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92_HB3288sam001 LRB9205822SMdvam05 1 AMENDMENT TO HOUSE BILL 3288 2 AMENDMENT NO. . Amend House Bill 3288 by replacing 3 everything after the enacting clause with the following: 4 "Section 5. The Illinois Income Tax Act is amended by 5 changing Sections 201, 202, 203, 209, 303, 502, 506, 701, 6 710, 905, 911, and 1501 as follows: 7 (35 ILCS 5/201) (from Ch. 120, par. 2-201) 8 Sec. 201. Tax Imposed. 9 (a) In general. A tax measured by net income is hereby 10 imposed on every individual, corporation, trust and estate 11 for each taxable year ending after July 31, 1969 on the 12 privilege of earning or receiving income in or as a resident 13 of this State. Such tax shall be in addition to all other 14 occupation or privilege taxes imposed by this State or by any 15 municipal corporation or political subdivision thereof. 16 (b) Rates. The tax imposed by subsection (a) of this 17 Section shall be determined as follows, except as adjusted by 18 subsection (d-1): 19 (1) In the case of an individual, trust or estate, 20 for taxable years ending prior to July 1, 1989, an amount 21 equal to 2 1/2% of the taxpayer's net income for the 22 taxable year. -2- LRB9205822SMdvam05 1 (2) In the case of an individual, trust or estate, 2 for taxable years beginning prior to July 1, 1989 and 3 ending after June 30, 1989, an amount equal to the sum of 4 (i) 2 1/2% of the taxpayer's net income for the period 5 prior to July 1, 1989, as calculated under Section 202.3, 6 and (ii) 3% of the taxpayer's net income for the period 7 after June 30, 1989, as calculated under Section 202.3. 8 (3) In the case of an individual, trust or estate, 9 for taxable years beginning after June 30, 1989, an 10 amount equal to 3% of the taxpayer's net income for the 11 taxable year. 12 (4) (Blank). 13 (5) (Blank). 14 (6) In the case of a corporation, for taxable years 15 ending prior to July 1, 1989, an amount equal to 4% of 16 the taxpayer's net income for the taxable year. 17 (7) In the case of a corporation, for taxable years 18 beginning prior to July 1, 1989 and ending after June 30, 19 1989, an amount equal to the sum of (i) 4% of the 20 taxpayer's net income for the period prior to July 1, 21 1989, as calculated under Section 202.3, and (ii) 4.8% of 22 the taxpayer's net income for the period after June 30, 23 1989, as calculated under Section 202.3. 24 (8) In the case of a corporation, for taxable years 25 beginning after June 30, 1989, an amount equal to 4.8% of 26 the taxpayer's net income for the taxable year. 27 (c) Beginning on July 1, 1979 and thereafter, in 28 addition to such income tax, there is also hereby imposed the 29 Personal Property Tax Replacement Income Tax measured by net 30 income on every corporation (including Subchapter S 31 corporations), partnership and trust, for each taxable year 32 ending after June 30, 1979. Such taxes are imposed on the 33 privilege of earning or receiving income in or as a resident 34 of this State. The Personal Property Tax Replacement Income -3- LRB9205822SMdvam05 1 Tax shall be in addition to the income tax imposed by 2 subsections (a) and (b) of this Section and in addition to 3 all other occupation or privilege taxes imposed by this State 4 or by any municipal corporation or political subdivision 5 thereof. 6 (d) Additional Personal Property Tax Replacement Income 7 Tax Rates. The personal property tax replacement income tax 8 imposed by this subsection and subsection (c) of this Section 9 in the case of a corporation, other than a Subchapter S 10 corporation and except as adjusted by subsection (d-1), shall 11 be an additional amount equal to 2.85% of such taxpayer's net 12 income for the taxable year, except that beginning on January 13 1, 1981, and thereafter, the rate of 2.85% specified in this 14 subsection shall be reduced to 2.5%, and in the case of a 15 partnership, trust or a Subchapter S corporation shall be an 16 additional amount equal to 1.5% of such taxpayer's net income 17 for the taxable year. 18 (d-1) Rate reduction for certain foreign insurers. In 19 the case of a foreign insurer, as defined by Section 35A-5 of 20 the Illinois Insurance Code, whose state or country of 21 domicile imposes on insurers domiciled in Illinois a 22 retaliatory tax (excluding any insurer whose premiums from 23 reinsurance assumed are 50% or more of its total insurance 24 premiums as determined under paragraph (2) of subsection (b) 25 of Section 304, except that for purposes of this 26 determination premiums from reinsurance do not include 27 premiums from inter-affiliate reinsurance arrangements), 28 beginning with taxable years ending on or after December 31, 29 1999, the sum of the rates of tax imposed by subsections (b) 30 and (d) shall be reduced (but not increased) to the rate at 31 which the total amount of tax imposed under this Act, net of 32 all credits allowed under this Act, shall equal (i) the total 33 amount of tax that would be imposed on the foreign insurer's 34 net income allocable to Illinois for the taxable year by such -4- LRB9205822SMdvam05 1 foreign insurer's state or country of domicile if that net 2 income were subject to all income taxes and taxes measured by 3 net income imposed by such foreign insurer's state or country 4 of domicile, net of all credits allowed or (ii) a rate of 5 zero if no such tax is imposed on such income by the foreign 6 insurer's state of domicile. For the purposes of this 7 subsection (d-1), an inter-affiliate includes a mutual 8 insurer under common management. 9 (1) For the purposes of subsection (d-1), in no 10 event shall the sum of the rates of tax imposed by 11 subsections (b) and (d) be reduced below the rate at 12 which the sum of: 13 (A) the total amount of tax imposed on such 14 foreign insurer under this Act for a taxable year, 15 net of all credits allowed under this Act, plus 16 (B) the privilege tax imposed by Section 409 17 of the Illinois Insurance Code, the fire insurance 18 company tax imposed by Section 12 of the Fire 19 Investigation Act, and the fire department taxes 20 imposed under Section 11-10-1 of the Illinois 21 Municipal Code, 22 equals 1.25% of the net taxable premiums written for the 23 taxable year, as described by subsection (1) of Section 24 409 of the Illinois Insurance Code. This paragraph will 25 in no event increase the rates imposed under subsections 26 (b) and (d). 27 (2) Any reduction in the rates of tax imposed by 28 this subsection shall be applied first against the rates 29 imposed by subsection (b) and only after the tax imposed 30 by subsection (a) net of all credits allowed under this 31 Section other than the credit allowed under subsection 32 (i) has been reduced to zero, against the rates imposed 33 by subsection (d). 34 This subsection (d-1) is exempt from the provisions of -5- LRB9205822SMdvam05 1 Section 250. 2 (e) Investment credit. A taxpayer shall be allowed a 3 credit against the Personal Property Tax Replacement Income 4 Tax for investment in qualified property. 5 (1) A taxpayer shall be allowed a credit equal to 6 .5% of the basis of qualified property placed in service 7 during the taxable year, provided such property is placed 8 in service on or after July 1, 1984. There shall be 9 allowed an additional credit equal to .5% of the basis of 10 qualified property placed in service during the taxable 11 year, provided such property is placed in service on or 12 after July 1, 1986, and the taxpayer's base employment 13 within Illinois has increased by 1% or more over the 14 preceding year as determined by the taxpayer's employment 15 records filed with the Illinois Department of Employment 16 Security. Taxpayers who are new to Illinois shall be 17 deemed to have met the 1% growth in base employment for 18 the first year in which they file employment records with 19 the Illinois Department of Employment Security. The 20 provisions added to this Section by Public Act 85-1200 21 (and restored by Public Act 87-895) shall be construed as 22 declaratory of existing law and not as a new enactment. 23 If, in any year, the increase in base employment within 24 Illinois over the preceding year is less than 1%, the 25 additional credit shall be limited to that percentage 26 times a fraction, the numerator of which is .5% and the 27 denominator of which is 1%, but shall not exceed .5%. 28 The investment credit shall not be allowed to the extent 29 that it would reduce a taxpayer's liability in any tax 30 year below zero, nor may any credit for qualified 31 property be allowed for any year other than the year in 32 which the property was placed in service in Illinois. For 33 tax years ending on or after December 31, 1987, and on or 34 before December 31, 1988, the credit shall be allowed for -6- LRB9205822SMdvam05 1 the tax year in which the property is placed in service, 2 or, if the amount of the credit exceeds the tax liability 3 for that year, whether it exceeds the original liability 4 or the liability as later amended, such excess may be 5 carried forward and applied to the tax liability of the 5 6 taxable years following the excess credit years if the 7 taxpayer (i) makes investments which cause the creation 8 of a minimum of 2,000 full-time equivalent jobs in 9 Illinois, (ii) is located in an enterprise zone 10 established pursuant to the Illinois Enterprise Zone Act 11 and (iii) is certified by the Department of Commerce and 12 Community Affairs as complying with the requirements 13 specified in clause (i) and (ii) by July 1, 1986. The 14 Department of Commerce and Community Affairs shall notify 15 the Department of Revenue of all such certifications 16 immediately. For tax years ending after December 31, 17 1988, the credit shall be allowed for the tax year in 18 which the property is placed in service, or, if the 19 amount of the credit exceeds the tax liability for that 20 year, whether it exceeds the original liability or the 21 liability as later amended, such excess may be carried 22 forward and applied to the tax liability of the 5 taxable 23 years following the excess credit years. The credit shall 24 be applied to the earliest year for which there is a 25 liability. If there is credit from more than one tax year 26 that is available to offset a liability, earlier credit 27 shall be applied first. 28 (2) The term "qualified property" means property 29 which: 30 (A) is tangible, whether new or used, 31 including buildings and structural components of 32 buildings and signs that are real property, but not 33 including land or improvements to real property that 34 are not a structural component of a building such as -7- LRB9205822SMdvam05 1 landscaping, sewer lines, local access roads, 2 fencing, parking lots, and other appurtenances; 3 (B) is depreciable pursuant to Section 167 of 4 the Internal Revenue Code, except that "3-year 5 property" as defined in Section 168(c)(2)(A) of that 6 Code is not eligible for the credit provided by this 7 subsection (e); 8 (C) is acquired by purchase as defined in 9 Section 179(d) of the Internal Revenue Code; 10 (D) is used in Illinois by a taxpayer who is 11 primarily engaged in manufacturing, or in mining 12 coal or fluorite, or in retailing; and 13 (E) has not previously been used in Illinois 14 in such a manner and by such a person as would 15 qualify for the credit provided by this subsection 16 (e) or subsection (f). 17 (3) For purposes of this subsection (e), 18 "manufacturing" means the material staging and production 19 of tangible personal property by procedures commonly 20 regarded as manufacturing, processing, fabrication, or 21 assembling which changes some existing material into new 22 shapes, new qualities, or new combinations. For purposes 23 of this subsection (e) the term "mining" shall have the 24 same meaning as the term "mining" in Section 613(c) of 25 the Internal Revenue Code. For purposes of this 26 subsection (e), the term "retailing" means the sale of 27 tangible personal property or services rendered in 28 conjunction with the sale of tangible consumer goods or 29 commodities. 30 (4) The basis of qualified property shall be the 31 basis used to compute the depreciation deduction for 32 federal income tax purposes. 33 (5) If the basis of the property for federal income 34 tax depreciation purposes is increased after it has been -8- LRB9205822SMdvam05 1 placed in service in Illinois by the taxpayer, the amount 2 of such increase shall be deemed property placed in 3 service on the date of such increase in basis. 4 (6) The term "placed in service" shall have the 5 same meaning as under Section 46 of the Internal Revenue 6 Code. 7 (7) If during any taxable year, any property ceases 8 to be qualified property in the hands of the taxpayer 9 within 48 months after being placed in service, or the 10 situs of any qualified property is moved outside Illinois 11 within 48 months after being placed in service, the 12 Personal Property Tax Replacement Income Tax for such 13 taxable year shall be increased. Such increase shall be 14 determined by (i) recomputing the investment credit which 15 would have been allowed for the year in which credit for 16 such property was originally allowed by eliminating such 17 property from such computation and, (ii) subtracting such 18 recomputed credit from the amount of credit previously 19 allowed. For the purposes of this paragraph (7), a 20 reduction of the basis of qualified property resulting 21 from a redetermination of the purchase price shall be 22 deemed a disposition of qualified property to the extent 23 of such reduction. 24 (8) Unless the investment credit is extended by 25 law, the basis of qualified property shall not include 26 costs incurred after December 31, 2003, except for costs 27 incurred pursuant to a binding contract entered into on 28 or before December 31, 2003. 29 (9) Each taxable year ending before December 31, 30 2000, a partnership may elect to pass through to its 31 partners the credits to which the partnership is entitled 32 under this subsection (e) for the taxable year. A 33 partner may use the credit allocated to him or her under 34 this paragraph only against the tax imposed in -9- LRB9205822SMdvam05 1 subsections (c) and (d) of this Section. If the 2 partnership makes that election, those credits shall be 3 allocated among the partners in the partnership in 4 accordance with the rules set forth in Section 704(b) of 5 the Internal Revenue Code, and the rules promulgated 6 under that Section, and the allocated amount of the 7 credits shall be allowed to the partners for that taxable 8 year. The partnership shall make this election on its 9 Personal Property Tax Replacement Income Tax return for 10 that taxable year. The election to pass through the 11 credits shall be irrevocable. 12 For taxable years ending on or after December 31, 13 2000, a partner that qualifies its partnership for a 14 subtraction under subparagraph (I) of paragraph (2) of 15 subsection (d) of Section 203 or a shareholder that 16 qualifies a Subchapter S corporation for a subtraction 17 under subparagraph (S) of paragraph (2) of subsection (b) 18 of Section 203 shall be allowed a credit under this 19 subsection (e) equal to its share of the credit earned 20 under this subsection (e) during the taxable year by the 21 partnership or Subchapter S corporation, determined in 22 accordance with the determination of income and 23 distributive share of income under Sections 702 and 704 24 and Subchapter S of the Internal Revenue Code. This 25 paragraph is exempt from the provisions of Section 250. 26 (f) Investment credit; Enterprise Zone. 27 (1) A taxpayer shall be allowed a credit against 28 the tax imposed by subsections (a) and (b) of this 29 Section for investment in qualified property which is 30 placed in service in an Enterprise Zone created pursuant 31 to the Illinois Enterprise Zone Act. For partners, 32 shareholders of Subchapter S corporations, and owners of 33 limited liability companies, if the liability company is 34 treated as a partnership for purposes of federal and -10- LRB9205822SMdvam05 1 State income taxation, there shall be allowed a credit 2 under this subsection (f) to be determined in accordance 3 with the determination of income and distributive share 4 of income under Sections 702 and 704 and Subchapter S of 5 the Internal Revenue Code. The credit shall be .5% of the 6 basis for such property. The credit shall be available 7 only in the taxable year in which the property is placed 8 in service in the Enterprise Zone and shall not be 9 allowed to the extent that it would reduce a taxpayer's 10 liability for the tax imposed by subsections (a) and (b) 11 of this Section to below zero. For tax years ending on or 12 after December 31, 1985, the credit shall be allowed for 13 the tax year in which the property is placed in service, 14 or, if the amount of the credit exceeds the tax liability 15 for that year, whether it exceeds the original liability 16 or the liability as later amended, such excess may be 17 carried forward and applied to the tax liability of the 5 18 taxable years following the excess credit year. The 19 credit shall be applied to the earliest year for which 20 there is a liability. If there is credit from more than 21 one tax year that is available to offset a liability, the 22 credit accruing first in time shall be applied first. 23 (2) The term qualified property means property 24 which: 25 (A) is tangible, whether new or used, 26 including buildings and structural components of 27 buildings; 28 (B) is depreciable pursuant to Section 167 of 29 the Internal Revenue Code, except that "3-year 30 property" as defined in Section 168(c)(2)(A) of that 31 Code is not eligible for the credit provided by this 32 subsection (f); 33 (C) is acquired by purchase as defined in 34 Section 179(d) of the Internal Revenue Code; -11- LRB9205822SMdvam05 1 (D) is used in the Enterprise Zone by the 2 taxpayer; and 3 (E) has not been previously used in Illinois 4 in such a manner and by such a person as would 5 qualify for the credit provided by this subsection 6 (f) or subsection (e). 7 (3) The basis of qualified property shall be the 8 basis used to compute the depreciation deduction for 9 federal income tax purposes. 10 (4) If the basis of the property for federal income 11 tax depreciation purposes is increased after it has been 12 placed in service in the Enterprise Zone by the taxpayer, 13 the amount of such increase shall be deemed property 14 placed in service on the date of such increase in basis. 15 (5) The term "placed in service" shall have the 16 same meaning as under Section 46 of the Internal Revenue 17 Code. 18 (6) If during any taxable year, any property ceases 19 to be qualified property in the hands of the taxpayer 20 within 48 months after being placed in service, or the 21 situs of any qualified property is moved outside the 22 Enterprise Zone within 48 months after being placed in 23 service, the tax imposed under subsections (a) and (b) of 24 this Section for such taxable year shall be increased. 25 Such increase shall be determined by (i) recomputing the 26 investment credit which would have been allowed for the 27 year in which credit for such property was originally 28 allowed by eliminating such property from such 29 computation, and (ii) subtracting such recomputed credit 30 from the amount of credit previously allowed. For the 31 purposes of this paragraph (6), a reduction of the basis 32 of qualified property resulting from a redetermination of 33 the purchase price shall be deemed a disposition of 34 qualified property to the extent of such reduction. -12- LRB9205822SMdvam05 1 (g) Jobs Tax Credit; Enterprise Zone and Foreign Trade 2 Zone or Sub-Zone. 3 (1) A taxpayer conducting a trade or business in an 4 enterprise zone or a High Impact Business designated by 5 the Department of Commerce and Community Affairs 6 conducting a trade or business in a federally designated 7 Foreign Trade Zone or Sub-Zone shall be allowed a credit 8 against the tax imposed by subsections (a) and (b) of 9 this Section in the amount of $500 per eligible employee 10 hired to work in the zone during the taxable year. 11 (2) To qualify for the credit: 12 (A) the taxpayer must hire 5 or more eligible 13 employees to work in an enterprise zone or federally 14 designated Foreign Trade Zone or Sub-Zone during the 15 taxable year; 16 (B) the taxpayer's total employment within the 17 enterprise zone or federally designated Foreign 18 Trade Zone or Sub-Zone must increase by 5 or more 19 full-time employees beyond the total employed in 20 that zone at the end of the previous tax year for 21 which a jobs tax credit under this Section was 22 taken, or beyond the total employed by the taxpayer 23 as of December 31, 1985, whichever is later; and 24 (C) the eligible employees must be employed 25 180 consecutive days in order to be deemed hired for 26 purposes of this subsection. 