Illinois General Assembly - Full Text of HB0024
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Full Text of HB0024  94th General Assembly

HB0024 94TH GENERAL ASSEMBLY


 


 
94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB0024

 

Introduced 12/3/2004, by Rep. Patricia R. Bellock

 

SYNOPSIS AS INTRODUCED:
 
New Act
35 ILCS 5/203   from Ch. 120, par. 2-203

    Creates the Health Savings Account Act and amends the Illinois Income Tax Act. Provides that, beginning in taxable year 2005, a resident of Illinois or an employer may deposit contributions, subject to certain limitations, into a health savings account. Provides that the principal contributed to and the interest earned on a health savings account and money reimbursed to an eligible individual or an employee for qualified medical expenses is exempt from the Illinois income tax. Sets forth restriction on the use of funds held in a health savings account. Provides that an eligible individual may withdraw money from his or her health savings account for any purpose, but provides that certain withdrawals are not tax exempt. Repeals the Health Savings Account Act on June 30, 2015. Effective July 1, 2005.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1     AN ACT concerning revenue.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 1. Short title. This Act may be cited as the Health
5 Savings Account Act.
 
6     Section 5. Definitions. As used in this Act:
7     (a) "Eligible individual" means an individual, including
8 employees of an employer who contributes to health savings
9 accounts on the employees' behalf, who:
10         (1) is covered by a "high deductible health plan"
11     individually or with dependents; and
12         (2) is not covered under any health plan that is not a
13     high deductible health plan, except for:
14             (i) coverage for accidents;
15             (ii) workers' compensation insurance;
16             (iii) insurance for a specified disease or
17         illness;
18              (iv) insurance paying a fixed amount per day per
19         hospitalization; and
20              (v) tort liabilities; and
21         (3) establishes a health savings account or on whose
22     behalf the health savings account is established.
23     (b) "Deductible" means the total deductible of a high
24 deductible health plan for an eligible individual and all the
25 dependents of that eligible individual for a calendar year.
26     (c) "Dependent" means an eligible individual's spouse or
27 child, as defined in Section 152 of the Internal Revenue Code
28 of 1986.
29     (d) "Qualified medical expense" means an expense paid by
30 the eligible individual for medical care described in Section
31 213(d) of the Internal Revenue Code of 1986.
32     (e) "High deductible" means:

 

 

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1         (1) In the case of self-only coverage, an annual
2     deductible that is not less than $1,000 and that, when
3     added to the other annual out-of-pocket expenses required
4     to be paid under the plan for covered benefits, does not
5     exceed $5,000; and
6         (2) In the case of family coverage, an annual
7     deductible of not less that $2,000 and that, when added to
8     the other annual out-of-pocket expenses required to be paid
9     under the plan for covered benefits, does not exceed
10     $10,000.
11     A plan shall not fail to be treated as a high deductible
12 plan by reason of a failure to have a deductible for preventive
13 care or, in the case of network plans, for having out-of-pocket
14 expenses that exceed these limits on an annual deductible for
15 services that are provided outside the network.
16     (f) "Health savings account" or "account" means a trust or
17 custodial account established under a State program
18 exclusively to pay the qualified medical expenses of an
19 eligible individual, or his or her dependents, that meets the
20 all of the following requirements:
21         (1) Except in the case of a rollover contribution, no
22     contribution may be accepted:
23             (A) unless it is in cash; or
24             (B) to the extent that the contribution, when added
25         to the previous contributions to the Account for the
26         calendar year, exceeds the lesser of (i) 100% of the
27         eligible individual's deductible or (ii) $2,600 for an
28         individual or $5,150 per family. Beginning in taxable
29         year 2006, the amounts set forth in item (ii) of this
30         subparagraph (B) are subject to annual adjustments
31         equal to the percentage of increase in the previous
32         calendar year in the Consumer Price Index for all Urban
33         Consumers for all items published by the federal Bureau
34         of Labor Statistics.
35         (2) The trustee or custodian is a bank, an insurance
36     company, or another person approved by the Secretary of

 

 

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1     Human Services.
2         (3) No part of the trust assets will be invested in
3     life insurance contracts.
4         (4) The assets of the account will not be commingled
5     with other property except as allowed for under Individual
6     Retirement Accounts.
7         (5) Eligible individual's interest in the account is
8     nonforfeitable.
9     (g) "Health Savings Account program" or "program" means a
10 program that includes all of the following:
11         (1) The purchase by an eligible individual or by an
12     employer of a high deductible health plan.
13         (2) The contribution into a health savings account by
14     an eligible individual or on behalf of an employee or by
15     his or her employer. The total annual contribution may not
16     exceed the amount of the deductible or the amounts listed
17     in item (1)(B) of subsection (f) of this Section.
18     (h) "High Deductible Health Plan" means a health coverage
19 policy, certificate, or contract that provides for payments for
20 covered benefits that exceed the high deductible.
 
21     Section 10. Application; authorized contributions; tax
22 exemption.
23     (a) This Act applies regardless of whether the taxpayer
24 receives preferred federal tax treatment for a health savings
25 account under Section 223 of the Internal Revenue Code of 1986.
26     (b) Beginning in taxable year 2005, a resident of Illinois
27 or an employer may deposit contributions into a health savings
28 account. The amount of deposit for 2005 may not exceed the
29 lesser of (i) the amount of the deductible or (ii) $2,600 for
30 an individual policy and $5,150 for a family policy.
31     (c) Except as provided in Section 20, the principal
32 contributed to and the interest earned on a health savings
33 account and money reimbursed to an eligible individual or an
34 employee for qualified medical expenses is exempt from taxation
35 under the Illinois Income Tax Act.
 

 

 

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1     Section 15. Use of funds.
2     (a) The trustee or custodian must use the funds held in a
3 health savings account solely (i) for the purpose of paying the
4 qualified medical expenses of the eligible individual or his or
5 her dependents, (ii) to purchase a health coverage policy
6 certificate, or contract, if the eligible individual is
7 receiving unemployment compensation, is exercising
8 continuation privileges under federal law, or is purchasing a
9 long term care insurance contract, or (iii) to pay for health
10 insurance other than a Medicare supplemental policy for those
11 who are Medicare eligible.
12     (b) Funds held in a health savings account may not be used
13 to cover expenses of the eligible individual or his or her
14 dependents that are otherwise covered, including but not
15 limited to, medical expense covered under an automobile
16 insurance policy, worker's compensation insurance policy or
17 self-insured plan, or another employer-funded health coverage
18 policy, certificate, or contract.
 
