Illinois General Assembly - Full Text of SB0507
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Full Text of SB0507  94th General Assembly

SB0507eng 94TH GENERAL ASSEMBLY



 


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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1             convincing evidence, that the adjustments are
2             unreasonable; or if the taxpayer and the Director
3             agree in writing to the application or use of an
4             alternative method of apportionment under Section
5             304(f);
6                 Nothing in this subsection shall preclude the
7             Director from making any other adjustment
8             otherwise allowed under Section 404 of this Act for
9             any tax year beginning after the effective date of
10             this amendment provided such adjustment is made
11             pursuant to regulation adopted by the Department
12             and such regulations provide methods and standards
13             by which the Department will utilize its authority
14             under Section 404 of this Act;
15             (D-20) For taxable years beginning on or after
16         January 1, 2002 and ending on or before December 31,
17         2005, in the case of a distribution from a qualified
18         tuition program under Section 529 of the Internal
19         Revenue Code, other than (i) a distribution from a
20         College Savings Pool created under Section 16.5 of the
21         State Treasurer Act or (ii) a distribution from the
22         Illinois Prepaid Tuition Trust Fund, an amount equal to
23         the amount excluded from gross income under Section
24         529(c)(3)(B). For taxable years beginning on or after
25         January 1, 2006, in the case of a distribution from a
26         qualified tuition program under Section 529 of the
27         Internal Revenue Code, other than (i) a distribution
28         from a College Savings Pool created under Section 16.5
29         of the State Treasurer Act, (ii) a distribution from
30         the Illinois Prepaid Tuition Trust Fund, or (iii) a
31         distribution from a qualified tuition program under
32         Section 529 of the Internal Revenue Code that (I)
33         adopts and determines that its offering materials
34         comply with the College Savings Plans Network's
35         disclosure principles and (II) has made reasonable
36         efforts to inform in-state residents of the existence

 

 

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1         of in-state qualified tuition programs by informing
2         Illinois residents directly and, where applicable, to
3         inform financial intermediaries distributing the
4         program to inform in-state residents of the existence
5         of in-state qualified tuition programs at least
6         annually, an amount equal to the amount excluded from
7         gross income under Section 529(c)(3)(B).
8             For the purposes of this subparagraph (D-20), a
9         qualified tuition program has made reasonable efforts
10         if it makes disclosures (which may use the term
11         "in-state program" or "in-state plan" and need not
12         specifically refer to Illinois or its qualified
13         programs by name) (i) directly to prospective
14         participants in its offering materials or makes a
15         public disclosure, such as a website posting; and (ii)
16         where applicable, to intermediaries selling the
17         out-of-state program in the same manner that the
18         out-of-state program distributes its offering
19         materials;
20             (D-21) For taxable years beginning on or after
21         January 1, 2006, in the case of transfer of moneys from
22         a qualified tuition program under Section 529 of the
23         Internal Revenue Code that is administered by the State
24         to an out-of-state program, an amount equal to the
25         amount of moneys previously deducted from base income
26         under subsection (a)(2)(Y) of this Section.
27     and by deducting from the total so obtained the sum of the
28     following amounts:
29             (E) For taxable years ending before December 31,
30         2001, any amount included in such total in respect of
31         any compensation (including but not limited to any
32         compensation paid or accrued to a serviceman while a
33         prisoner of war or missing in action) paid to a
34         resident by reason of being on active duty in the Armed
35         Forces of the United States and in respect of any
36         compensation paid or accrued to a resident who as a

 

 

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1         governmental employee was a prisoner of war or missing
2         in action, and in respect of any compensation paid to a
3         resident in 1971 or thereafter for annual training
4         performed pursuant to Sections 502 and 503, Title 32,
5         United States Code as a member of the Illinois National
6         Guard. For taxable years ending on or after December
7         31, 2001, any amount included in such total in respect
8         of 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 a member of any component
12         of the Armed Forces of the United States and in respect
13         of any compensation paid or accrued to a resident who
14         as a governmental employee was a prisoner of war or
15         missing in action, and in respect of any compensation
16         paid to a resident in 2001 or thereafter by reason of
17         being a member of the Illinois National Guard. The
18         provisions of this amendatory Act of the 92nd General
19         Assembly are exempt from the provisions of Section 250;
20             (F) An amount equal to all amounts included in such
21         total pursuant to the provisions of Sections 402(a),
22         402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the
23         Internal Revenue Code, or included in such total as
24         distributions under the provisions of any retirement
25         or disability plan for employees of any governmental
26         agency or unit, or retirement payments to retired
27         partners, which payments are excluded in computing net
28         earnings from self employment by Section 1402 of the
29         Internal Revenue Code and regulations adopted pursuant
30         thereto;
31             (G) The valuation limitation amount;
32             (H) An amount equal to the amount of any tax
33         imposed by this Act which was refunded to the taxpayer
34         and included in such total for the taxable year;
35             (I) An amount equal to all amounts included in such
36         total pursuant to the provisions of Section 111 of the

 

 

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1         Internal Revenue Code as a recovery of items previously
2         deducted from adjusted gross income in the computation
3         of taxable income;
4             (J) An amount equal to those dividends included in
5         such total which were paid by a corporation which
6         conducts business operations in an Enterprise Zone or
7         zones created under the Illinois Enterprise Zone Act,
8         and conducts substantially all of its operations in an
9         Enterprise Zone or zones;
10             (K) An amount equal to those dividends included in
11         such total that were paid by a corporation that
12         conducts business operations in a federally designated
13         Foreign Trade Zone or Sub-Zone and that is designated a
14         High Impact Business located in Illinois; provided
15         that dividends eligible for the deduction provided in
16         subparagraph (J) of paragraph (2) of this subsection
17         shall not be eligible for the deduction provided under
18         this subparagraph (K);
19             (L) For taxable years ending after December 31,
20         1983, an amount equal to all social security benefits
21         and railroad retirement benefits included in such
22         total pursuant to Sections 72(r) and 86 of the Internal
23         Revenue Code;
24             (M) With the exception of any amounts subtracted
25         under subparagraph (N), an amount equal to the sum of
26         all amounts disallowed as deductions by (i) Sections
27         171(a) (2), and 265(2) of the Internal Revenue Code of
28         1954, as now or hereafter amended, and all amounts of
29         expenses allocable to interest and disallowed as
30         deductions by Section 265(1) of the Internal Revenue
31         Code of 1954, as now or hereafter amended; and (ii) for
32         taxable years ending on or after August 13, 1999,
33         Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of
34         the Internal Revenue Code; the provisions of this
35         subparagraph are exempt from the provisions of Section
36         250;

 

 