27 (3) An "eligible employee" means an employee who 28 is: 29 (A) Certified by the Department of Commerce 30 and Community Affairs as "eligible for services" 31 pursuant to regulations promulgated in accordance 32 with Title II of the Job Training Partnership Act, 33 Training Services for the Disadvantaged or Title III 34 of the Job Training Partnership Act, Employment and -13- LRB9205822SMdvam05 1 Training Assistance for Dislocated Workers Program. 2 (B) Hired after the enterprise zone or 3 federally designated Foreign Trade Zone or Sub-Zone 4 was designated or the trade or business was located 5 in that zone, whichever is later. 6 (C) Employed in the enterprise zone or Foreign 7 Trade Zone or Sub-Zone. An employee is employed in 8 an enterprise zone or federally designated Foreign 9 Trade Zone or Sub-Zone if his services are rendered 10 there or it is the base of operations for the 11 services performed. 12 (D) A full-time employee working 30 or more 13 hours per week. 14 (4) For tax years ending on or after December 31, 15 1985 and prior to December 31, 1988, the credit shall be 16 allowed for the tax year in which the eligible employees 17 are hired. For tax years ending on or after December 31, 18 1988, the credit shall be allowed for the tax year 19 immediately following the tax year in which the eligible 20 employees are hired. If the amount of the credit exceeds 21 the tax liability for that year, whether it exceeds the 22 original liability or the liability as later amended, 23 such excess may be carried forward and applied to the tax 24 liability of the 5 taxable years following the excess 25 credit year. The credit shall be applied to the earliest 26 year for which there is a liability. If there is credit 27 from more than one tax year that is available to offset a 28 liability, earlier credit shall be applied first. 29 (5) The Department of Revenue shall promulgate such 30 rules and regulations as may be deemed necessary to carry 31 out the purposes of this subsection (g). 32 (6) The credit shall be available for eligible 33 employees hired on or after January 1, 1986. 34 (h) Investment credit; High Impact Business. -14- LRB9205822SMdvam05 1 (1) Subject to subsection (b) of Section 5.5 of the 2 Illinois Enterprise Zone Act, a taxpayer shall be allowed 3 a credit against the tax imposed by subsections (a) and 4 (b) of this Section for investment in qualified property 5 which is placed in service by a Department of Commerce 6 and Community Affairs designated High Impact Business. 7 The credit shall be .5% of the basis for such property. 8 The credit shall not be available until the minimum 9 investments in qualified property set forth in Section 10 5.5 of the Illinois Enterprise Zone Act have been 11 satisfied and shall not be allowed to the extent that it 12 would reduce a taxpayer's liability for the tax imposed 13 by subsections (a) and (b) of this Section to below zero. 14 The credit applicable to such minimum investments shall 15 be taken in the taxable year in which such minimum 16 investments have been completed. The credit for 17 additional investments beyond the minimum investment by a 18 designated high impact business shall be available only 19 in the taxable year in which the property is placed in 20 service and shall not be allowed to the extent that it 21 would reduce a taxpayer's liability for the tax imposed 22 by subsections (a) and (b) of this Section to below zero. 23 For tax years ending on or after December 31, 1987, the 24 credit shall be allowed for the tax year in which the 25 property is placed in service, or, if the amount of the 26 credit exceeds the tax liability for that year, whether 27 it exceeds the original liability or the liability as 28 later amended, such excess may be carried forward and 29 applied to the tax liability of the 5 taxable years 30 following the excess credit year. The credit shall be 31 applied to the earliest year for which there is a 32 liability. If there is credit from more than one tax 33 year that is available to offset a liability, the credit 34 accruing first in time shall be applied first. -15- LRB9205822SMdvam05 1 Changes made in this subdivision (h)(1) by Public 2 Act 88-670 restore changes made by Public Act 85-1182 and 3 reflect existing law. 4 (2) The term qualified property means property 5 which: 6 (A) is tangible, whether new or used, 7 including buildings and structural components of 8 buildings; 9 (B) is depreciable pursuant to Section 167 of 10 the Internal Revenue Code, except that "3-year 11 property" as defined in Section 168(c)(2)(A) of that 12 Code is not eligible for the credit provided by this 13 subsection (h); 14 (C) is acquired by purchase as defined in 15 Section 179(d) of the Internal Revenue Code; and 16 (D) is not eligible for the Enterprise Zone 17 Investment Credit provided by subsection (f) of this 18 Section. 19 (3) The basis of qualified property shall be the 20 basis used to compute the depreciation deduction for 21 federal income tax purposes. 22 (4) If the basis of the property for federal income 23 tax depreciation purposes is increased after it has been 24 placed in service in a federally designated Foreign Trade 25 Zone or Sub-Zone located in Illinois by the taxpayer, the 26 amount of such increase shall be deemed property placed 27 in service on the date of such increase in basis. 28 (5) The term "placed in service" shall have the 29 same meaning as under Section 46 of the Internal Revenue 30 Code. 31 (6) If during any taxable year ending on or before 32 December 31, 1996, any property ceases to be qualified 33 property in the hands of the taxpayer within 48 months 34 after being placed in service, or the situs of any -16- LRB9205822SMdvam05 1 qualified property is moved outside Illinois within 48 2 months after being placed in service, the tax imposed 3 under subsections (a) and (b) of this Section for such 4 taxable year shall be increased. Such increase shall be 5 determined by (i) recomputing the investment credit which 6 would have been allowed for the year in which credit for 7 such property was originally allowed by eliminating such 8 property from such computation, and (ii) subtracting such 9 recomputed credit from the amount of credit previously 10 allowed. For the purposes of this paragraph (6), a 11 reduction of the basis of qualified property resulting 12 from a redetermination of the purchase price shall be 13 deemed a disposition of qualified property to the extent 14 of such reduction. 15 (7) Beginning with tax years ending after December 16 31, 1996, if a taxpayer qualifies for the credit under 17 this subsection (h) and thereby is granted a tax 18 abatement and the taxpayer relocates its entire facility 19 in violation of the explicit terms and length of the 20 contract under Section 18-183 of the Property Tax Code, 21 the tax imposed under subsections (a) and (b) of this 22 Section shall be increased for the taxable year in which 23 the taxpayer relocated its facility by an amount equal to 24 the amount of credit received by the taxpayer under this 25 subsection (h). 26 (i) A credit shall be allowed against the tax imposed by 27 subsections (a) and (b) of this Section for the tax imposed 28 by subsections (c) and (d) of this Section. This credit 29 shall be computed by multiplying the tax imposed by 30 subsections (c) and (d) of this Section by a fraction, the 31 numerator of which is base income allocable to Illinois and 32 the denominator of which is Illinois base income, and further 33 multiplying the product by the tax rate imposed by 34 subsections (a) and (b) of this Section. -17- LRB9205822SMdvam05 1 Any credit earned on or after December 31, 1986 under 2 this subsection which is unused in the year the credit is 3 computed because it exceeds the tax liability imposed by 4 subsections (a) and (b) for that year (whether it exceeds the 5 original liability or the liability as later amended) may be 6 carried forward and applied to the tax liability imposed by 7 subsections (a) and (b) of the 5 taxable years following the 8 excess credit year. This credit shall be applied first to 9 the earliest year for which there is a liability. If there 10 is a credit under this subsection from more than one tax year 11 that is available to offset a liability the earliest credit 12 arising under this subsection shall be applied first. 13 If, during any taxable year ending on or after December 14 31, 1986, the tax imposed by subsections (c) and (d) of this 15 Section for which a taxpayer has claimed a credit under this 16 subsection (i) is reduced, the amount of credit for such tax 17 shall also be reduced. Such reduction shall be determined by 18 recomputing the credit to take into account the reduced tax 19 imposed by subsection (c) and (d). If any portion of the 20 reduced amount of credit has been carried to a different 21 taxable year, an amended return shall be filed for such 22 taxable year to reduce the amount of credit claimed. 23 (j) Training expense credit. Beginning with tax years 24 ending on or after December 31, 1986, a taxpayer shall be 25 allowed a credit against the tax imposed by subsection (a) 26 and (b) under this Section for all amounts paid or accrued, 27 on behalf of all persons employed by the taxpayer in Illinois 28 or Illinois residents employed outside of Illinois by a 29 taxpayer, for educational or vocational training in 30 semi-technical or technical fields or semi-skilled or skilled 31 fields, which were deducted from gross income in the 32 computation of taxable income. The credit against the tax 33 imposed by subsections (a) and (b) shall be 1.6% of such 34 training expenses. For partners, shareholders of subchapter -18- LRB9205822SMdvam05 1 S corporations, and owners of limited liability companies, if 2 the liability company is treated as a partnership for 3 purposes of federal and State income taxation, there shall be 4 allowed a credit under this subsection (j) to be determined 5 in accordance with the determination of income and 6 distributive share of income under Sections 702 and 704 and 7 subchapter S of the Internal Revenue Code. 8 Any credit allowed under this subsection which is unused 9 in the year the credit is earned may be carried forward to 10 each of the 5 taxable years following the year for which the 11 credit is first computed until it is used. This credit shall 12 be applied first to the earliest year for which there is a 13 liability. If there is a credit under this subsection from 14 more than one tax year that is available to offset a 15 liability the earliest credit arising under this subsection 16 shall be applied first. 17 (k) Research and development credit. 18 Beginning with tax years ending after July 1, 1990, a 19 taxpayer shall be allowed a credit against the tax imposed by 20 subsections (a) and (b) of this Section for increasing 21 research activities in this State. The credit allowed 22 against the tax imposed by subsections (a) and (b) shall be 23 equal to 6 1/2% of the qualifying expenditures for increasing 24 research activities in this State. For partners, shareholders 25 of subchapter S corporations, and owners of limited liability 26 companies, if the liability company is treated as a 27 partnership for purposes of federal and State income 28 taxation, there shall be allowed a credit under this 29 subsection to be determined in accordance with the 30 determination of income and distributive share of income 31 under Sections 702 and 704 and subchapter S of the Internal 32 Revenue Code. 33 For purposes of this subsection, "qualifying 34 expenditures" means the qualifying expenditures as defined -19- LRB9205822SMdvam05 1 for the federal credit for increasing research activities 2 which would be allowable under Section 41 of the Internal 3 Revenue Code and which are conducted in this State, 4 "qualifying expenditures for increasing research activities 5 in this State" means the excess of qualifying expenditures 6 for the taxable year in which incurred over qualifying 7 expenditures for the base period, "qualifying expenditures 8 for the base period" means the average of the qualifying 9 expenditures for each year in the base period, and "base 10 period" means the 3 taxable years immediately preceding the 11 taxable year for which the determination is being made. 12 Any credit in excess of the tax liability for the taxable 13 year may be carried forward. A taxpayer may elect to have the 14 unused credit shown on its final completed return carried 15 over as a credit against the tax liability for the following 16 5 taxable years or until it has been fully used, whichever 17 occurs first. 18 If an unused credit is carried forward to a given year 19 from 2 or more earlier years, that credit arising in the 20 earliest year will be applied first against the tax liability 21 for the given year. If a tax liability for the given year 22 still remains, the credit from the next earliest year will 23 then be applied, and so on, until all credits have been used 24 or no tax liability for the given year remains. Any 25 remaining unused credit or credits then will be carried 26 forward to the next following year in which a tax liability 27 is incurred, except that no credit can be carried forward to 28 a year which is more than 5 years after the year in which the 29 expense for which the credit is given was incurred. 30 Unless extended by law, the credit shall not include 31 costs incurred after December 31, 2004, except for costs 32 incurred pursuant to a binding contract entered into on or 33 before December 31, 2004. 34 No inference shall be drawn from this amendatory Act of -20- LRB9205822SMdvam05 1 the 91st General Assembly in construing this Section for 2 taxable years beginning before January 1, 1999. 3 (l) Environmental Remediation Tax Credit. 4 (i) For tax years ending after December 31, 1997 5 and on or before December 31, 2001, a taxpayer shall be 6 allowed a credit against the tax imposed by subsections 7 (a) and (b) of this Section for certain amounts paid for 8 unreimbursed eligible remediation costs, as specified in 9 this subsection. For purposes of this Section, 10 "unreimbursed eligible remediation costs" means costs 11 approved by the Illinois Environmental Protection Agency 12 ("Agency") under Section 58.14 of the Environmental 13 Protection Act that were paid in performing environmental 14 remediation at a site for which a No Further Remediation 15 Letter was issued by the Agency and recorded under 16 Section 58.10 of the Environmental Protection Act. The 17 credit must be claimed for the taxable year in which 18 Agency approval of the eligible remediation costs is 19 granted. The credit is not available to any taxpayer if 20 the taxpayer or any related party caused or contributed 21 to, in any material respect, a release of regulated 22 substances on, in, or under the site that was identified 23 and addressed by the remedial action pursuant to the Site 24 Remediation Program of the Environmental Protection Act. 25 After the Pollution Control Board rules are adopted 26 pursuant to the Illinois Administrative Procedure Act for 27 the administration and enforcement of Section 58.9 of the 28 Environmental Protection Act, determinations as to credit 29 availability for purposes of this Section shall be made 30 consistent with those rules. For purposes of this 31 Section, "taxpayer" includes a person whose tax 32 attributes the taxpayer has succeeded to under Section 33 381 of the Internal Revenue Code and "related party" 34 includes the persons disallowed a deduction for losses by -21- LRB9205822SMdvam05 1 paragraphs (b), (c), and (f)(1) of Section 267 of the 2 Internal Revenue Code by virtue of being a related 3 taxpayer, as well as any of its partners. The credit 4 allowed against the tax imposed by subsections (a) and 5 (b) shall be equal to 25% of the unreimbursed eligible 6 remediation costs in excess of $100,000 per site, except 7 that the $100,000 threshold shall not apply to any site 8 contained in an enterprise zone as determined by the 9 Department of Commerce and Community Affairs. The total 10 credit allowed shall not exceed $40,000 per year with a 11 maximum total of $150,000 per site. For partners and 12 shareholders of subchapter S corporations, there shall be 13 allowed a credit under this subsection to be determined 14 in accordance with the determination of income and 15 distributive share of income under Sections 702 and 704 16 andofsubchapter S of the Internal Revenue Code. 17 (ii) A credit allowed under this subsection that is 18 unused in the year the credit is earned may be carried 19 forward to each of the 5 taxable years following the year 20 for which the credit is first earned until it is used. 21 The term "unused credit" does not include any amounts of 22 unreimbursed eligible remediation costs in excess of the 23 maximum credit per site authorized under paragraph (i). 24 This credit shall be applied first to the earliest year 25 for which there is a liability. If there is a credit 26 under this subsection from more than one tax year that is 27 available to offset a liability, the earliest credit 28 arising under this subsection shall be applied first. A 29 credit allowed under this subsection may be sold to a 30 buyer as part of a sale of all or part of the remediation 31 site for which the credit was granted. The purchaser of 32 a remediation site and the tax credit shall succeed to 33 the unused credit and remaining carry-forward period of 34 the seller. To perfect the transfer, the assignor shall -22- LRB9205822SMdvam05 1 record the transfer in the chain of title for the site 2 and provide written notice to the Director of the 3 Illinois Department of Revenue of the assignor's intent 4 to sell the remediation site and the amount of the tax 5 credit to be transferred as a portion of the sale. In no 6 event may a credit be transferred to any taxpayer if the 7 taxpayer or a related party would not be eligible under 8 the provisions of subsection (i). 9 (iii) For purposes of this Section, the term "site" 10 shall have the same meaning as under Section 58.2 of the 11 Environmental Protection Act. 12 (m) Education expense credit. 13 Beginning with tax years ending after December 31, 1999, 14 a taxpayer who is the custodian of one or more qualifying 15 pupils shall be allowed a credit against the tax imposed by 16 subsections (a) and (b) of this Section for qualified 17 education expenses incurred on behalf of the qualifying 18 pupils. The credit shall be equal to 25% of qualified 19 education expenses, but in no event may the total credit 20 under this subsectionSectionclaimed by a family that is the 21 custodian of qualifying pupils exceed $500. In no event shall 22 a credit under this subsection reduce the taxpayer's 23 liability under this Act to less than zero. This subsection 24 is exempt from the provisions of Section 250 of this Act. 25 For purposes of this subsection; 26 "Qualifying pupils" means individuals who (i) are 27 residents of the State of Illinois, (ii) are under the age of 28 21 at the close of the school year for which a credit is 29 sought, and (iii) during the school year for which a credit 30 is sought were full-time pupils enrolled in a kindergarten 31 through twelfth grade education program at any school, as 32 defined in this subsection. 