19     Section 20. Withdrawals.
20     (a) An eligible individual may withdraw money from his or
21 her health savings account for any purpose.
22     (b) Except as otherwise provided in this Section, if the
23 eligible individual withdraws money for any purpose other than
24 a purpose described in subsection (a) of Section 15, all of the
25 following apply:
26         (1) the amount of the withdrawal is income for the
27     purposes of the Illinois Income Tax Act in the tax year of
28     the withdrawal; and
29         (2) interest earned on the amount withdrawn from the
30     account during the tax year in which a withdrawal under
31     this subsection is made is income for the purposes of the
32     Illinois Income Tax Act.
33     (c) The amount of disbursement of any assets of a health
34 savings account under a filing for bankruptcy protection under

 

 

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1 Title 11 of the United States Code by an eligible individual or
2 person for whose benefit the account was established is not
3 considered a withdrawal for purposes of this Section, and the
4 amount of the disbursement is not subject to taxation under the
5 Illinois Income Tax Act, and subsection (b) does not apply.
6     (d) The transfer of an eligible individual's interest in a
7 health savings account to that eligible individual's spouse, or
8 former spouse under a divorce or separation instrument, is not
9 considered to be a taxable transfer made by the eligible
10 individual, and, after the transfer, the interest shall be
11 treated as a health savings account with the spouse as the
12 eligible individual. The amount of the transfer is not subject
13 to taxation under the Illinois Income Tax Act, and subsection
14 (b) does not apply.
15     (e) Upon the death of the eligible individual, the trustee
16 or custodian must distribute the principle and accumulated
17 interest of the health savings account to the estate of the
18 deceased. The amount of the distribution is not subject to
19 taxation under the Illinois Income Tax Act, and subsection (b)
20 does not apply.
21     (f) If an employee becomes employed with a different
22 employer that participates in a health savings account program,
23 the employee may transfer his or her health savings account to
24 that new employer's trustee or custodian or to an individually
25 purchased account program. The amount of the transfer is not
26 subject to taxation under the Illinois Income Tax Act, and
27 subsection (b) does not apply.
 
28     Section 25. Repeal. This Act is repealed on June 30, 2015.
 
29     Section 990. The Illinois Income Tax Act is amended by
30 changing Section 203 as follows:
 
31     (35 ILCS 5/203)  (from Ch. 120, par. 2-203)
32     Sec. 203. Base income defined.
33     (a) Individuals.

 

 

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1         (1) In general. In the case of an individual, base
2     income means an amount equal to the taxpayer's adjusted
3     gross income for the taxable year as modified by paragraph
4     (2).
5         (2) Modifications. The adjusted gross income referred
6     to in paragraph (1) shall be modified by adding thereto the
7     sum of the following amounts:
8             (A) An amount equal to all amounts paid or accrued
9         to the taxpayer as interest or dividends during the
10         taxable year to the extent excluded from gross income
11         in the computation of adjusted gross income, except
12         stock dividends of qualified public utilities
13         described in Section 305(e) of the Internal Revenue
14         Code;
15             (B) An amount equal to the amount of tax imposed by
16         this Act to the extent deducted from gross income in
17         the computation of adjusted gross income for the
18         taxable year;
19             (C) An amount equal to the amount received during
20         the taxable year as a recovery or refund of real
21         property taxes paid with respect to the taxpayer's
22         principal residence under the Revenue Act of 1939 and
23         for which a deduction was previously taken under
24         subparagraph (L) of this paragraph (2) prior to July 1,
25         1991, the retrospective application date of Article 4
26         of Public Act 87-17. In the case of multi-unit or
27         multi-use structures and farm dwellings, the taxes on
28         the taxpayer's principal residence shall be that
29         portion of the total taxes for the entire property
30         which is attributable to such principal residence;
31             (D) An amount equal to the amount of the capital
32         gain deduction allowable under the Internal Revenue
33         Code, to the extent deducted from gross income in the
34         computation of adjusted gross income;
35             (D-5) An amount, to the extent not included in
36         adjusted gross income, equal to the amount of money

 

 

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1         withdrawn by the taxpayer in the taxable year from a
2         medical care savings account and the interest earned on
3         the account in the taxable year of a withdrawal
4         pursuant to subsection (b) of Section 20 of the Medical
5         Care Savings Account Act or subsection (b) of Section
6         20 of the Medical Care Savings Account Act of 2000;
7             (D-10) For taxable years ending after December 31,
8         1997, an amount equal to any eligible remediation costs
9         that the individual deducted in computing adjusted
10         gross income and for which the individual claims a
11         credit under subsection (l) of Section 201;
12             (D-15) For taxable years 2001 and thereafter, an
13         amount equal to the bonus depreciation deduction (30%
14         of the adjusted basis of the qualified property) taken
15         on the taxpayer's federal income tax return for the
16         taxable year under subsection (k) of Section 168 of the
17         Internal Revenue Code;
18             (D-16) If the taxpayer reports a capital gain or
19         loss on the taxpayer's federal income tax return for
20         the taxable year based on a sale or transfer of
21         property for which the taxpayer was required in any
22         taxable year to make an addition modification under
23         subparagraph (D-15), then an amount equal to the
24         aggregate amount of the deductions taken in all taxable
25         years under subparagraph (Z) with respect to that
26         property.
27             The taxpayer is required to make the addition
28         modification under this subparagraph only once with
29         respect to any one piece of property;
30             (D-17) For taxable years ending on or after
31         December 31, 2004, an amount equal to the amount
32         otherwise allowed as a deduction in computing base
33         income for interest paid, accrued, or incurred,
34         directly or indirectly, to a foreign person who would
35         be a member of the same unitary business group but for
36         the fact that foreign person's business activity

 

 

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1         outside the United States is 80% or more of the foreign
2         person's total business activity. The addition
3         modification required by this subparagraph shall be
4         reduced to the extent that dividends were included in
5         base income of the unitary group for the same taxable
6         year and received by the taxpayer or by a member of the
7         taxpayer's unitary business group (including amounts
8         included in gross income under Sections 951 through 964
9         of the Internal Revenue Code and amounts included in
10         gross income under Section 78 of the Internal Revenue
11         Code) with respect to the stock of the same person to
12         whom the interest was paid, accrued, or incurred.
13             This paragraph shall not apply to the following:
14                 (i) an item of interest paid, accrued, or
15             incurred, directly or indirectly, to a foreign
16             person who is subject in a foreign country or
17             state, other than a state which requires mandatory
18             unitary reporting, to a tax on or measured by net
19             income with respect to such interest; or
20                 (ii) an item of interest paid, accrued, or
21             incurred, directly or indirectly, to a foreign
22             person if the taxpayer can establish, based on a
23             preponderance of the evidence, both of the
24             following:
25                     (a) the foreign person, during the same
26                 taxable year, paid, accrued, or incurred, the
27                 interest to a person that is not a related
28                 member, and
29                     (b) the transaction giving rise to the
30                 interest expense between the taxpayer and the
31                 foreign person did not have as a principal
32                 purpose the avoidance of Illinois income tax,
33                 and is paid pursuant to a contract or agreement
34                 that reflects an arm's-length interest rate
35                 and terms; or
36                 (iii) the taxpayer can establish, based on

 

 

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

 

 