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1             (N) An amount equal to all amounts included in such
2         total which are exempt from taxation by this State
3         either by reason of its statutes or Constitution or by
4         reason of the Constitution, treaties or statutes of the
5         United States; provided that, in the case of any
6         statute of this State that exempts income derived from
7         bonds or other obligations from the tax imposed under
8         this Act, the amount exempted shall be the interest net
9         of bond premium amortization;
10             (O) An amount equal to any contribution made to a
11         job training project established pursuant to the Tax
12         Increment Allocation Redevelopment Act;
13             (P) An amount equal to the amount of the deduction
14         used to compute the federal income tax credit for
15         restoration of substantial amounts held under claim of
16         right for the taxable year pursuant to Section 1341 of
17         the Internal Revenue Code of 1986;
18             (Q) An amount equal to any amounts included in such
19         total, received by the taxpayer as an acceleration in
20         the payment of life, endowment or annuity benefits in
21         advance of the time they would otherwise be payable as
22         an indemnity for a terminal illness;
23             (R) An amount equal to the amount of any federal or
24         State bonus paid to veterans of the Persian Gulf War;
25             (S) An amount, to the extent included in adjusted
26         gross income, equal to the amount of a contribution
27         made in the taxable year on behalf of the taxpayer to a
28         medical care savings account established under the
29         Medical Care Savings Account Act or the Medical Care
30         Savings Account Act of 2000 to the extent the
31         contribution is accepted by the account administrator
32         as provided in that Act;
33             (T) An amount, to the extent included in adjusted
34         gross income, equal to the amount of interest earned in
35         the taxable year on a medical care savings account
36         established under the Medical Care Savings Account Act

 

 

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1         or the Medical Care Savings Account Act of 2000 on
2         behalf of the taxpayer, other than interest added
3         pursuant to item (D-5) of this paragraph (2);
4             (U) For one taxable year beginning on or after
5         January 1, 1994, an amount equal to the total amount of
6         tax imposed and paid under subsections (a) and (b) of
7         Section 201 of this Act on grant amounts received by
8         the taxpayer under the Nursing Home Grant Assistance
9         Act during the taxpayer's taxable years 1992 and 1993;
10             (V) Beginning with tax years ending on or after
11         December 31, 1995 and ending with tax years ending on
12         or before December 31, 2004, an amount equal to the
13         amount paid by a taxpayer who is a self-employed
14         taxpayer, a partner of a partnership, or a shareholder
15         in a Subchapter S corporation for health insurance or
16         long-term care insurance for that taxpayer or that
17         taxpayer's spouse or dependents, to the extent that the
18         amount paid for that health insurance or long-term care
19         insurance may be deducted under Section 213 of the
20         Internal Revenue Code of 1986, has not been deducted on
21         the federal income tax return of the taxpayer, and does
22         not exceed the taxable income attributable to that
23         taxpayer's income, self-employment income, or
24         Subchapter S corporation income; except that no
25         deduction shall be allowed under this item (V) if the
26         taxpayer is eligible to participate in any health
27         insurance or long-term care insurance plan of an
28         employer of the taxpayer or the taxpayer's spouse. The
29         amount of the health insurance and long-term care
30         insurance subtracted under this item (V) shall be
31         determined by multiplying total health insurance and
32         long-term care insurance premiums paid by the taxpayer
33         times a number that represents the fractional
34         percentage of eligible medical expenses under Section
35         213 of the Internal Revenue Code of 1986 not actually
36         deducted on the taxpayer's federal income tax return;

 

 

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1             (W) For taxable years beginning on or after January
2         1, 1998, all amounts included in the taxpayer's federal
3         gross income in the taxable year from amounts converted
4         from a regular IRA to a Roth IRA. This paragraph is
5         exempt from the provisions of Section 250;
6             (X) For taxable year 1999 and thereafter, an amount
7         equal to the amount of any (i) distributions, to the
8         extent includible in gross income for federal income
9         tax purposes, made to the taxpayer because of his or
10         her status as a victim of persecution for racial or
11         religious reasons by Nazi Germany or any other Axis
12         regime or as an heir of the victim and (ii) items of
13         income, to the extent includible in gross income for
14         federal income tax purposes, attributable to, derived
15         from or in any way related to assets stolen from,
16         hidden from, or otherwise lost to a victim of
17         persecution for racial or religious reasons by Nazi
18         Germany or any other Axis regime immediately prior to,
19         during, and immediately after World War II, including,
20         but not limited to, interest on the proceeds receivable
21         as insurance under policies issued to a victim of
22         persecution for racial or religious reasons by Nazi
23         Germany or any other Axis regime by European insurance
24         companies immediately prior to and during World War II;
25         provided, however, this subtraction from federal
26         adjusted gross income does not apply to assets acquired
27         with such assets or with the proceeds from the sale of
28         such assets; provided, further, this paragraph shall
29         only apply to a taxpayer who was the first recipient of
30         such assets after their recovery and who is a victim of
31         persecution for racial or religious reasons by Nazi
32         Germany or any other Axis regime or as an heir of the
33         victim. The amount of and the eligibility for any
34         public assistance, benefit, or similar entitlement is
35         not affected by the inclusion of items (i) and (ii) of
36         this paragraph in gross income for federal income tax

 

 

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1         purposes. This paragraph is exempt from the provisions
2         of Section 250;
3             (Y) For taxable years beginning on or after January
4         1, 2002 and ending on or before December 31, 2004,
5         moneys contributed in the taxable year to a College
6         Savings Pool account under Section 16.5 of the State
7         Treasurer Act, except that amounts excluded from gross
8         income under Section 529(c)(3)(C)(i) of the Internal
9         Revenue Code shall not be considered moneys
10         contributed under this subparagraph (Y). For taxable
11         years beginning on or after January 1, 2005, a maximum
12         of $10,000 contributed in the taxable year to (i) a
13         College Savings Pool account under Section 16.5 of the
14         State Treasurer Act or (ii) the Illinois Prepaid
15         Tuition Trust Fund, except that amounts excluded from
16         gross income under Section 529(c)(3)(C)(i) of the
17         Internal Revenue Code shall not be considered moneys
18         contributed under this subparagraph (Y). This
19         subparagraph (Y) is exempt from the provisions of
20         Section 250;
21             (Z) For taxable years 2001 and thereafter, for the
22         taxable year in which the bonus depreciation deduction
23         (30% of the adjusted basis of the qualified property)
24         is taken on the taxpayer's federal income tax return
25         under subsection (k) of Section 168 of the Internal
26         Revenue Code and for each applicable taxable year
27         thereafter, an amount equal to "x", where:
28                 (1) "y" equals the amount of the depreciation
29             deduction taken for the taxable year on the
30             taxpayer's federal income tax return on property
31             for which the bonus depreciation deduction (30% of
32             the adjusted basis of the qualified property) was
33             taken in any year under subsection (k) of Section
34             168 of the Internal Revenue Code, but not including
35             the bonus depreciation deduction; and
36                 (2) "x" equals "y" multiplied by 30 and then

 

 

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

 

 

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1         addition modification;
2             (DD) An amount equal to the interest income taken
3         into account for the taxable year (net of the
4         deductions allocable thereto) with respect to
5         transactions with a foreign person who would be a
6         member of the taxpayer's unitary business group but for
7         the fact that the foreign person's business activity
8         outside the United States is 80% or more of that
9         person's total business activity, but not to exceed the
10         addition modification required to be made for the same
11         taxable year under Section 203(a)(2)(D-17) for
12         interest paid, accrued, or incurred, directly or
13         indirectly, to the same foreign person; and
14             (EE) An amount equal to the income from intangible
15         property taken into account for the taxable year (net
16         of the deductions allocable thereto) with respect to
17         transactions with a foreign person who would be a
18         member of the taxpayer's unitary business group but for
19         the fact that the foreign person's business activity
20         outside the United States is 80% or more of that
21         person's total business activity, but not to exceed the
22         addition modification required to be made for the same
23         taxable year under Section 203(a)(2)(D-18) for
24         intangible expenses and costs paid, accrued, or
25         incurred, directly or indirectly, to the same foreign
26         person.
 