33 "Qualified education expense" means the amount incurred 34 on behalf of a qualifying pupil in excess of $250 for -23- LRB9205822SMdvam05 1 tuition, book fees, and lab fees at the school in which the 2 pupil is enrolled during the regular school year. 3 "School" means any public or nonpublic elementary or 4 secondary school in Illinois that is in compliance with Title 5 VI of the Civil Rights Act of 1964 and attendance at which 6 satisfies the requirements of Section 26-1 of the School 7 Code, except that nothing shall be construed to require a 8 child to attend any particular public or nonpublic school to 9 qualify for the credit under this Section. 10 "Custodian" means, with respect to qualifying pupils, an 11 Illinois resident who is a parent, the parents, a legal 12 guardian, or the legal guardians of the qualifying pupils. 13 (Source: P.A. 90-123, eff. 7-21-97; 90-458, eff. 8-17-97; 14 90-605, eff. 6-30-98; 90-655, eff. 7-30-98; 90-717, eff. 15 8-7-98; 90-792, eff. 1-1-99; 91-9, eff. 1-1-00; 91-357, eff. 16 7-29-99; 91-643, eff. 8-20-99; 91-644, eff. 8-20-99; 91-860, 17 eff. 6-22-00; 91-913, eff. 1-1-01; revised 10-24-00.) 18 (35 ILCS 5/202) (from Ch. 120, par. 2-202) 19 Sec. 202. Net Income Defined. In general. For purposes of 20 this Act, a taxpayer's net income for a taxable year shall be 21 that portion of his base income for such yearexcept money22and other benefits, other than salary, received by a driver23in a ridesharing arrangement using a motor vehicle,which is 24 allocable to this State under the provisions of Article 3, 25 less the standard exemption allowed by Section 204 and the 26 deduction allowed by Section 207. 27 (Source: P.A. 85-731.) 28 (35 ILCS 5/203) (from Ch. 120, par. 2-203) 29 Sec. 203. Base income defined. 30 (a) Individuals. 31 (1) In general. In the case of an individual, base 32 income means an amount equal to the taxpayer's adjusted -24- LRB9205822SMdvam05 1 gross income for the taxable year as modified by 2 paragraph (2). 3 (2) Modifications. The adjusted gross income 4 referred to in paragraph (1) shall be modified by adding 5 thereto the sum of the following amounts: 6 (A) An amount equal to all amounts paid or 7 accrued to the taxpayer as interest or dividends 8 during the taxable year to the extent excluded from 9 gross income in the computation of adjusted gross 10 income, except stock dividends of qualified public 11 utilities described in Section 305(e) of the 12 Internal Revenue Code; 13 (B) An amount equal to the amount of tax 14 imposed by this Act to the extent deducted from 15 gross income in the computation of adjusted gross 16 income for the taxable year; 17 (C) An amount equal to the amount received 18 during the taxable year as a recovery or refund of 19 real property taxes paid with respect to the 20 taxpayer's principal residence under the Revenue Act 21 of 1939 and for which a deduction was previously 22 taken under subparagraph (L) of this paragraph (2) 23 prior to July 1, 1991, the retrospective application 24 date of Article 4 of Public Act 87-17. In the case 25 of multi-unit or multi-use structures and farm 26 dwellings, the taxes on the taxpayer's principal 27 residence shall be that portion of the total taxes 28 for the entire property which is attributable to 29 such principal residence; 30 (D) An amount equal to the amount of the 31 capital gain deduction allowable under the Internal 32 Revenue Code, to the extent deducted from gross 33 income in the computation of adjusted gross income; 34 (D-5) An amount, to the extent not included in -25- LRB9205822SMdvam05 1 adjusted gross income, equal to the amount of money 2 withdrawn by the taxpayer in the taxable year from a 3 medical care savings account and the interest earned 4 on the account in the taxable year of a withdrawal 5 pursuant to subsection (b) of Section 20 of the 6 Medical Care Savings Account Act or subsection (b) 7 of Section 20 of the Medical Care Savings Account 8 Act of 2000; and 9 (D-10) For taxable years ending after December 10 31, 1997, an amount equal to any eligible 11 remediation costs that the individual deducted in 12 computing adjusted gross income and for which the 13 individual claims a credit under subsection (l) of 14 Section 201; 15 and by deducting from the total so obtained the sum of 16 the following amounts: 17 (E) Any amount included in such total in 18 respect of any compensation (including but not 19 limited to any compensation paid or accrued to a 20 serviceman while a prisoner of war or missing in 21 action) paid to a resident by reason of being on 22 active duty in the Armed Forces of the United States 23 and in respect of any compensation paid or accrued 24 to a resident who as a governmental employee was a 25 prisoner of war or missing in action, and in respect 26 of any compensation paid to a resident in 1971 or 27 thereafter for annual training performed pursuant to 28 Sections 502 and 503, Title 32, United States Code 29 as a member of the Illinois National Guard; 30 (F) An amount equal to all amounts included in 31 such total pursuant to the provisions of Sections 32 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 33 408 of the Internal Revenue Code, or included in 34 such total as distributions under the provisions of -26- LRB9205822SMdvam05 1 any retirement or disability plan for employees of 2 any governmental agency or unit, or retirement 3 payments to retired partners, which payments are 4 excluded in computing net earnings from self 5 employment by Section 1402 of the Internal Revenue 6 Code and regulations adopted pursuant thereto; 7 (G) The valuation limitation amount; 8 (H) An amount equal to the amount of any tax 9 imposed by this Act which was refunded to the 10 taxpayer and included in such total for the taxable 11 year; 12 (I) An amount equal to all amounts included in 13 such total pursuant to the provisions of Section 111 14 of the Internal Revenue Code as a recovery of items 15 previously deducted from adjusted gross income in 16 the computation of taxable income; 17 (J) An amount equal to those dividends 18 included in such total which were paid by a 19 corporation which conducts business operations in an 20 Enterprise Zone or zones created under the Illinois 21 Enterprise Zone Act, and conducts substantially all 22 of its operations in an Enterprise Zone or zones; 23 (K) An amount equal to those dividends 24 included in such total that were paid by a 25 corporation that conducts business operations in a 26 federally designated Foreign Trade Zone or Sub-Zone 27 and that is designated a High Impact Business 28 located in Illinois; provided that dividends 29 eligible for the deduction provided in subparagraph 30 (J) of paragraph (2) of this subsection shall not be 31 eligible for the deduction provided under this 32 subparagraph (K); 33 (L) For taxable years ending after December 34 31, 1983, an amount equal to all social security -27- LRB9205822SMdvam05 1 benefits and railroad retirement benefits included 2 in such total pursuant to Sections 72(r) and 86 of 3 the Internal Revenue Code; 4 (M) With the exception of any amounts 5 subtracted under subparagraph (N), an amount equal 6 to the sum of all amounts disallowed as deductions 7 by (i) Sections 171(a) (2), and 265(2) of the 8 Internal Revenue Code of 1954, as now or hereafter 9 amended, and all amounts of expenses allocable to 10 interest and disallowed as deductions by Section 11 265(1) of the Internal Revenue Code of 1954, as now 12 or hereafter amended; and (ii) for taxable years 13 ending on or after August 13, 1999, Sections 14 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the 15 Internal Revenue Code; the provisions of this 16 subparagraph are exempt from the provisions of 17 Section 250; 18 (N) An amount equal to all amounts included in 19 such total which are exempt from taxation by this 20 State either by reason of its statutes or 21 Constitution or by reason of the Constitution, 22 treaties or statutes of the United States; provided 23 that, in the case of any statute of this State that 24 exempts income derived from bonds or other 25 obligations from the tax imposed under this Act, the 26 amount exempted shall be the interest net of bond 27 premium amortization; 28 (O) An amount equal to any contribution made 29 to a job training project established pursuant to 30 the Tax Increment Allocation Redevelopment Act; 31 (P) An amount equal to the amount of the 32 deduction used to compute the federal income tax 33 credit for restoration of substantial amounts held 34 under claim of right for the taxable year pursuant -28- LRB9205822SMdvam05 1 to Section 1341 of the Internal Revenue Code of 2 1986; 3 (Q) An amount equal to any amounts included in 4 such total, received by the taxpayer as an 5 acceleration in the payment of life, endowment or 6 annuity benefits in advance of the time they would 7 otherwise be payable as an indemnity for a terminal 8 illness; 9 (R) An amount equal to the amount of any 10 federal or State bonus paid to veterans of the 11 Persian Gulf War; 12 (S) An amount, to the extent included in 13 adjusted gross income, equal to the amount of a 14 contribution made in the taxable year on behalf of 15 the taxpayer to a medical care savings account 16 established under the Medical Care Savings Account 17 Act or the Medical Care Savings Account Act of 2000 18 to the extent the contribution is accepted by the 19 account administrator as provided in that Act; 20 (T) An amount, to the extent included in 21 adjusted gross income, equal to the amount of 22 interest earned in the taxable year on a medical 23 care savings account established under the Medical 24 Care Savings Account Act or the Medical Care Savings 25 Account Act of 2000 on behalf of the taxpayer, other 26 than interest added pursuant to item (D-5) of this 27 paragraph (2); 28 (U) For one taxable year beginning on or after 29 January 1, 1994, an amount equal to the total amount 30 of tax imposed and paid under subsections (a) and 31 (b) of Section 201 of this Act on grant amounts 32 received by the taxpayer under the Nursing Home 33 Grant Assistance Act during the taxpayer's taxable 34 years 1992 and 1993; -29- LRB9205822SMdvam05 1 (V) Beginning with tax years ending on or 2 after December 31, 1995 and ending with tax years 3 ending on or before December 31, 2004, an amount 4 equal to the amount paid by a taxpayer who is a 5 self-employed taxpayer, a partner of a partnership, 6 or a shareholder in a Subchapter S corporation for 7 health insurance or long-term care insurance for 8 that taxpayer or that taxpayer's spouse or 9 dependents, to the extent that the amount paid for 10 that health insurance or long-term care insurance 11 may be deducted under Section 213 of the Internal 12 Revenue Code of 1986, has not been deducted on the 13 federal income tax return of the taxpayer, and does 14 not exceed the taxable income attributable to that 15 taxpayer's income, self-employment income, or 16 Subchapter S corporation income; except that no 17 deduction shall be allowed under this item (V) if 18 the taxpayer is eligible to participate in any 19 health insurance or long-term care insurance plan of 20 an employer of the taxpayer or the taxpayer's 21 spouse. The amount of the health insurance and 22 long-term care insurance subtracted under this item 23 (V) shall be determined by multiplying total health 24 insurance and long-term care insurance premiums paid 25 by the taxpayer times a number that represents the 26 fractional percentage of eligible medical expenses 27 under Section 213 of the Internal Revenue Code of 28 1986 not actually deducted on the taxpayer's federal 29 income tax return; 30 (W) For taxable years beginning on or after 31 January 1, 1998, all amounts included in the 32 taxpayer's federal gross income in the taxable year 33 from amounts converted from a regular IRA to a Roth 34 IRA. This paragraph is exempt from the provisions of -30- LRB9205822SMdvam05 1 Section 250;and2 (X) For taxable year 1999 and thereafter, an 3 amount equal to the amount of any (i) distributions, 4 to the extent includible in gross income for federal 5 income tax purposes, made to the taxpayer because of 6 his or her status as a victim of persecution for 7 racial or religious reasons by Nazi Germany or any 8 other Axis regime or as an heir of the victim and 9 (ii) items of income, to the extent includible in 10 gross income for federal income tax purposes, 11 attributable to, derived from or in any way related 12 to assets stolen from, hidden from, or otherwise 13 lost to a victim of persecution for racial or 14 religious reasons by Nazi Germany or any other Axis 15 regime immediately prior to, during, and immediately 16 after World War II, including, but not limited to, 17 interest on the proceeds receivable as insurance 18 under policies issued to a victim of persecution for 19 racial or religious reasons by Nazi Germany or any 20 other Axis regime by European insurance companies 21 immediately prior to and during World War II; 22 provided, however, this subtraction from federal 23 adjusted gross income does not apply to assets 24 acquired with such assets or with the proceeds from 25 the sale of such assets; provided, further, this 26 paragraph shall only apply to a taxpayer who was the 27 first recipient of such assets after their recovery 28 and who is a victim of persecution for racial or 29 religious reasons by Nazi Germany or any other Axis 30 regime or as an heir of the victim. The amount of 31 and the eligibility for any public assistance, 32 benefit, or similar entitlement is not affected by 33 the inclusion of items (i) and (ii) of this 34 paragraph in gross income for federal income tax -31- LRB9205822SMdvam05 1 purposes. This paragraph is exempt from the 2 provisions of Section 250; and 3 (Y) Any amount included in adjusted gross 4 income, other than salary, received by a driver in a 5 ridesharing arrangement using a motor vehicle. 6 (b) Corporations. 7 (1) In general. In the case of a corporation, base 8 income means an amount equal to the taxpayer's taxable 9 income for the taxable year as modified by paragraph (2). 10 (2) Modifications. The taxable income referred to 11 in paragraph (1) shall be modified by adding thereto the 12 sum of the following amounts: 13 (A) An amount equal to all amounts paid or 14 accrued to the taxpayer as interest and all 15 distributions received from regulated investment 16 companies during the taxable year to the extent 17 excluded from gross income in the computation of 18 taxable income; 19 (B) An amount equal to the amount of tax 20 imposed by this Act to the extent deducted from 21 gross income in the computation of taxable income 22 for the taxable year; 23 (C) In the case of a regulated investment 24 company, an amount equal to the excess of (i) the 25 net long-term capital gain for the taxable year, 26 over (ii) the amount of the capital gain dividends 27 designated as such in accordance with Section 28 852(b)(3)(C) of the Internal Revenue Code and any 29 amount designated under Section 852(b)(3)(D) of the 30 Internal Revenue Code, attributable to the taxable 31 year (this amendatory Act of 1995 (Public Act 89-89) 32 is declarative of existing law and is not a new 33 enactment); 34 (D) The amount of any net operating loss -32- LRB9205822SMdvam05 1 deduction taken in arriving at taxable income, other 2 than a net operating loss carried forward from a 3 taxable year ending prior to December 31, 1986; 4 (E) For taxable years in which a net operating 5 loss carryback or carryforward from a taxable year 6 ending prior to December 31, 1986 is an element of 7 taxable income under paragraph (1) of subsection (e) 8 or subparagraph (E) of paragraph (2) of subsection 9 (e), the amount by which addition modifications 10 other than those provided by this subparagraph (E) 11 exceeded subtraction modifications in such earlier 12 taxable year, with the following limitations applied 13 in the order that they are listed: 14 (i) the addition modification relating to 15 the net operating loss carried back or forward 16 to the taxable year from any taxable year 17 ending prior to December 31, 1986 shall be 18 reduced by the amount of addition modification 19 under this subparagraph (E) which related to 20 that net operating loss and which was taken 21 into account in calculating the base income of 22 an earlier taxable year, and 23 (ii) the addition modification relating 24 to the net operating loss carried back or 25 forward to the taxable year from any taxable 26 year ending prior to December 31, 1986 shall 27 not exceed the amount of such carryback or 28 carryforward; 29 For taxable years in which there is a net 30 operating loss carryback or carryforward from more 31 than one other taxable year ending prior to December 32 31, 1986, the addition modification provided in this 33 subparagraph (E) shall be the sum of the amounts 34 computed independently under the preceding -33- LRB9205822SMdvam05 1 provisions of this subparagraph (E) for each such 2 taxable year; and 3 (E-5) For taxable years ending after December 4 31, 1997, an amount equal to any eligible 5 remediation costs that the corporation deducted in 6 computing adjusted gross income and for which the 7 corporation claims a credit under subsection (l) of 8 Section 201; 9 and by deducting from the total so obtained the sum of 10 the following amounts: 11 (F) An amount equal to the amount of any tax 12 imposed by this Act which was refunded to the 13 taxpayer and included in such total for the taxable 14 year; 15 (G) An amount equal to any amount included in 16 such total under Section 78 of the Internal Revenue 17 Code; 18 (H) In the case of a regulated investment 19 company, an amount equal to the amount of exempt 20 interest dividends as defined in subsection (b) (5) 21 of Section 852 of the Internal Revenue Code, paid to 22 shareholders for the taxable year; 23 (I) With the exception of any amounts 24 subtracted under subparagraph (J), an amount equal 25 to the sum of all amounts disallowed as deductions 26 by (i) Sections 171(a) (2), and 265(a)(2) and 27 amounts disallowed as interest expense by Section 28 291(a)(3) of the Internal Revenue Code, as now or 29 hereafter amended, and all amounts of expenses 30 allocable to interest and disallowed as deductions 31 by Section 265(a)(1) of the Internal Revenue Code, 32 as now or hereafter amended; and (ii) for taxable 33 years ending on or after August 13, 1999, Sections 34 171(a)(2), 265, 280C, 291(a)(3), and 832(b)(5)(B)(i) -34- LRB9205822SMdvam05 1 of the Internal Revenue Code; the provisions of this 2 subparagraph are exempt from the provisions of 3 Section 250; 4 (J) An amount equal to all amounts included in 5 such total which are exempt from taxation by this 6 State either by reason of its statutes or 7 Constitution or by reason of the Constitution, 8 treaties or statutes of the United States; provided 9 that, in the case of any statute of this State that 10 exempts income derived from bonds or other 11 obligations from the tax imposed under this Act, the 12 amount exempted shall be the interest net of bond 13 premium amortization; 14 (K) An amount equal to those dividends 15 included in such total which were paid by a 16 corporation which conducts business operations in an 17 Enterprise Zone or zones created under the Illinois 18 Enterprise Zone Act and conducts substantially all 19 of its operations in an Enterprise Zone or zones; 20 (L) An amount equal to those dividends 21 included in such total that were paid by a 22 corporation that conducts business operations in a 23 federally designated Foreign Trade Zone or Sub-Zone 24 and that is designated a High Impact Business 25 located in Illinois; provided that dividends 26 eligible for the deduction provided in subparagraph 27 (K) of paragraph 2 of this subsection shall not be 28 eligible for the deduction