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1         business group (including amounts included in gross
2         income under Sections 951 through 964 of the Internal
3         Revenue Code and amounts included in gross income under
4         Section 78 of the Internal Revenue Code) with respect
5         to the stock of the same person to whom the intangible
6         expenses and costs were directly or indirectly paid,
7         incurred, or accrued. The preceding sentence does not
8         apply to the extent that the same dividends caused a
9         reduction to the addition modification required under
10         Section 203(a)(2)(D-17) of this Act. As used in this
11         subparagraph, the term "intangible expenses and costs"
12         includes (1) expenses, losses, and costs for, or
13         related to, the direct or indirect acquisition, use,
14         maintenance or management, ownership, sale, exchange,
15         or any other disposition of intangible property; (2)
16         losses incurred, directly or indirectly, from
17         factoring transactions or discounting transactions;
18         (3) royalty, patent, technical, and copyright fees;
19         (4) licensing fees; and (5) other similar expenses and
20         costs. For purposes of this subparagraph, "intangible
21         property" includes patents, patent applications, trade
22         names, trademarks, service marks, copyrights, mask
23         works, trade secrets, and similar types of intangible
24         assets.
25             This paragraph shall not apply to the following:
26                 (i) any item of intangible expenses or costs
27             paid, accrued, or incurred, directly or
28             indirectly, from a transaction with a foreign
29             person who is subject in a foreign country or
30             state, other than a state which requires mandatory
31             unitary reporting, to a tax on or measured by net
32             income with respect to such item; or
33                 (ii) any item of intangible expense or cost
34             paid, accrued, or incurred, directly or
35             indirectly, if the taxpayer can establish, based
36             on a preponderance of the evidence, both of the

 

 

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1             following:
2                     (a) the foreign person during the same
3                 taxable year paid, accrued, or incurred, the
4                 intangible expense or cost to a person that is
5                 not a related member, and
6                     (b) the transaction giving rise to the
7                 intangible expense or cost between the
8                 taxpayer and the foreign person did not have as
9                 a principal purpose the avoidance of Illinois
10                 income tax, and is paid pursuant to a contract
11                 or agreement that reflects arm's-length terms;
12                 or
13                 (iii) any item of intangible expense or cost
14             paid, accrued, or incurred, directly or
15             indirectly, from a transaction with a foreign
16             person if the taxpayer establishes by clear and
17             convincing evidence, that the adjustments are
18             unreasonable; or if the taxpayer and the Director
19             agree in writing to the application or use of an
20             alternative method of apportionment under Section
21             304(f);
22                 Nothing in this subsection shall preclude the
23             Director from making any other adjustment
24             otherwise allowed under Section 404 of this Act for
25             any tax year beginning after the effective date of
26             this amendment provided such adjustment is made
27             pursuant to regulation adopted by the Department
28             and such regulations provide methods and standards
29             by which the Department will utilize its authority
30             under Section 404 of this Act;
31             (D-20) For taxable years beginning on or after
32         January 1, 2002, in the case of a distribution from a
33         qualified tuition program under Section 529 of the
34         Internal Revenue Code, other than (i) a distribution
35         from a College Savings Pool created under Section 16.5
36         of the State Treasurer Act or (ii) a distribution from

 

 

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1         the Illinois Prepaid Tuition Trust Fund, an amount
2         equal to the amount excluded from gross income under
3         Section 529(c)(3)(B);
4     and by deducting from the total so obtained the sum of the
5     following amounts:
6             (E) For taxable years ending before December 31,
7         2001, any amount included in such total in respect of
8         any compensation (including but not limited to any
9         compensation paid or accrued to a serviceman while a
10         prisoner of war or missing in action) paid to a
11         resident by reason of being on active duty in the Armed
12         Forces of the United States and in respect of any
13         compensation paid or accrued to a resident who as a
14         governmental employee was a prisoner of war or missing
15         in action, and in respect of any compensation paid to a
16         resident in 1971 or thereafter for annual training
17         performed pursuant to Sections 502 and 503, Title 32,
18         United States Code as a member of the Illinois National
19         Guard. For taxable years ending on or after December
20         31, 2001, any amount included in such total in respect
21         of any compensation (including but not limited to any
22         compensation paid or accrued to a serviceman while a
23         prisoner of war or missing in action) paid to a
24         resident by reason of being a member of any component
25         of the Armed Forces of the United States and in respect
26         of any compensation paid or accrued to a resident who
27         as a governmental employee was a prisoner of war or
28         missing in action, and in respect of any compensation
29         paid to a resident in 2001 or thereafter by reason of
30         being a member of the Illinois National Guard. The
31         provisions of this amendatory Act of the 92nd General
32         Assembly are exempt from the provisions of Section 250;
33             (F) An amount equal to all amounts included in such
34         total pursuant to the provisions of Sections 402(a),
35         402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the
36         Internal Revenue Code, or included in such total as

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1         intangible expenses and costs paid, accrued, or
2         incurred, directly or indirectly, to the same foreign
3         person; and .
4             (FF) For taxable years ending after December 31,
5         2004 and on or before December 30, 2015, all amounts
6         included in the taxpayer's federal gross income in the
7         taxable year consisting of (i) the principal
8         contributed to and the interest earned on a health
9         savings account and (ii) money reimbursed to an
10         eligible individual or an employee from a health
11         savings account for qualified medical expenses under
12         the Health Savings Account Act.
 
13     (b) Corporations.
14         (1) In general. In the case of a corporation, base
15     income means an amount equal to the taxpayer's taxable
16     income for the taxable year as modified by paragraph (2).
17         (2) Modifications. The taxable income referred to in
18     paragraph (1) shall be modified by adding thereto the sum
19     of the following amounts:
20             (A) An amount equal to all amounts paid or accrued
21         to the taxpayer as interest and all distributions
22         received from regulated investment companies during
23         the taxable year to the extent excluded from gross
24         income in the computation of taxable income;
25             (B) An amount equal to the amount of tax imposed by
26         this Act to the extent deducted from gross income in
27         the computation of taxable income for the taxable year;
28             (C) In the case of a regulated investment company,
29         an amount equal to the excess of (i) the net long-term
30         capital gain for the taxable year, over (ii) the amount
31         of the capital gain dividends designated as such in
32         accordance with Section 852(b)(3)(C) of the Internal
33         Revenue Code and any amount designated under Section
34         852(b)(3)(D) of the Internal Revenue Code,
35         attributable to the taxable year (this amendatory Act

 

 

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1         of 1995 (Public Act 89-89) is declarative of existing
2         law and is not a new enactment);
3             (D) The amount of any net operating loss deduction
4         taken in arriving at taxable income, other than a net
5         operating loss carried forward from a taxable year
6         ending prior to December 31, 1986;
7             (E) For taxable years in which a net operating loss
8         carryback or carryforward from a taxable year ending
9         prior to December 31, 1986 is an element of taxable
10         income under paragraph (1) of subsection (e) or
11         subparagraph (E) of paragraph (2) of subsection (e),
12         the amount by which addition modifications other than
13         those provided by this subparagraph (E) exceeded
14         subtraction modifications in such earlier taxable
15         year, with the following limitations applied in the
16         order that they are listed:
17                 (i) the addition modification relating to the
18             net operating loss carried back or forward to the
19             taxable year from any taxable year ending prior to
20             December 31, 1986 shall be reduced by the amount of
21             addition modification under this subparagraph (E)
22             which related to that net operating loss and which
23             was taken into account in calculating the base
24             income of an earlier taxable year, and
25                 (ii) the addition modification relating to the
26             net operating loss carried back or forward to the
27             taxable year from any taxable year ending prior to
28             December 31, 1986 shall not exceed the amount of
29             such carryback or carryforward;
30             For taxable years in which there is a net operating
31         loss carryback or carryforward from more than one other
32         taxable year ending prior to December 31, 1986, the
33         addition modification provided in this subparagraph
34         (E) shall be the sum of the amounts computed
35         independently under the preceding provisions of this
36         subparagraph (E) for each such taxable year;