27     (b) Corporations.
28         (1) In general. In the case of a corporation, base
29     income means an amount equal to the taxpayer's taxable
30     income for the taxable year as modified by paragraph (2).
31         (2) Modifications. The taxable income referred to in
32     paragraph (1) shall be modified by adding thereto the sum
33     of the following amounts:
34             (A) An amount equal to all amounts paid or accrued
35         to the taxpayer as interest and all distributions

 

 

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1         received from regulated investment companies during
2         the taxable year to the extent excluded from gross
3         income in the computation of taxable income;
4             (B) An amount equal to the amount of tax imposed by
5         this Act to the extent deducted from gross income in
6         the computation of taxable income for the taxable year;
7             (C) In the case of a regulated investment company,
8         an amount equal to the excess of (i) the net long-term
9         capital gain for the taxable year, over (ii) the amount
10         of the capital gain dividends designated as such in
11         accordance with Section 852(b)(3)(C) of the Internal
12         Revenue Code and any amount designated under Section
13         852(b)(3)(D) of the Internal Revenue Code,
14         attributable to the taxable year (this amendatory Act
15         of 1995 (Public Act 89-89) is declarative of existing
16         law and is not a new enactment);
17             (D) The amount of any net operating loss deduction
18         taken in arriving at taxable income, other than a net
19         operating loss carried forward from a taxable year
20         ending prior to December 31, 1986;
21             (E) For taxable years in which a net operating loss
22         carryback or carryforward from a taxable year ending
23         prior to December 31, 1986 is an element of taxable
24         income under paragraph (1) of subsection (e) or
25         subparagraph (E) of paragraph (2) of subsection (e),
26         the amount by which addition modifications other than
27         those provided by this subparagraph (E) exceeded
28         subtraction modifications in such earlier taxable
29         year, with the following limitations applied in the
30         order that they are listed:
31                 (i) the addition modification relating to the
32             net operating loss carried back or forward to the
33             taxable year from any taxable year ending prior to
34             December 31, 1986 shall be reduced by the amount of
35             addition modification under this subparagraph (E)
36             which related to that net operating loss and which

 

 

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1             was taken into account in calculating the base
2             income of an earlier taxable year, and
3                 (ii) the addition modification relating to the
4             net operating loss carried back or forward to the
5             taxable year from any taxable year ending prior to
6             December 31, 1986 shall not exceed the amount of
7             such carryback or carryforward;
8             For taxable years in which there is a net operating
9         loss carryback or carryforward from more than one other
10         taxable year ending prior to December 31, 1986, the
11         addition modification provided in this subparagraph
12         (E) shall be the sum of the amounts computed
13         independently under the preceding provisions of this
14         subparagraph (E) for each such taxable year;
15             (E-5) For taxable years ending after December 31,
16         1997, an amount equal to any eligible remediation costs
17         that the corporation deducted in computing adjusted
18         gross income and for which the corporation claims a
19         credit under subsection (l) of Section 201;
20             (E-10) For taxable years 2001 and thereafter, an
21         amount equal to the bonus depreciation deduction (30%
22         of the adjusted basis of the qualified property) taken
23         on the taxpayer's federal income tax return for the
24         taxable year under subsection (k) of Section 168 of the
25         Internal Revenue Code; and
26             (E-11) If the taxpayer reports a capital gain or
27         loss on the taxpayer's federal income tax return for
28         the taxable year based on a sale or transfer of
29         property for which the taxpayer was required in any
30         taxable year to make an addition modification under
31         subparagraph (E-10), then an amount equal to the
32         aggregate amount of the deductions taken in all taxable
33         years under subparagraph (T) with respect to that
34         property.
35             The taxpayer is required to make the addition
36         modification under this subparagraph only once with

 

 

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1         respect to any one piece of property;
2             (E-12) For taxable years ending on or after
3         December 31, 2004, an amount equal to the amount
4         otherwise allowed as a deduction in computing base
5         income for interest paid, accrued, or incurred,
6         directly or indirectly, to a foreign person who would
7         be a member of the same unitary business group but for
8         the fact the foreign person's business activity
9         outside the United States is 80% or more of the foreign
10         person's total business activity. The addition
11         modification required by this subparagraph shall be
12         reduced to the extent that dividends were included in
13         base income of the unitary group for the same taxable
14         year and received by the taxpayer or by a member of the
15         taxpayer's unitary business group (including amounts
16         included in gross income pursuant to Sections 951
17         through 964 of the Internal Revenue Code and amounts
18         included in gross income under Section 78 of the
19         Internal Revenue Code) with respect to the stock of the
20         same person to whom the interest was paid, accrued, or
21         incurred.
22             This paragraph shall not apply to the following:
23                 (i) an item of interest paid, accrued, or
24             incurred, directly or indirectly, to a foreign
25             person who is subject in a foreign country or
26             state, other than a state which requires mandatory
27             unitary reporting, to a tax on or measured by net
28             income with respect to such interest; or
29                 (ii) an item of interest paid, accrued, or
30             incurred, directly or indirectly, to a foreign
31             person if the taxpayer can establish, based on a
32             preponderance of the evidence, both of the
33             following:
34                     (a) the foreign person, during the same
35                 taxable year, paid, accrued, or incurred, the
36                 interest to a person that is not a related

 

 

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

 

 

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1         foreign person who would be a member of the same
2         unitary business group but for the fact that the
3         foreign person's business activity outside the United
4         States is 80% or more of that person's total business
5         activity. The addition modification required by this
6         subparagraph shall be reduced to the extent that
7         dividends were included in base income of the unitary
8         group for the same taxable year and received by the
9         taxpayer or by a member of the taxpayer's unitary
10         business group (including amounts included in gross
11         income pursuant to Sections 951 through 964 of the
12         Internal Revenue Code and amounts included in gross
13         income under Section 78 of the Internal Revenue Code)
14         with respect to the stock of the same person to whom
15         the intangible expenses and costs were directly or
16         indirectly paid, incurred, or accrued. The preceding
17         sentence shall not apply to the extent that the same
18         dividends caused a reduction to the addition
19         modification required under Section 203(b)(2)(E-12) of
20         this Act. As used in this subparagraph, the term
21         "intangible expenses and costs" includes (1) expenses,
22         losses, and costs for, or related to, the direct or
23         indirect acquisition, use, maintenance or management,
24         ownership, sale, exchange, or any other disposition of
25         intangible property; (2) losses incurred, directly or
26         indirectly, from factoring transactions or discounting
27         transactions; (3) royalty, patent, technical, and
28         copyright fees; (4) licensing fees; and (5) other
29         similar expenses and costs. For purposes of this
30         subparagraph, "intangible property" includes patents,
31         patent applications, trade names, trademarks, service
32         marks, copyrights, mask works, trade secrets, and
33         similar types of intangible assets.
34             This paragraph shall not apply to the following:
35                 (i) any item of intangible expenses or costs
36             paid, accrued, or incurred, directly or

 

 

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

 

 