provided under this 29 subparagraph (L); 30 (M) For any taxpayer that is a financial 31 organization within the meaning of Section 304(c) of 32 this Act, an amount included in such total as 33 interest income from a loan or loans made by such 34 taxpayer to a borrower, to the extent that such a -35- LRB9205822SMdvam05 1 loan is secured by property which is eligible for 2 the Enterprise Zone Investment Credit. To determine 3 the portion of a loan or loans that is secured by 4 property eligible for a Section 201(f)201(h)5 investment credit to the borrower, the entire 6 principal amount of the loan or loans between the 7 taxpayer and the borrower should be divided into the 8 basis of the Section 201(f)201(h)investment credit 9 property which secures the loan or loans, using for 10 this purpose the original basis of such property on 11 the date that it was placed in service in the 12 Enterprise Zone. The subtraction modification 13 available to taxpayer in any year under this 14 subsection shall be that portion of the total 15 interest paid by the borrower with respect to such 16 loan attributable to the eligible property as 17 calculated under the previous sentence; 18 (M-1) 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 21 interest income from a loan or loans made by such 22 taxpayer to a borrower, to the extent that such a 23 loan is secured by property which is eligible for 24 the High Impact Business Investment Credit. To 25 determine the portion of a loan or loans that is 26 secured by property eligible for a Section 201(h) 27201(i)investment credit to the borrower, the entire 28 principal amount of the loan or loans between the 29 taxpayer and the borrower should be divided into the 30 basis of the Section 201(h)201(i)investment credit 31 property which secures the loan or loans, using for 32 this purpose the original basis of such property on 33 the date that it was placed in service in a 34 federally designated Foreign Trade Zone or Sub-Zone -36- LRB9205822SMdvam05 1 located in Illinois. No taxpayer that is eligible 2 for the deduction provided in subparagraph (M) of 3 paragraph (2) of this subsection shall be eligible 4 for the deduction provided under this subparagraph 5 (M-1). The subtraction modification available to 6 taxpayers in any year under this subsection shall be 7 that portion of the total interest paid by the 8 borrower with respect to such loan attributable to 9 the eligible property as calculated under the 10 previous sentence; 11 (N) Two times any contribution made during the 12 taxable year to a designated zone organization to 13 the extent that the contribution (i) qualifies as a 14 charitable contribution under subsection (c) of 15 Section 170 of the Internal Revenue Code and (ii) 16 must, by its terms, be used for a project approved 17 by the Department of Commerce and Community Affairs 18 under Section 11 of the Illinois Enterprise Zone 19 Act; 20 (O) An amount equal to: (i) 85% for taxable 21 years ending on or before December 31, 1992, or, a 22 percentage equal to the percentage allowable under 23 Section 243(a)(1) of the Internal Revenue Code of 24 1986 for taxable years ending after December 31, 25 1992, of the amount by which dividends included in 26 taxable income and received from a corporation that 27 is not created or organized under the laws of the 28 United States or any state or political subdivision 29 thereof, including, for taxable years ending on or 30 after December 31, 1988, dividends received or 31 deemed received or paid or deemed paid under 32 Sections 951 through 964 of the Internal Revenue 33 Code, exceed the amount of the modification provided 34 under subparagraph (G) of paragraph (2) of this -37- LRB9205822SMdvam05 1 subsection (b) which is related to such dividends; 2 plus (ii) 100% of the amount by which dividends, 3 included in taxable income and received, including, 4 for taxable years ending on or after December 31, 5 1988, dividends received or deemed received or paid 6 or deemed paid under Sections 951 through 964 of the 7 Internal Revenue Code, from any such corporation 8 specified in clause (i) that would but for the 9 provisions of Section 1504 (b) (3) of the Internal 10 Revenue Code be treated as a member of the 11 affiliated group which includes the dividend 12 recipient, exceed the amount of the modification 13 provided under subparagraph (G) of paragraph (2) of 14 this subsection (b) which is related to such 15 dividends; 16 (P) An amount equal to any contribution made 17 to a job training project established pursuant to 18 the Tax Increment Allocation Redevelopment Act; 19 (Q) An amount equal to the amount of the 20 deduction used to compute the federal income tax 21 credit for restoration of substantial amounts held 22 under claim of right for the taxable year pursuant 23 to Section 1341 of the Internal Revenue Code of 24 1986; 25 (R) In the case of an attorney-in-fact with 26 respect to whom an interinsurer or a reciprocal 27 insurer has made the election under Section 835 of 28 the Internal Revenue Code, 26 U.S.C. 835, an amount 29 equal to the excess, if any, of the amounts paid or 30 incurred by that interinsurer or reciprocal insurer 31 in the taxable year to the attorney-in-fact over the 32 deduction allowed to that interinsurer or reciprocal 33 insurer with respect to the attorney-in-fact under 34 Section 835(b) of the Internal Revenue Code for the -38- LRB9205822SMdvam05 1 taxable year; and 2 (S) For taxable years ending on or after 3 December 31, 1997, in the case of a Subchapter S 4 corporation, an amount equal to all amounts of 5 income allocable to a shareholder subject to the 6 Personal Property Tax Replacement Income Tax imposed 7 by subsections (c) and (d) of Section 201 of this 8 Act, including amounts allocable to organizations 9 exempt from federal income tax by reason of Section 10 501(a) of the Internal Revenue Code. This 11 subparagraph (S) is exempt from the provisions of 12 Section 250. 13 (3) Special rule. For purposes of paragraph (2) 14 (A), "gross income" in the case of a life insurance 15 company, for tax years ending on and after December 31, 16 1994, shall mean the gross investment income for the 17 taxable year. 18 (c) Trusts and estates. 19 (1) In general. In the case of a trust or estate, 20 base income means an amount equal to the taxpayer's 21 taxable income for the taxable year as modified by 22 paragraph (2). 23 (2) Modifications. Subject to the provisions of 24 paragraph (3), the taxable income referred to in 25 paragraph (1) shall be modified by adding thereto the sum 26 of the following amounts: 27 (A) An amount equal to all amounts paid or 28 accrued to the taxpayer as interest or dividends 29 during the taxable year to the extent excluded from 30 gross income in the computation of taxable income; 31 (B) In the case of (i) an estate, $600; (ii) a 32 trust which, under its governing instrument, is 33 required to distribute all of its income currently, 34 $300; and (iii) any other trust, $100, but in each -39- LRB9205822SMdvam05 1 such case, only to the extent such amount was 2 deducted in the computation of taxable income; 3 (C) An amount equal to the amount of tax 4 imposed by this Act to the extent deducted from 5 gross income in the computation of taxable income 6 for the taxable year; 7 (D) The amount of any net operating loss 8 deduction taken in arriving at taxable income, other 9 than a net operating loss carried forward from a 10 taxable year ending prior to December 31, 1986; 11 (E) For taxable years in which a net operating 12 loss carryback or carryforward from a taxable year 13 ending prior to December 31, 1986 is an element of 14 taxable income under paragraph (1) of subsection (e) 15 or subparagraph (E) of paragraph (2) of subsection 16 (e), the amount by which addition modifications 17 other than those provided by this subparagraph (E) 18 exceeded subtraction modifications in such taxable 19 year, with the following limitations applied in the 20 order that they are listed: 21 (i) the addition modification relating to 22 the net operating loss carried back or forward 23 to the taxable year from any taxable year 24 ending prior to December 31, 1986 shall be 25 reduced by the amount of addition modification 26 under this subparagraph (E) which related to 27 that net operating loss and which was taken 28 into account in calculating the base income of 29 an earlier taxable year, and 30 (ii) the addition modification relating 31 to the net operating loss carried back or 32 forward to the taxable year from any taxable 33 year ending prior to December 31, 1986 shall 34 not exceed the amount of such carryback or -40- LRB9205822SMdvam05 1 carryforward; 2 For taxable years in which there is a net 3 operating loss carryback or carryforward from more 4 than one other taxable year ending prior to December 5 31, 1986, the addition modification provided in this 6 subparagraph (E) shall be the sum of the amounts 7 computed independently under the preceding 8 provisions of this subparagraph (E) for each such 9 taxable year; 10 (F) For taxable years ending on or after 11 January 1, 1989, an amount equal to the tax deducted 12 pursuant to Section 164 of the Internal Revenue Code 13 if the trust or estate is claiming the same tax for 14 purposes of the Illinois foreign tax credit under 15 Section 601 of this Act; 16 (G) An amount equal to the amount of the 17 capital gain deduction allowable under the Internal 18 Revenue Code, to the extent deducted from gross 19 income in the computation of taxable income; and 20 (G-5) For taxable years ending after December 21 31, 1997, an amount equal to any eligible 22 remediation costs that the trust or estate deducted 23 in computing adjusted gross income and for which the 24 trust or estate claims a credit under subsection (l) 25 of Section 201; 26 and by deducting from the total so obtained the sum of 27 the following amounts: 28 (H) An amount equal to all amounts included in 29 such total pursuant to the provisions of Sections 30 402(a), 402(c), 403(a), 403(b), 406(a), 407(a) and 31 408 of the Internal Revenue Code or included in such 32 total as distributions under the provisions of any 33 retirement or disability plan for employees of any 34 governmental agency or unit, or retirement payments -41- LRB9205822SMdvam05 1 to retired partners, which payments are excluded in 2 computing net earnings from self employment by 3 Section 1402 of the Internal Revenue Code and 4 regulations adopted pursuant thereto; 5 (I) The valuation limitation amount; 6 (J) An amount equal to the amount of any tax 7 imposed by this Act which was refunded to the 8 taxpayer and included in such total for the taxable 9 year; 10 (K) An amount equal to all amounts included in 11 taxable income as modified by subparagraphs (A), 12 (B), (C), (D), (E), (F) and (G) which are exempt 13 from taxation by this State either by reason of its 14 statutes or Constitution or by reason of the 15 Constitution, treaties or statutes of the United 16 States; provided that, in the case of any statute of 17 this State that exempts income derived from bonds or 18 other obligations from the tax imposed under this 19 Act, the amount exempted shall be the interest net 20 of bond premium amortization; 21 (L) With the exception of any amounts 22 subtracted under subparagraph (K), an amount equal 23 to the sum of all amounts disallowed as deductions 24 by (i) Sections 171(a) (2) and 265(a)(2) of the 25 Internal Revenue Code, as now or hereafter amended, 26 and all amounts of expenses allocable to interest 27 and disallowed as deductions by Section 265(1) of 28 the Internal Revenue Code of 1954, as now or 29 hereafter amended; and (ii) for taxable years ending 30 on or after August 13, 1999, Sections 171(a)(2), 31 265, 280C, and 832(b)(5)(B)(i) of the Internal 32 Revenue Code; the provisions of this subparagraph 33 are exempt from the provisions of Section 250; 34 (M) An amount equal to those dividends -42- LRB9205822SMdvam05 1 included in such total which were paid by a 2 corporation which conducts business operations in an 3 Enterprise Zone or zones created under the Illinois 4 Enterprise Zone Act and conducts substantially all 5 of its operations in an Enterprise Zone or Zones; 6 (N) An amount equal to any contribution made 7 to a job training project established pursuant to 8 the Tax Increment Allocation Redevelopment Act; 9 (O) An amount equal to those dividends 10 included in such total that were paid by a 11 corporation that conducts business operations in a 12 federally designated Foreign Trade Zone or Sub-Zone 13 and that is designated a High Impact Business 14 located in Illinois; provided that dividends 15 eligible for the deduction provided in subparagraph 16 (M) of paragraph (2) of this subsection shall not be 17 eligible for the deduction provided under this 18 subparagraph (O); 19 (P) An amount equal to the amount of the 20 deduction used to compute the federal income tax 21 credit for restoration of substantial amounts held 22 under claim of right for the taxable year pursuant 23 to Section 1341 of the Internal Revenue Code of 24 1986; and 25 (Q) For taxable year 1999 and thereafter, an 26 amount equal to the amount of any (i) distributions, 27 to the extent includible in gross income for federal 28 income tax purposes, made to the taxpayer because of 29 his or her status as a victim of persecution for 30 racial or religious reasons by Nazi Germany or any 31 other Axis regime or as an heir of the victim and 32 (ii) items of income, to the extent includible in 33 gross income for federal income tax purposes, 34 attributable to, derived from or in any way related -43- LRB9205822SMdvam05 1 to assets stolen from, hidden from, or otherwise 2 lost to a victim of persecution for racial or 3 religious reasons by Nazi Germany or any other Axis 4 regime immediately prior to, during, and immediately 5 after World War II, including, but not limited to, 6 interest on the proceeds receivable as insurance 7 under policies issued to a victim of persecution for 8 racial or religious reasons by Nazi Germany or any 9 other Axis regime by European insurance companies 10 immediately prior to and during World War II; 11 provided, however, this subtraction from federal 12 adjusted gross income does not apply to assets 13 acquired with such assets or with the proceeds from 14 the sale of such assets; provided, further, this 15 paragraph shall only apply to a taxpayer who was the 16 first recipient of such assets after their recovery 17 and who is a victim of persecution for racial or 18 religious reasons by Nazi Germany or any other Axis 19 regime or as an heir of the victim. The amount of 20 and the eligibility for any public assistance, 21 benefit, or similar entitlement is not affected by 22 the inclusion of items (i) and (ii) of this 23 paragraph in gross income for federal income tax 24 purposes. This paragraph is exempt from the 25 provisions of Section 250. 26 (3) Limitation. The amount of any modification 27 otherwise required under this subsection shall, under 28 regulations prescribed by the Department, be adjusted by 29 any amounts included therein which were properly paid, 30 credited, or required to be distributed, or permanently 31 set aside for charitable purposes pursuant to Internal 32 Revenue Code Section 642(c) during the taxable year. 33 (d) Partnerships. 34 (1) In general. In the case of a partnership, base -44- LRB9205822SMdvam05 1 income means an amount equal to the taxpayer's taxable 2 income for the taxable year as modified by paragraph (2). 3 (2) Modifications. The taxable income referred to 4 in paragraph (1) shall be modified by adding thereto the 5 sum of the following amounts: 6 (A) An amount equal to all amounts paid or 7 accrued to the taxpayer as interest or dividends 8 during the taxable year to the extent excluded from 9 gross income in the computation of taxable income; 10 (B) An amount equal to the amount of tax 11 imposed by this Act to the extent deducted from 12 gross income for the taxable year; 13 (C) The amount of deductions allowed to the 14 partnership pursuant to Section 707 (c) of the 15 Internal Revenue Code in calculating its taxable 16 income; and 17 (D) An amount equal to the amount of the 18 capital gain deduction allowable under the Internal 19 Revenue Code, to the extent deducted from gross 20 income in the computation of taxable income; 21 and by deducting from the total so obtained the following 22 amounts: 23 (E) The valuation limitation amount; 24 (F) An amount equal to the amount of any tax 25 imposed by this Act which was refunded to the 26 taxpayer and included in such total for the taxable 27 year; 28 (G) An amount equal to all amounts included in 29 taxable income as modified by subparagraphs (A), 30 (B), (C) and (D) which are exempt from taxation by 31 this State either by reason of its statutes or 32 Constitution or by reason of the Constitution, 33 treaties or statutes of the United States; provided 34 that, in the case of any statute of this State that -45- LRB9205822SMdvam05 1 exempts income derived from bonds or other 2 obligations from the tax imposed under this Act, the 3 amount exempted shall be the interest net of bond 4 premium amortization; 5 (H) Any income of the partnership which 6 constitutes personal service income as defined in 7 Section 1348 (b) (1) of the Internal Revenue Code 8 (as in effect December 31, 1981) or a reasonable 9 allowance for compensation paid or accrued for 10 services rendered by partners to the partnership, 11 whichever is greater; 12 (I) An amount equal to all amounts of income 13 distributable to an entity subject to the Personal 14 Property Tax Replacement Income Tax imposed by 15 subsections (c) and (d) of Section 201 of this Act 16 including amounts distributable to organizations 17 exempt from federal income tax by reason of Section 18 501(a) of the Internal Revenue Code; 19 (J) With the exception of any amounts 20 subtracted under subparagraph (G), an amount equal 21 to the sum of all amounts disallowed as deductions 22 by (i) Sections 171(a) (2), and 265(2) of the 23 Internal Revenue Code of 1954, as now or hereafter 24 amended, and all amounts of expenses allocable to 25 interest and disallowed as deductions by Section 26 265(1) of the Internal Revenue Code, as now or 27 hereafter amended; and (ii) for taxable years ending 28 on or after August 13, 1999, Sections 171(a)(2), 29 265, 280C, and 832(b)(5)(B)(i) of the Internal 30 Revenue Code; the provisions of this subparagraph 31 are exempt from the provisions of Section 250; 32 (K) An amount equal to those dividends 33 included in such total which were paid by a 34 corporation which conducts business operations in an -46- LRB9205822SMdvam05 1 Enterprise Zone or zones created under the Illinois 2 Enterprise Zone Act, enacted by the 82nd General 3 Assembly, and conducts substantially all of its 4 operationswhich does not conduct such operations5other thanin an Enterprise Zone or Zones; 6 (L) An amount equal to any contribution made 7 to a job training project established pursuant to 8 the Real Property Tax Increment Allocation 9 Redevelopment Act; 10 (M) An amount equal to those dividends 11 included in such total that were paid by a 12 corporation that conducts business operations in a 13 federally designated Foreign Trade Zone or Sub-Zone 14 and that is designated a High Impact Business 15 located in Illinois; provided that dividends 16 eligible for the deduction provided in subparagraph 17 (K) of paragraph (2) of this subsection shall not be 18 eligible for the deduction provided under this 19 subparagraph (M); and 20 (N) An amount equal to the amount of the 21 deduction used to compute the federal income tax 22 credit for restoration of substantial amounts held 23 under claim of right for the taxable year pursuant 24 to Section 1341 of the Internal Revenue Code of 25 1986. 26 (e) Gross income; adjusted gross income; taxable income. 