a taxpayer is not subject in a given state to any of the taxes specified in subsection (a)(1)(A) but the taxpayer establishes that the taxpayer's activities in that state are such as to give the state jurisdiction to subject the taxpayer to a net income tax, then, under the test set forth in this subsection (a)(2), the taxpayer is taxable in that state, notwithstanding the fact that that state has not enacted legislation subjecting the taxpayer to the tax. For purposes of this Section:

A)        A net income tax is a tax for which an individual may claim a deduction under 26 U.S.C. 164(a)(3) or for which a foreign tax credit may be claimed under 26 U.S.C. 901.

B)        In the case of any state other than a foreign country or political subdivision of a foreign country, the determination of whether a state has jurisdiction to subject the taxpayer to a net income tax will be determined under the Constitution, statutes and treaties of the United States. Such a state does not have jurisdiction to subject the taxpayer to a net income tax if it is prohibited from imposing that tax by reason of the provisions of Public Law 86-272 (15 U.S.C. Sections 381-385). See 100.9720 of this Part for guidance on nexus standards under the Constitution and statutes of the United States.

C)        In the case of any foreign country or political subdivision of a foreign country, the determination of whether a state has jurisdiction to subject the taxpayer to a net income tax will be determined as if the foreign country or political subdivision were a state of the United States or a political subdivision of a U.S. state. For taxable years ending before December 31, 2022, a person who is not required to pay net income tax by a foreign country or political subdivision as the result of a treaty provision exempting certain persons, business activities or sources of income from tax is not subject to net income tax in that jurisdiction.  For taxable years ending on or after December 31, 2022, if jurisdiction is otherwise present, due to income-producing activities conducted by the taxpayer, that foreign country or political subdivision is not considered as being without jurisdiction by reason of the provisions of a treaty between that foreign country or political subdivision and the United States.

D)        A person is not subject to tax in another state or in a foreign country under subsection (a)(1)(B) if that state or country imposes a tax on net income, unless the taxpayer can show a specific provision of that state's or country's constitution, statutes or regulations, or a holding of that state's or country's courts or taxing authorities, that exempts the person from taxation even though that person could be subject to a net income tax under the Constitution and statutes of the United States.

b)         Examples. Section 100.3200 of this Part may be illustrated by the following examples:

1)         EXAMPLE 1. A corporation, although subject to the provisions of the net income tax statute imposed by X state, has never filed income tax returns in that jurisdiction and has never paid income tax to X. For purposes of allocation and apportionment of A's income, A is not taxable in X state because it does not meet the test specified in either subsection (a)(1)(A) or (1)(B).

2)         EXAMPLE 2. B corporation, an Illinois corporation, is actively engaged in manufacturing farm equipment in Y foreign country. Y does not impose a franchise tax measured by net income or a corporate stock tax. It does impose a franchise tax for the privilege of doing business, but B corporation is not subject to that tax because it applies only to corporations incorporated under Y's laws. Y also imposes a net income tax upon foreign corporations doing business within its boundaries, but B is not subject to that tax because the income tax statute grants tax exemption to corporations manufacturing farm equipment. For purposes of allocation and apportionment of B's income, B is taxable in Y country. B does not meet the test specified in subsection (a)(1)(A), but does meet the test specified in subsection (a)(1)(B), since Y has jurisdiction to impose a net income tax on B.

EXAMPLE 3. C corporation sells large mining equipment to customers in foreign country W in April 2022.  The equipment is disassembled before shipping, and employees of C travel to W to re-assemble the equipment.  C's activities in W thus exceed the protections of Public Law 86-272.  However, due to a bilateral treaty between W and the United States, W will impose a net income tax only upon taxpayers maintaining a permanent establishment in W. C's activities in W do not constitute a permanent establishment.  C meets the test specified in subsection (a)(1)(B) because W has jurisdiction to impose a net income tax on C, irrespective of the treaty provision, for tax years ending on or after December 31, 2022.

(Source:  Amended at 46 Ill. Reg. 15317, effective August 24, 2022)

Section 100.3210 Commercial Domicile (IITA Section 303)

a)         General definition. The term "commercial domicile" is defined in IITA Section 1501(a)(2) to mean the principal place from which the trade or business of the taxpayer is directed or managed. In general, this is the place at which the offices of the principal executives are located. Where executive authority is scattered, the place of daily operational decision making controls. Such determinations must be made on the basis of all the facts and circumstances.

b)         Example. Section 100.3210 of this Part may be illustrated by the following example: Company A has a board of directors which meets quarterly, each meeting being held at a different plant in a different state. A's chairman is designated as its chief executive officer and all top policy decisions are made by him. A's president makes the day-to-day decisions involved in management and it is to him that the manufacturing and sales vice presidents report. He reports to the chairman. A's treasurer is the company's top financial officer, reporting directly to the chairman, and being reported to by financial vice presidents and the controller. A's chairman operates largely out of his home in Wisconsin, communicating with other executives by telephone and periodic visits to their offices. A's president has his office at the company office in Chicago. The manufacturing and sales vice presidents also have offices at the company office in Illinois, as do the sales manager and the controller. A's treasurer and financial vice-president have their offices at the company office in New York City. The company's attorneys and accountants are located in Chicago; its investment banker in New York City. On the basis of the foregoing facts, A's commercial domicile would be Illinois, because daily operational decision making occurs principally within Illinois.

(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.3220  Allocation of Certain Items of Nonbusiness Income by Persons Other Than Residents (IITA Section 303)

a)         In General. IITA Section 303 provides rules for the allocation by any person other than a resident of Illinois of any item of capital gain or loss, and any item of income from rents or royalties from real or tangible personal property, interest, dividends, and patent or copyright royalties, together with any item of deduction directly allocable thereto, to the extent the item constitutes nonbusiness income. For the tests as to whether any item constitutes business or nonbusiness income, see Section 100.3010.

b)         Capital Gains and Losses

1)         Real Property. Capital gains and losses from sales or exchanges of real property are allocated to Illinois if the property is located in Illinois. (IITA Section 303(b)(1)) Economic interests in minerals in place, such as oil or gas, are real property under IITA Section 303. Examples of these interests are royalties, overriding royalties, participating interests, production payments and working interests.

2)         Tangible Personal Property. Capital gains and losses from sales or exchanges of tangible personal property are allocated to Illinois, if at the time of the sale or exchange:

A)        the property has its situs in Illinois; or

B)        the taxpayer has its commercial domicile in Illinois and is not taxable in the state in which the property has its situs.  (IITA Section 303(b)(2))  For the tests of taxability in another state and commercial domicile, see Sections 100.3200 and 100.3210.

3)         Intangible Personal Property. Capital gains and losses from sales or exchanges of intangible personal property are allocated to Illinois if the taxpayer has its commercial domicile in Illinois at the time of the sale or exchange. (IITA Section 303(b)(3))  For the tests of commercial domicile, see Section 100.3210.

c)         Rents and Royalties

1)         Real Property. Rents and royalties from real property are allocated to Illinois if the property is located in Illinois.  (IITA Section 303(c)(1))  Economic interests in minerals in place, such as oil or gas, are real property under IITA Section 303. Examples of these interests are royalties, overriding royalties, participating interests, production payments and working interests.

2)         Tangible Personal Property. Rents and royalties from tangible personal property are allocated to Illinois:

A)        if and to the extent that the property is utilized in Illinois; or

B)        in their entirety if, at the time rents or royalties are paid or accrued, the taxpayer has its commercial domicile in Illinois and was not organized under the laws of, or is not taxable with respect to the rents or royalties in, the state in which the property is utilized.  (IITA Section 303(c)(2))  For the tests of taxability in another state and commercial domicile, see Sections 100.3200 and 100.3210. The extent of utilization of tangible personal property in a state is determined by multiplying the rents or royalties derived from the property by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property is located at the time the rental or royalty payor obtains possession.

3)         Examples. Section 100.3220(c) may be illustrated by the following examples:

A)        EXAMPLE A. A is a resident of Missouri. A purchases an interest in oil royalty under an oil and gas lease in Illinois. During 1970, A receives $2,000 in royalty payments. Under Section 100.3010(c)(3), the royalty income is presumed to be nonbusiness income. As such it is allocated to Illinois, being derived from real property located in Illinois.

B)        EXAMPLE B. B is a resident of Iowa, with a summer home in Illinois. B owns a sailboat that he keeps in Iowa during the winter months and tows to Illinois by trailer for use in the summer. During 1970, B is unable to visit his summer home, and rents his sailboat for the months of July through September to C, the owner of the adjoining property in Illinois. Under Section 100.3010(c)(3), the rent is presumed to be nonbusiness income. C takes the boat from Iowa to Illinois and returns it to B in Iowa on October 1, 1970. Although the boat is physically located in Iowa during the months of January through June and October through December, the rental period is only the months of July through September. During the rental period, the boat is located in Illinois. Hence, it is utilized in Illinois and, accordingly, the rental income is allocated to Illinois.

C)        EXAMPLE C. The facts are the same as in Example B, except that B rents the boat through a want ad and does not know C, nor where he uses the boat during the months of July through September. In this case, since C takes possession of the boat in Iowa, it is utilized in Iowa and, accordingly, the rental income is not allocated to Illinois.

d)         Patent and Copyright Royalties

1)         Allocation. Patent and copyright royalties are allocated to Illinois:

A)        if and to the extent that the patent or copyright is utilized by the payor of the royalties in Illinois; or

B)        if and to the extent that the patent or copyright is utilized by the payor of the royalties in a state in which the taxpayer is not taxable with respect to the royalties and, at the time the royalties are paid or accrued, the taxpayer has its commercial domicile in Illinois.  (IITA Section 303(d)(1)) For the tests of taxability in another state and commercial domicile, see Sections 100.3200 and 100.3210.