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1             and such regulations provide methods and standards
2             by which the Department will utilize its authority
3             under Section 404 of this Act;
4     and by deducting from the total so obtained the sum of the
5     following amounts:
6             (F) An amount equal to the amount of any tax
7         imposed by this Act which was refunded to the taxpayer
8         and included in such total for the taxable year;
9             (G) An amount equal to any amount included in such
10         total under Section 78 of the Internal Revenue Code;
11             (H) In the case of a regulated investment company,
12         an amount equal to the amount of exempt interest
13         dividends as defined in subsection (b) (5) of Section
14         852 of the Internal Revenue Code, paid to shareholders
15         for the taxable year;
16             (I) With the exception of any amounts subtracted
17         under subparagraph (J), an amount equal to the sum of
18         all amounts disallowed as deductions by (i) Sections
19         171(a) (2), and 265(a)(2) and amounts disallowed as
20         interest expense by Section 291(a)(3) of the Internal
21         Revenue Code, as now or hereafter amended, and all
22         amounts of expenses allocable to interest and
23         disallowed as deductions by Section 265(a)(1) of the
24         Internal Revenue Code, as now or hereafter amended; and
25         (ii) for taxable years ending on or after August 13,
26         1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and
27         832(b)(5)(B)(i) of the Internal Revenue Code; the
28         provisions of this subparagraph are exempt from the
29         provisions of Section 250;
30             (J) An amount equal to all amounts included in such
31         total which are exempt from taxation by this State
32         either by reason of its statutes or Constitution or by
33         reason of the Constitution, treaties or statutes of the
34         United States; provided that, in the case of any
35         statute of this State that exempts income derived from
36         bonds or other obligations from the tax imposed under

 

 

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1         this Act, the amount exempted shall be the interest net
2         of bond premium amortization;
3             (K) An amount equal to those dividends included in
4         such total which were paid by a corporation which
5         conducts business operations in an Enterprise Zone or
6         zones created under the Illinois Enterprise Zone Act
7         and conducts substantially all of its operations in an
8         Enterprise Zone or zones;
9             (L) 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 (K) of paragraph 2 of this subsection
16         shall not be eligible for the deduction provided under
17         this subparagraph (L);
18             (M) For any taxpayer that is a financial
19         organization within the meaning of Section 304(c) of
20         this Act, an amount included in such total as interest
21         income from a loan or loans made by such taxpayer to a
22         borrower, to the extent that such a loan is secured by
23         property which is eligible for the Enterprise Zone
24         Investment Credit. To determine the portion of a loan
25         or loans that is secured by property eligible for a
26         Section 201(f) investment credit to the borrower, the
27         entire principal amount of the loan or loans between
28         the taxpayer and the borrower should be divided into
29         the basis of the Section 201(f) investment credit
30         property which secures the loan or loans, using for
31         this purpose the original basis of such property on the
32         date that it was placed in service in the Enterprise
33         Zone. The subtraction modification available to
34         taxpayer in any year under this subsection shall be
35         that portion of the total interest paid by the borrower
36         with respect to such loan attributable to the eligible

 

 

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1         property as calculated under the previous sentence;
2             (M-1) For any taxpayer that is a financial
3         organization within the meaning of Section 304(c) of
4         this Act, an amount included in such total as interest
5         income from a loan or loans made by such taxpayer to a
6         borrower, to the extent that such a loan is secured by
7         property which is eligible for the High Impact Business
8         Investment Credit. To determine the portion of a loan
9         or loans that is secured by property eligible for a
10         Section 201(h) investment credit to the borrower, the
11         entire principal amount of the loan or loans between
12         the taxpayer and the borrower should be divided into
13         the basis of the Section 201(h) investment credit
14         property which secures the loan or loans, using for
15         this purpose the original basis of such property on the
16         date that it was placed in service in a federally
17         designated Foreign Trade Zone or Sub-Zone located in
18         Illinois. No taxpayer that is eligible for the
19         deduction provided in subparagraph (M) of paragraph
20         (2) of this subsection shall be eligible for the
21         deduction provided under this subparagraph (M-1). The
22         subtraction modification available to taxpayers in any
23         year under this subsection shall be that portion of the
24         total interest paid by the borrower with respect to
25         such loan attributable to the eligible property as
26         calculated under the previous sentence;
27             (N) Two times any contribution made during the
28         taxable year to a designated zone organization to the
29         extent that the contribution (i) qualifies as a
30         charitable contribution under subsection (c) of
31         Section 170 of the Internal Revenue Code and (ii) must,
32         by its terms, be used for a project approved by the
33         Department of Commerce and Economic Opportunity under
34         Section 11 of the Illinois Enterprise Zone Act;
35             (O) An amount equal to: (i) 85% for taxable years
36         ending on or before December 31, 1992, or, a percentage

 

 

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1         equal to the percentage allowable under Section
2         243(a)(1) of the Internal Revenue Code of 1986 for
3         taxable years ending after December 31, 1992, of the
4         amount by which dividends included in taxable income
5         and received from a corporation that is not created or
6         organized under the laws of the United States or any
7         state or political subdivision thereof, including, for
8         taxable years ending on or after December 31, 1988,
9         dividends received or deemed received or paid or deemed
10         paid under Sections 951 through 964 of the Internal
11         Revenue Code, exceed the amount of the modification
12         provided under subparagraph (G) of paragraph (2) of
13         this subsection (b) which is related to such dividends;
14         plus (ii) 100% of the amount by which dividends,
15         included in taxable income and received, including,
16         for taxable years ending on or after December 31, 1988,
17         dividends received or deemed received or paid or deemed
18         paid under Sections 951 through 964 of the Internal
19         Revenue Code, from any such corporation specified in
20         clause (i) that would but for the provisions of Section
21         1504 (b) (3) of the Internal Revenue Code be treated as
22         a member of the affiliated group which includes the
23         dividend recipient, exceed the amount of the
24         modification provided under subparagraph (G) of
25         paragraph (2) of this subsection (b) which is related
26         to such dividends;
27             (P) An amount equal to any contribution made to a
28         job training project established pursuant to the Tax
29         Increment Allocation Redevelopment Act;
30             (Q) An amount equal to the amount of the deduction
31         used to compute the federal income tax credit for
32         restoration of substantial amounts held under claim of
33         right for the taxable year pursuant to Section 1341 of
34         the Internal Revenue Code of 1986;
35             (R) In the case of an attorney-in-fact with respect
36         to whom an interinsurer or a reciprocal insurer has

 

 

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1         made the election under Section 835 of the Internal
2         Revenue Code, 26 U.S.C. 835, an amount equal to the
3         excess, if any, of the amounts paid or incurred by that
4         interinsurer or reciprocal insurer in the taxable year
5         to the attorney-in-fact over the deduction allowed to
6         that interinsurer or reciprocal insurer with respect
7         to the attorney-in-fact under Section 835(b) of the
8         Internal Revenue Code for the taxable year;
9             (S) For taxable years ending on or after December
10         31, 1997, in the case of a Subchapter S corporation, an
11         amount equal to all amounts of income allocable to a
12         shareholder subject to the Personal Property Tax
13         Replacement Income Tax imposed by subsections (c) and
14         (d) of Section 201 of this Act, including amounts
15         allocable to organizations exempt from federal income
16         tax by reason of Section 501(a) of the Internal Revenue
17         Code. This subparagraph (S) is exempt from the
18         provisions of Section 250;
19             (T) For taxable years 2001 and thereafter, for the
20         taxable year in which the bonus depreciation deduction
21         (30% of the adjusted basis of the qualified property)
22         is taken on the taxpayer's federal income tax return
23         under subsection (k) of Section 168 of the Internal
24         Revenue Code and for each applicable taxable year
25         thereafter, an amount equal to "x", where:
26                 (1) "y" equals the amount of the depreciation
27             deduction taken for the taxable year on the
28             taxpayer's federal income tax return on property
29             for which the bonus depreciation deduction (30% of
30             the adjusted basis of the qualified property) was
31             taken in any year under subsection (k) of Section
32             168 of the Internal Revenue Code, but not including
33             the bonus depreciation deduction; and
34                 (2) "x" equals "y" multiplied by 30 and then
35             divided by 70 (or "y" multiplied by 0.429).
36             The aggregate amount deducted under this