27 (1) In general. Subject to the provisions of 28 paragraph (2) and subsection (b) (3), for purposes of 29 this Section and Section 803(e), a taxpayer's gross 30 income, adjusted gross income, or taxable income for the 31 taxable year shall mean the amount of gross income, 32 adjusted gross income or taxable income properly 33 reportable for federal income tax purposes for the 34 taxable year under the provisions of the Internal Revenue -47- LRB9205822SMdvam05 1 Code. Taxable income may be less than zero. However, for 2 taxable years ending on or after December 31, 1986, net 3 operating loss carryforwards from taxable years ending 4 prior to December 31, 1986, may not exceed the sum of 5 federal taxable income for the taxable year before net 6 operating loss deduction, plus the excess of addition 7 modifications over subtraction modifications for the 8 taxable year. For taxable years ending prior to December 9 31, 1986, taxable income may never be an amount in excess 10 of the net operating loss for the taxable year as defined 11 in subsections (c) and (d) of Section 172 of the Internal 12 Revenue Code, provided that when taxable income of a 13 corporation (other than a Subchapter S corporation), 14 trust, or estate is less than zero and addition 15 modifications, other than those provided by subparagraph 16 (E) of paragraph (2) of subsection (b) for corporations 17 or subparagraph (E) of paragraph (2) of subsection (c) 18 for trusts and estates, exceed subtraction modifications, 19 an addition modification must be made under those 20 subparagraphs for any other taxable year to which the 21 taxable income less than zero (net operating loss) is 22 applied under Section 172 of the Internal Revenue Code or 23 under subparagraph (E) of paragraph (2) of this 24 subsection (e) applied in conjunction with Section 172 of 25 the Internal Revenue Code. 26 (2) Special rule. For purposes of paragraph (1) of 27 this subsection, the taxable income properly reportable 28 for federal income tax purposes shall mean: 29 (A) Certain life insurance companies. In the 30 case of a life insurance company subject to the tax 31 imposed by Section 801 of the Internal Revenue Code, 32 life insurance company taxable income, plus the 33 amount of distribution from pre-1984 policyholder 34 surplus accounts as calculated under Section 815a of -48- LRB9205822SMdvam05 1 the Internal Revenue Code; 2 (B) Certain other insurance companies. In the 3 case of mutual insurance companies subject to the 4 tax imposed by Section 831 of the Internal Revenue 5 Code, insurance company taxable income; 6 (C) Regulated investment companies. In the 7 case of a regulated investment company subject to 8 the tax imposed by Section 852 of the Internal 9 Revenue Code, investment company taxable income; 10 (D) Real estate investment trusts. In the 11 case of a real estate investment trust subject to 12 the tax imposed by Section 857 of the Internal 13 Revenue Code, real estate investment trust taxable 14 income; 15 (E) Consolidated corporations. In the case of 16 a corporation which is a member of an affiliated 17 group of corporations filing a consolidated income 18 tax return for the taxable year for federal income 19 tax purposes, taxable income determined as if such 20 corporation had filed a separate return for federal 21 income tax purposes for the taxable year and each 22 preceding taxable year for which it was a member of 23 an affiliated group. For purposes of this 24 subparagraph, the taxpayer's separate taxable income 25 shall be determined as if the election provided by 26 Section 243(b) (2) of the Internal Revenue Code had 27 been in effect for all such years; 28 (F) Cooperatives. In the case of a 29 cooperative corporation or association, the taxable 30 income of such organization determined in accordance 31 with the provisions of Section 1381 through 1388 of 32 the Internal Revenue Code; 33 (G) Subchapter S corporations. In the case 34 of: (i) a Subchapter S corporation for which there -49- LRB9205822SMdvam05 1 is in effect an election for the taxable year under 2 Section 1362 of the Internal Revenue Code, the 3 taxable income of such corporation determined in 4 accordance with Section 1363(b) of the Internal 5 Revenue Code, except that taxable income shall take 6 into account those items which are required by 7 Section 1363(b)(1) of the Internal Revenue Code to 8 be separately stated; and (ii) a Subchapter S 9 corporation for which there is in effect a federal 10 election to opt out of the provisions of the 11 Subchapter S Revision Act of 1982 and have applied 12 instead the prior federal Subchapter S rules as in 13 effect on July 1, 1982, the taxable income of such 14 corporation determined in accordance with the 15 federal Subchapter S rules as in effect on July 1, 16 1982; and 17 (H) Partnerships. In the case of a 18 partnership, taxable income determined in accordance 19 with Section 703 of the Internal Revenue Code, 20 except that taxable income shall take into account 21 those items which are required by Section 703(a)(1) 22 to be separately stated but which would be taken 23 into account by an individual in calculating his 24 taxable income. 25 (f) Valuation limitation amount. 26 (1) In general. The valuation limitation amount 27 referred to in subsections (a) (2) (G), (c) (2) (I) and 28 (d)(2) (E) is an amount equal to: 29 (A) The sum of the pre-August 1, 1969 30 appreciation amounts (to the extent consisting of 31 gain reportable under the provisions of Section 1245 32 or 1250 of the Internal Revenue Code) for all 33 property in respect of which such gain was reported 34 for the taxable year; plus -50- LRB9205822SMdvam05 1 (B) The lesser of (i) the sum of the 2 pre-August 1, 1969 appreciation amounts (to the 3 extent consisting of capital gain) for all property 4 in respect of which such gain was reported for 5 federal income tax purposes for the taxable year, or 6 (ii) the net capital gain for the taxable year, 7 reduced in either case by any amount of such gain 8 included in the amount determined under subsection 9 (a) (2) (F) or (c) (2) (H). 10 (2) Pre-August 1, 1969 appreciation amount. 11 (A) If the fair market value of property 12 referred to in paragraph (1) was readily 13 ascertainable on August 1, 1969, the pre-August 1, 14 1969 appreciation amount for such property is the 15 lesser of (i) the excess of such fair market value 16 over the taxpayer's basis (for determining gain) for 17 such property on that date (determined under the 18 Internal Revenue Code as in effect on that date), or 19 (ii) the total gain realized and reportable for 20 federal income tax purposes in respect of the sale, 21 exchange or other disposition of such property. 22 (B) If the fair market value of property 23 referred to in paragraph (1) was not readily 24 ascertainable on August 1, 1969, the pre-August 1, 25 1969 appreciation amount for such property is that 26 amount which bears the same ratio to the total gain 27 reported in respect of the property for federal 28 income tax purposes for the taxable year, as the 29 number of full calendar months in that part of the 30 taxpayer's holding period for the property ending 31 July 31, 1969 bears to the number of full calendar 32 months in the taxpayer's entire holding period for 33 the property. 34 (C) The Department shall prescribe such -51- LRB9205822SMdvam05 1 regulations as may be necessary to carry out the 2 purposes of this paragraph. 3 (g) Double deductions. Unless specifically provided 4 otherwise, nothing in this Section shall permit the same item 5 to be deducted more than once. 6 (h) Legislative intention. Except as expressly provided 7 by this Section there shall be no modifications or 8 limitations on the amounts of income, gain, loss or deduction 9 taken into account in determining gross income, adjusted 10 gross income or taxable income for federal income tax 11 purposes for the taxable year, or in the amount of such items 12 entering into the computation of base income and net income 13 under this Act for such taxable year, whether in respect of 14 property values as of August 1, 1969 or otherwise. 15 (Source: P.A. 90-491, eff. 1-1-98; 90-717, eff. 8-7-98; 16 90-770, eff. 8-14-98; 91-192, eff. 7-20-99; 91-205, eff. 17 7-20-99; 91-357, eff. 7-29-99; 91-541, eff. 8-13-99; 91-676, 18 eff. 12-23-99; 91-845, eff. 6-22-00; 91-913, eff. 1-1-01; 19 revised 1-15-01.) 20 (35 ILCS 5/209) 21 Sec. 209. Tax Credit for "TECH-PREP" youth vocational 22 programs. 23 (a) Beginning with tax years ending on or after June 30, 24 1995, every taxpayer who is primarily engaged in 25 manufacturing is allowed a credit against the tax imposed by 26 subsections (a) and (b) of Section 201 in an amount equal to 27 20% of the taxpayer's direct payroll expenditures for which a 28 credit has not already been claimed under subsection (j) of 29 Section 201 of this Act, in the tax year for which the credit 30 is claimed, for cooperative secondary school youth vocational 31 programs in Illinois which are certified as qualifying 32 TECH-PREP programs by the State Board of Educationand the-52- LRB9205822SMdvam05 1Department of Revenuebecause the programs prepare students 2 to be technically skilled workers and meet the performance 3 standards of business and industry and the admission 4 standards of higher education. The credit may also be claimed 5 for personal services rendered to the taxpayer by a TECH-PREP 6 student or instructor (i) which would be subject to the 7 provisions of Article 7 of this Act if the student or 8 instructor was an employee of the taxpayer and (ii) for which 9 no credit under this Section is claimed by another taxpayer. 10 (b) If the amount of the credit exceeds the tax 11 liability for the year, the excess may be carried forward and 12 applied to the tax liability of the 2 taxable years following 13 the excess credit year. The credit shall be applied to the 14 earliest year for which there is a tax liability. If there 15 are credits from more than one tax year that are available to 16 offset a liability, the earlier credit shall be applied 17 first. 18 (c) A taxpayer claiming the credit provided by this 19 Section shall maintain and record such information regarding 20 its participation in a qualifying TECH-PREP program as the 21 Department may require by regulation. When claiming the 22 credit provided by this Section, the taxpayer shall provide 23 such information regarding the taxpayer's participation in a 24 qualifying TECH-PREP program as the Department of Revenue may 25 require by regulation. 26 (d) This Section does not apply to those programs with 27 national standards that have been or in the future are 28 approved by the U.S. Department of Labor, Bureau of 29 Apprenticeship Training or any federal agency succeeding to 30 the responsibilities of that Bureau. 31 (Source: P.A. 88-505; 89-399, eff. 8-20-95.) 32 (35 ILCS 5/303) (from Ch. 120, par. 3-303) 33 Sec. 303. Nonbusiness income of persons other than -53- LRB9205822SMdvam05 1 residents. 2 (a) In general. Any item of capital gain or loss, and 3 any item of income from rents or royalties from real or 4 tangible personal property, interest, dividends, and patent 5 or copyright royalties, and prizes awarded under the Illinois 6 Lottery Law, to the extent such item constitutes nonbusiness 7 income, together with any item of deduction directly 8 allocable thereto, shall be allocated by any person other 9 than a resident as provided in this Section. 10 (b) Capital gains and losses. (1) Real property. Capital 11 gains and losses from sales or exchanges of real property are 12 allocable to this State if the property is located in this 13 State. 14 (2) Tangible personal property. Capital gains and losses 15 from sales or exchanges of tangible personal property are 16 allocable to this State if, at the time of such sale or 17 exchange: 18 (A) The property had its situs in this State; or 19 (B) The taxpayer had its commercial domicile in this 20 State and was not taxable in the state in which the property 21 had its situs. 22 (3) Intangibles. Capital gains and losses from sales or 23 exchanges of intangible personal property are allocable to 24 this State if the taxpayer had its commercial domicile in 25 this State at the time of such sale or exchange. 26 (c) Rents and royalties. (1) Real property. Rents and 27 royalties from real property are allocable to this State if 28 the property is located in this State. 29 (2) Tangible personal property. Rents and royalties from 30 tangible personal property are allocable to this State: 31 (A) If and to the extent that the property is utilized 32 in this State; or 33 (B) In their entirety if, at the time such rents or 34 royalties were paid or accrued, the taxpayer had its -54- LRB9205822SMdvam05 1 commercial domicile in this State and was not organized under 2 the laws of or taxable with respect to such rents or 3 royalties in the state in which the property was utilized. 4 The extent of utilization of tangible personal property in a 5 state is determined by multiplying the rents or royalties 6 derived from such property by a fraction, the numerator of 7 which is the number of days of physical location of the 8 property in the state during the rental or royalty period in 9 the taxable year and the denominator of which is the number 10 of days of physical location of the property everywhere 11 during all rental or royalty periods in the taxable year. If 12 the physical location of the property during the rental or 13 royalty period is unknown or unascertainable by the taxpayer, 14 tangible personal property is utilized in the state in which 15 the property was located at the time the rental or royalty 16 payer obtained possession. 17 (d) Patent and copyright royalties. 18 (1) Allocation. Patent and copyright royalties are 19 allocable to this State: 20 (A) If and to the extent that the patent or copyright is 21 utilized by the payer in this State; or 22 (B) If and to the extent that the patent or copyright is 23 utilized by the payer in a state in which the taxpayer is not 24 taxable with respect to such royalties and, at the time such 25 royalties were paid or accrued, the taxpayer had its 26 commercial domicile in this State. 27 (2) Utilization. 28 (A) A patent is utilized in a state to the extent that 29 it is employed in production, fabrication, manufacturing or 30 other processing in the state or to the extent that a 31 patented product is produced in the state. If the basis of 32 receipts from patent royalties does not permit allocation to 33 states or if the accounting procedures do not reflect states 34 of utilization, the patent is utilized in this State if the -55- LRB9205822SMdvam05 1 taxpayer has its commercial domicile in this State. 2 (B) A copyright is utilized in a state to the extent 3 that printing or other publication originates in the state. 4 If the basis of receipts from copyright royalties does not 5 permit allocation to states or if the accounting procedures 6 do not reflect states of utilization, the copyright is 7 utilized in this State if the taxpayer has its commercial 8 domicile in this State. 9 (e) Illinois lottery, wagering, and gambling winnings 10prizes. Prizes awarded under the"Illinois Lottery Law",11approved December 14, 1973,are allocable to this State. 12 Payments made after December 31, 2001, of winnings from 13 pari-mutuel wagering conducted at a wagering facility 14 licensed under the Illinois Horse Racing Act of 1975 or from 15 gambling games conducted on a riverboat licensed under the 16 Riverboat Gambling Act are allocable to this State. 17 (f) Taxability in other state. For purposes of 18 allocation of income pursuant to this Section, a taxpayer is 19 taxable in another state if: 20 (1) In that state he is subject to a net income tax, a 21 franchise tax measured by net income, a franchise tax for the 22 privilege of doing business, or a corporate stock tax; or 23 (2) That state has jurisdiction to subject the taxpayer 24 to a net income tax regardless of whether, in fact, the state 25 does or does not. 26 (g) Cross references. (1) For allocation of interest and 27 dividends by persons other than residents, see Section 28 301(c)(2). 29 (2) For allocation of nonbusiness income by residents, 30 see Section 301(a). 31 (Source: P.A. 79-743.) 32 (35 ILCS 5/502) (from Ch. 120, par. 5-502) 33 Sec. 502. Returns and notices. -56- LRB9205822SMdvam05 1 (a) In general. A return with respect to the taxes 2 imposed by this Act shall be made by every person for any 3 taxable year: 4 (1) For which such person is liable for a tax 5 imposed by this Act, or 6 (2) In the case of a resident or in the case of a 7 corporation which is qualified to do business in this 8 State, for which such person is required to make a 9 federal income tax return, regardless of whether such 10 person is liable for a tax imposed by this Act. However, 11 this paragraph shall not require a resident to make a 12 return if such person has an Illinois base income of the 13 basic amount in Section 204(b) or less and is either 14 claimed as a dependent on another person's tax return 15 under the Internal Revenue Code of 1986, or is claimed as 16 a dependent on another person's tax return under this 17 Act. 18 (b) Fiduciaries and receivers. 19 (1) Decedents. If an individual is deceased, any 20 return or notice required of such individual under this 21 Act shall be made by his executor, administrator, or 22 other person charged with the property of such decedent. 23 (2) Individuals under a disability. If an 24 individual is unable to make a return or notice required 25 under this Act, the return or notice required of such 26 individual shall be made by his duly authorized agent, 27 guardian, fiduciary or other person charged with the care 28 of the person or property of such individual. 29 (3) Estates and trusts. Returns or notices required 30 of an estate or a trust shall be made by the fiduciary 31 thereof. 32 (4) Receivers, trustees and assignees for 33 corporations. In a case where a receiver, trustee in 34 bankruptcy, or assignee, by order of a court of competent -57- LRB9205822SMdvam05 1 jurisdiction, by operation of law, or otherwise, has 2 possession of or holds title to all or substantially all 3 the property or business of a corporation, whether or not 4 such property or business is being operated, such 5 receiver, trustee, or assignee shall make the returns and 6 notices required of such corporation in the same manner 7 and form as corporations are required to make such 8 returns and notices. 9 (c) Joint returns by husband and wife. 10 (1) Except as provided in paragraph (3), if a 11 husband and wife file a joint federal income tax return 12 for a taxable year they shall file a joint return under 13 this Act for such taxable year and their liabilities 14 shall be joint and several, but if the federal income tax 15 liability of either spouse is determined on a separate 16 federal income tax return, they shall file separate 17 returns under this Act. 18 (2) If neither spouse is required to file a federal 19 income tax return and either or both are required to file 20 a return under this Act, they may elect to file separate 21 or joint returns and pursuant to such election their 22 liabilities shall be separate or joint and several. 23 (3) If either husband or wife is a resident and the 24 other is a nonresident, they shall file separate returns 25 in this State on such forms as may be required by the 26 Department in which event their tax liabilities shall be 27 separate; but they may elect to determine their joint net 28 income and file a joint return as if both were residents 29 and in such case, their liabilities shall be joint and 30 several. 31 (4) Innocent spouses. 