2)         Utilization

A)        Patents. A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures of the royalty payor do not reflect states of utilization, the patent is utilized in Illinois if the taxpayer has its commercial domicile in Illinois.  (IITA Section 303(d)(2)(A))

B)        Copyrights. A copyright is utilized in a state to the extent that printing or other publication originates in that state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures of the royalty payor do not reflect states of utilization, the copyright is utilized in Illinois if the taxpayer has its commercial domicile in Illinois.  (IITA Section 303(d)(2)(B))

3)         Example. A, a resident of New York, is not in the business of being an inventor, but owns a patent on a single invention, which he licenses to a manufacturer of automatic garage door openers. Royalties are a percentage of the manufacturer's sales. The manufacturer has plants situated in Missouri, Illinois and Indiana. Under Section 100.3050(c)(6), the royalty income is presumed to be nonbusiness income. If A's royalties can be allocated to Missouri, Illinois and Indiana on the basis of sales from the manufacturer's plants in each of those states, those royalties attributable to sales from the Illinois plant are allocated to Illinois. If, however, the manufacturer's accounting procedures do not reflect sales from the specific plants, but royalties are paid on the basis of total sales not broken down by plant, then, since A is not a resident of Illinois, the patent is not utilized in Illinois and none of the royalties are allocated to Illinois.

e)         Taxability in another state. For the test of taxability in another state, see Section 100.3200.

f)         Interest and dividends. For allocation of interest and dividends, see Section 100.3300(b)(2).

g)         Illinois Lottery Prizes.  Prizes awarded under the Illinois Lottery Law [20 ILCS 1605] are allocable to this State.  Payments received in taxable years ending on or after December 31, 2013, from the assignment of a prize under Section 13.1 of the Illinois Lottery Law, are allocable to this State.  (IITA Section 303(e))

h)         Wagering and Gambling Winnings.  Payments, received in taxable years ending on or after December 31, 2019, of winnings from pari-mutuel wagering conducted at a wagering facility licensed under the Illinois Horse Racing Act of 1975 [230 ILCS 5] and from gambling games conducted on a riverboat or in a casino or organization gaming facility licensed under the Illinois Gambling Act [230 ILCS 10] are allocable to this State. (IITA Section 303(e-1))

i)          Sports Wagering and Winnings.  Payments received in taxable years ending on or after December 31, 2021 of winnings from sports wagering conducted in accordance with the Sports Wagering Act [230 ILCS 45] are allocable to this State. (IITA Section 303(e-2))

j)          Unemployment Compensation.  Unemployment compensation paid by this State is allocated to this State.  (See IITA Section 303(e-5))

(Source:  Amended at 47 Ill. Reg. 13669, effective September 11, 2023)

Section 100.3300  Allocation and Apportionment of Base Income (IITA Section 304)

a)         Residents. All items of income or deduction which are taken into account in the computation of base income for the taxable year by a resident of Illinois are allocated to Illinois under IITA Section 301(a) and enter into the computation of such person's net income under IITA Section 202. For the definition of a resident see IITA Section 1501(a)(20) and Section 100.3020 of this Part.

b)         Other persons

1)         In general. In order to compute net income under IITA Section 202 of persons other than residents of Illinois, it is necessary to determine that portion of each item of income and deduction taken into account in the computation of base income for the taxable year which is allocable to Illinois. In general, the allocation of items of compensation and of items of deduction directly allocable thereto is governed by IITA Section 302 (see Section 100.3120 of this Part). The allocation of certain specified items of income, to the extent such items constitute nonbusiness income, together with items of deduction directly allocable thereto, is governed by IITA Section 303 (see Section 100.3220 of this Part). The allocation and apportionment of business income is governed by IITA Section 304 (see Sections 100.3310, 100.3350, 100.3360 and 100.3370 of this Part.) An item of income or deduction specifically allocated or apportioned pursuant to one of the foregoing sections is allocated to Illinois and enters into the computation of net income of a person other than a resident only to the extent provided by such allocation or apportionment section. All other items of income and deductions are allocated under IITA Section 301(b)(2).

2)         Unspecified items. An item of income or deduction which is taken into account in the computation of base income for the taxable year by a person other than a resident of Illinois, and which is not otherwise specifically allocated or apportioned, in the case of an individual, trust or estate, is not allocated to Illinois. In the case of a corporation, such items are allocated to Illinois if the corporation has its commercial domicile in Illinois at the time such item is paid, incurred or accrued. For the definition of commercial domicile, see IITA Section 1501(a)(2) and Section 100.3210 of this Part. Examples of items of income which (to the extent such items constitute nonbusiness income) are not otherwise specifically allocated or apportioned are interest, dividends, items of income taken into account under the provisions of 26 USC 401 through 425, benefit payments received by a beneficiary of a supplemental unemployment benefit trust which is referred to in 26 USC 501(c)(17) and royalties from intangible personal property (other than patent and copyright royalties).

(Source:  Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.3310  Business Income of Persons Other Than Residents (IITA Section 304) – In General

The business income of a person other than a resident is allocated to Illinois if such person's business income is derived solely from Illinois. Note that any reference to person in this section shall refer to a person other than a resident. Every person who derives business income from Illinois and one or more other states must apportion such business income between Illinois and such other state or states in accordance with the provisions of IITA Section 304. Special apportionment rules are provided for the business income of insurance companies, financial organizations, and persons furnishing transportation services, and for alternative methods of apportionment (and allocation) where the specific statutory provisions do not fairly represent the extent of a person's business activity in Illinois. See IITA Section 304(b),(c),(d) and (e) of the Act.

(Source:  Section repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981; amended at 8 Ill. Reg. 6184, effective May 4, 1984)

Section 100.3320  Business Income of Persons Other Than Residents(IITA Section 304) -- Apportionment (Repealed)

(Source:  Amended at 26 Ill. Reg. 13237, effective August 23, 2002)

Section 100.3330  Business Income of Persons Other Than Residents (IITA Section 304 – Allocation

Any person subject to the taxing jurisdiction of this state shall allocate all of its nonbusiness income within or without this state in accordance with IITA Section 303 and 86 Ill. Adm. Code 100.3300.

(Source: Section repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981; amended at 8 Ill. Reg. 6184, effective May 4, 1984)

Section 100.3340  Business Income of Persons Other Than Residents (IITA Section 304)

In filing returns with this state, if any person departs from or modifies the manner in which income has been classified as business income or nonbusiness income in returns for prior years, such person shall disclose in the return for the current year the nature and extent of the modification. If the returns or reports filed by a person for all states to which such person reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the classification of income as business or nonbusiness income, the person shall disclose in its return to this state the nature and extent of the variance.

(Source:  Section repealed, new Section adopted at 6 Ill. Reg. 579, effective December 29, 1981; amended at 8 Ill. Reg. 6184, effective May 4, 1984)

Section 100.3350  Property Factor (IITA Section 304)

a)         In general.  The property factor of the apportionment formula for each trade or business of a person shall include all real and tangible personal property owned or rented by such person and used during the tax period  in the  regular  course  of such trade or business.  The term "real and tangible personal property" includes land, building, machinery, stocks of goods, equipment, and other real and tangible personal property but does not include coin or currency.  Property used in connection with the production of nonbusiness income shall be excluded from the property factor.  Property used both in the regular course of a person's trade or business and in the production of nonbusiness income shall be included in the  factor only to the extent the property is used in the regular course of the person's trade or business.  The method of determining that portion of the value to be included in the factor will depend on the facts of each case.  The property factor shall include the average value of property includable in the factor.  See subsection (g), below.

b)         Property used for the production of business income.  Property shall be included in the property factor if it is actually used or is available for or capable of being used during the tax period in the regular course of the trade or business of the person.  Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor.  For example, a plant temporarily idle or raw material reserves  not currently being processed are includable in the factor.  Property or equipment under construction during the tax period (except inventoriable goods  in process),  shall be excluded from the factor until  such property is actually used in the  regular course of the trade or business of the person.  If the property is partially used in  the regular course  of the trade or business of the person while under construction, the value of the property to the extent  used shall be included in the property factor.  Property used in the regular course of the trade or business of the person shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its conversion to the production of nonbusiness income, its sale, or the lapse of an extended period of time (normally five  years) during which the property is held for sale.

1)         Example 1:  Corporation A closed its manufacturing plant in State X and held such property for sale.  The property remained vacant until its sale one year later.  The value of the manufacturing plant is included in the property factor until the plant is sold.

2)         Example 2:  Same as above except that the property was rented until the plant was sold.  The plant is included in the property factor until the plant is sold.

3)         Example 3:  Corporation A operates a chain of retail grocery stores.  The corporation closed Store A, which was then remodeled into three small retail stores, such as a dress shop, dry cleaning, and barber shop, which were leased to unrelated parties.  The property is removed from the property factor on the date the remodeling of Store A commenced.

c)         Consistency in reporting.  In filing returns with this State, if a person departs from or modifies the manner of valuing property, or of excluding or including property in the property factor used in returns for prior years, the person shall disclose in the return for the current year the nature and extent of the modification.  If the returns or reports filed by the person with all states to which the person reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the valuation of property and in the exclusion or inclusion of property in the property factor, the person shall disclose in its return to this State the nature and extent of the variance.

d)         Numerator.  The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the person and used in this State during the tax period in the regular course of the trade or business of the person.  Property in transit between locations of the person to which it belongs shall be considered to be at the destination for purposes of the property factor.  Property in transit between a buyer and seller which is included by a person in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination.  The value of mobile or movable property such as construction equipment, trucks or leased electronic equipment which are located within and without this State during the tax period, shall be determined for purposes of  the numerator of the factor on the basis of total time within the State during the tax period.  An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.

e)         Valuation of owned property.  Property owned by the person shall be at its  original cost.  As a general rule  "original cost" is the basis of property for  federal  income  tax  purposes  at  the  time  of acquisition  and will  not reflect any federal adjustments thereafter for deductions for depreciation, depletion,  amortization and  the  like.