 

 

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

 

 

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1         member of the taxpayer's unitary business group but for
2         the fact that the foreign person's business activity
3         outside the United States is 80% or more of that
4         person's total business activity, but not to exceed the
5         addition modification required to be made for the same
6         taxable year under Section 203(b)(2)(E-12) for
7         interest paid, accrued, or incurred, directly or
8         indirectly, to the same foreign person; and
9             (X) An amount equal to the income from intangible
10         property taken into account for the taxable year (net
11         of the deductions allocable thereto) with respect to
12         transactions with a foreign person who would be a
13         member of the taxpayer's unitary business group but for
14         the fact that the foreign person's business activity
15         outside the United States is 80% or more of that
16         person's total business activity, but not to exceed the
17         addition modification required to be made for the same
18         taxable year under Section 203(b)(2)(E-13) for
19         intangible expenses and costs paid, accrued, or
20         incurred, directly or indirectly, to the same foreign
21         person.
22         (3) Special rule. For purposes of paragraph (2) (A),
23     "gross income" in the case of a life insurance company, for
24     tax years ending on and after December 31, 1994, shall mean
25     the gross investment income for the taxable year.
 
26     (c) Trusts and estates.
27         (1) In general. In the case of a trust or estate, base
28     income means an amount equal to the taxpayer's taxable
29     income for the taxable year as modified by paragraph (2).
30         (2) Modifications. Subject to the provisions of
31     paragraph (3), the taxable income referred to in paragraph
32     (1) shall be modified by adding thereto the sum of the
33     following amounts:
34             (A) An amount equal to all amounts paid or accrued
35         to the taxpayer as interest or dividends during the

 

 

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1         taxable year to the extent excluded from gross income
2         in the computation of taxable income;
3             (B) In the case of (i) an estate, $600; (ii) a
4         trust which, under its governing instrument, is
5         required to distribute all of its income currently,
6         $300; and (iii) any other trust, $100, but in each such
7         case, only to the extent such amount was deducted in
8         the computation of taxable income;
9             (C) An amount equal to the amount of tax imposed by
10         this Act to the extent deducted from gross income in
11         the computation of taxable income for the taxable year;
12             (D) The amount of any net operating loss deduction
13         taken in arriving at taxable income, other than a net
14         operating loss carried forward from a taxable year
15         ending prior to December 31, 1986;
16             (E) For taxable years in which a net operating loss
17         carryback or carryforward from a taxable year ending
18         prior to December 31, 1986 is an element of taxable
19         income under paragraph (1) of subsection (e) or
20         subparagraph (E) of paragraph (2) of subsection (e),
21         the amount by which addition modifications other than
22         those provided by this subparagraph (E) exceeded
23         subtraction modifications in such taxable year, with
24         the following limitations applied in the order that
25         they are listed:
26                 (i) the addition modification relating to the
27             net operating loss carried back or forward to the
28             taxable year from any taxable year ending prior to
29             December 31, 1986 shall be reduced by the amount of
30             addition modification under this subparagraph (E)
31             which related to that net operating loss and which
32             was taken into account in calculating the base
33             income of an earlier taxable year, and
34                 (ii) the addition modification relating to the
35             net operating loss carried back or forward to the
36             taxable year from any taxable year ending prior to

 

 

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1             December 31, 1986 shall not exceed the amount of
2             such carryback or carryforward;
3             For taxable years in which there is a net operating
4         loss carryback or carryforward from more than one other
5         taxable year ending prior to December 31, 1986, the
6         addition modification provided in this subparagraph
7         (E) shall be the sum of the amounts computed
8         independently under the preceding provisions of this
9         subparagraph (E) for each such taxable year;
10             (F) For taxable years ending on or after January 1,
11         1989, an amount equal to the tax deducted pursuant to
12         Section 164 of the Internal Revenue Code if the trust
13         or estate is claiming the same tax for purposes of the
14         Illinois foreign tax credit under Section 601 of this
15         Act;
16             (G) An amount equal to the amount of the capital
17         gain deduction allowable under the Internal Revenue
18         Code, to the extent deducted from gross income in the
19         computation of taxable income;
20             (G-5) For taxable years ending after December 31,
21         1997, an amount equal to any eligible remediation costs
22         that the trust or estate deducted in computing adjusted
23         gross income and for which the trust or estate claims a
24         credit under subsection (l) of Section 201;
25             (G-10) For taxable years 2001 and thereafter, an
26         amount equal to the bonus depreciation deduction (30%
27         of the adjusted basis of the qualified property) taken
28         on the taxpayer's federal income tax return for the
29         taxable year under subsection (k) of Section 168 of the
30         Internal Revenue Code; and
31             (G-11) If the taxpayer reports a capital gain or
32         loss on the taxpayer's federal income tax return for
33         the taxable year based on a sale or transfer of
34         property for which the taxpayer was required in any
35         taxable year to make an addition modification under
36         subparagraph (G-10), then an amount equal to the

 

 

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

 

 

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

 

 

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1             (G-13) For taxable years ending on or after
2         December 31, 2004, an amount equal to the amount of
3         intangible expenses and costs otherwise allowed as a
4         deduction in computing base income, and that were paid,
5         accrued, or incurred, directly or indirectly, to a
6         foreign person who would be a member of the same
7         unitary business group but for the fact that the
8         foreign person's business activity outside the United
9         States is 80% or more of that person's total business
10         activity. The addition modification required by this
11         subparagraph shall be reduced to the extent that
12         dividends were included in base income of the unitary
13         group for the same taxable year and received by the
14         taxpayer or by a member of the taxpayer's unitary
15         business group (including amounts included in gross
16         income pursuant to Sections 951 through 964 of the
17         Internal Revenue Code and amounts included in gross
18         income under Section 78 of the Internal Revenue Code)
19         with respect to the stock of the same person to whom
20         the intangible expenses and costs were directly or
21         indirectly paid, incurred, or accrued. The preceding
22         sentence shall not apply to the extent that the same
23         dividends caused a reduction to the addition
24         modification required under Section 203(c)(2)(G-12) of
25         this Act. As used in this subparagraph, the term
26         "intangible expenses and costs" includes: (1)
27         expenses, losses, and costs for or related to the
28         direct or indirect acquisition, use, maintenance or
29         management, ownership, sale, exchange, or any other
30         disposition of intangible property; (2) losses
31         incurred, directly or indirectly, from factoring
32         transactions or discounting transactions; (3) royalty,
33         patent, technical, and copyright fees; (4) licensing
34         fees; and (5) other similar expenses and costs. For
35         purposes of this subparagraph, "intangible property"
36         includes patents, patent applications, trade names,

 

 