32 (A) However, for tax liabilities arising and 33 paid prior to August 13, 1999the effective date of34this amendatory Act of the 91st General Assembly, an -58- LRB9205822SMdvam05 1 innocent spouse shall be relieved of liability for 2 tax (including interest and penalties) for any 3 taxable year for which a joint return has been made, 4 upon submission of proof that the Internal Revenue 5 Service has made a determination under Section 6 6013(e) of the Internal Revenue Code, for the same 7 taxable year, which determination relieved the 8 spouse from liability for federal income taxes. If 9 there is no federal income tax liability at issue 10 for the same taxable year, the Department shall rely 11 on the provisions of Section 6013(e) to determine 12 whether the person requesting innocent spouse 13 abatement of tax, penalty, and interest is entitled 14 to that relief. 15 (B) For tax liabilities arising on and after 16 August 13, 1999the effective date of this17amendatory Act of the 91st General Assemblyor which 18 arose prior to thateffectivedate, but remain 19 unpaid as of thatthe effectivedate, if an 20 individual who filed a joint return for any taxable 21 year has made an election under this paragraph, the 22 individual's liability for any tax shown on the 23 joint return shall not exceed the individual's 24 separate return amount and the individual's 25 liability for any deficiency assessed for that 26 taxable year shall not exceed the portion of the 27 deficiency properly allocable to the individual. 28 For purposes of this paragraph: 29 (i) An election properly made pursuant to 30 Section 6015 of the Internal Revenue Code shall 31 constitute an election under this paragraph, 32 provided that the election shall not be 33 effective until the individual has notified the 34 Department of the election in the form and -59- LRB9205822SMdvam05 1 manner prescribed by the Department. 2 (ii) If no election has been made under 3 Section 6015, the individual may make an 4 election under this paragraph in the form and 5 manner prescribed by the Department, provided 6 that no election may be made if the Department 7 finds that assets were transferred between 8 individuals filing a joint return as part of a 9 scheme by such individuals to avoid payment of 10 Illinois income tax and the election shall not 11 eliminate the individual's liability for any 12 portion of a deficiency attributable to an 13 error on the return of which the individual had 14 actual knowledge as of the date of filing. 15 (iii) In determining the separate return 16 amount or portion of any deficiency 17 attributable to an individual, the Department 18 shall follow the provisions in subsections (c) 19 and (d) of Section 60156015(b) and (c)of the 20 Internal Revenue Code. 21 (iv) In determining the validity of an 22 individual's election under subparagraph (ii) 23 and in determining an electing individual's 24 separate return amount or portion of any 25 deficiency under subparagraph (iii), any 26 determination made by the Secretary of the 27 Treasury, by the United States Tax Court on 28 petition for review of a determination by the 29 Secretary of the Treasury, or on appeal from 30 the United States Tax Court under Section 6015 316015(a)of the Internal Revenue Code regarding 32 criteria for eligibility or under subsection 33 (d) of Section 60156015(b) or (c)of the 34 Internal Revenue Code regarding the allocation -60- LRB9205822SMdvam05 1 of any item of income, deduction, payment, or 2 credit between an individual making the federal 3 election and that individual's spouse shall be 4 conclusively presumed to be correct. With 5 respect to any item that is not the subject of 6 a determination by the Secretary of the 7 Treasury or the federal courts, in any 8 proceeding involving this subsection, the 9 individual making the election shall have the 10 burden of proof with respect to any item except 11 that the Department shall have the burden of 12 proof with respect to items in subdivision 13 (ii). 14 (v) Any election made by an individual 15 under this subsection shall apply to all years 16 for which that individual and the spouse named 17 in the election have filed a joint return. 18 (vi) After receiving a notice that the 19 federal election has been made or after 20 receiving an election under subdivision (ii), 21 the Department shall take no collection action 22 against the electing individual for any 23 liability arising from a joint return covered 24 by the election until the Department has 25 notified the electing individual in writing 26 that the election is invalid or of the portion 27 of the liability the Department has allocated 28 to the electing individual. Within 60 days 29 (150 days if the individual is outside the 30 United States) after the issuance of such 31 notification, the individual may file a written 32 protest of the denial of the election or of the 33 Department's determination of the liability 34 allocated to him or her and shall be granted a -61- LRB9205822SMdvam05 1 hearing within the Department under the 2 provisions of Section 908. If a protest is 3 filed, the Department shall take no collection 4 action against the electing individual until 5 the decision regarding the protest has become 6 final under subsection (d) of Section 908 or, 7 if administrative review of the Department's 8 decision is requested under Section 1201, until 9 the decision of the court becomes final. 10 (d) Partnerships. Every partnership having any base 11 income allocable to this State in accordance with section 12 305(c) shall retain information concerning all items of 13 income, gain, loss and deduction; the names and addresses of 14 all of the partners, or names and addresses of members of a 15 limited liability company, or other persons who would be 16 entitled to share in the base income of the partnership if 17 distributed; the amount of the distributive share of each; 18 and such other pertinent information as the Department may by 19 forms or regulations prescribe. The partnership shall make 20 that information available to the Department when requested 21 by the Department. 22 (e) For taxable years ending on or after December 31, 23 1985, and before December 31, 1993, taxpayers that are 24 corporations (other than Subchapter S corporations) having 25 the same taxable year and that are members of the same 26 unitary business group may elect to be treated as one 27 taxpayer for purposes of any original return, amended return 28 which includes the same taxpayers of the unitary group which 29 joined in the election to file the original return, 30 extension, claim for refund, assessment, collection and 31 payment and determination of the group's tax liability under 32 this Act. This subsection (e) does not permit the election to 33 be made for some, but not all, of the purposes enumerated 34 above. For taxable years ending on or after December 31, -62- LRB9205822SMdvam05 1 1987, corporate members (other than Subchapter S 2 corporations) of the same unitary business group making this 3 subsection (e) election are not required to have the same 4 taxable year. 5 For taxable years ending on or after December 31, 1993, 6 taxpayers that are corporations (other than Subchapter S 7 corporations) and that are members of the same unitary 8 business group shall be treated as one taxpayer for purposes 9 of any original return, amended return which includes the 10 same taxpayers of the unitary group which joined in filing 11 the original return, extension, claim for refund, assessment, 12 collection and payment and determination of the group's tax 13 liability under this Act. 14 (f) The Department may promulgate regulations to permit 15 nonresident individual partners of the same partnership, 16 nonresident Subchapter S corporation shareholders of the same 17 Subchapter S corporation, and nonresident individuals 18 transacting an insurance business in Illinois under a Lloyds 19 plan of operation, and nonresident individual members of the 20 same limited liability company that is treated as a 21 partnership under Section 1501 (a)(16) of this Act, to file 22 composite individual income tax returns reflecting the 23 composite income of such individuals allocable to Illinois 24 and to make composite individual income tax payments. The 25 Department may by regulation also permit such composite 26 returns to include the income tax owed by Illinois residents 27 attributable to their income from partnerships, Subchapter S 28 corporations, insurance businesses organized under a Lloyds 29 plan of operation, or limited liability companies that are 30 treated as partnership under Section 1501 (a)(16) of this 31 Act, in which case such Illinois residents will be permitted 32 to claim credits on their individual returns for their shares 33 of the composite tax payments. This paragraph of subsection 34 (f) applies to taxable years ending on or after December 31, -63- LRB9205822SMdvam05 1 1987. 2 For taxable years ending on or after December 31, 1999, 3 the Department may, by regulation, also permit any persons 4 transacting an insurance business organized under a Lloyds 5 plan of operation to file composite returns reflecting the 6 income of such persons allocable to Illinois and the tax 7 rates applicable to such persons under Section 201 and to 8 make composite tax payments and shall, by regulation, also 9 provide that the income and apportionment factors 10 attributable to the transaction of an insurance business 11 organized under a Lloyds plan of operation by any person 12 joining in the filing of a composite return shall, for 13 purposes of allocating and apportioning income under Article 14 3 of this Act and computing net income under Section 202 of 15 this Act, be excluded from any other income and apportionment 16 factors of that person or of any unitary business group, as 17 defined in subdivision (a)(27) of Section 1501, to which that 18 person may belong. 19 (g) The Department may adopt rules to authorize the 20 electronic filing of any return required to be filed under 21 this Section. 22 (Source: P.A. 90-613, eff. 7-9-98; 91-541, eff. 8-13-99; 23 91-913, eff. 1-1-01.) 24 (35 ILCS 5/506) (from Ch. 120, par. 5-506) 25 Sec. 506. Federal Returns. 26 (a) In general. Any person required to make a return 27 for a taxable year under this Act may, at any time that a 28 deficiency could be assessed or a refund claimed under this 29 Act in respect of any item reported or properly reportable on 30 such return or any amendment thereof, be required to furnish 31 to the Department a true and correct copy of any return which 32 may pertain to such item and which was filed by such person 33 under the provisions of the Internal Revenue Code. -64- LRB9205822SMdvam05 1 (b) Changes affecting federal income tax. A person shall 2 notify the Department if:In the event3 (1) the taxable income, any item of income or 4 deduction, the income tax liability, or any tax credit 5 reported in a federal income tax return of thatany6 person for any year is altered by amendment of such 7 return or as a result of any other recomputation or 8 redetermination of federal taxable income or loss, and 9 such alteration reflects a change or settlement with 10 respect to any item or items, affecting the computation 11 of such person's net income, net loss, or of any credit 12 provided by Article 2 of this Act for any year under this 13 Act, or in the number of personal exemptions allowable to 14 such person under Section 151 of the Internal Revenue 15 Code, or 16 (2) the amount of tax required to be withheld by 17 that person from compensation paid to employees and 18 required to be reported by that person on a federal 19 return is altered by amendment of the return or by any 20 other recomputation or redetermination that is agreed to 21 or finally determined on or after January 1, 2002, and 22 the alteration affects the amount of compensation subject 23 to withholding by that person under Section 701 of this 24 Actsuch person shall notify the Department of such25alteration. 26 Such notification shall be in the form of an amended return 27 or such other form as the Department may by regulations 28 prescribe, shall contain the person's name and address and 29 such other information as the Department may by regulations 30 prescribe, shall be signed by such person or his duly 31 authorized representative, and shall be filed not later than 32 120 days after such alteration has been agreed to or finally 33 determined for federal income tax purposes or any federal 34 income tax deficiency or refund, tentative carryback -65- LRB9205822SMdvam05 1 adjustment, abatement or credit resulting therefrom has been 2 assessed or paid, whichever shall first occur. 3 (Source: P.A. 90-491, eff. 1-1-98.) 4 (35 ILCS 5/701) (from Ch. 120, par. 7-701) 5 Sec. 701. Requirement and Amount of Withholding. 6 (a) In General. Every employer maintaining an office or 7 transacting business within this State and required under the 8 provisions of the Internal Revenue Code to withhold a tax on: 9 (1) compensation paid in this State (as determined 10 under Section 304 (a) (2) (B) to an individual; or 11 (2) payments described in subsection (b) shall 12 deduct and withhold from such compensation for each 13 payroll period (as defined in Section 3401 of the 14 Internal Revenue Code) an amount equal to the amount by 15 which such individual's compensation exceeds the 16 proportionate part of this withholding exemption 17 (computed as provided in Section 702) attributable to the 18 payroll period for which such compensation is payable 19 multiplied by a percentage equal to the percentage tax 20 rate for individuals provided in subsection (b) of 21 Section 201. 22 (b) Payment to Residents. 23 Any payment (including compensation) to a resident by a 24 payor maintaining an office or transacting business within 25 this State (including any agency, officer, or employee of 26 this State or of any political subdivision of this State) and 27 on which withholding of tax is required under the provisions 28 of the Internal Revenue Code shall be deemed to be 29 compensation paid in this State by an employer to an employee 30 for the purposes of Article 7 and Section 601 (b) (1) to the 31 extent such payment is included in the recipient's base 32 income and not subjected to withholding by another state. 33 (c) Special Definitions. -66- LRB9205822SMdvam05 1 Withholding shall be considered required under the 2 provisions of the Internal Revenue Code to the extent the 3 Internal Revenue Code either requires withholding or allows 4 for voluntary withholding the payor and recipient have 5 entered into such a voluntary withholding agreement. For the 6 purposes of Article 7 and Section 1002 (c) the term 7 "employer" includes any payor who is required to withhold tax 8 pursuant to this Section. 9 (d) Reciprocal Exemption. 10 The Director may enter into an agreement with the taxing 11 authorities of any state which imposes a tax on or measured 12 by income to provide that compensation paid in such state to 13 residents of this State shall be exempt from withholding of 14 such tax; in such case, any compensation paid in this State 15 to residents of such state shall be exempt from withholding. 16 All reciprocal agreements shall be subject to the 17 requirements of Section 2505-575 of the Department of Revenue 18 Law (20 ILCS 2505/2505-575). 19 (e) Notwithstanding subsection (a) (2) of this Section, 20 no withholding is required on payments for which withholding 21 is required under Section 3405 or 3406 of the Internal 22 Revenue Code of 1954. 23 (Source: P.A. 90-491, eff. 1-1-98; 91-239, eff. 1-1-00.) 24 (35 ILCS 5/710) (from Ch. 120, par. 7-710) 25 Sec. 710. Withholding from lottery, wagering, and 26 gambling winnings. 27 (a) In General. 28 (1) Any person making a payment to a resident or 29 nonresident of winnings under the Illinois Lottery Law 30 and not required to withhold Illinois income tax from 31 such payment under Subsection (b) of Section 701 of this 32 Act because those winnings are not subject to federal 33 income tax withholding, must withhold Illinois income tax -67- LRB9205822SMdvam05 1 from such payment at a rate equal to the percentage tax 2 rate for individuals provided in subsection (b) of 3 Section 201, provided that withholding is not required if 4 such payment of winnings is less than $2,000 ($1,000, for 5 payments made before January 1, 2002). 6 (2) Any person making a payment after December 31, 7 2001 to a resident or nonresident of winnings from 8 pari-mutuel wagering conducted at a wagering facility 9 licensed under the Illinois Horse Racing Act of 1975 or 10 from gambling games conducted on a riverboat licensed 11 under the Riverboat Gambling Act, and not required to 12 withhold Illinois income tax from such payment under 13 subsection (b) of Section 701 of this Act because those 14 winnings are not subject to federal income tax 15 withholding, must withhold Illinois income tax from such 16 payment at a rate equal to the percentage tax rate for 17 individuals provided in subsection (b) of Section 201, 18 provided that withholding is not required if such payment 19 of winnings is less than $2,000. 20 (b) Credit for taxes withheld. Any amount withheld 21 under Subsection (a) shall be a credit against the Illinois 22 income tax liability of the person to whom the payment of 23 winnings was made for the taxable year in which that person 24 incurred an Illinois income tax liability with respect to 25 those winnings. 26 (Source: P.A. 85-731.) 27 (35 ILCS 5/905) (from Ch. 120, par. 9-905) 28 Sec. 905. Limitations on Notices of Deficiency. 29 (a) In general. Except as otherwise provided in this 30 Act: 31 (1) A notice of deficiency shall be issued not 32 later than 3 years after the date the return was filed, 33 and -68- LRB9205822SMdvam05 1 (2) No deficiency shall be assessed or collected 2 with respect to the year for which the return was filed 3 unless such notice is issued within such period. 4 (b) Omission of more than 25% of income. If the taxpayer 5 omits from base income an amount properly includible therein 6 which is in excess of 25% of the amount of base income stated 7 in the return, a notice of deficiency may be issued not later 8 than 6 years after the return was filed. For purposes of this 9 paragraph, there shall not be taken into account any amount 10 which is omitted in the return if such amount is disclosed in 11 the return, or in a statement attached to the return, in a 12 manner adequate to apprise the Department of the nature and 13 the amount of such item. 14 (c) No return or fraudulent return. If no return is 15 filed or a false and fraudulent return is filed with intent 16 to evade the tax imposed by this Act, a notice of deficiency 17 may be issued at any time. 18 (d) Failure to report federal change. If a taxpayer 19 fails to notify the Department in any case where notification 20 is required by Section 304(c) or 506(b), or fails to report a 21 change or correction which is treated in the same manner as 22 if it were a deficiency for federal income tax purposes, a 23 notice of deficiency may be issued (i) at any time or (ii) on 24 or after August 13, 1999the effective date of this25amendatory Act of the 91st General Assembly, at any time for 26 the taxable year for which the notification is required or 27 for any taxable year to which the taxpayer may carry an 28 Article 2 credit, or a Section 207 loss, earned, incurred, or 29 used in the year for which the notification is required; 30 provided, however, that the amount of any proposed assessment 31 set forth in the notice shall be limited to the amount of any 32 deficiency resulting under this Act from the recomputation of 33 the taxpayer's net income, Article 2 credits, or Section 207 34 loss earned, incurred, or used in the taxable year for which -69- LRB9205822SMdvam05 1 the notification is required after giving effect to the item 2 or items required to be reported. 3 (e) Report of federal change. 4 (1) Before August 13, 1999the effective date of5this amendatory Act of the 91st General Assembly, in any 6 case where notification of an alteration is given as 7 required by Section 506(b), a notice of deficiency may be 8 issued at any time within 2 years after the date such 9 notification is given, provided, however, that the amount 10 of any proposed assessment set forth in such notice shall 11 be limited to the amount of any deficiency resulting 12 under this Act from recomputation of the taxpayer's net 13 income, net loss, or Article 2 credits for the taxable 14 year after giving effect to the item or items reflected 15 in the reported alteration. 