1)         In addition,  however, the  valuation will include the original  cost, at  acquisition, of  any capital improvement as  well as  partial dispositions  of  any portion by reason of sale, exchange, abandonment, etc.

2)         However, capitalized intangible drilling and development costs shall be included in the property factor whether or not they have been expensed for either federal or state tax purposes.  Intangible drilling and development costs include such elements as wages, fuel, repairs, hauling, draining, roadbuilding, surveying, geological works, construction of derricks, tanks, pipelines, and other physical structures necessary for the drilling of wells and their preparation for the production of oil and gas, and supplies incident to and necessary for the drilling of wells and clearing of ground.

3)         Example 1:  Corporation  W  acquired  a  factory building in  this State at a cost of $500,000 and 18  months  later  expended  $100,000  for  major remodeling of  the  building.  The  corporation files its  return for the current taxable year on the calendar-year  basis. Depreciation  deduction in the  amount of  $22,000  was  claimed  on  the building for  its return  for the current taxable year.  The value  of the  building includable in the numerator  and denominator  of  the  property factor is  $600,000 as the depreciation deduction is not  taken into  account  in  determining  the value of the building for purposes of the factor.

4)         Example 2:  During  the current  taxable year, X Corporation  merges into  Y  Corporation  in  a tax-free  reorganization under the Internal Revenue Code.  At  the time  of  the  merger,  X Corporation owns  a factory  which X  built  five years earlier  at a  cost of  $1,000,000. X has been depreciating  the factory at the rate of two percent per  year, and  its basis in X's hands at the time  of the  merger is  $900,000.  Since the property is  acquired by  Y in  a transaction  in which, under the Internal Revenue Code, its basis in Y's  hands is  the same as its basis in X's, Y includes the  property in  Y's property factor at X's  original cost,  without adjustment for depreciation, i.e., $1,000,000.

5)         Example 3:  Corporation Y acquires the assets of Corporation X  in a  liquidation by  which  Y  is entitled to  use its  stock cost  as the basis of the X  assets under  26 U.S.C.  Section 334(b)(2) (i.e. stock  possessing  80  percent  control  is purchased  and liquidated  within  two  years). Under these circumstances, Y's cost of the assets is the  purchase price  of the  X stock, prorated over the X assets.

A)        If original cost of property is unascertainable, the property is included in the factor  at its  fair market  value as of the date of acquisition by the person.

B)        Inventory  or stock  of goods  shall  be included in  the factor  in accordance  with the valuation method used for federal income tax purposes.

C)        Property acquired  by  gift  or  inheritance shall be included in the factor at its basis for  determining  depreciation  for  federal income tax purposes.

f)         Valuation of rented property.

1)         Property rented  by the person is valued at eight times the net annual rental rate.  The net annual rental rate  for any  item of  rented property is the annual  rental rate  paid by  the person  for such property, less the aggregate annual subrental rates paid by subtenants of the person. (See Section 100.3380(a)  for special rules where  the use  of such  net annual  rental rate produces  a negative  or clearly  inaccurate value or  where property is used by the person at no charge  or rented  at a  nominal rental rate.)  Subrents are  not  deducted  when  the  subrents constitute business  income because  the property which  produces  the  subrents  is  used  in  the regular course  of a  trade or  business  of  the person  when it  is producing  such income. Accordingly there is no reduction in its value.

A)        Example A:  Corporation A receives subrents from a  bakery concession  in a  food market operated by  it.  Since  the  subrents  are business income  they are  not deducted from the rent  paid by Corporation A for the food market.

B)        Example B:  Corporation  B rents  a 5-story office building  primarily for  use  in  its multistate business,  uses three  floors for its offices  and  subleases  two  floors  to various other businesses and persons such as professional people,  shops  and  the  like. The rental of the two floors is attendant to the operation  of the corporation's trade or business.  Since the  subrents are business income they  are not  deducted from the rent paid by the corporation.

C)        Example C:  Corporation  C rents a 20-story office  building  and  uses  the  lower  two stories for its general corporation headquarters.  The remaining  18 floors are subleased to  others.  The  rental  of  the eighteen floors  is  not  attendant  to  but rather is separate from the operation of the corporation's trade  or business.  Since the subrents are  nonbusiness income they are to be  deducted  from  the  rent  paid  by  the corporation.

2)         "Annual rental rate" is the amount paid as rental for property  for a  12-month period  (i.e.,  the amount of  the annual  rent).  Where property is rented for  less than a 12-month period, the rent paid  for  the  actual  period  of  rental  shall constitute the  "annual rental  rate" for the tax period.  However, where a corporation has rented property for  a term of 12 or more months and the current tax  period covers  a period of less than 12 months  (due, for example, to a reorganization or change  of accounting  period), the  rent paid for the short tax period shall be annualized.  If the rental  term is  for less than 12 months, the rent shall  not be  annualized beyond  its  term. Rent shall  not  be  annualized  because  of  the uncertain duration  when the  rental term is on a month to month basis.

A)        Example A:  Corporation  A which ordinarily files its  returns based  on a calendar year is merged  into Corporation  B on  April 30. The net rent paid under a lease with 5 years remaining is  $2,500 a  month.  The rent for the tax  period January  1 to  April  30  is $10,000.  After the  rent is annualized the net rent is $30,000 ($2,500 X 12).

B)        Example B:  Same  facts  as  in  Example  A except that  the lease would have terminated August 31.  In this case the annualized net rent is $20,000 ($2,500 X 8).

3)         "Annual rent" is the actual sum of money or other consideration payable, directly or indirectly, by the person  or for its benefit for the use of the property and includes:

A)        Any amount  payable for  the use  of real or tangible  personal  property,  or  any  part thereof, whether  designated as  a fixed sum of  money  or  as  a  percentage  of  sales, profits or otherwise.

Example:  A  corporation  pursuant  to  the terms of  a lease,  pays a lessor $1,000 per month as a base rental and at the end of the year pays  the lessor  one  percent  of  its gross sales of $400,000.  The annual rent is $16,000  ($12,000 plus  one percent of $400,000 or $4,000).

B)        Any amount  payable as additional rent or in lieu of  rents,  such  as  interest,  taxes, insurance, repairs  or any other items which are required  to be paid by the terms of the lease or  other arrangement,  not  including amounts paid  as service  charges,  such  as utilities, janitor  services,  etc.  If  a payment  includes  rent  and  other  charges unsegregated, the  amount of  rent shall  be determined by  consideration of the relative values of the rent and the other items.

i)          Example i:  A corporation, pursuant to the terms  of a  lease, pays the lessor $12,000 a  year rent  plus taxes in the amount of  $2,000  and  interest  on  a mortgage in  the amount of $1,000.  The annual rent is $15,000.

ii)         Example ii:  A corporation stores part of its inventory in a public warehouse. The  total  charge  for  the  year  was $1,000 of which $700 was for the use of storage space  and $300  for  inventory insurance, handling and shipping charges, and  C.O.D. collections.  The annual rent is $700.

C)        "Annual rent" includes royalties based on extraction of natural resources, whether represented by delivery or purchase.  For this purpose, a royalty includes any consideration conveyed or credited to a holder of an interest in property that constitutes a sharing of current or future production of natural resources from such property, irrespective of the method of payment or how such consideration may be characterized, whether as a royalty, advance royalty, rental or otherwise.  "Annual rent"  does not  include incidental day-to-day expenses  such as  hotel or motel accommodations, daily rental of automobiles, etc.

4)         Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the person regardless of whether the person is entitled  to remove  the  improvements  or  the improvements revert to the lessor upon expiration of the  lease.  Hence,  the  original  cost  of leasehold improvements  shall be  included in the factor.

g)         Averaging property values

1)         As a general rule the average value of property owned by the person shall be determined by averaging the values at the beginning and ending of the tax period.  However, the Director may require or allow averaging by monthly values if such method of averaging is required to properly reflect the average value of the person's property for the tax period.  Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist during the tax period or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period.

2)         Example:  The monthly value of the person's property was as follows:

A)        The average value of the person's property includable in the property factor for the taxable year is determined as follows: $120,000 divided by 12 = $10,000

B)        Averaging with respect to rented property is achieved  automatically by the method of determining the net annual rental rate of such property as set forth in subsection(e) above.

(Source:  Amended at 26 Ill. Reg. 13237, effective August 23, 2002)

Section 100.3360 Payroll Factor (IITA Section 304)

a)         In general

1)         The payroll factor of the apportionment formula for each trade or business of an employer shall include the total amount paid by the employer in the regular course of its trade or business for compensation during the tax period.

2)         The total amount "paid" to employees is determined upon the basis of the employer's accounting method. If the employer has adopted the accrual method of accounting, all compensation properly accrued shall be deemed to have been paid. The compensation of any employee on account of activities which are connected with the production of nonbusiness income shall be excluded from the factor.