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1         trademarks, service marks, copyrights, mask works,
2         trade secrets, and similar types of intangible assets.
3             This paragraph shall not apply to the following:
4                 (i) any item of intangible expenses or costs
5             paid, accrued, or incurred, directly or
6             indirectly, from a transaction with a foreign
7             person who is subject in a foreign country or
8             state, other than a state which requires mandatory
9             unitary reporting, to a tax on or measured by net
10             income with respect to such item; or
11                 (ii) any item of intangible expense or cost
12             paid, accrued, or incurred, directly or
13             indirectly, if the taxpayer can establish, based
14             on a preponderance of the evidence, both of the
15             following:
16                     (a) the foreign person during the same
17                 taxable year paid, accrued, or incurred, the
18                 intangible expense or cost to a person that is
19                 not a related member, and
20                     (b) the transaction giving rise to the
21                 intangible expense or cost between the
22                 taxpayer and the foreign person did not have as
23                 a principal purpose the avoidance of Illinois
24                 income tax, and is paid pursuant to a contract
25                 or agreement that reflects arm's-length terms;
26                 or
27                 (iii) any item of intangible expense or cost
28             paid, accrued, or incurred, directly or
29             indirectly, from a transaction with a foreign
30             person if the taxpayer establishes by clear and
31             convincing evidence, that the adjustments are
32             unreasonable; or if the taxpayer and the Director
33             agree in writing to the application or use of an
34             alternative method of apportionment under Section
35             304(f);
36                 Nothing in this subsection shall preclude the

 

 

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1             Director from making any other adjustment
2             otherwise allowed under Section 404 of this Act for
3             any tax year beginning after the effective date of
4             this amendment provided such adjustment is made
5             pursuant to regulation adopted by the Department
6             and such regulations provide methods and standards
7             by which the Department will utilize its authority
8             under Section 404 of this Act;
9     and by deducting from the total so obtained the sum of the
10     following amounts:
11             (H) An amount equal to all amounts included in such
12         total pursuant to the provisions of Sections 402(a),
13         402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the
14         Internal Revenue Code or included in such total as
15         distributions under the provisions of any retirement
16         or disability plan for employees of any governmental
17         agency or unit, or retirement payments to retired
18         partners, which payments are excluded in computing net
19         earnings from self employment by Section 1402 of the
20         Internal Revenue Code and regulations adopted pursuant
21         thereto;
22             (I) The valuation limitation amount;
23             (J) An amount equal to the amount of any tax
24         imposed by this Act which was refunded to the taxpayer
25         and included in such total for the taxable year;
26             (K) An amount equal to all amounts included in
27         taxable income as modified by subparagraphs (A), (B),
28         (C), (D), (E), (F) and (G) which are exempt from
29         taxation by this State either by reason of its statutes
30         or Constitution or by reason of the Constitution,
31         treaties or statutes of the United States; provided
32         that, in the case of any statute of this State that
33         exempts income derived from bonds or other obligations
34         from the tax imposed under this Act, the amount
35         exempted shall be the interest net of bond premium
36         amortization;

 

 

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1             (L) With the exception of any amounts subtracted
2         under subparagraph (K), an amount equal to the sum of
3         all amounts disallowed as deductions by (i) Sections
4         171(a) (2) and 265(a)(2) of the Internal Revenue Code,
5         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             (M) An amount equal to those dividends included in
15         such total which were paid by a corporation which
16         conducts business operations in an Enterprise Zone or
17         zones created under the Illinois Enterprise Zone Act
18         and conducts substantially all of its operations in an
19         Enterprise Zone or Zones;
20             (N) An amount equal to any contribution made to a
21         job training project established pursuant to the Tax
22         Increment Allocation Redevelopment Act;
23             (O) 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 (M) of paragraph (2) of this subsection
30         shall not be eligible for the deduction provided under
31         this subparagraph (O);
32             (P) An amount equal to the amount of the deduction
33         used to compute the federal income tax credit for
34         restoration of substantial amounts held under claim of
35         right for the taxable year pursuant to Section 1341 of
36         the Internal Revenue Code of 1986;

 

 

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1             (Q) For taxable year 1999 and thereafter, an amount
2         equal to the amount of any (i) distributions, to the
3         extent includible in gross income for federal income
4         tax purposes, made to the taxpayer because of his or
5         her status as a victim of persecution for racial or
6         religious reasons by Nazi Germany or any other Axis
7         regime or as an heir of the victim and (ii) items of
8         income, to the extent includible in gross income for
9         federal income tax purposes, attributable to, derived
10         from or in any way related to assets stolen from,
11         hidden from, or otherwise lost to a victim of
12         persecution for racial or religious reasons by Nazi
13         Germany or any other Axis regime immediately prior to,
14         during, and immediately after World War II, including,
15         but not limited to, interest on the proceeds receivable
16         as insurance under policies issued to a victim of
17         persecution for racial or religious reasons by Nazi
18         Germany or any other Axis regime by European insurance
19         companies immediately prior to and during World War II;
20         provided, however, this subtraction from federal
21         adjusted gross income does not apply to assets acquired
22         with such assets or with the proceeds from the sale of
23         such assets; provided, further, this paragraph shall
24         only apply to a taxpayer who was the first recipient of
25         such assets after their recovery and who is a victim of
26         persecution for racial or religious reasons by Nazi
27         Germany or any other Axis regime or as an heir of the
28         victim. The amount of and the eligibility for any
29         public assistance, benefit, or similar entitlement is
30         not affected by the inclusion of items (i) and (ii) of
31         this paragraph in gross income for federal income tax
32         purposes. This paragraph is exempt from the provisions
33         of Section 250;
34             (R) 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             (S) 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         (G-10), 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             (T) The amount of (i) any interest income (net of
33         the deductions allocable thereto) taken into account
34         for the taxable year with respect to a transaction with
35         a taxpayer that is required to make an addition
36         modification with respect to such transaction under

 

 

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

 

 

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1         (3) Limitation. The amount of any modification
2     otherwise required under this subsection shall, under
3     regulations prescribed by the Department, be adjusted by
4     any amounts included therein which were properly paid,
5     credited, or required to be distributed, or permanently set
6     aside for charitable purposes pursuant to Internal Revenue
7     Code Section 642(c) during the taxable year.
 
8     (d) Partnerships.
9         (1) In general. In the case of a partnership, base
10     income means an amount equal to the taxpayer's taxable
11     income for the taxable year as modified by paragraph (2).
12         (2) Modifications. The taxable income referred to in
13     paragraph (1) shall be modified by adding thereto the sum
14     of the following amounts:
15             (A) An amount equal to all amounts paid or accrued
16         to the taxpayer as interest or dividends during the
17         taxable year to the extent excluded from gross income
18         in the computation of taxable income;
19             (B) An amount equal to the amount of tax imposed by
20         this Act to the extent deducted from gross income for
21         the taxable year;
22             (C) The amount of deductions allowed to the
23         partnership pursuant to Section 707 (c) of the Internal
24         Revenue Code in calculating its taxable income;
25             (D) An amount equal to the amount of the capital
26         gain deduction allowable under the Internal Revenue
27         Code, to the extent deducted from gross income in the
28         computation of taxable income;
29             (D-5) For taxable years 2001 and thereafter, an
30         amount equal to the bonus depreciation deduction (30%
31         of the adjusted basis of the qualified property) taken
32         on the taxpayer's federal income tax return for the
33         taxable year under subsection (k) of Section 168 of the
34         Internal Revenue Code;
35             (D-6) If the taxpayer reports a capital gain or

 

 

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

 

 

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

 

 

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

 

 