 

 

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1             (E-5) For taxable years ending after December 31,
2         1997, an amount equal to any eligible remediation costs
3         that the corporation deducted in computing adjusted
4         gross income and for which the corporation claims a
5         credit under subsection (l) of Section 201;
6             (E-10) For taxable years 2001 and thereafter, an
7         amount equal to the bonus depreciation deduction (30%
8         of the adjusted basis of the qualified property) taken
9         on the taxpayer's federal income tax return for the
10         taxable year under subsection (k) of Section 168 of the
11         Internal Revenue Code; and
12             (E-11) If the taxpayer reports a capital gain or
13         loss on the taxpayer's federal income tax return for
14         the taxable year based on a sale or transfer of
15         property for which the taxpayer was required in any
16         taxable year to make an addition modification under
17         subparagraph (E-10), then an amount equal to the
18         aggregate amount of the deductions taken in all taxable
19         years under subparagraph (T) with respect to that
20         property.
21             The taxpayer is required to make the addition
22         modification under this subparagraph only once with
23         respect to any one piece of property;
24             (E-12) For taxable years ending on or after
25         December 31, 2004, an amount equal to the amount
26         otherwise allowed as a deduction in computing base
27         income for interest paid, accrued, or incurred,
28         directly or indirectly, to a foreign person who would
29         be a member of the same unitary business group but for
30         the fact the foreign person's business activity
31         outside the United States is 80% or more of the foreign
32         person's total business activity. The addition
33         modification required by this subparagraph shall be
34         reduced to the extent that dividends were included in
35         base income of the unitary group for the same taxable
36         year and received by the taxpayer or by a member of the

 

 

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

 

 

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1                 (iv) an item of interest paid, accrued, or
2             incurred, directly or indirectly, to a foreign
3             person if the taxpayer establishes by clear and
4             convincing evidence that the adjustments are
5             unreasonable; or if the taxpayer and the Director
6             agree in writing to the application or use of an
7             alternative method of apportionment under Section
8             304(f).
9                 Nothing in this subsection shall preclude the
10             Director from making any other adjustment
11             otherwise allowed under Section 404 of this Act for
12             any tax year beginning after the effective date of
13             this amendment provided such adjustment is made
14             pursuant to regulation adopted by the Department
15             and such regulations provide methods and standards
16             by which the Department will utilize its authority
17             under Section 404 of this Act;
18             (E-13) For taxable years ending on or after
19         December 31, 2004, an amount equal to the amount of
20         intangible expenses and costs otherwise allowed as a
21         deduction in computing base income, and that were paid,
22         accrued, or incurred, directly or indirectly, to a
23         foreign person who would be a member of the same
24         unitary business group but for the fact that the
25         foreign person's business activity outside the United
26         States is 80% or more of that person's total business
27         activity. The addition modification required by this
28         subparagraph shall be reduced to the extent that
29         dividends were included in base income of the unitary
30         group for the same taxable year and received by the
31         taxpayer or by a member of the taxpayer's unitary
32         business group (including amounts included in gross
33         income pursuant to Sections 951 through 964 of the
34         Internal Revenue Code and amounts included in gross
35         income under Section 78 of the Internal Revenue Code)
36         with respect to the stock of the same person to whom

 

 

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

 

 

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1                     (b) the transaction giving rise to the
2                 intangible expense or cost between the
3                 taxpayer and the foreign person did not have as
4                 a principal purpose the avoidance of Illinois
5                 income tax, and is paid pursuant to a contract
6                 or agreement that reflects arm's-length terms;
7                 or
8                 (iii) any item of intangible expense or cost
9             paid, accrued, or incurred, directly or
10             indirectly, from a transaction with a foreign
11             person if the taxpayer establishes by clear and
12             convincing evidence, that the adjustments are
13             unreasonable; or if the taxpayer and the Director
14             agree in writing to the application or use of an
15             alternative method of apportionment under Section
16             304(f);
17                 Nothing in this subsection shall preclude the
18             Director from making any other adjustment
19             otherwise allowed under Section 404 of this Act for
20             any tax year beginning after the effective date of
21             this amendment provided such adjustment is made
22             pursuant to regulation adopted by the Department
23             and such regulations provide methods and standards
24             by which the Department will utilize its authority
25             under Section 404 of this Act;
26     and by deducting from the total so obtained the sum of the
27     following amounts:
28             (F) An amount equal to the amount of any tax
29         imposed by this Act which was refunded to the taxpayer
30         and included in such total for the taxable year;
31             (G) An amount equal to any amount included in such
32         total under Section 78 of the Internal Revenue Code;
33             (H) In the case of a regulated investment company,
34         an amount equal to the amount of exempt interest
35         dividends as defined in subsection (b) (5) of Section
36         852 of the Internal Revenue Code, paid to shareholders

 

 

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1         for the taxable year;
2             (I) With the exception of any amounts subtracted
3         under subparagraph (J), an amount equal to the sum of
4         all amounts disallowed as deductions by (i) Sections
5         171(a) (2), and 265(a)(2) and amounts disallowed as
6         interest expense by Section 291(a)(3) of the Internal
7         Revenue Code, as now or hereafter amended, and all
8         amounts of expenses allocable to interest and
9         disallowed as deductions by Section 265(a)(1) of the
10         Internal Revenue Code, as now or hereafter amended; and
11         (ii) for taxable years ending on or after August 13,
12         1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and
13         832(b)(5)(B)(i) of the Internal Revenue Code; the
14         provisions of this subparagraph are exempt from the
15         provisions of Section 250;
16             (J) An amount equal to all amounts included in such
17         total which are exempt from taxation by this State
18         either by reason of its statutes or Constitution or by
19         reason of the Constitution, treaties or statutes of the
20         United States; provided that, in the case of any
21         statute of this State that exempts income derived from
22         bonds or other obligations from the tax imposed under
23         this Act, the amount exempted shall be the interest net
24         of bond premium amortization;
25             (K) An amount equal to those dividends included in
26         such total which were paid by a corporation which
27         conducts business operations in an Enterprise Zone or
28         zones created under the Illinois Enterprise Zone Act
29         and conducts substantially all of its operations in an
30         Enterprise Zone or zones;
31             (L) An amount equal to those dividends included in
32         such total that were paid by a corporation that
33         conducts business operations in a federally designated
34         Foreign Trade Zone or Sub-Zone and that is designated a
35         High Impact Business located in Illinois; provided
36         that dividends eligible for the deduction provided in

 

 