A)        Example A: A corporation uses some of its employees in the construction of a storage building which, upon completion, is used in the regular course of the corporation's trade or business. The wages paid to those employees are treated as a capital expenditure by the corporation. The amount of such wages is included in the payroll factor.

B)        Example B: A corporation owns various securities which it holds as an investment separate and apart from its trade or business. The management of the corporation's investment portfolio is the only duty of Mr. X, an employee. The salary paid to Mr. X is excluded from the payroll factor.

3)         The term "compensation" is defined in Section 100.3100 of this Part.

4)         The term "employee" is defined in Section 100.3100 of this Part.

5)         In filing returns with this state, if the employer departs from or modifies the treatment of compensation paid used in returns for prior years, the employer shall disclose in the return for the current year the nature and extent of the modification. If the returns or reports filed by the employer with all states to which the employer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the treatment of compensation paid, the employer shall disclose in its return to this state the nature and extent of the variance.

b)         Denominator. The denominator of the payroll factor is the total compensation paid everywhere during the tax period. Accordingly, compensation paid to employees whose services are performed entirely in a state where the employer is immune from taxation, by Public Law 86-272 for example, is included in the denominator of the payroll factor. Example: A corporation has employees in its state of legal domicile (State A) and is taxable in State B. In addition the corporation has other employees whose services are performed entirely in State C where the corporation is immune from taxation by Public Law 86-272. As to these latter employees, the compensation will be assigned to State C where their services are performed (i.e., included in the denominator – but not the numerator – of the payroll factor) even though the corporation is not taxable in State C.

c)         Numerator. The numerator of the payroll factor is the total amount paid in this State during the tax period by the employer for compensation. The tests in IITA Section 304(a)(2) to be applied in determining whether compensation is paid in this State are derived from the Model Unemployment Compensation Act.

d)         Compensation paid in this State. The term "compensation paid in this State" is explained in Section 100.3120 of this Part.

(Source: Amended at 24 Ill. Reg. 10593, effective July 7, 2000)

Section 100.3370  Sales Factor (IITA Section 304)

a)         In General

1)         IITA Section 1501(a)(21) defines the term "sales" to mean all gross receipts of the person not allocated under IITA Sections 301, 302 and 303. Thus, for the purposes of the sales factor of the apportionment formula for each trade or business of the person, the term "sales" means all gross receipts derived by the person from transactions and activity in the regular course of his or her trade or business.  The following are rules for determining "sales" in various situations, except in instances in which an alternative method of determining the sales factor is prescribed in Section 100.3380.  If the determination prescribed by this Section does not clearly reflect the taxpayer's business activities in Illinois (for taxable years ending before December 31, 2008) or the market for the taxpayer's goods, services or other sources of income in Illinois (for taxable years ending on or after December 31, 2008), the taxpayer may request the use of an alternative method of apportionment under Section 100.3390.

A)        In the case of a person engaged in manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of those goods or products (or other property of a kind that would properly be included in the inventory of the person if on hand at the close of the tax period) held by the person primarily for sale to customers in the ordinary course of its trade or business.  Gross receipts for this purpose means gross sales less returns and allowances, and includes all interest income, service charges, carrying charges, or time-price differential charges attendant to those sales.  Federal and State excise taxes (including sales taxes) shall be included as part of the receipts if the taxes are passed on to the buyer or included as part of the selling price of the product.

B)        In the case of cost plus fixed fee contracts, such as the operation of a government-owned plant for a fee, "sales" includes the entire reimbursed cost, plus the fee.

C)        In the case of a person engaged in providing services, such as the operation of an advertising agency, or the performance of equipment service contracts, or research and development contracts, "sales" includes the gross receipts from the performance of those services, including fees, commissions and similar items.

D)        In the case of a person engaged in renting real or tangible property, "sales" includes the gross receipts from the rental, lease or licensing of the use of the property.

E)        In the case of a person engaged in the sale, assignment or licensing of intangible personal property such as patents and copyrights, "sales" includes the gross receipts therefrom.

F)         If a person derives receipts from the sale of equipment used in its business, those receipts constitute "sales". For example, a truck express company owns a fleet of trucks and sells its trucks under a regular replacement program.  The gross receipts from the sales of the trucks shall be included in the sales factor.

2)         The following gross receipts are not included in the sales factor:

A)        For taxable years ending on or after December 31, 1995, dividends; amounts included under IRC section 78; and Subpart F income are excluded from the sales factor under IITA Section 304(a)(3)(D).

B)        Gross receipts that are excluded from or deducted in the computation of federal taxable income or federal adjusted gross income, and that are not added back in the computation of base income.  For example, in years ending prior to December 31, 1995, dividends received from a domestic corporation are excluded from the sales factor to the extent the taxpayer is allowed a deduction under IRC section 243 with respect to those dividends.

C)        Gross receipts that are subtracted from federal taxable income or federal adjusted gross income in the computation of base income or that are eliminated in the computation of taxable income in the case of a unitary business group under Section 100.5270(b)(1).  Examples of gross receipts excluded from the sales factor under this provision include:

i)          Interest on federal obligations subtracted under IITA Section 203(a)(2)(N), (b)(2)(J), (c)(2)(K) or (d)(2)(G).

ii)         For taxable years ending prior to December 31, 1995, dividends included in federal taxable income or federal adjusted gross income are excluded from the sales factor if eliminated in combination or to the extent subtracted under IITA Section 203(a)(2)(J), (a)(2)(K), (b)(2)(K), (b)(2)(L), (b)(2)(O), (c)(2)(M), (c)(2)(O), (d)(2)(K) or (d)(2)(M).

D)        Gross receipts that are excluded from or deducted in the computation of federal taxable income or federal adjusted gross income, but are added back in the computation of base income, are included in the sales factor unless subtracted or eliminated in combination.  For example:

i)          Interest on State obligations excluded from federal taxable income or adjusted gross income under IRC section 103 and added back in the computation of base income under IITA Section 203(a)(2)(A), (b)(2)(A), (c)(2)(A) or (d)(2)(A) shall be included in the sales factor except in the case of interest on certain Illinois obligations that is exempt from Illinois Income Tax.  (See 86 Ill. Adm. Code 100.2470(f).)

ii)         Gross receipts from intercompany transactions between two corporate members of a federal consolidated group, the taxable income on which is deferred under 26 CFR 1.1502-13, shall be included in the sales factor of the recipient unless subtracted under a provision of IITA Section 203 or eliminated in combination of the two corporations as members of a unitary business group.

E)        In some cases, certain gross receipts should be disregarded in determining the sales factor in order that the apportionment formula will operate fairly to apportion to this State the income of the person's trade or business.  (See 86 Ill. Adm. Code 100.3380(c).)

F)         For taxable years ending on or after December 31, 1999, gross receipts from the licensing, sale, or other disposition of a patent, copyright, trademark, or similar item of intangible personal property may be included in the sales factor only if gross receipts from licenses, sales, or other dispositions of these items comprise more than 50% of the taxpayer's total gross receipts included in gross income during the tax year and during each of the 2 immediately preceding tax years; provided that, when a taxpayer is a member of a unitary business group, the determination shall be made on the basis of the gross receipts of the entire unitary business group. (IITA Section 304(a)(3)(B-2)) For purposes of this Section:

i)          "Gross receipts from the licensing, sale, or other disposition of a patent, copyright, trademark, or similar item of intangible personal property" includes amounts received as damages or settlements from claims of infringement.

ii)         "Gross receipts from the licensing, sale, or other disposition of a patent" includes only amounts received from a person using the patent in the production, fabrication, manufacturing, or other processing of a product or from a person producing, fabricating or manufacturing a product subject to the patent.

iii)        "Gross receipts from the licensing, sale, or other disposition of a copyright" includes only amounts received by the taxpayer from a person engaged in printing or other publication of the material protected by the copyright, which are governed by Section 100.3373. The term does not include gross receipts from broadcasting within the meaning of IITA Section 304(a)(3)(B-7) or from publishing or advertising within the meaning of IITA Section 304(a)(3)(C-5)(iv).

iv)        If a taxpayer has been in existence less than three taxable years, its gross receipts from the licensing, sale, or other disposition of patents, copyrights, trademarks or similar items of intangible personal property shall be included in its sales factor if those gross receipts comprise more than 50% of its total gross receipts during each taxable year of its existence.

v)         "Patent" means a patent issued under 35 U.S.C. 151.

vi)        "Copyright" means a copyright registered or eligible for registration under 17 U.S.C. 408.

vii)       "Trademark" means a trademark registered or eligible for registration under 15 U.S.C. 1051.

viii)      A "similar item" means an item of intellectual property that is registered or otherwise enforceable under a law equivalent to 35 U.S.C. 151, 17 U.S.C. 408 or 15 U.S.C. 1051 or that is otherwise recognized in the country under whose law the sale or license agreement would be enforced, or under which an infringement claim would be brought.

ix)        In the case of a unitary business group, the "total gross receipts and gross receipts from the licensing, sale or other disposition of a patent, copyright, trademark or similar item of intangible personal property in the two years immediately preceding the tax year" includes the gross receipts and gross receipts from the licensing, sale or other disposition of a patent, copyright, trademark or similar item of intangible personal property of all persons who are members of the unitary business group at some time during the taxable year, whether or not those persons were also members of the unitary business group in a preceding tax year, and only of those persons.

3)         In filing returns with this State, if the person departs from or modifies the basis for excluding or including gross receipts in the sales factor used in returns for prior years, the person shall disclose in the return for the current year the nature and extent of the modification.  If the returns or reports filed by the person with all states to which the person reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the inclusion or exclusion of gross receipts, the person shall disclose in its return to this State the nature and extent of the variance.