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1         (4) licensing fees; and (5) other similar expenses and
2         costs. For purposes of this subparagraph, "intangible
3         property" includes patents, patent applications, trade
4         names, trademarks, service marks, copyrights, mask
5         works, trade secrets, and similar types of intangible
6         assets;
7             This paragraph shall not apply to the following:
8                 (i) any item of intangible expenses or costs
9             paid, accrued, or incurred, directly or
10             indirectly, from a transaction with 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 item; or
15                 (ii) any item of intangible expense or cost
16             paid, accrued, or incurred, directly or
17             indirectly, if the taxpayer can establish, based
18             on a 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                 intangible expense or cost to a person that is
23                 not a related member, and
24                     (b) the transaction giving rise to the
25                 intangible expense or cost between the
26                 taxpayer and the foreign person did not have as
27                 a principal purpose the avoidance of Illinois
28                 income tax, and is paid pursuant to a contract
29                 or agreement that reflects arm's-length terms;
30                 or
31                 (iii) any item of intangible expense or cost
32             paid, accrued, or incurred, directly or
33             indirectly, from a transaction with a foreign
34             person if the taxpayer establishes by clear and
35             convincing evidence, that the adjustments are
36             unreasonable; or if the taxpayer and the Director

 

 

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1             agree in writing to the application or use of an
2             alternative method of apportionment under Section
3             304(f);
4                 Nothing in this subsection shall preclude the
5             Director from making any other adjustment
6             otherwise allowed under Section 404 of this Act for
7             any tax year beginning after the effective date of
8             this amendment provided such adjustment is made
9             pursuant to regulation adopted by the Department
10             and such regulations provide methods and standards
11             by which the Department will utilize its authority
12             under Section 404 of this Act;
13     and by deducting from the total so obtained the following
14     amounts:
15             (E) The valuation limitation amount;
16             (F) An amount equal to the amount of any tax
17         imposed by this Act which was refunded to the taxpayer
18         and included in such total for the taxable year;
19             (G) An amount equal to all amounts included in
20         taxable income as modified by subparagraphs (A), (B),
21         (C) and (D) which are exempt from taxation by this
22         State either by reason of its statutes or Constitution
23         or by reason of the Constitution, treaties or statutes
24         of the United States; provided that, in the case of any
25         statute of this State that exempts income derived from
26         bonds or other obligations from the tax imposed under
27         this Act, the amount exempted shall be the interest net
28         of bond premium amortization;
29             (H) Any income of the partnership which
30         constitutes personal service income as defined in
31         Section 1348 (b) (1) of the Internal Revenue Code (as
32         in effect December 31, 1981) or a reasonable allowance
33         for compensation paid or accrued for services rendered
34         by partners to the partnership, whichever is greater;
35             (I) An amount equal to all amounts of income
36         distributable to an entity subject to the Personal

 

 

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1         Property Tax Replacement Income Tax imposed by
2         subsections (c) and (d) of Section 201 of this Act
3         including amounts distributable to organizations
4         exempt from federal income tax by reason of Section
5         501(a) of the Internal Revenue Code;
6             (J) With the exception of any amounts subtracted
7         under subparagraph (G), an amount equal to the sum of
8         all amounts disallowed as deductions by (i) Sections
9         171(a) (2), and 265(2) of the Internal Revenue Code of
10         1954, as now or hereafter amended, and all amounts of
11         expenses allocable to interest and disallowed as
12         deductions by Section 265(1) of the Internal Revenue
13         Code, as now or hereafter amended; and (ii) for taxable
14         years ending on or after August 13, 1999, Sections
15         171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the
16         Internal Revenue Code; the provisions of this
17         subparagraph are exempt from the provisions of Section
18         250;
19             (K) An amount equal to those dividends included in
20         such total which were paid by a corporation which
21         conducts business operations in an Enterprise Zone or
22         zones created under the Illinois Enterprise Zone Act,
23         enacted by the 82nd General Assembly, and conducts
24         substantially all of its operations in an Enterprise
25         Zone or Zones;
26             (L) An amount equal to any contribution made to a
27         job training project established pursuant to the Real
28         Property Tax Increment Allocation Redevelopment Act;
29             (M) An amount equal to those dividends included in
30         such total that were paid by a corporation that
31         conducts business operations in a federally designated
32         Foreign Trade Zone or Sub-Zone and that is designated a
33         High Impact Business located in Illinois; provided
34         that dividends eligible for the deduction provided in
35         subparagraph (K) of paragraph (2) of this subsection
36         shall not be eligible for the deduction provided under

 

 

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1         this subparagraph (M);
2             (N) An amount equal to the amount of the deduction
3         used to compute the federal income tax credit for
4         restoration of substantial amounts held under claim of
5         right for the taxable year pursuant to Section 1341 of
6         the Internal Revenue Code of 1986;
7             (O) For taxable years 2001 and thereafter, for the
8         taxable year in which the bonus depreciation deduction
9         (30% of the adjusted basis of the qualified property)
10         is taken on the taxpayer's federal income tax return
11         under subsection (k) of Section 168 of the Internal
12         Revenue Code and for each applicable taxable year
13         thereafter, an amount equal to "x", where:
14                 (1) "y" equals the amount of the depreciation
15             deduction taken for the taxable year on the
16             taxpayer's federal income tax return on property
17             for which the bonus depreciation deduction (30% of
18             the adjusted basis of the qualified property) was
19             taken in any year under subsection (k) of Section
20             168 of the Internal Revenue Code, but not including
21             the bonus depreciation deduction; and
22                 (2) "x" equals "y" multiplied by 30 and then
23             divided by 70 (or "y" multiplied by 0.429).
24             The aggregate amount deducted under this
25         subparagraph in all taxable years for any one piece of
26         property may not exceed the amount of the bonus
27         depreciation deduction (30% of the adjusted basis of
28         the qualified property) taken on that property on the
29         taxpayer's federal income tax return under subsection
30         (k) of Section 168 of the Internal Revenue Code;
31             (P) If the taxpayer reports a capital gain or loss
32         on the taxpayer's federal income tax return for the
33         taxable year based on a sale or transfer of property
34         for which the taxpayer was required in any taxable year
35         to make an addition modification under subparagraph
36         (D-5), then an amount equal to that addition

 

 

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

 

 

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1         member of the taxpayer's unitary business group but for
2         the fact that the foreign person's business activity
3         outside the United States is 80% or more of that
4         person's total business activity, but not to exceed the
5         addition modification required to be made for the same
6         taxable year under Section 203(d)(2)(D-8) for
7         intangible expenses and costs paid, accrued, or
8         incurred, directly or indirectly, to the same foreign
9         person.
 