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1         subparagraph (K) of paragraph 2 of this subsection
2         shall not be eligible for the deduction provided under
3         this subparagraph (L);
4             (M) For any taxpayer that is a financial
5         organization within the meaning of Section 304(c) of
6         this Act, an amount included in such total as interest
7         income from a loan or loans made by such taxpayer to a
8         borrower, to the extent that such a loan is secured by
9         property which is eligible for the Enterprise Zone
10         Investment Credit. To determine the portion of a loan
11         or loans that is secured by property eligible for a
12         Section 201(f) investment credit to the borrower, the
13         entire principal amount of the loan or loans between
14         the taxpayer and the borrower should be divided into
15         the basis of the Section 201(f) investment credit
16         property which secures the loan or loans, using for
17         this purpose the original basis of such property on the
18         date that it was placed in service in the Enterprise
19         Zone. The subtraction modification available to
20         taxpayer in any year under this subsection shall be
21         that portion of the total interest paid by the borrower
22         with respect to such loan attributable to the eligible
23         property as calculated under the previous sentence;
24             (M-1) For any taxpayer that is a financial
25         organization within the meaning of Section 304(c) of
26         this Act, an amount included in such total as interest
27         income from a loan or loans made by such taxpayer to a
28         borrower, to the extent that such a loan is secured by
29         property which is eligible for the High Impact Business
30         Investment Credit. To determine the portion of a loan
31         or loans that is secured by property eligible for a
32         Section 201(h) investment credit to the borrower, the
33         entire principal amount of the loan or loans between
34         the taxpayer and the borrower should be divided into
35         the basis of the Section 201(h) investment credit
36         property which secures the loan or loans, using for

 

 

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1         this purpose the original basis of such property on the
2         date that it was placed in service in a federally
3         designated Foreign Trade Zone or Sub-Zone located in
4         Illinois. No taxpayer that is eligible for the
5         deduction provided in subparagraph (M) of paragraph
6         (2) of this subsection shall be eligible for the
7         deduction provided under this subparagraph (M-1). The
8         subtraction modification available to taxpayers in any
9         year under this subsection shall be that portion of the
10         total interest paid by the borrower with respect to
11         such loan attributable to the eligible property as
12         calculated under the previous sentence;
13             (N) Two times any contribution made during the
14         taxable year to a designated zone organization to the
15         extent that the contribution (i) qualifies as a
16         charitable contribution under subsection (c) of
17         Section 170 of the Internal Revenue Code and (ii) must,
18         by its terms, be used for a project approved by the
19         Department of Commerce and Economic Opportunity under
20         Section 11 of the Illinois Enterprise Zone Act;
21             (O) An amount equal to: (i) 85% for taxable years
22         ending on or before December 31, 1992, or, a percentage
23         equal to the percentage allowable under Section
24         243(a)(1) of the Internal Revenue Code of 1986 for
25         taxable years ending after December 31, 1992, of the
26         amount by which dividends included in taxable income
27         and received from a corporation that is not created or
28         organized under the laws of the United States or any
29         state or political subdivision thereof, including, for
30         taxable years ending on or after December 31, 1988,
31         dividends received or deemed received or paid or deemed
32         paid under Sections 951 through 964 of the Internal
33         Revenue Code, exceed the amount of the modification
34         provided under subparagraph (G) of paragraph (2) of
35         this subsection (b) which is related to such dividends;
36         plus (ii) 100% of the amount by which dividends,

 

 

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1         included in taxable income and received, including,
2         for taxable years ending on or after December 31, 1988,
3         dividends received or deemed received or paid or deemed
4         paid under Sections 951 through 964 of the Internal
5         Revenue Code, from any such corporation specified in
6         clause (i) that would but for the provisions of Section
7         1504 (b) (3) of the Internal Revenue Code be treated as
8         a member of the affiliated group which includes the
9         dividend recipient, exceed the amount of the
10         modification provided under subparagraph (G) of
11         paragraph (2) of this subsection (b) which is related
12         to such dividends;
13             (P) An amount equal to any contribution made to a
14         job training project established pursuant to the Tax
15         Increment Allocation Redevelopment Act;
16             (Q) An amount equal to the amount of the deduction
17         used to compute the federal income tax credit for
18         restoration of substantial amounts held under claim of
19         right for the taxable year pursuant to Section 1341 of
20         the Internal Revenue Code of 1986;
21             (R) In the case of an attorney-in-fact with respect
22         to whom an interinsurer or a reciprocal insurer has
23         made the election under Section 835 of the Internal
24         Revenue Code, 26 U.S.C. 835, an amount equal to the
25         excess, if any, of the amounts paid or incurred by that
26         interinsurer or reciprocal insurer in the taxable year
27         to the attorney-in-fact over the deduction allowed to
28         that interinsurer or reciprocal insurer with respect
29         to the attorney-in-fact under Section 835(b) of the
30         Internal Revenue Code for the taxable year;
31             (S) For taxable years ending on or after December
32         31, 1997, in the case of a Subchapter S corporation, an
33         amount equal to all amounts of income allocable to a
34         shareholder subject to the Personal Property Tax
35         Replacement Income Tax imposed by subsections (c) and
36         (d) of Section 201 of this Act, including amounts

 

 

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1         allocable to organizations exempt from federal income
2         tax by reason of Section 501(a) of the Internal Revenue
3         Code. This subparagraph (S) is exempt from the
4         provisions of Section 250;
5             (T) For taxable years 2001 and thereafter, for the
6         taxable year in which the bonus depreciation deduction
7         (30% of the adjusted basis of the qualified property)
8         is taken on the taxpayer's federal income tax return
9         under subsection (k) of Section 168 of the Internal
10         Revenue Code and for each applicable taxable year
11         thereafter, an amount equal to "x", where:
12                 (1) "y" equals the amount of the depreciation
13             deduction taken for the taxable year on the
14             taxpayer's federal income tax return on property
15             for which the bonus depreciation deduction (30% of
16             the adjusted basis of the qualified property) was
17             taken in any year under subsection (k) of Section
18             168 of the Internal Revenue Code, but not including
19             the bonus depreciation deduction; and
20                 (2) "x" equals "y" multiplied by 30 and then
21             divided by 70 (or "y" multiplied by 0.429).
22             The aggregate amount deducted under this
23         subparagraph in all taxable years for any one piece of
24         property may not exceed the amount of the bonus
25         depreciation deduction (30% of the adjusted basis of
26         the qualified property) taken on that property on the
27         taxpayer's federal income tax return under subsection
28         (k) of Section 168 of the Internal Revenue Code;
29             (U) If the taxpayer reports a capital gain or loss
30         on the taxpayer's federal income tax return for the
31         taxable year based on a sale or transfer of property
32         for which the taxpayer was required in any taxable year
33         to make an addition modification under subparagraph
34         (E-10), then an amount equal to that addition
35         modification.
36             The taxpayer is allowed to take the deduction under

 

 

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

 

 

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1         outside the United States is 80% or more of that
2         person's total business activity, but not to exceed the
3         addition modification required to be made for the same
4         taxable year under Section 203(b)(2)(E-13) for
5         intangible expenses and costs paid, accrued, or
6         incurred, directly or indirectly, to the same foreign
7         person.
8         (3) Special rule. For purposes of paragraph (2) (A),
9     "gross income" in the case of a life insurance company, for
10     tax years ending on and after December 31, 1994, shall mean
11     the gross investment income for the taxable year.
 