4)         For taxable years ending prior to December 31, 2008, sales of electricity are sales other than sales of tangible personal property sourced under IITA Section 304(a)(3)(C). For taxable years ending on or after December 31, 2008 and prior to July 16, 2009, sales of electricity are sales of service sourced under IITA Section 304(a)(3)(C-5)(iv). For taxable years ending after July 15, 2009, sales of electricity are sales of tangible personal property sourced under IITA Section 304(a)(3)(B). (See Exelon Corp. v. Department of Revenue, 234 Ill 2d 266 (2009)).

b)         Denominator.  The denominator of the sales factor shall include the total gross receipts derived by the person from transactions and activity in the regular course of its trade or business, except receipts excluded under 86 Ill. Adm. Code 100.3380(c).

c)         Numerator.  The numerator of the sales factor shall include the gross receipts attributable to this State and derived by the person from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential charges incidental to those gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

1)         Sales of Tangible Personal Property in this State

A)        Gross receipts from the sales of tangible personal property (except sales to the United States Government) (see subsection (c)(2)) are in this State:

i)          if the property is delivered or shipped to a purchaser within this State regardless of the f.o.b. (free on board) point or other conditions of sale; or

ii)         if the property is shipped from an office, store, warehouse, factory or other place of storage in this State and the taxpayer is not taxable in the state of the purchaser.  However, premises owned or leased by a person who has independently contracted with the taxpayer for the printing of newspapers, periodicals or books shall not be deemed to be an office, store, warehouse, factory or other place of storage.

B)        Property shall be deemed to be delivered or shipped to a purchaser within this State if the recipient is located in this State, even though the property is ordered from outside this State.

EXAMPLE:  A corporation, with inventory in State A, sold $100,000 of its products to a purchaser having branch stores in several states including this State.  The order for the purchase was placed by the purchaser's central purchasing department located in State B.  $25,000 of the purchase order was shipped directly to purchaser's branch store in this State.  The branch store in this State is the "purchaser within this State" with respect to $25,000 of the corporation's sales.

C)        Property is delivered or shipped to a purchaser within this State if the shipment terminates in this State, even though the property is subsequently transferred by the purchaser to another state.

EXAMPLE:  A corporation makes a sale to a purchaser who maintains a central warehouse in this State at which all merchandise purchases are received.  The purchaser reships the goods to its branch stores in other states for sale.  All of the corporation's products shipped to the purchaser's warehouse in this State is property "delivered or shipped to a purchaser within this State".

D)        The term "purchaser within this State" shall include the ultimate recipient of the property if the person in this State, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within this State.

EXAMPLE:  A corporation in this State sold merchandise to a purchaser in State A.  The corporation directed the manufacturer or supplier of the merchandise in State B to ship the merchandise to the purchaser's customer in this State pursuant to purchaser's instructions.  The sale by the corporation is "in this State".

E)        When property being shipped by a seller from the state of origin to a consignee in another state is diverted while en route to a purchaser in this State, the sales are in this State.

EXAMPLE:  Corporation X, a produce grower in State A, begins shipment of perishable produce to the purchaser's place of business in State B.  While en route the produce is diverted to the purchaser's place of business in this State in which state Corporation X is subject to tax.  The sale by the corporation is attributed to this State.

F)         If the person is not taxable in the state of the purchaser, the sale is attributed to this State if the property is shipped from an office, store, warehouse, factory, or other place of storage in this State (subject to the exception noted in (c)(1)(A)(ii)).

EXAMPLE:  A corporation has its head office and factory in State A.  It maintains a branch office and inventory in this State.  The corporation's only activity in State B is the solicitation of orders by a resident salesman.  All orders by the State B salesman are sent to the branch office in this State for approval and are filled by shipment from the inventory in this State.  Since the corporation is immune under Public Law 86-272 from tax in State B, all sales of merchandise to purchasers in State B are attributed to this State, the state from which the merchandise was shipped.

2)         Sales of tangible personal property to the United States Government in this State.  Gross receipts from the sales of tangible personal property to the United States Government are in this State if the property is shipped from an office, store, warehouse, factory, or other place of storage in this State.  For the purposes of this regulation, only sales for which the United States Government makes direct payment to the seller pursuant to the terms of the contract constitute sales to the United States Government.  Thus, as a general rule, sales by a subcontractor to the prime contractor, the party to the contract with the United States Government, do not constitute sales to the United States Government.

EXAMPLE A:  A corporation contracts with General Services Administration to deliver X number of trucks that were paid for by the United States Government.  The sale is a sale to the United States Government.

EXAMPLE B:  A corporation as a subcontractor to a prime contractor with the National Aeronautics and Space Administration contracts to build a component of a rocket for $1,000,000.  The sale by the subcontractor to the prime contractor is not a sale to the United States Government.

3)         For taxable years ending on or after December 31, 1999, gross receipts from the licensing, sale, or other disposition of a patent, copyright, trademark, or similar item of intangible personal property that are not excluded from the sales factor under subsection (a)(2)(F) are included in the numerator of the sales factor to the extent the item is utilized in this State during the year the gross receipts are included in gross income. (IITA Section 304(a)(3)(B-1)) For purposes of this subsection (c)(3):

A)        A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If a patent is utilized in more than one state, the extent to which it is utilized in any one state shall be a fraction equal to the gross receipts of the licensee or purchaser from sales or leases of items produced, fabricated, manufactured, or processed within that state using the patent and of patented items produced within that state, divided by the total of the gross receipts for all states in which the patent is utilized. (IITA Section 304(a)(3)(B-1)(ii)(I))

B)        A copyright is utilized in a state to the extent that printing or other publication originates in the state. Printing or other publication originates at the place at which the licensee of the copyright incorporates the copyrighted material into the physical medium by which it will be delivered to the purchaser of the material or, if the copyrighted material is delivered to the purchaser without use of a physical medium, the place at which delivery of the copyrighted material to the person purchasing the material from the licensee originates. If a copyright is utilized in more than one state, the extent to which it is utilized in any one state shall be a fraction equal to the gross receipts from sales or licenses of materials printed or published in that state divided by the total of the gross receipts for all states in which the copyright is utilized. (IITA Section 304(a)(3)(B-1)(ii)(II))

C)        Trademarks and other items of intangible personal property governed by this subsection (c)(3) are utilized in the state in which the commercial domicile of the licensee or purchaser is located. (IITA Section 304(a)(3)(B-1)(ii)(III))

D)        If the place of utilization of an item of property under subsection (c)(3)(A), (B) or (C) cannot be determined from the taxpayer's books and records or from the books and records of any person related to the taxpayer within the meaning of IRC section 267(b), the gross receipts attributable to that item shall be excluded from both the numerator and the denominator of the sales factor. (IITA Section 304(a)(3)(B-1)(iii))

4)         For taxable years ending on or after December 31, 2013, gross receipts from winnings under the Illinois Lottery Law [20 ILCS 1605] and from the assignment of a prize under Section 13-1 of the Illinois Lottery Law are received in this State. (IITA Section 304(a)(3)(B-8))

5)         For taxable years ending on or after December 31, 2019, gross receipts from winnings from pari-mutuel wagering conducted at a wagering facility licensed under the Illinois Horse Racing Act of 1975 [230 ILCS 5] or from winnings from gambling games conducted on a riverboat or in a casino or organization gaming facility licensed under the Illinois Gambling Act [230 ILCS 10] are in this State. (IITA Section 304(a)(3)(B-9))

6)         For taxable years ending on or after December 31, 2021, gross receipts from winnings from sports wagering conducted in accordance with the Sports Wagering Act [230 ILCS 45] are in this State. (IITA Section 304(a)(3)(B-10))

7)         For taxable years ending prior to December 31, 2008, gross receipts from transactions not governed by the provisions of subsection (c)(1), (2), (3) or (4) and, for taxable years ending on or after December 31, 2008, from transactions involving intangible personal property when the taxpayer is not a dealer with respect to the intangible personal property, are attributed to this State if the income producing activity that gave rise to the receipts is performed wholly within this State.  Also, gross receipts are attributed to this State if, with respect to a particular item of income, the income producing activity is performed in this State, based on costs of performance.

A)        Income Producing Activity Defined.  The term "income producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the person in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit.  Income producing activity does not include transactions and activities performed on behalf of a person, such as those conducted on its behalf by an independent contractor.  The mere holding of intangible personal property is not, of itself, an income producing activity.  Accordingly, the income producing activity includes but is not limited to the following:

i)          The rendering of personal services by employees or the utilization of tangible and intangible property by the person in performing a service.

ii)         The sale, rental, leasing, licensing or other use of real property.

iii)        The rental, leasing, licensing or other use of tangible personal property.

iv)        The sale, licensing or other use of intangible personal property.

B)        Costs of Performance Defined.  The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the person.

C)        Application.  Receipts sourced under this subsection (c)(7) in respect to a particular income producing activity are in this State if:

i)          the income producing activity is performed wholly within this State; or

ii)         the income producing activity is performed both in and outside this State and, based on costs of performance, a greater proportion of the income producing activity is performed in this State than without this State (for taxable years ending prior to December 31, 2008) or a greater proportion of the income-producing activity of the taxpayer is performed within this State than in any other state (for taxable years ending on or after December 31, 2008).