16 (2) On and after August 13, 1999the effective date17of this amendatory Act of the 91st General Assembly, in 18 any case where notification of an alteration is given as 19 required by Section 506(b), a notice of deficiency may be 20 issued at any time within 2 years after the date such 21 notification is given for the taxable year for which the 22 notification is given or for any taxable year to which 23 the taxpayer may carry an Article 2 credit, or a Section 24 207 loss, earned, incurred, or used in the year for which 25 the notification is given, provided, however, that the 26 amount of any proposed assessment set forth in such 27 notice shall be limited to the amount of any deficiency 28 resulting under this Act from recomputation of the 29 taxpayer's net income, Article 2 credits, or Section 207 30 loss earned, incurred, or used in the taxable year for 31 which the notification is given after giving effect to 32 the item or items reflected in the reported alteration. 33 (f) Extension by agreement. Where, before the expiration 34 of the time prescribed in this section for the issuance of a -70- LRB9205822SMdvam05 1 notice of deficiency, both the Department and the taxpayer 2 shall have consented in writing to its issuance after such 3 time, such notice may be issued at any time prior to the 4 expiration of the period agreed upon. In the case of a 5 taxpayer who is a partnership, Subchapter S corporation, or 6 trust and who enters into an agreement with the Department 7 pursuant to this subsection on or after January 1, 2002, a 8 notice of deficiency may be issued to the partners, 9 shareholders, or beneficiaries of the taxpayer at any time 10 prior to the expiration of the period agreed upon. Any 11 proposed assessment set forth in the notice, however, shall 12 be limited to the amount of any deficiency resulting under 13 this Act from recomputation of items of income, deduction, 14 credits, or other amounts of the taxpayer that are taken into 15 account by the partner, shareholder, or beneficiary in 16 computing its liability under this Act. The period so agreed 17 upon may be extended by subsequent agreements in writing made 18 before the expiration of the period previously agreed upon. 19 (g) Erroneous refunds. In any case in which there has 20 been an erroneous refund of tax payable under this Act, a 21 notice of deficiency may be issued at any time within 2 years 22 from the making of such refund, or within 5 years from the 23 making of such refund if it appears that any part of the 24 refund was induced by fraud or the misrepresentation of a 25 material fact, provided, however, that the amount of any 26 proposed assessment set forth in such notice shall be limited 27 to the amount of such erroneous refund. 28 Beginning July 1, 1993, in any case in which there has 29 been a refund of tax payable under this Act attributable to a 30 net loss carryback as provided for in Section 207, and that 31 refund is subsequently determined to be an erroneous refund 32 due to a reduction in the amount of the net loss which was 33 originally carried back, a notice of deficiency for the 34 erroneous refund amount may be issued at any time during the -71- LRB9205822SMdvam05 1 same time period in which a notice of deficiency can be 2 issued on the loss year creating the carryback amount and 3 subsequent erroneous refund. The amount of any proposed 4 assessment set forth in the notice shall be limited to the 5 amount of such erroneous refund. 6 (h) Time return deemed filed. For purposes of this 7 Section a tax return filed before the last day prescribed by 8 law (including any extension thereof) shall be deemed to have 9 been filed on such last day. 10 (i) Request for prompt determination of liability. For 11 purposes of Subsection (a)(1), in the case of a tax return 12 required under this Act in respect of a decedent, or by his 13 estate during the period of administration, or by a 14 corporation, the period referred to in such Subsection shall 15 be 18 months after a written request for prompt determination 16 of liability is filed with the Department (at such time and 17 in such form and manner as the Department shall by 18 regulations prescribe) by the executor, administrator, or 19 other fiduciary representing the estate of such decedent, or 20 by such corporation, but not more than 3 years after the date 21 the return was filed. This Subsection shall not apply in the 22 case of a corporation unless: 23 (1) (A) Such written request notifies the 24 Department that the corporation contemplates dissolution 25 at or before the expiration of such 18-month period, (B) 26 the dissolution is begun in good faith before the 27 expiration of such 18-month period, and (C) the 28 dissolution is completed; 29 (2) (A) Such written request notifies the 30 Department that a dissolution has in good faith been 31 begun, and (B) the dissolution is completed; or 32 (3) A dissolution has been completed at the time 33 such written request is made. 34 (j) Withholding tax. In the case of returns required -72- LRB9205822SMdvam05 1 under Article 7 of this Act (with respect to any amounts 2 withheld as tax or any amounts required to have been withheld 3 as tax) a notice of deficiency shall be issued not later than 4 3 years after the 15th day of the 4th month following the 5 close of the calendar year in which such withholding was 6 required. 7 (k) Penalties for failure to make information reports. 8 A notice of deficiency for the penalties provided by 9 Subsection 1405.1(c) of this Act may not be issued more than 10 3 years after the due date of the reports with respect to 11 which the penalties are asserted. 12 (l) Penalty for failure to file withholding returns. A 13 notice of deficiency for penalties provided by Section 1004 14 of this Act for taxpayer's failure to file withholding 15 returns may not be issued more than three years after the 16 15th day of the 4th month following the close of the calendar 17 year in which the withholding giving rise to taxpayer's 18 obligation to file those returns occurred. 19 (m) Transferee liability. A notice of deficiency may be 20 issued to a transferee relative to a liability asserted under 21 Section 1405 during time periods defined as follows: 22 1) Initial Transferee. In the case of the 23 liability of an initial transferee, up to 2 years after 24 the expiration of the period of limitation for assessment 25 against the transferor, except that if a court proceeding 26 for review of the assessment against the transferor has 27 begun, then up to 2 years after the return of the 28 certified copy of the judgment in the court proceeding. 29 2) Transferee of Transferee. In the case of the 30 liability of a transferee, up to 2 years after the 31 expiration of the period of limitation for assessment 32 against the preceding transferee, but not more than 3 33 years after the expiration of the period of limitation 34 for assessment against the initial transferor; except -73- LRB9205822SMdvam05 1 that if, before the expiration of the period of 2 limitation for the assessment of the liability of the 3 transferee, a court proceeding for the collection of the 4 tax or liability in respect thereof has been begun 5 against the initial transferor or the last preceding 6 transferee, as the case may be, then the period of 7 limitation for assessment of the liability of the 8 transferee shall expire 2 years after the return of the 9 certified copy of the judgment in the court proceeding. 10 (n) Notice of decrease in net loss. On and after the 11 effective date of this amendatory Act of the 92nd General 12 Assembly, no notice of deficiency shall be issued as the 13 result of a decrease determined by the Department in the net 14 loss incurred by a taxpayer under Section 207 of this Act 15 unless the Department has notified the taxpayer of the 16 proposed decrease within 3 years after the return reporting 17 the loss was filed or within one year after an amended return 18 reporting an increase in the loss was filed, provided that in 19 the case of an amended return, a decrease proposed by the 20 Department more than 3 years after the original return was 21 filed may not exceed the increase claimed by the taxpayer on 22 the original return. 23 (Source: P.A. 90-491, eff. 1-1-98; 91-541, eff. 8-13-99.) 24 (35 ILCS 5/911) (from Ch. 120, par. 9-911) 25 Sec. 911. Limitations on Claims for Refund. 26 (a) In general. Except as otherwise provided in this 27 Act: 28 (1) A claim for refund shall be filed not later 29 than 3 years after the date the return was filed (in the 30 case of returns required under Article 7 of this Act 31 respecting any amounts withheld as tax, not later than 3 32 years after the 15th day of the 4th month following the 33 close of the calendar year in which such withholding was -74- LRB9205822SMdvam05 1 made), or one year after the date the tax was paid, 2 whichever is the later; and 3 (2) No credit or refund shall be allowed or made 4 with respect to the year for which the claim was filed 5 unless such claim is filed within such period. 6 (b) Federal changes. 7 (1) In general. In any case where notification of 8 an alteration is required by Section 506 (b), a claim for 9 refund may be filed within 2 years after the date on 10 which such notification was due (regardless of whether 11 such notice was given), but the amount recoverable 12 pursuant to a claim filed under this Section shall be 13 limited to the amount of any overpayment resulting under 14 this Act from recomputation of the taxpayer's net income, 15 net loss, or Article 2 credits for the taxable year after 16 giving effect to the item or items reflected in the 17 alteration required to be reported. 18 (2) Tentative carryback adjustments paid before 19 January 1, 1974. If, as the result of the payment before 20 January 1, 1974 of a federal tentative carryback 21 adjustment, a notification of an alteration is required 22 under Section 506 (b), a claim for refund may be filed at 23 any time before January 1, 1976, but the amount 24 recoverable pursuant to a claim filed under this Section 25 shall be limited to the amount of any overpayment 26 resulting under this Act from recomputation of the 27 taxpayer's base income for the taxable year after giving 28 effect to the federal alteration resulting from the 29 tentative carryback adjustment irrespective of any 30 limitation imposed in paragraph (l) of this subsection. 31 (c) Extension by agreement. Where, before the 32 expiration of the time prescribed in this section for the 33 filing of a claim for refund, both the Department and the 34 claimant shall have consented in writing to its filing after -75- LRB9205822SMdvam05 1 such time, such claim may be filed at any time prior to the 2 expiration of the period agreed upon. The period so agreed 3 upon may be extended by subsequent agreements in writing made 4 before the expiration of the period previously agreed upon. 5 In the case of a taxpayer who is a partnership, Subchapter S 6 corporation, or trust and who enters into an agreement with 7 the Department pursuant to this subsection on or after 8 January 1, 2002, a claim for refund may be issued to the 9 partners, shareholders, or beneficiaries of the taxpayer at 10 any time prior to the expiration of the period agreed upon. 11 Any refund allowed pursuant to the claim, however, shall be 12 limited to the amount of any overpayment of tax due under 13 this Act that results from recomputation of items of income, 14 deduction, credits, or other amounts of the taxpayer that are 15 taken into account by the partner, shareholder, or 16 beneficiary in computing its liability under this Act. 17 (d) Limit on amount of credit or refund. 18 (1) Limit where claim filed within 3-year period. 19 If the claim was filed by the claimant during the 3-year 20 period prescribed in subsection (a), the amount of the 21 credit or refund shall not exceed the portion of the tax 22 paid within the period, immediately preceding the filing 23 of the claim, equal to 3 years plus the period of any 24 extension of time for filing the return. 25 (2) Limit where claim not filed within 3-year 26 period. If the claim was not filed within such 3-year 27 period, the amount of the credit or refund shall not 28 exceed the portion of the tax paid during the one year 29 immediately preceding the filing of the claim. 30 (e) Time return deemed filed. For purposes of this 31 section a tax return filed before the last day prescribed by 32 law for the filing of such return (including any extensions 33 thereof) shall be deemed to have been filed on such last day. 34 (f) No claim for refund based on the taxpayer's taking a -76- LRB9205822SMdvam05 1 credit for estimated tax payments as provided by Section 601 2 (b) (2) or for any amount paid by a taxpayer pursuant to 3 Section 602(a) or for any amount of credit for tax withheld 4 pursuant to Section 701 may be filed more than 3 years after 5 the due date, as provided by Section 505, of the return which 6 was required to be filed relative to the taxable year for 7 which the payments were made or for which the tax was 8 withheld. The changes in this subsection (f) made by this 9 amendatory Act of 1987 shall apply to all taxable years 10 ending on or after December 31, 1969. 11 (g) Special Period of Limitation with Respect to Net 12 Loss Carrybacks. If the claim for refund relates to an 13 overpayment attributable to a net loss carryback as provided 14 by Section 207, in lieu of the 3 year period of limitation 15 prescribed in subsection (a), the period shall be that period 16 which ends 3 years after the time prescribed by law for 17 filing the return (including extensions thereof) for the 18 taxable year of the net loss which results in such carryback 19 (or, on and after August 13, 1999the effective date of this20amendatory Act of the 91st General Assembly, with respect to 21 a change in the carryover of an Article 2 credit to a taxable 22 year resulting from the carryback of a Section 207 loss 23 incurred in a taxable year beginning on or after January 1, 24 2000, the period shall be that period that ends 3 years after 25 the time prescribed by law for filing the return (including 26 extensions of that time) for that subsequent taxable year), 27 or the period prescribed in subsection (c) in respect of such 28 taxable year, whichever expires later. In the case of such a 29 claim, the amount of the refund may exceed the portion of the 30 tax paid within the period provided in subsection (d) to the 31 extent of the amount of the overpayment attributable to such 32 carryback. On and after August 13, 1999the effective date of33this amendatory Act of the 91st General Assembly, if the 34 claim for refund relates to an overpayment attributable to -77- LRB9205822SMdvam05 1 the carryover of an Article 2 credit, or of a Section 207 2 loss, earned, incurred (in a taxable year beginning on or 3 after January 1, 2000), or used in a year for which a 4 notification of a change affecting federal taxable income 5 must be filed under subsection (b) of Section 506, the claim 6 may be filed within the period prescribed in paragraph (1) of 7 subsection (b) in respect of the year for which the 8 notification is required. In the case of such a claim, the 9 amount of the refund may exceed the portion of the tax paid 10 within the period provided in subsection (d) to the extent of 11 the amount of the overpayment attributable to the 12 recomputation of the taxpayer's Article 2 credits, or Section 13 207 loss, earned, incurred, or used in the taxable year for 14 which the notification is given. 15 (h) Claim for refund based on net loss. On and after 16 the effective date of this amendatory Act of the 92nd General 17 Assembly, no claim for refund shall be allowed to the extent 18 the refund is the result of an amount of net loss incurred 19 under Section 207 of this Act that was not reported to the 20 Department within 3 years of the due date (including 21 extensions) of the return for the loss year on either the 22 original return filed by the taxpayer or on amended return. 23 (Source: P.A. 90-491, eff. 1-1-98; 91-541, eff. 8-13-99.) 24 (35 ILCS 5/1501) (from Ch. 120, par. 15-1501) 25 Sec. 1501. Definitions. 26 (a) In general. When used in this Act, where not 27 otherwise distinctly expressed or manifestly incompatible 28 with the intent thereof: 29 (1) Business income. The term "business income" 30 means income arising from transactions and activity in 31 the regular course of the taxpayer's trade or business, 32 net of the deductions allocable thereto, and includes 33 income from tangible and intangible property if the -78- LRB9205822SMdvam05 1 acquisition, management, and disposition of the property 2 constitute integral parts of the taxpayer's regular trade 3 or business operations. Such term does not include 4 compensation or the deductions allocable thereto. For 5 each taxable year beginning on or after January 1, 2002, 6 a taxpayer may elect to treat all income other than 7 compensation as business income. This election shall be 8 made in accordance with rules adopted by the Department 9 and, once made, shall be irrevocable. 10 (2) Commercial domicile. The term "commercial 11 domicile" means the principal place from which the trade 12 or business of the taxpayer is directed or managed. 13 (3) Compensation. The term "compensation" means 14 wages, salaries, commissions and any other form of 15 remuneration paid to employees for personal services. 16 (4) Corporation. The term "corporation" includes 17 associations, joint-stock companies, insurance companies 18 and cooperatives. Any entity, including a limited 19 liability company formed under the Illinois Limited 20 Liability Company Act, shall be treated as a corporation 21 if it is so classified for federal income tax purposes. 22 (5) Department. The term "Department" means the 23 Department of Revenue of this State. 24 (6) Director. The term "Director" means the 25 Director of Revenue of this State. 26 (7) Fiduciary. The term "fiduciary" means a 27 guardian, trustee, executor, administrator, receiver, or 28 any person acting in any fiduciary capacity for any 29 person. 30 (8) Financial organization. 31 (A) The term "financial organization" means 32 any bank, bank holding company, trust company, 33 savings bank, industrial bank, land bank, safe 34 deposit company, private banker, savings and loan -79- LRB9205822SMdvam05 1 association, building and loan association, credit 2 union, currency exchange, cooperative bank, small 3 loan company, sales finance company, investment 4 company, or any person which is owned by a bank or 5 bank holding company. For the purpose of this 6 Section a "person" will include only those persons 7 which a bank holding company may acquire and hold an 8 interest in, directly or indirectly, under the 9 provisions of the Bank Holding Company Act of 1956 10 (12 U.S.C. 1841, et seq.), except where interests in 11 any person must be disposed of within certain 12 required time limits under the Bank Holding Company 13 Act of 1956. 