12     (c) Trusts and estates.
13         (1) In general. In the case of a trust or estate, base
14     income means an amount equal to the taxpayer's taxable
15     income for the taxable year as modified by paragraph (2).
16         (2) Modifications. Subject to the provisions of
17     paragraph (3), the taxable income referred to in paragraph
18     (1) shall be modified by adding thereto the sum of the
19     following amounts:
20             (A) An amount equal to all amounts paid or accrued
21         to the taxpayer as interest or dividends during the
22         taxable year to the extent excluded from gross income
23         in the computation of taxable income;
24             (B) In the case of (i) an estate, $600; (ii) a
25         trust which, under its governing instrument, is
26         required to distribute all of its income currently,
27         $300; and (iii) any other trust, $100, but in each such
28         case, only to the extent such amount was deducted in
29         the computation of taxable income;
30             (C) An amount equal to the amount of tax imposed by
31         this Act to the extent deducted from gross income in
32         the computation of taxable income for the taxable year;
33             (D) The amount of any net operating loss deduction
34         taken in arriving at taxable income, other than a net
35         operating loss carried forward from a taxable year

 

 

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

 

 

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1         Act;
2             (G) An amount equal to the amount of the capital
3         gain deduction allowable under the Internal Revenue
4         Code, to the extent deducted from gross income in the
5         computation of taxable income;
6             (G-5) For taxable years ending after December 31,
7         1997, an amount equal to any eligible remediation costs
8         that the trust or estate deducted in computing adjusted
9         gross income and for which the trust or estate claims a
10         credit under subsection (l) of Section 201;
11             (G-10) For taxable years 2001 and thereafter, an
12         amount equal to the bonus depreciation deduction (30%
13         of the adjusted basis of the qualified property) taken
14         on the taxpayer's federal income tax return for the
15         taxable year under subsection (k) of Section 168 of the
16         Internal Revenue Code; and
17             (G-11) If the taxpayer reports a capital gain or
18         loss on the taxpayer's federal income tax return for
19         the taxable year based on a sale or transfer of
20         property for which the taxpayer was required in any
21         taxable year to make an addition modification under
22         subparagraph (G-10), then an amount equal to the
23         aggregate amount of the deductions taken in all taxable
24         years under subparagraph (R) with respect to that
25         property.
26             The taxpayer is required to make the addition
27         modification under this subparagraph only once with
28         respect to any one piece of property;
29             (G-12) For taxable years ending on or after
30         December 31, 2004, an amount equal to the amount
31         otherwise allowed as a deduction in computing base
32         income for interest paid, accrued, or incurred,
33         directly or indirectly, to a foreign person who would
34         be a member of the same unitary business group but for
35         the fact that the foreign person's business activity
36         outside the United States is 80% or more of the foreign

 

 

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

 

 

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

 

 

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1         business group (including amounts included in gross
2         income pursuant to Sections 951 through 964 of the
3         Internal Revenue Code and amounts included in gross
4         income under Section 78 of the Internal Revenue Code)
5         with respect to the stock of the same person to whom
6         the intangible expenses and costs were directly or
7         indirectly paid, incurred, or accrued. The preceding
8         sentence shall not apply to the extent that the same
9         dividends caused a reduction to the addition
10         modification required under Section 203(c)(2)(G-12) of
11         this Act. As used in this subparagraph, the term
12         "intangible expenses and costs" includes: (1)
13         expenses, losses, and costs for or related to the
14         direct or indirect acquisition, use, maintenance or
15         management, ownership, sale, exchange, or any other
16         disposition of intangible property; (2) losses
17         incurred, directly or indirectly, from factoring
18         transactions or discounting transactions; (3) royalty,
19         patent, technical, and copyright fees; (4) licensing
20         fees; and (5) other similar expenses and costs. For
21         purposes of this subparagraph, "intangible property"
22         includes patents, patent applications, trade names,
23         trademarks, service marks, copyrights, mask works,
24         trade secrets, and similar types of intangible assets.
25             This paragraph shall not apply to the following:
26                 (i) any item of intangible expenses or costs
27             paid, accrued, or incurred, directly or
28             indirectly, from a transaction with a foreign
29             person who is subject in a foreign country or
30             state, other than a state which requires mandatory
31             unitary reporting, to a tax on or measured by net
32             income with respect to such item; or
33                 (ii) any item of intangible expense or cost
34             paid, accrued, or incurred, directly or
35             indirectly, if the taxpayer can establish, based
36             on a preponderance of the evidence, both of the

 

 

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1             following:
2                     (a) the foreign person during the same
3                 taxable year paid, accrued, or incurred, the
4                 intangible expense or cost to a person that is
5                 not a related member, and
6                     (b) the transaction giving rise to the
7                 intangible expense or cost between the
8                 taxpayer and the foreign person did not have as
9                 a principal purpose the avoidance of Illinois
10                 income tax, and is paid pursuant to a contract
11                 or agreement that reflects arm's-length terms;
12                 or
13                 (iii) any item of intangible expense or cost
14             paid, accrued, or incurred, directly or
15             indirectly, from a transaction with a foreign
16             person if the taxpayer establishes by clear and
17             convincing evidence, that the adjustments are
18             unreasonable; or if the taxpayer and the Director
19             agree in writing to the application or use of an
20             alternative method of apportionment under Section
21             304(f);
22                 Nothing in this subsection shall preclude the
23             Director from making any other adjustment
24             otherwise allowed under Section 404 of this Act for
25             any tax year beginning after the effective date of
26             this amendment provided such adjustment is made
27             pursuant to regulation adopted by the Department
28             and such regulations provide methods and standards
29             by which the Department will utilize its authority
30             under Section 404 of this Act;
31     and by deducting from the total so obtained the sum of the
32     following amounts:
33             (H) An amount equal to all amounts included in such
34         total pursuant to the provisions of Sections 402(a),
35         402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the
36         Internal Revenue Code or included in such total as

 

 

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1         distributions under the provisions of any retirement
2         or disability plan for employees of any governmental
3         agency or unit, or retirement payments to retired
4         partners, which payments are excluded in computing net
5         earnings from self employment by Section 1402 of the
6         Internal Revenue Code and regulations adopted pursuant
7         thereto;
8             (I) The valuation limitation amount;
9             (J) An amount equal to the amount of any tax
10         imposed by this Act which was refunded to the taxpayer
11         and included in such total for the taxable year;
12             (K) An amount equal to all amounts included in
13         taxable income as modified by subparagraphs (A), (B),
14         (C), (D), (E), (F) and (G) which are exempt from
15         taxation by this State either by reason of its statutes
16         or Constitution or by reason of the Constitution,
17         treaties or statutes of the United States; provided
18         that, in the case of any statute of this State that
19         exempts income derived from bonds or other obligations
20         from the tax imposed under this Act, the amount
21         exempted shall be the interest net of bond premium
22         amortization;
23             (L) With the exception of any amounts subtracted
24         under subparagraph (K), an amount equal to the sum of
25         all amounts disallowed as deductions by (i) Sections
26         171(a) (2) and 265(a)(2) of the Internal Revenue Code,
27         as now or hereafter amended, and all amounts of
28         expenses allocable to interest and disallowed as
29         deductions by Section 265(1) of the Internal Revenue
30         Code of 1954, as now or hereafter amended; and (ii) for
31         taxable years ending on or after August 13, 1999,
32         Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of
33         the Internal Revenue Code; the provisions of this
34         subparagraph are exempt from the provisions of Section
35         250;
36             (M) An amount equal to those dividends included in