D)        Special Rules.  The following are special rules for determining when receipts from the income producing activities described in this subsection (c)(7)(D) are in this State.

i)          Gross receipts from the sale, lease, rental or licensing of real property are in this State if the real property is located in this State.

ii)         Gross receipts from the rental, lease, or licensing of tangible  personal property are in this State if the property is located in this State.  The principal cost of performance in a rental, leasing or licensing transaction is the depreciation or amortization of the tangible personal property, and the depreciation or amortization expense is incurred in the state in which the tangible personal property is located.  The rental, lease, licensing or other use of tangible personal property in this State is a separate income producing activity from the rental, lease, licensing or other use of the same property while located in another state; consequently, if property is within and without this State during the rental, lease or licensing period, gross receipts attributable to this State shall be measured by the ratio which the time the property was physically present or was used in this State bears to the total time or use of the property everywhere during that period.

EXAMPLE:  Corporation X is the owner of 10 railroad cars.  During the year, the total of the days each railroad car was present in this State was 50 days for a total of 500 days.  The receipts attributable to the use of each of the railroad cars in this State are a separate item of income.  Total receipts attributable to this State shall be determined as follows:

(10 x 50)/3650 x Total Receipts

iii)        Gross receipts for the performance of personal services are attributable to this State to the extent those services are performed partly within and partly outside this State.  The gross receipts for the performance of those services shall be attributable to this State only if a greater portion of the services were performed in this State, based on costs of performance.  When services are performed partly within and partly outside this State and the services performed in each state constitute a separate income producing activity, the gross receipts for the performance of services attributable to this State shall be measured by the ratio that the time spent in performing the services in this State bears to the total time spent in performing the services everywhere.  Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation that gives rise to the gross receipts.  Personal service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, is excluded from the computations.

EXAMPLE 1:  Corporation X, a road show, gave theatrical performances at various locations in State X and in this State during the tax period.  All gross receipts from performances given in this State are attributed to this State.

EXAMPLE 2:  A public opinion survey corporation conducted a poll by its employees in State X and in this State for the sum of $9,000. The project required 600 man hours to obtain the basic data and prepare the survey report.  Two hundred of the 600 man hours were expended in this State.  The receipts attributable to this State are $3,000, calculated as follows:

200/600 x $9,000

8)         For taxable years ending on or after December 31, 2008, gross receipts from transactions not governed by the provisions of subsection (c)(1), (2), (3), (4), (5), (6) or (7) are in this State if any of the following criteria are met:

A)        Sales from the sale or lease of real property are in this State if the property is located in this State. (IITA Section 304(a)(3)(C-5)(i))

B)        Sales from the lease or rental of tangible personal property are in this State if the property is located in this State during the rental period. Sales from the lease or rental of tangible personal property that is characteristically moving property, including, but not limited to, motor vehicles, rolling stock, aircraft, vessels, or mobile equipment, are in this State to the extent that the property is used in this State. (IITA Section 304(a)(3)(C-5)(ii))

C)        In the case of interest, net gains (but not less than zero) and other items of income from intangible personal property, the sale is in this State if:

i)          in the case of a taxpayer who:

•           is a dealer in the item of intangible personal property within the meaning of IRC section 475, the income or gain is received from a customer in this State. A taxpayer is a dealer with respect to an item of intangible personal property if the taxpayer is a dealer with respect to the item under IRC section 475(c)(1), or would be a dealer with respect to the item under IRC section 475(c)(1) if the item were a security as defined under IRC section 475(c)(2). For purposes of this subsection (c)(8)(C)(i), a customer is in this State if the customer is an individual, trust or estate who is a resident of this State and, for all other customers, if the customer's commercial domicile is in this State. Unless the dealer has actual knowledge of the residence or commercial domicile of a customer during a taxable year, the customer shall be deemed to be a customer in this State if the billing address of the customer, as shown in the records of the dealer, is in this State. (IITA Section 304(a)(3)(C-5)(iii)(a))  A dealer shall treat the person with whom it engages in a transaction as the customer, even when that person is acting on behalf of a third party, unless the dealer has actual knowledge of the party on whose behalf the person is acting. If a taxpayer is a dealer with respect to an item of intangible personal property and recognizes gain or loss with respect to that item other than in connection with a transaction with a customer (for example, unrealized gain or loss from marking the item to market under IRC section 475), that gain or loss shall be excluded from the numerator and denominator of the sales factor; or

•           is not a dealer with respect to the item of intangible personal property, if the income-producing activity of the taxpayer is performed in this State or, if the income-producing activity of the taxpayer is performed both within and without this State, if a greater proportion of the income-producing activity of the taxpayer is performed within this State than in any other state, based on performance costs. (IITA Section 304(a)(3)(C-5)(iii)(b)) (See subsection (c)(7) of this Section.)

ii)         For purposes of this subsection (c)(8)(C), an item of "intangible personal property" includes only an item that can ordinarily be resold or otherwise reconveyed by the person acquiring the item from the taxpayer, and does not include any obligation of the taxpayer to make any payment, perform any act, or otherwise provide anything of value to another person.

EXAMPLE 1:  A ticket to attend a sporting event would not be an item of intangible personal property for the owner of the stadium who issues the ticket and is obliged to grant admission to the holder of the ticket. Rather, the sale of the ticket is a prepayment for a service to be provided. However, the ticket would be an item of intangible personal property in the hands of the original purchaser or any subsequent purchaser of the ticket, and a ticket broker engaged in the business of buying and reselling tickets would be a dealer with respect to the ticket.

EXAMPLE 2:  A taxpayer selling canned computer software is selling intangible personal property. (First National Bank of Springfield v. Dept. of Revenue, 85 Ill.2d 84 (1981)) If the taxpayer sells software to customers in the ordinary course of its business, it is a dealer with respect to those sales. In contrast, a taxpayer providing programming or maintenance services to its customers is selling services rather than intangible personal property.

EXAMPLE 3:  A taxpayer administers a "rewards program" for a group of unrelated businesses. Under the program, a customer of one business can earn discounts or rebates on products and services provided by any of the businesses. As each customer earns rewards, measured in "units", from one of the businesses, that business pays a specified amount per unit to the taxpayer. When a customer uses units earned in the program to purchase products or services at a discount from a participating business, the taxpayer pays that business a specified amount per unit used by the customer. Rebates may be paid to the customer directly by the taxpayer or by one of the businesses, which is then reimbursed by the taxpayer. To the extent payments made to the taxpayer by businesses awarding units exceed the payments the taxpayer must make for discounts and rebates, the excess is payment for operating the program. The units awarded are obligations of the taxpayer to make payments to the business providing products or services at a discount or to pay rebates. Accordingly, payments received by the taxpayer from the participating businesses for units awarded are not income from sales of intangible personal property by the taxpayer.

D)        Sales of services are in this State if the services are received in this State. (IITA Section 304(a)(3)(C-5)(iv))

i)          General Rule. Gross receipts from services are assigned to the numerator of the sales factor to the extent that the receipts may be attributed to services received in Illinois.

ii)         A contract that involves the provision of a service by the taxpayer and the use of property of the taxpayer by the service recipient shall be treated as a sale of service unless the contract is properly treated as a lease of property under IRC section 7701(e)(1), taking into account all relevant factors, including whether:

•           the service recipient is in physical possession of the property;

•           the service recipient controls the property;

•           the service recipient has a significant economic or possessory interest in the property;

•           the service provider does not bear any risk of substantially diminished receipts or substantially increased expenditures if there is nonperformance under the contract;

•           the service provider does not use the property concurrently to provide significant services to entities unrelated to the service recipient; and

•           the total contract price does not substantially exceed the rental value of the property for the contract period.

EXAMPLE:  A taxpayer selling access to an online database or applications software, and who is required to perform regular update services to the database or software, retains control over the contents of the database or software, and provides access to the same database or software to multiple customers is not selling or licensing an item of intangible personal property to its customers, but rather is providing a service.

iii)        Services received in this State include, but are not limited to:

•           When the subject matter of the service is an item of tangible personal property, the service is received in this State if possession of the property is restored to the recipient of the service under the principles in subsection (c)(1) for determining whether a sale of that property is in this State.

EXAMPLE 1:  A customer returns a computer to the manufacturer for repair. The manufacturer performs the repairs in Indiana and ships the computer to the customer's Illinois address. The service is received in this State.

EXAMPLE 2:  Individual purchases clothing from Merchant at a store in this State, using a credit card issued by Bank A pursuant to a licensing agreement with Credit Card Company. Credit Card Company is not a financial organization required to apportion its business income under Section 100.3405. Bank A remits the purchase price to Credit Card Company, which deposits the purchase price with Merchant's bank, minus a fee or discount. All fees and discounts earned by Credit Card Company in connection with this purchase are for services received in this State.

•           When the subject matter of the service is an item of real property, the service is received in the state in which the real property is located.

EXAMPLE 3:  Individual purchases a parcel of land in Illinois and constructs a house on the parcel. Services performed at an architect's office in Wisconsin regarding the design and construction of the house are received in this State.

•           When the service is performed on or with respect to the person of an individual (for example, medical treatment services), the service is received in the state in which the individual is located at the time the service is performed.

•           Services performed by a taxpayer that are directly connected to or in support of services received in this State are also services received in this State.

EXAMPLE 4:  Individual purchases automobile repair services from Automobile Dealership at its facility located in this State, using a credit card issued by Bank A pursuant to a licensing agreement with Credit Card Company. Bank A remits the purchase price to Credit Card Company, which deposits the purchase price with Automobile Dealership's bank, minus a fee or discount. All fees and discounts earned by Credit Card Company in connection with this purchase are for services received in this State.