10     (e) Gross income; adjusted gross income; taxable income.
11         (1) In general. Subject to the provisions of paragraph
12     (2) and subsection (b) (3), for purposes of this Section
13     and Section 803(e), a taxpayer's gross income, adjusted
14     gross income, or taxable income for the taxable year shall
15     mean the amount of gross income, adjusted gross income or
16     taxable income properly reportable for federal income tax
17     purposes for the taxable year under the provisions of the
18     Internal Revenue Code. Taxable income may be less than
19     zero. However, for taxable years ending on or after
20     December 31, 1986, net operating loss carryforwards from
21     taxable years ending prior to December 31, 1986, may not
22     exceed the sum of federal taxable income for the taxable
23     year before net operating loss deduction, plus the excess
24     of addition modifications over subtraction modifications
25     for the taxable year. For taxable years ending prior to
26     December 31, 1986, taxable income may never be an amount in
27     excess of the net operating loss for the taxable year as
28     defined in subsections (c) and (d) of Section 172 of the
29     Internal Revenue Code, provided that when taxable income of
30     a corporation (other than a Subchapter S corporation),
31     trust, or estate is less than zero and addition
32     modifications, other than those provided by subparagraph
33     (E) of paragraph (2) of subsection (b) for corporations or
34     subparagraph (E) of paragraph (2) of subsection (c) for
35     trusts and estates, exceed subtraction modifications, an

 

 

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1     addition modification must be made under those
2     subparagraphs for any other taxable year to which the
3     taxable income less than zero (net operating loss) is
4     applied under Section 172 of the Internal Revenue Code or
5     under subparagraph (E) of paragraph (2) of this subsection
6     (e) applied in conjunction with Section 172 of the Internal
7     Revenue Code.
8         (2) Special rule. For purposes of paragraph (1) of this
9     subsection, the taxable income properly reportable for
10     federal income tax purposes shall mean:
11             (A) Certain life insurance companies. In the case
12         of a life insurance company subject to the tax imposed
13         by Section 801 of the Internal Revenue Code, life
14         insurance company taxable income, plus the amount of
15         distribution from pre-1984 policyholder surplus
16         accounts as calculated under Section 815a of the
17         Internal Revenue Code;
18             (B) Certain other insurance companies. In the case
19         of mutual insurance companies subject to the tax
20         imposed by Section 831 of the Internal Revenue Code,
21         insurance company taxable income;
22             (C) Regulated investment companies. In the case of
23         a regulated investment company subject to the tax
24         imposed by Section 852 of the Internal Revenue Code,
25         investment company taxable income;
26             (D) Real estate investment trusts. In the case of a
27         real estate investment trust subject to the tax imposed
28         by Section 857 of the Internal Revenue Code, real
29         estate investment trust taxable income;
30             (E) Consolidated corporations. In the case of a
31         corporation which is a member of an affiliated group of
32         corporations filing a consolidated income tax return
33         for the taxable year for federal income tax purposes,
34         taxable income determined as if such corporation had
35         filed a separate return for federal income tax purposes
36         for the taxable year and each preceding taxable year

 

 

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1         for which it was a member of an affiliated group. For
2         purposes of this subparagraph, the taxpayer's separate
3         taxable income shall be determined as if the election
4         provided by Section 243(b) (2) of the Internal Revenue
5         Code had been in effect for all such years;
6             (F) Cooperatives. In the case of a cooperative
7         corporation or association, the taxable income of such
8         organization determined in accordance with the
9         provisions of Section 1381 through 1388 of the Internal
10         Revenue Code;
11             (G) Subchapter S corporations. In the case of: (i)
12         a Subchapter S corporation for which there is in effect
13         an election for the taxable year under Section 1362 of
14         the Internal Revenue Code, the taxable income of such
15         corporation determined in accordance with Section
16         1363(b) of the Internal Revenue Code, except that
17         taxable income shall take into account those items
18         which are required by Section 1363(b)(1) of the
19         Internal Revenue Code to be separately stated; and (ii)
20         a Subchapter S corporation for which there is in effect
21         a federal election to opt out of the provisions of the
22         Subchapter S Revision Act of 1982 and have applied
23         instead the prior federal Subchapter S rules as in
24         effect on July 1, 1982, the taxable income of such
25         corporation determined in accordance with the federal
26         Subchapter S rules as in effect on July 1, 1982; and
27             (H) Partnerships. In the case of a partnership,
28         taxable income determined in accordance with Section
29         703 of the Internal Revenue Code, except that taxable
30         income shall take into account those items which are
31         required by Section 703(a)(1) to be separately stated
32         but which would be taken into account by an individual
33         in calculating his taxable income.
34         (3) Recapture of business expenses on disposition of
35     asset or business. Notwithstanding any other law to the
36     contrary, if in prior years income from an asset or

 

 

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1     business has been classified as business income and in a
2     later year is demonstrated to be non-business income, then
3     all expenses, without limitation, deducted in such later
4     year and in the 2 immediately preceding taxable years
5     related to that asset or business that generated the
6     non-business income shall be added back and recaptured as
7     business income in the year of the disposition of the asset
8     or business. Such amount shall be apportioned to Illinois
9     using the greater of the apportionment fraction computed
10     for the business under Section 304 of this Act for the
11     taxable year or the average of the apportionment fractions
12     computed for the business under Section 304 of this Act for
13     the taxable year and for the 2 immediately preceding
14     taxable years.
15     (f) Valuation limitation amount.
16         (1) In general. The valuation limitation amount
17     referred to in subsections (a) (2) (G), (c) (2) (I) and
18     (d)(2) (E) is an amount equal to:
19             (A) The sum of the pre-August 1, 1969 appreciation
20         amounts (to the extent consisting of gain reportable
21         under the provisions of Section 1245 or 1250 of the
22         Internal Revenue Code) for all property in respect of
23         which such gain was reported for the taxable year; plus
24             (B) The lesser of (i) the sum of the pre-August 1,
25         1969 appreciation amounts (to the extent consisting of
26         capital gain) for all property in respect of which such
27         gain was reported for federal income tax purposes for
28         the taxable year, or (ii) the net capital gain for the
29         taxable year, reduced in either case by any amount of
30         such gain included in the amount determined under
31         subsection (a) (2) (F) or (c) (2) (H).
32         (2) Pre-August 1, 1969 appreciation amount.
33             (A) If the fair market value of property referred
34         to in paragraph (1) was readily ascertainable on August
35         1, 1969, the pre-August 1, 1969 appreciation amount for
36         such property is the lesser of (i) the excess of such

 

 

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1         fair market value over the taxpayer's basis (for
2         determining gain) for such property on that date
3         (determined under the Internal Revenue Code as in
4         effect on that date), or (ii) the total gain realized
5         and reportable for federal income tax purposes in
6         respect of the sale, exchange or other disposition of
7         such property.
8             (B) If the fair market value of property referred
9         to in paragraph (1) was not readily ascertainable on
10         August 1, 1969, the pre-August 1, 1969 appreciation
11         amount for such property is that amount which bears the
12         same ratio to the total gain reported in respect of the
13         property for federal income tax purposes for the
14         taxable year, as the number of full calendar months in
15         that part of the taxpayer's holding period for the
16         property ending July 31, 1969 bears to the number of
17         full calendar months in the taxpayer's entire holding
18         period for the property.
19             (C) The Department shall prescribe such
20         regulations as may be necessary to carry out the
21         purposes of this paragraph.
 
22     (g) Double deductions. Unless specifically provided
23 otherwise, nothing in this Section shall permit the same item
24 to be deducted more than once.
 
25     (h) Legislative intention. Except as expressly provided by
26 this Section there shall be no modifications or limitations on
27 the amounts of income, gain, loss or deduction taken into
28 account in determining gross income, adjusted gross income or
29 taxable income for federal income tax purposes for the taxable
30 year, or in the amount of such items entering into the
31 computation of base income and net income under this Act for
32 such taxable year, whether in respect of property values as of
33 August 1, 1969 or otherwise.
34 (Source: P.A. 92-16, eff. 6-28-01; 92-244, eff. 8-3-01; 92-439,

 

 

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1 eff. 8-17-01; 92-603, eff. 6-28-02; 92-626, eff. 7-11-02;
2 92-651, eff. 7-11-02; 92-846, eff. 8-23-02; 93-812, eff.
3 7-26-04; 93-840, eff. 7-30-04; revised 10-12-04.)
 
4     Section 99. Effective date. This Act takes effect upon
5 becoming law.