14 (B) For purposes of subparagraph (A) of this 15 paragraph, the term "bank" includes (i) any entity 16 that is regulated by the Comptroller of the Currency 17 under the National Bank Act, or by the Federal 18 Reserve Board, or by the Federal Deposit Insurance 19 Corporation and (ii) any federally or State 20 chartered bank operating as a credit card bank. 21 (C) For purposes of subparagraph (A) of this 22 paragraph, the term "sales finance company" has the 23 meaning provided in the following item (i) or (ii): 24 (i) A person primarily engaged in one or 25 more of the following businesses: the business 26 of purchasing customer receivables, the 27 business of making loans upon the security of 28 customer receivables, the business of making 29 loans for the express purpose of funding 30 purchases of tangible personal property or 31 services by the borrower, or the business of 32 finance leasing. For purposes of this item 33 (i), "customer receivable" means: 34 (a) a retail installment contract or -80- LRB9205822SMdvam05 1 retail charge agreement within the meaning of 2 the Sales Finance Agency Act, the Retail 3 Installment Sales Act, or the Motor Vehicle 4 Retail Installment Sales Act; 5 (b) an installment, charge, credit, or 6 similar contract or agreement arising from the 7 sale of tangible personal property or services 8 in a transaction involving a deferred payment 9 price payable in one or more installments 10 subsequent to the sale; or 11 (c) the outstanding balance of a contract 12 or agreement described in provisions (a) or (b) 13 of this item (i). 14 A customer receivable need not provide for 15 payment of interest on deferred payments. A sales 16 finance company may purchase a customer receivable 17 from, or make a loan secured by a customer 18 receivable to, the seller in the original 19 transaction or to a person who purchased the 20 customer receivable directly or indirectly from that 21 seller. 22 (ii) A corporation meeting each of the 23 following criteria: 24 (a) the corporation must be a member of 25 an "affiliated group" within the meaning of 26 Section 1504(a) of the Internal Revenue Code, 27 determined without regard to Section 1504(b) of 28 the Internal Revenue Code; 29 (b) more than 50% of the gross income of 30 the corporation for the taxable year must be 31 interest income derived from qualifying loans. 32 A "qualifying loan" is a loan made to a member 33 of the corporation's affiliated group that 34 originates customer receivables (within the -81- LRB9205822SMdvam05 1 meaning of item (i)) or to whom customer 2 receivables originated by a member of the 3 affiliated group have been transferred, to the 4 extent the average outstanding balance of loans 5 from that corporation to members of its 6 affiliated group during the taxable year do not 7 exceed the limitation amount for that 8 corporation. The "limitation amount" for a 9 corporation is the average outstanding balances 10 during the taxable year of customer receivables 11 (within the meaning of item (i)) originated by 12 all members of the affiliated group. If the 13 average outstanding balances of the loans made 14 by a corporation to members of its affiliated 15 group exceed the limitation amount, the 16 interest income of that corporation from 17 qualifying loans shall be equal to its interest 18 income from loans to members of its affiliated 19 groups times a fraction equal to the limitation 20 amount divided by the average outstanding 21 balances of the loans made by that corporation 22 to members of its affiliated group; 23 (c) the total of all shareholder's equity 24 (including, without limitation, paid-in capital 25 on common and preferred stock and retained 26 earnings) of the corporation plus the total of 27 all of its loans, advances, and other 28 obligations payable or owed to members of its 29 affiliated group may not exceed 20% of the 30 total assets of the corporation at any time 31 during the tax year; and 32 (d) more than 50% of all interest-bearing 33 obligations of the affiliated group payable to 34 persons outside the group determined in -82- LRB9205822SMdvam05 1 accordance with generally accepted accounting 2 principles must be obligations of the 3 corporation. 4 This amendatory Act of the 91st General Assembly is 5 declaratory of existing law. 6 (D) Subparagraphs (B) and (C) of this 7 paragraph are declaratory of existing law and apply 8 retroactively, for all tax years beginning on or 9 before December 31, 1996, to all original returns, 10 to all amended returns filed no later than 30 days 11 after the effective date of this amendatory Act of 12 1996, and to all notices issued on or before the 13 effective date of this amendatory Act of 1996 under 14 subsection (a) of Section 903, subsection (a) of 15 Section 904, subsection (e) of Section 909, or 16 Section 912. A taxpayer that is a "financial 17 organization" that engages in any transaction with 18 an affiliate shall be a "financial organization" for 19 all purposes of this Act. 20 (E) For all tax years beginning on or before 21 December 31, 1996, a taxpayer that falls within the 22 definition of a "financial organization" under 23 subparagraphs (B) or (C) of this paragraph, but who 24 does not fall within the definition of a "financial 25 organization" under the Proposed Regulations issued 26 by the Department of Revenue on July 19, 1996, may 27 irrevocably elect to apply the Proposed Regulations 28 for all of those years as though the Proposed 29 Regulations had been lawfully promulgated, adopted, 30 and in effect for all of those years. For purposes 31 of applying subparagraphs (B) or (C) of this 32 paragraph to all of those years, the election 33 allowed by this subparagraph applies only to the 34 taxpayer making the election and to those members of -83- LRB9205822SMdvam05 1 the taxpayer's unitary business group who are 2 ordinarily required to apportion business income 3 under the same subsection of Section 304 of this Act 4 as the taxpayer making the election. No election 5 allowed by this subparagraph shall be made under a 6 claim filed under subsection (d) of Section 909 more 7 than 30 days after the effective date of this 8 amendatory Act of 1996. 9 (F) Finance Leases. For purposes of this 10 subsection, a finance lease shall be treated as a 11 loan or other extension of credit, rather than as a 12 lease, regardless of how the transaction is 13 characterized for any other purpose, including the 14 purposes of any regulatory agency to which the 15 lessor is subject. A finance lease is any 16 transaction in the form of a lease in which the 17 lessee is treated as the owner of the leased asset 18 entitled to any deduction for depreciation allowed 19 under Section 167 of the Internal Revenue Code. 20 (9) Fiscal year. The term "fiscal year" means an 21 accounting period of 12 months ending on the last day of 22 any month other than December. 23 (10) Includes and including. The terms "includes" 24 and "including" when used in a definition contained in 25 this Act shall not be deemed to exclude other things 26 otherwise within the meaning of the term defined. 27 (11) Internal Revenue Code. The term "Internal 28 Revenue Code" means the United States Internal Revenue 29 Code of 1954 or any successor law or laws relating to 30 federal income taxes in effect for the taxable year. 31 (12) Mathematical error. The term "mathematical 32 error" includes the following types of errors, omissions, 33 or defects in a return filed by a taxpayer which prevents 34 acceptance of the return as filed for processing: -84- LRB9205822SMdvam05 1 (A) arithmetic errors or incorrect 2 computations on the return or supporting schedules; 3 (B) entries on the wrong lines; 4 (C) omission of required supporting forms or 5 schedules or the omission of the information in 6 whole or in part called for thereon; and 7 (D) an attempt to claim, exclude, deduct, or 8 improperly report, in a manner directly contrary to 9 the provisions of the Act and regulations thereunder 10 any item of income, exemption, deduction, or credit. 11 (13) Nonbusiness income. The term "nonbusiness 12 income" means all income other than business income or 13 compensation. 14 (14) Nonresident. The term "nonresident" means a 15 person who is not a resident. 16 (15) Paid, incurred and accrued. The terms "paid", 17 "incurred" and "accrued" shall be construed according to 18 the method of accounting upon the basis of which the 19 person's base income is computed under this Act. 20 (16) Partnership and partner. The term 21 "partnership" includes a syndicate, group, pool, joint 22 venture or other unincorporated organization, through or 23 by means of which any business, financial operation, or 24 venture is carried on, and which is not, within the 25 meaning of this Act, a trust or estate or a corporation; 26 and the term "partner" includes a member in such 27 syndicate, group, pool, joint venture or organization. 28 The term "partnership" includes any entity, 29 including a limited liability company formed under the 30 Illinois Limited Liability Company Act, classified as a 31 partnership for federal income tax purposes. 32 The term "partnership" does not include a syndicate, 33 group, pool, joint venture, or other unincorporated 34 organization established for the sole purpose of playing -85- LRB9205822SMdvam05 1 the Illinois State Lottery. 2 (17) Part-year resident. The term "part-year 3 resident" means an individual who became a resident 4 during the taxable year or ceased to be a resident during 5 the taxable year. Under Section 1501 (a) (20) (A) (i) 6 residence commences with presence in this State for other 7 than a temporary or transitory purpose and ceases with 8 absence from this State for other than a temporary or 9 transitory purpose. Under Section 1501 (a) (20) (A) (ii) 10 residence commences with the establishment of domicile in 11 this State and ceases with the establishment of domicile 12 in another State. 13 (18) Person. The term "person" shall be construed 14 to mean and include an individual, a trust, estate, 15 partnership, association, firm, company, corporation, 16 limited liability company, or fiduciary. For purposes of 17 Section 1301 and 1302 of this Act, a "person" means (i) 18 an individual, (ii) a corporation, (iii) an officer, 19 agent, or employee of a corporation, (iv) a member, agent 20 or employee of a partnership, or (v) a member, manager, 21 employee, officer, director, or agent of a limited 22 liability company who in such capacity commits an offense 23 specified in Section 1301 and 1302. 24 (18A) Records. The term "records" includes all 25 data maintained by the taxpayer, whether on paper, 26 microfilm, microfiche, or any type of machine-sensible 27 data compilation. 28 (19) Regulations. The term "regulations" includes 29 rules promulgated and forms prescribed by the Department. 30 (20) Resident. The term "resident" means: 31 (A) an individual (i) who is in this State for 32 other than a temporary or transitory purpose during 33 the taxable year; or (ii) who is domiciled in this 34 State but is absent from the State for a temporary -86- LRB9205822SMdvam05 1 or transitory purpose during the taxable year; 2 (B) The estate of a decedent who at his or her 3 death was domiciled in this State; 4 (C) A trust created by a will of a decedent 5 who at his death was domiciled in this State; and 6 (D) An irrevocable trust, the grantor of which 7 was domiciled in this State at the time such trust 8 became irrevocable. For purpose of this 9 subparagraph, a trust shall be considered 10 irrevocable to the extent that the grantor is not 11 treated as the owner thereof under Sections 671 12 through 678 of the Internal Revenue Code. 13 (21) Sales. The term "sales" means all gross 14 receipts of the taxpayer not allocated under Sections 15 301, 302 and 303. 16 (22) State. The term "state" when applied to a 17 jurisdiction other than this State means any state of the 18 United States, the District of Columbia, the Commonwealth 19 of Puerto Rico, any Territory or Possession of the United 20 States, and any foreign country, or any political 21 subdivision of any of the foregoing. For purposes of the 22 foreign tax credit under Section 601, the term "state" 23 means any state of the United States, the District of 24 Columbia, the Commonwealth of Puerto Rico, and any 25 territory or possession of the United States, or any 26 political subdivision of any of the foregoing, effective 27 for tax years ending on or after December 31, 1989. 28 (23) Taxable year. The term "taxable year" means 29 the calendar year, or the fiscal year ending during such 30 calendar year, upon the basis of which the base income is 31 computed under this Act. "Taxable year" means, in the 32 case of a return made for a fractional part of a year 33 under the provisions of this Act, the period for which 34 such return is made. -87- LRB9205822SMdvam05 1 (24) Taxpayer. The term "taxpayer" means any person 2 subject to the tax imposed by this Act. 3 (25) International banking facility. The term 4 international banking facility shall have the same 5 meaning as is set forth in the Illinois Banking Act or as 6 is set forth in the laws of the United States or 7 regulations of the Board of Governors of the Federal 8 Reserve System. 9 (26) Income Tax Return Preparer. 10 (A) The term "income tax return preparer" 11 means any person who prepares for compensation, or 12 who employs one or more persons to prepare for 13 compensation, any return of tax imposed by this Act 14 or any claim for refund of tax imposed by this Act. 15 The preparation of a substantial portion of a return 16 or claim for refund shall be treated as the 17 preparation of that return or claim for refund. 18 (B) A person is not an income tax return 19 preparer if all he or she does is 20 (i) furnish typing, reproducing, or other 21 mechanical assistance; 22 (ii) prepare returns or claims for 23 refunds for the employer by whom he or she is 24 regularly and continuously employed; 25 (iii) prepare as a fiduciary returns or 26 claims for refunds for any person; or 27 (iv) prepare claims for refunds for a 28 taxpayer in response to any notice of 29 deficiency issued to that taxpayer or in 30 response to any waiver of restriction after the 31 commencement of an audit of that taxpayer or of 32 another taxpayer if a determination in the 33 audit of the other taxpayer directly or 34 indirectly affects the tax liability of the -88- LRB9205822SMdvam05 1 taxpayer whose claims he or she is preparing. 2 (27) Unitary business group. The term "unitary 3 business group" means a group of persons related through 4 common ownership whose business activities are integrated 5 with, dependent upon and contribute to each other. The 6 group will not include those members whose business 7 activity outside the United States is 80% or more of any 8 such member's total business activity; for purposes of 9 this paragraph and clause (a) (3) (B) (ii) of Section 10 304, business activity within the United States shall be 11 measured by means of the factors ordinarily applicable 12 under subsections (a), (b), (c), (d), or (h) of Section 13 304 except that, in the case of members ordinarily 14 required to apportion business income by means of the 3 15 factor formula of property, payroll and sales specified 16 in subsection (a) of Section 304, including the formula 17 as weighted in subsection (h) of Section 304, such 18 members shall not use the sales factor in the computation 19 and the results of the property and payroll factor 20 computations of subsection (a) of Section 304 shall be 21 divided by 2 (by one if either the property or payroll 22 factor has a denominator of zero). The computation 23 required by the preceding sentence shall, in each case, 24 involve the division of the member's property, payroll, 25 or revenue miles in the United States, insurance premiums 26 on property or risk in the United States, or financial 27 organization business income from sources within the 28 United States, as the case may be, by the respective 29 worldwide figures for such items. Common ownership in 30 the case of corporations is the direct or indirect 31 control or ownership of more than 50% of the outstanding 32 voting stock of the persons carrying on unitary business 33 activity. Unitary business activity can ordinarily be 34 illustrated where the activities of the members are: (1) -89- LRB9205822SMdvam05 1 in the same general line (such as manufacturing, 2 wholesaling, retailing of tangible personal property, 3 insurance, transportation or finance); or (2) are steps 4 in a vertically structured enterprise or process (such as 5 the steps involved in the production of natural 6 resources, which might include exploration, mining, 7 refining, and marketing); and, in either instance, the 8 members are functionally integrated through the exercise 9 of strong centralized management (where, for example, 10 authority over such matters as purchasing, financing, tax 11 compliance, product line, personnel, marketing and 12 capital investment is not left to each member). In no 13 event, however, will any unitary business group include 14 members which are ordinarily required to apportion 15 business income under different subsections of Section 16 304 except that for tax years ending on or after December 17 31, 1987 this prohibition shall not apply to a unitary 18 business group composed of one or more taxpayers all of 19 which apportion business income pursuant to subsection 20 (b) of Section 304, or all of which apportion business 21 income pursuant to subsection (d) of Section 304, and a 22 holding company of such single-factor taxpayers (see 23 definition of "financial organization" for rule regarding 24 holding companies of financial organizations). If a 25 unitary business group would, but for the preceding 26 sentence, include members that are ordinarily required to 27 apportion business income under different subsections of 28 Section 304, then for each subsection of Section 304 for 29 which there are two or more members, there shall be a 30 separate unitary business group composed of such members. 31 For purposes of the preceding two sentences, a member is 32 "ordinarily required to apportion business income" under 33 a particular subsection of Section 304 if it would be 34 required to use the apportionment method prescribed by -90- LRB9205822SMdvam05 1 such subsection except for the fact that it derives 2 business income solely from Illinois. If the unitary 3 business group members' accounting periods differ, the 4 common parent's accounting period or, if there is no 5 common parent, the accounting period of the member that 6 is expected to have, on a recurring basis, the greatest 7 Illinois income tax liability must be used to determine 8 whether to use the apportionment method provided in 9 subsection (a) or subsection (h) of Section 304. The 10 prohibition against membership in a unitary business 11 group for taxpayers ordinarily required to apportion 12 income under different subsections of Section 304 does 13 not apply to taxpayers required to apportion income under 14 subsection (a) and subsection (h) of Section 304. The 15 provisions of this amendatory Act of 1998 apply to tax 16 years ending on or after December 31, 1998. 17 (28) Subchapter S corporation. The term 18 "Subchapter S corporation" means a corporation for which 19 there is in effect an election under Section 1362 of the 20 Internal Revenue Code, or for which there is a federal 21 election to opt out of the provisions of the Subchapter S 22 Revision Act of 1982 and have applied instead the prior 23 federal Subchapter S rules as in effect on July 1, 1982. 24 (b) Other definitions. 25 (1) Words denoting number, gender, and so forth, 26 when used in this Act, where not otherwise distinctly 27 expressed or manifestly incompatible with the intent 28 thereof: 29 (A) Words importing the singular include and 30 apply to several persons, parties or things; 31 (B) Words importing the plural include the 32 singular; and 33 (C) Words importing the masculine gender 34 include the feminine as well. -91- LRB9205822SMdvam05 1 (2) "Company" or "association" as including 2 successors and assigns. The word "company" or 3 "association", when used in reference to a corporation, 4 shall be deemed to embrace the words "successors and 5 assigns of such company or association", and in like 6 manner as if these last-named words, or words of similar 7 import, were expressed. 8 (3) Other terms. Any term used in any Section of 9 this Act with respect to the application of, or in 10 connection with, the provisions of any other Section of 11 this Act shall have the same meaning as in such other 12 Section. 13 (Source: P.A. 90-613, eff. 7-9-98; 91-535, eff. 1-1-00; 14 91-913, eff. 1-1-01.)".