EXAMPLE 5:  Services performed by an investment fund on behalf of an investor are received in this State if the investor resides in this State (in the case of an individual) or has its ordering or billing address in this State (for other investors). In the case of services provided by Taxpayer to or on behalf of the investment fund that are directly connected with services provided separately to the investors, such as preparation of communications and statements to investors, and allocations of earnings and distributions to investors, the service is also received in this State to the extent the investors reside (or have their ordering or billing address) in this State. Accordingly, receipts of Taxpayer for these services are allocated to this State on the basis of the ratio of: the average of the outstanding shares in the fund owned by shareholders, partners or other investors residing (or having their ordering or billing address) within this State at the beginning and end of each taxable year of the taxpayer; and the average of the total number of outstanding shares in the fund at the beginning and end of each year. Residence or ordering or billing address of the shareholder, partner or other investor is determined by the mailing address in the records of the investment fund or the taxpayer. Services provided to an investment fund that are not directly connected to or in support of services provided separately to investors, such as brokerage services or investment advising, are not received by the customer at the location of its investors.

iv)        Special Rules

•           Under IITA Section 304(a)(3)(C-5)(iv), if the state where the services are received is not readily determinable, the services shall be deemed to be received at the location of the office of the customer from which the services were ordered in the regular course of the customer's trade or business, or, if the ordering office cannot be determined, at the office of the customer to which the services are billed. If the service is provided to an individual who provides a residential address as the place from which the services are ordered or to which the services are billed, rather than an office address, the residential address shall be used. For purposes of this provision, the state where services are received is not readily determinable if the facts necessary to make the determination are not contained in the books and records of the taxpayer or any person related to the taxpayer within the meaning of IRC section 267(b) or if the available facts would allow reasonable persons to reach different determinations of the state in which the services were received.

•           Under IITA Section 304(a)(3)(C-5)(iv), if the services are provided to a corporation, partnership, or trust and the services are received in a state in which the corporation, partnership, or trust does not maintain a fixed place of business (as defined in Section 100.3405(b)(1)), the services shall be deemed to be received at the location of the office of the customer from which the services were ordered in the regular course of the customer's trade or business, or, if the ordering office cannot be determined, at the office of the customer to which the services are billed. For purposes of this provision, in the case of services performed by the taxpayer as a subcontractor or as an agent acting on behalf of a principal, if either the contractor or principal has a fixed place of business in the state in which the services are received or the customer of the contractor or principal either is an individual or has a fixed place of business in the state in which the services are received, the service shall be treated as received in a state in which the customer of the taxpayer has a fixed place of business.

•           Under IITA Section 304(a)(3)(C-5)(iv), if the taxpayer is not taxable in the state in which the services are received or deemed to be received, the gross receipts attributed to those services must be excluded from both the numerator and denominator of the sales factor. (See Section 100.3200 for guidance on determining when a taxpayer is taxable in another state.)

(Source:  Amended at 47 Ill. Reg. 13669, effective September 11, 2023)

Section 100.3371  Sales Factor for Telecommunications Services

a)         For taxable years ending on or after December 31, 2008, IITA Section 304(a)(3)(B-5) provides express guidance for determining when gross receipts from the sale of telecommunications service or mobile telecommunications service are in this State for purposes of computing the sales factor in IITA Section 304(a)(3).

b)         Definitions. For purposes of this Section, the follow terms have the following meanings:

1)         "Ancillary services" means services that are associated with or incidental to the provision of "telecommunications services", including but not limited to "detailed telecommunications billing", "directory assistance", "vertical service", and "voice mail services". (IITA Section 304(a)(3)(B-5)(i))

2)         "Air-to-ground radiotelephone service" means a radio service, as that term is defined in 47 CFR 22.99 (2007), in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft. (IITA Section 304(a)(3)(B-5)(i)) 47 CFR 22.99 defines "air-to-ground ratiotelephone service" to mean a "radio service in which licensees are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft". 

3)         "Call-by-call basis" means any method of charging for telecommunications services where the price is measured by individual calls. (IITA Section 304(a)(3)(B-5)(i))

4)         "Communications channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points. (IITA Section 304(a)(3)(B-5)(i))

5)         "Conference bridging service" means an ancillary service that links two or more participants of an audio or video conference call and may include the provision of a telephone number. "Conference bridging service" does not include the telecommunications services used to reach the conference bridge. (IITA Section 304(a)(3)(B-5)(i))

6)         "Customer channel termination point" means the location where the customer either inputs or receives the communications. (IITA Section 304(a)(3)(B-5)(i))

7)         "Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement. (IITA Section 304(a)(3)(B-5)(i))

8)         "Directory assistance" means an ancillary service of providing telephone number information, and/or address information. (IITA Section 304(a)(3)(B-5)(i))

9)         "Home service provider" means the facilities-based carrier or reseller with which the customer contracts for the provision of "mobile telecommunications services". (IITA Section 304(a)(3)(B-5)(i))

10)        "Mobile telecommunications service" means commercial mobile radio service, as defined in 47 CFR 20.3 (June 1, 1999). (IITA Section 304(a)(3)(B-5)(i))

A)         "Commercial mobile radio service" is defined in 47 CFR 20.3 (June 1, 1999) as "mobile service that is provided for profit, i.e., with the intent of receiving compensation or monetary gain; an interconnected service; and available to the public, or to such classes of eligible users as to be effectively available to a substantial portion of the public; or that is the functional equivalent of such a mobile service."

B)        "Interconnected service" is defined in 47 CFR 20.3 (June 1, 1999) as a "service  that is interconnected with the public switched network, or interconnected with the public switched network through an interconnected service provider, that gives subscribers the capability to communicate to or receive communication from all other users on the public switched network; or for which a request for such interconnection is pending pursuant to 47 USC 332(c)(1)(B). A mobile service offers interconnected service even if the service allows subscribers to access the public switched network only during specified hours of the day, or if the service provides general access to points on the public switched network but also restricts access in certain limited ways. Interconnected service does not include any interface between a licensee's facilities and the public switched network exclusively for a licensee's internal control purposes."

11)        "Place of primary use" means the street address representative of where the customer's use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" must be within the licensed service area of the home service provider. (IITA Section 304(a)(3)(B-5)(i))

12)        "Post-paid telecommunication service" means the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number which is not associated with the origination or termination of the telecommunications service. A post-paid calling service includes telecommunications service, except a prepaid wireless calling service, that would be a prepaid calling service except it is not exclusively a telecommunication service. (IITA Section 304(a)(3)(B-5)(i))

13)        "Prepaid telecommunication service" means the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount. (IITA Section 304(a)(3)(B-5)(i))

14)        "Prepaid mobile telecommunication service" means a telecommunications service that provides the right to utilize mobile wireless service as well as other non-telecommunication services, including but not limited to ancillary services, which must be paid for in advance that is sold in predetermined units or dollars of which the number declines with use in a known amount. (IITA Section 304(a)(3)(B-5)(i))

15)        "Private communication service" means a telecommunication service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels. (IITA Section 304(a)(3)(B-5)(i))

16)        "Service address" means:

A)        The location of the telecommunications equipment to which a customer's call is charged and from which the call originates or terminates, regardless of where the call is billed or paid. (IITA Section 304(a)(3)(B-5)(i))

B)        If the location in subsection (b)(16)(A) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider where the system used to transport such signals is not that of the seller. (IITA Section 304(a)(3)(B-5)(i))

C)        If the locations in subsections (b)(16)(A) and (B) are not known, the service address means the location of the customer's place of primary use. (IITA Section 304(a)(3)(B-5)(i))

17)        "Telecommunications service" means the electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The term "telecommunications service" includes such transmission, conveyance, or routing in which computer processing applications are used to act on the form, code or protocol of the content for purposes of transmission, conveyance or routing without regard to whether such service is referred to as voice over Internet protocol services or is classified by the Federal Communications Commission as enhanced or value added. "Telecommunications service" does not include:

A)        Data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser when such purchaser's primary purpose for the underlying transaction is the processed data or information;

B)        Installation or maintenance of wiring or equipment on a customer's premises;

C)        Tangible personal property;

D)        Advertising, including but not limited to directory advertising;

E)        Billing and collection services provided to third parties;

F)         Internet access service;

G)        Radio and television audio and video programming services, regardless of the medium, including the furnishing of transmission, conveyance and routing of such services by the programming service provider. Radio and television audio and video programming services shall include but not be limited to cable service as defined in 47 USC 522(6) and audio and video programming services delivered by commercial mobile radio service providers, as defined in 47 CFR 20.3.

i)          Under 47 USC 522(6), "cable service" is defined to mean "the one-way transmission to subscribers of video programming or other programming service, and subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service".

ii)         For the provisions of 47 CFR 20.3, see subsection (b)(1). 