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1         interest paid, accrued, or incurred, directly or
2         indirectly, to a foreign person who would be a member
3         of the same unitary business group but for the fact the
4         foreign person's business activity outside the United
5         States is 80% or more of the foreign person's total
6         business activity. The addition modification required
7         by this subparagraph shall be reduced to the extent
8         that dividends were included in base income of the
9         unitary group for the same taxable year and received by
10         the taxpayer or by a member of the taxpayer's unitary
11         business group (including amounts included in gross
12         income pursuant to Sections 951 through 964 of the
13         Internal Revenue Code and amounts included in gross
14         income under Section 78 of the Internal Revenue Code)
15         with respect to the stock of the same person to whom
16         the interest was paid, accrued, or incurred.
17             This paragraph shall not apply to the following:
18                 (i) an item of interest paid, accrued, or
19             incurred, directly or indirectly, to a foreign
20             person who is subject in a foreign country or
21             state, other than a state which requires mandatory
22             unitary reporting, to a tax on or measured by net
23             income with respect to such interest; or
24                 (ii) an item of interest paid, accrued, or
25             incurred, directly or indirectly, to a foreign
26             person if the taxpayer can establish, based on a
27             preponderance of the evidence, both of the
28             following:
29                     (a) the foreign person, during the same
30                 taxable year, paid, accrued, or incurred, the
31                 interest to a person that is not a related
32                 member, and
33                     (b) the transaction giving rise to the
34                 interest expense between the taxpayer and the
35                 foreign person did not have as a principal
36                 purpose the avoidance of Illinois income tax,

 

 

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

 

 

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1         shall be reduced to the extent that dividends were
2         included in base income of the unitary group for the
3         same taxable year and received by the taxpayer or by a
4         member of the taxpayer's unitary business group
5         (including amounts included in gross income pursuant
6         to Sections 951 through 964 of the Internal Revenue
7         Code and amounts included in gross income under Section
8         78 of the Internal Revenue Code) with respect to the
9         stock of the same person to whom the intangible
10         expenses and costs were directly or indirectly paid,
11         incurred or accrued. The preceding sentence shall not
12         apply to the extent that the same dividends caused a
13         reduction to the addition modification required under
14         Section 203(d)(2)(D-7) of this Act. As used in this
15         subparagraph, the term "intangible expenses and costs"
16         includes (1) expenses, losses, and costs for, or
17         related to, the direct or indirect acquisition, use,
18         maintenance or management, ownership, sale, exchange,
19         or any other disposition of intangible property; (2)
20         losses incurred, directly or indirectly, from
21         factoring transactions or discounting transactions;
22         (3) royalty, patent, technical, and copyright fees;
23         (4) licensing fees; and (5) other similar expenses and
24         costs. For purposes of this subparagraph, "intangible
25         property" includes patents, patent applications, trade
26         names, trademarks, service marks, copyrights, mask
27         works, trade secrets, and similar types of intangible
28         assets;
29             This paragraph shall not apply to the following:
30                 (i) any item of intangible expenses or costs
31             paid, accrued, or incurred, directly or
32             indirectly, from a transaction with a foreign
33             person who is subject in a foreign country or
34             state, other than a state which requires mandatory
35             unitary reporting, to a tax on or measured by net
36             income with respect to such item; or

 

 

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

 

 

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

 

 

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1         171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the
2         Internal Revenue Code; the provisions of this
3         subparagraph are exempt from the provisions of Section
4         250;
5             (K) An amount equal to those dividends included in
6         such total which were paid by a corporation which
7         conducts business operations in an Enterprise Zone or
8         zones created under the Illinois Enterprise Zone Act,
9         enacted by the 82nd General Assembly, and conducts
10         substantially all of its operations in an Enterprise
11         Zone or Zones;
12             (L) An amount equal to any contribution made to a
13         job training project established pursuant to the Real
14         Property Tax Increment Allocation Redevelopment Act;
15             (M) An amount equal to those dividends included in
16         such total that were paid by a corporation that
17         conducts business operations in a federally designated
18         Foreign Trade Zone or Sub-Zone and that is designated a
19         High Impact Business located in Illinois; provided
20         that dividends eligible for the deduction provided in
21         subparagraph (K) of paragraph (2) of this subsection
22         shall not be eligible for the deduction provided under
23         this subparagraph (M);
24             (N) An amount equal to the amount of the deduction
25         used to compute the federal income tax credit for
26         restoration of substantial amounts held under claim of
27         right for the taxable year pursuant to Section 1341 of
28         the Internal Revenue Code of 1986;
29             (O) For taxable years 2001 and thereafter, for the
30         taxable year in which the bonus depreciation deduction
31         (30% of the adjusted basis of the qualified property)
32         is taken on the taxpayer's federal income tax return
33         under subsection (k) of Section 168 of the Internal
34         Revenue Code and for each applicable taxable year
35         thereafter, an amount equal to "x", where:
36                 (1) "y" equals the amount of the depreciation

 

 

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

 

 

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1         year with respect to a transaction with a taxpayer that
2         is required to make an addition modification with
3         respect to such transaction under Section
4         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
5         203(d)(2)(D-8), but not to exceed the amount of such
6         addition modification;
7             (R) An amount equal to the interest income taken
8         into account for the taxable year (net of the
9         deductions allocable thereto) with respect to
10         transactions with a foreign person who would be a
11         member of the taxpayer's unitary business group but for
12         the fact that the foreign person's business activity
13         outside the United States is 80% or more of that
14         person's total business activity, but not to exceed the
15         addition modification required to be made for the same
16         taxable year under Section 203(d)(2)(D-7) for interest
17         paid, accrued, or incurred, directly or indirectly, to
18         the same foreign person; and
19             (S) An amount equal to the income from intangible
20         property taken into account for the taxable year (net
21         of the deductions allocable thereto) with respect to
22         transactions with a foreign person who would be a
23         member of the taxpayer's unitary business group but for
24         the fact that the foreign person's business activity
25         outside the United States is 80% or more of that
26         person's total business activity, but not to exceed the
27         addition modification required to be made for the same
28         taxable year under Section 203(d)(2)(D-8) for
29         intangible expenses and costs paid, accrued, or
30         incurred, directly or indirectly, to the same foreign
31         person.
 
32     (e) Gross income; adjusted gross income; taxable income.
33         (1) In general. Subject to the provisions of paragraph
34     (2) and subsection (b) (3), for purposes of this Section
35     and Section 803(e), a taxpayer's gross income, adjusted

 

 

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1     gross income, or taxable income for the taxable year shall
2     mean the amount of gross income, adjusted gross income or
3     taxable income properly reportable for federal income tax
4     purposes for the taxable year under the provisions of the
5     Internal Revenue Code. Taxable income may be less than
6     zero. However, for taxable years ending on or after
7     December 31, 1986, net operating loss carryforwards from
8     taxable years ending prior to December 31, 1986, may not
9     exceed the sum of federal taxable income for the taxable
10     year before net operating loss deduction, plus the excess
11     of addition modifications over subtraction modifications
12     for the taxable year. For taxable years ending prior to
13     December 31, 1986, taxable income may never be an amount in
14     excess of the net operating loss for the taxable year as
15     defined in subsections (c) and (d) of Section 172 of the
16     Internal Revenue Code, provided that when taxable income of
17     a corporation (other than a Subchapter S corporation),
18     trust, or estate is less than zero and addition
19     modifications, other than those provided by subparagraph
20     (E) of paragraph (2) of subsection (b) for corporations or
21     subparagraph (E) of paragraph (2) of subsection (c) for
22     trusts and estates, exceed subtraction modifications, an
23     addition modification must be made under those
24     subparagraphs for any other taxable year to which the
25     taxable income less than zero (net operating loss) is
26     applied under Section 172 of the Internal Revenue Code or
27     under subparagraph (E) of paragraph (2) of this subsection
28     (e) applied in conjunction with Section 172 of the Internal
29     Revenue Code.
30         (2) Special rule. For purposes of paragraph (1) of this
31     subsection, the taxable income properly reportable for
32     federal income tax purposes shall mean:
33             (A) Certain life insurance companies. In the case
34         of a life insurance company subject to the tax imposed
35         by Section 801 of the Internal Revenue Code, life
36         insurance company taxable income, plus the amount of

 

 

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1         distribution from pre-1984 policyholder surplus
2         accounts as calculated under Section 815a of the
3         Internal Revenue Code;
4             (B) Certain other insurance companies. In the case
5         of mutual insurance companies subject to the tax
6         imposed by Section 831 of the Internal Revenue Code,
7         insurance company taxable income;
8             (C) Regulated investment companies. In the case of
9         a regulated investment company subject to the tax
10         imposed by Section 852 of the Internal Revenue Code,
11         investment company taxable income;
12             (D) Real estate investment trusts. In the case of a
13         real estate investment trust subject to the tax imposed
14         by Section 857 of the Internal Revenue Code, real
15         estate investment trust taxable income;
16             (E) Consolidated corporations. In the case of a
17         corporation which is a member of an affiliated group of
18         corporations filing a consolidated income tax return
19         for the taxable year for federal income tax purposes,
20         taxable income determined as if such corporation had
21         filed a separate return for federal income tax purposes
22         for the taxable year and each preceding taxable year
23         for which it was a member of an affiliated group. For
24         purposes of this subparagraph, the taxpayer's separate
25         taxable income shall be determined as if the election
26         provided by Section 243(b) (2) of the Internal Revenue
27         Code had been in effect for all such years;
28             (F) Cooperatives. In the case of a cooperative
29         corporation or association, the taxable income of such
30         organization determined in accordance with the
31         provisions of Section 1381 through 1388 of the Internal
32         Revenue Code;
33             (G) Subchapter S corporations. In the case of: (i)
34         a Subchapter S corporation for which there is in effect
35         an election for the taxable year under Section 1362 of
36         the Internal Revenue Code, the taxable income of such

 

 

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1         corporation determined in accordance with Section
2         1363(b) of the Internal Revenue Code, except that
3         taxable income shall take into account those items
4         which are required by Section 1363(b)(1) of the
5         Internal Revenue Code to be separately stated; and (ii)
6         a Subchapter S corporation for which there is in effect
7         a federal election to opt out of the provisions of the
8         Subchapter S Revision Act of 1982 and have applied
9         instead the prior federal Subchapter S rules as in
10         effect on July 1, 1982, the taxable income of such
11         corporation determined in accordance with the federal
12         Subchapter S rules as in effect on July 1, 1982; and
13             (H) Partnerships. In the case of a partnership,
14         taxable income determined in accordance with Section
15         703 of the Internal Revenue Code, except that taxable
16         income shall take into account those items which are
17         required by Section 703(a)(1) to be separately stated
18         but which would be taken into account by an individual
19         in calculating his taxable income.
20         (3) Recapture of business expenses on disposition of
21     asset or business. Notwithstanding any other law to the
22     contrary, if in prior years income from an asset or
23     business has been classified as business income and in a
24     later year is demonstrated to be non-business income, then
25     all expenses, without limitation, deducted in such later
26     year and in the 2 immediately preceding taxable years
27     related to that asset or business that generated the
28     non-business income shall be added back and recaptured as
29     business income in the year of the disposition of the asset
30     or business. Such amount shall be apportioned to Illinois
31     using the greater of the apportionment fraction computed
32     for the business under Section 304 of this Act for the
33     taxable year or the average of the apportionment fractions
34     computed for the business under Section 304 of this Act for
35     the taxable year and for the 2 immediately preceding
36     taxable years.

 

 

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1     (f) Valuation limitation amount.
2         (1) In general. The valuation limitation amount
3     referred to in subsections (a) (2) (G), (c) (2) (I) and
4     (d)(2) (E) is an amount equal to:
5             (A) The sum of the pre-August 1, 1969 appreciation
6         amounts (to the extent consisting of gain reportable
7         under the provisions of Section 1245 or 1250 of the
8         Internal Revenue Code) for all property in respect of
9         which such gain was reported for the taxable year; plus
10             (B) The lesser of (i) the sum of the pre-August 1,
11         1969 appreciation amounts (to the extent consisting of
12         capital gain) for all property in respect of which such
13         gain was reported for federal income tax purposes for
14         the taxable year, or (ii) the net capital gain for the
15         taxable year, reduced in either case by any amount of
16         such gain included in the amount determined under
17         subsection (a) (2) (F) or (c) (2) (H).
18         (2) Pre-August 1, 1969 appreciation amount.
19             (A) If the fair market value of property referred
20         to in paragraph (1) was readily ascertainable on August
21         1, 1969, the pre-August 1, 1969 appreciation amount for
22         such property is the lesser of (i) the excess of such
23         fair market value over the taxpayer's basis (for
24         determining gain) for such property on that date
25         (determined under the Internal Revenue Code as in
26         effect on that date), or (ii) the total gain realized
27         and reportable for federal income tax purposes in
28         respect of the sale, exchange or other disposition of
29         such property.
30             (B) If the fair market value of property referred
31         to in paragraph (1) was not readily ascertainable on
32         August 1, 1969, the pre-August 1, 1969 appreciation
33         amount for such property is that amount which bears the
34         same ratio to the total gain reported in respect of the
35         property for federal income tax purposes for the
36         taxable year, as the number of full calendar months in

 

 

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1         that part of the taxpayer's holding period for the
2         property ending July 31, 1969 bears to the number of
3         full calendar months in the taxpayer's entire holding
4         period for the property.
5             (C) The Department shall prescribe such
6         regulations as may be necessary to carry out the
7         purposes of this paragraph.
 
8     (g) Double deductions. Unless specifically provided
9 otherwise, nothing in this Section shall permit the same item
10 to be deducted more than once.
 
11     (h) Legislative intention. Except as expressly provided by
12 this Section there shall be no modifications or limitations on
13 the amounts of income, gain, loss or deduction taken into
14 account in determining gross income, adjusted gross income or
15 taxable income for federal income tax purposes for the taxable
16 year, or in the amount of such items entering into the
17 computation of base income and net income under this Act for
18 such taxable year, whether in respect of property values as of
19 August 1, 1969 or otherwise.
20 (Source: P.A. 92-16, eff. 6-28-01; 92-244, eff. 8-3-01; 92-439,
21 eff. 8-17-01; 92-603, eff. 6-28-02; 92-626, eff. 7-11-02;
22 92-651, eff. 7-11-02; 92-846, eff. 8-23-02; 93-812, eff.
23 7-26-04; 93-840, eff. 7-30-04; revised 10-12-04.)
 
24     Section 997. Severability. The provisions of this Act are
25 severable under Section 1.31 of the Statute on Statutes.
 
26     Section 999. Effective date. This Act takes effect July 1,
27 2005.