H)        "Ancillary services"; or

I)         Digital products "delivered electronically", including but not limited to software, music, video, reading materials or ring tones. (IITA Section 304(a)(3)(B-5)(i))

18)        "Vertical service" means an "ancillary service" that is offered in connection with one or more "telecommunications services", which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including "conference bridging services". (IITA Section 304(a)(3)(B-5)(i))

19)        "Voice mail service" means an "ancillary service" that enables the customer to store, send or receive recorded messages. "Voice mail service" does not include any "vertical services" that the customer may be required to have in order to utilize the "voice mail service". (IITA Section 304(a)(3)(B-5)(i))

c)         Receipts from the sale of telecommunications service sold on an individual call-by-call basis are in this State if either of the following applies:

1)         The call both originates and terminates in this State. (IITA Section 304(a)(3)(B-5)(ii)(a))

2)         The call either originates or terminates in this State and the service address is located in this State. (IITA Section 304(a)(3)(B-5)(ii)(b))

d)         Receipts from the sale of postpaid telecommunications service at retail are in this State if the origination point of the telecommunication signal, as first identified by the service provider's telecommunication system or as identified by information received by the seller from its service provider if the system used to transport telecommunication signals is not the seller's, is located in this State. (IITA Section 304(a)(3)(B-5)(iii))

e)         Receipts from the sale of prepaid telecommunications service or prepaid mobile telecommunications service at retail are in this State if the purchaser obtains the prepaid card or similar means of conveyance at a location in this State. Receipts from recharging a prepaid telecommunications service or mobile telecommunications service is in this State if the purchaser's billing information indicates a location in this State. (IITA Section 304(a)(3)(B-5)(iv))

f)         Receipts from the sale of private communication services are in this State as follows:

1)         One hundred percent of receipts from charges imposed at each channel termination point in this State. (IITA Section 304(a)(3)(B-5)(v)(a))

2)         One hundred percent of receipts from charges for the total channel mileage between each channel termination point in this State. (IITA Section 304(a)(3)(B-5)(v)(b))

3)         Fifty percent of the total receipts from charges for service segments when those segments are between two customer channel termination points, one of which is located in this State and the other is located outside of this State, which segments are separately charged. (IITA Section 304(a)(3)(B-5)(v)(c))

4)         The receipts from charges for service segments with a channel termination point located in this State and in two or more other states, and which segments are not separately billed, are in this State based on a percentage determined by dividing the number of customer channel termination points in this State by the total number of customer channel termination points. (IITA Section 304(a)(3)(B-5)(v)(d))

g)         Receipts from charges for ancillary services for telecommunications service sold to customers at retail are in this State if the customer's primary place of use of telecommunications services associated with those ancillary services is in this State. If the seller of those ancillary services cannot determine where the associated telecommunications are located, then the ancillary services shall be based on the location of the purchaser. (IITA Section 304(a)(3)(B-5)(vi))

h)         Receipts to access a carrier's network or from the sale of telecommunication services or ancillary services for resale are in this State as follows:

1)         one hundred percent of the receipts from access fees attributable to intrastate telecommunications service that both originates and terminates in this State. (IITA Section 304(a)(3)(B-5)(vii)(a))

2)         fifty percent of the receipts from access fees attributable to interstate telecommunications service if the interstate call either originates or terminates in this State. (IITA Section 304(a)(3)(B-5)(vii)(b))

3)         one hundred percent of the receipts from interstate end user access line charges, if the customer's service address is in this State. As used in this subsection (h)(3), "interstate end user access line charges" includes, but is not limited to, the surcharge approved by the Federal Communications Commission and levied pursuant to 47 CFR 69. (IITA Section 304(a)(3)(B-5)(vii)(c))

4)         Gross receipts from sales of telecommunication services or from ancillary services for telecommunications services sold to other telecommunication service providers for resale shall be sourced to this State using the apportionment concepts used for non-resale receipts of telecommunications services if the information is readily available to make that determination. If the information is not readily available, then the taxpayer may use any other reasonable and consistent method. (IITA Section 304(a)(3)(B-5)(vii)(d))

(Source:  Added at 33 Ill. Reg. 1195, effective December 31, 2008)

Section 100.3373  Sales Factor for Publishing

a)         For taxable years ending on or after December 31, 2008, sales of services (other than sales covered by IITA Section 304(a)(3)(B-1), (B-2) and (B-5)) are in this State if the services are received in this State. The Department may adopt rules prescribing where specific types of service are received, including, but not limited to, broadcast, cable, advertising, publishing, and utility service.  (IITA Section 304(a)(3)(C-5)(iv))  This Section provides guidance for determining where publishing services are received and applies only to the gross receipts from publishing services of a taxpayer required to source gross receipts under IITA Section 304(a)(3)(C-5) in computing its sales factor.

b)         Definitions.  For purposes of this Section, the following terms have the following meanings:

1)         "Circulation factor" means, for each individual publication by the taxpayer of published material containing advertising, the ratio that the taxpayer's in-state circulation to purchasers and subscribers of the published material bears to its total circulation of the published material to purchasers and subscribers everywhere.  If the geographic location of purchasers and subscribers of a publication is determined by the taxpayer for a business purpose (for example, in determining advertising rates), the circulation factor shall be determined for that publication using the geographic information used by the taxpayer for that purpose.  Otherwise, the circulation factor shall be determined from the taxpayer's books and records or, if the books and records of the taxpayer are inadequate to allow the determination of the circulation factor of a publication or if the taxpayer so elects, the circulation factor for a publication shall be determined by reference to the rating statistics as reflected in such sources as Audit Bureau of Circulations, Internet World Stats, or other comparable sources, provided that the source selected is consistently used from year to year for that purpose.

EXAMPLE 1:  Company A publishes advertising on the Internet for its customers. In order to calculate its circulation factor, Company A elects to utilize Internet World Stats. Company A determines its circulation factor by multiplying Illinois' population by the Internet penetration percentage of the United States, as reported on Internet World Stats, divided by the combined populations of the jurisdictions in which Company A does business multiplied by their respective Internet penetration percentages as reported on Internet World Stats. Company A must use this method consistently from year to year to compute its circulation factor.

2)         "Publication" or "published material" includes, without limitation, the physical embodiment or printed version of any thought or expression, including, without limitation, a play, story, article, column or other literary, commercial, educational, artistic or other written or printed work. The determination of whether an item is or consists of published material shall be made without regard to its content. Published material may take the form of a book, newspaper, magazine, periodical, trade journal or any other form of printed matter and may be contained on any property or medium (including any electronic medium, such as, for example, the internet, but not including any broadcasting medium governed by IITA Section 304(a)(3)(B-7)).

3)         "Publishing" or "publishing services" means deriving business income from publishing, selling, licensing (other than licensing to another person for purposes of printing or other publication of the licensed material by that person within the meaning of IITA Section 304(a)(3)(B-1)) or distributing newspapers, magazines, periodicals, trade journals or other published material. "Publishing" or "publishing services" does not include delivery of materials published by a third party, and does not include delivery of materials published by the taxpayer when a separate charge is made for delivery.  Fees for delivery services performed by a taxpayer who is not itself the publisher of the materials (such as a newspaper carrier) or that are charged separately by the publisher are sourced under Section 100.3370(c)(5), not under this Section.

4)         "Purchaser" and "subscriber" mean the individual, residence, business or other outlet that is the ultimate or final recipient of the published material. Neither term shall mean or include a wholesaler, retailer or other distributor of published material.

c)         Sales within this State from publishing include:

1)         Gross receipts derived from the sale of published materials in the form of tangible personal property, as provided in Sections 100.3370(c) and 100.3380(c).

2)         The portion of gross receipts derived from sales of published materials in a form other than tangible personal property, from advertising and from the sale, rental or other use of the taxpayer's customer lists for a particular publication or any portion thereof attributed to this State using the taxpayer's circulation factor for that publication during the applicable tax period.

d)         For the purposes of this Section, other than sales of tangible personal property under subsection (c)(1):

1)         Gross receipts from the performance of publishing services provided to a corporation, partnership, or trust may be attributed only to a state where that corporation, partnership, or trust has a fixed place of business, as defined in Section 100.3405(b)(1). (IITA Section 304(a)(3)(C-5)(iv)) When the circulation factor is determined by a method other than the taxpayer's own books and records, this subsection (d)(1) shall not apply.

2)         If the state where the publishing services are received is not readily determinable or is a state where the corporation, partnership, or trust receiving the services does not have a fixed place of business, the services shall be deemed to be received at the location of the office of the customer from which the services were ordered in the regular course of the customer's trade or business. (IITA Section 304(a)(3)(C-5)(iv)) When the circulation factor is determined by a method other than the taxpayer's own books and records, this subsection (d)(2) shall not apply.

3)         If the ordering office cannot be determined, the publishing services shall be deemed to be received at the office of the customer to which the services are billed. (IITA Section 304(a)(3)(C-5)(iv)) When the circulation factor is determined by a method other than the taxpayer's own books and records, this subsection (d)(3) shall not apply.

4)         If the taxpayer is not taxable in the state in which the publishing services are received, the sale must be excluded from both the numerator and the denominator of the sales factor. (IITA Section 304(a)(3)(C-5)(iv))  See Section 100.3200 for guidance on determining when a taxpayer is taxable in a state.

EXAMPLE 2:  In computing its circulation factor, Company A from Example 1 must exclude from the denominator the population (weighted by the Internet penetration percentage as reported on Internet World Stats) of any jurisdiction in which Company A is not taxable.

(Source:  Added at 36 Ill. Reg. 9247, effective June 5, 2012)

Section 100.3380  Special Rules (IITA Section 304)

a)         Determining Business Activity or Market Within Illinois

1)         Petition

IITA Section 304(f) provides that, if the allocation and apportionment provisions of Section 304(a) through (e) and (h) do not, for taxable years ending before December 31, 2008, fairly represent the extent of a person's business activity in this State, or do not, for taxable years ending on or after December 31, 2008, fairly represent the market for the person's goods, services, or other sources of business income, the person may petition for, or the Director may require, in respect of all or any part of the person's business activity, if reasonable:

A)        Separate accounting;

B)        The exclusion of any one or more factors;

C)        The inclusion of one or more additional factors that will fairly represent the person's business activities or market in this State; or