94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB3677

 

Introduced 02/24/05, by Rep. Robert Rita

 

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

    Amends the Illinois Income Tax Act. Removes a provision that requires a taxpayer to add to federal adjusted gross income, to arrive at base income for Illinois income tax purposes, distributions from a qualified tuition program under Section 529 of the Internal Revenue Code other than distributions from the College Savings Pool or the Illinois Prepaid Tuition Program to the extent those distributions were excluded from income in arriving at federal adjusted gross income. Amends the State Treasurer Act and further amends the Illinois Income Tax Act to allow an income tax deduction for moneys contributed in the taxable year to the College Savings Pool, the Illinois Prepaid Tuition Program, or to any other qualified tuition program under Section 529 of the Internal Revenue Code (now, a $10,000 maximum deduction is limited to contributions to the College Savings Pool or the Illinois Prepaid Tuition Program). Effective immediately.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1             convincing evidence, that the adjustments are
2             unreasonable; or if the taxpayer and the Director
3             agree in writing to the application or use of an
4             alternative method of apportionment under Section
5             304(f);
6                 Nothing in this subsection shall preclude the
7             Director from making any other adjustment
8             otherwise allowed under Section 404 of this Act for
9             any tax year beginning after the effective date of
10             this amendment provided such adjustment is made
11             pursuant to regulation adopted by the Department
12             and such regulations provide methods and standards
13             by which the Department will utilize its authority
14             under Section 404 of this Act;
15             (D-20) For taxable years beginning on or after
16         January 1, 2002 and ending on or before December 31,
17         2004, in the case of a distribution from a qualified
18         tuition program under Section 529 of the Internal
19         Revenue Code, other than (i) a distribution from a
20         College Savings Pool created under Section 16.5 of the
21         State Treasurer Act or (ii) a distribution from the
22         Illinois Prepaid Tuition Trust Fund, an amount equal to
23         the amount excluded from gross income under Section
24         529(c)(3)(B);
25     and by deducting from the total so obtained the sum of the
26     following amounts:
27             (E) For taxable years ending before December 31,
28         2001, any amount included in such total in respect of
29         any compensation (including but not limited to any
30         compensation paid or accrued to a serviceman while a
31         prisoner of war or missing in action) paid to a
32         resident by reason of being on active duty in the Armed
33         Forces of the United States and in respect of any
34         compensation paid or accrued to a resident who as a
35         governmental employee was a prisoner of war or missing
36         in action, and in respect of any compensation paid to a

 

 

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1         resident in 1971 or thereafter for annual training
2         performed pursuant to Sections 502 and 503, Title 32,
3         United States Code as a member of the Illinois National
4         Guard. For taxable years ending on or after December
5         31, 2001, any amount included in such total in respect
6         of any compensation (including but not limited to any
7         compensation paid or accrued to a serviceman while a
8         prisoner of war or missing in action) paid to a
9         resident by reason of being a member of any component
10         of the Armed Forces of the United States and in respect
11         of any compensation paid or accrued to a resident who
12         as a governmental employee was a prisoner of war or
13         missing in action, and in respect of any compensation
14         paid to a resident in 2001 or thereafter by reason of
15         being a member of the Illinois National Guard. The
16         provisions of this amendatory Act of the 92nd General
17         Assembly are exempt from the provisions of Section 250;
18             (F) An amount equal to all amounts included in such
19         total pursuant to the provisions of Sections 402(a),
20         402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the
21         Internal Revenue Code, or included in such total as
22         distributions under the provisions of any retirement
23         or disability plan for employees of any governmental
24         agency or unit, or retirement payments to retired
25         partners, which payments are excluded in computing net
26         earnings from self employment by Section 1402 of the
27         Internal Revenue Code and regulations adopted pursuant
28         thereto;
29             (G) The valuation limitation amount;
30             (H) An amount equal to the amount of any tax
31         imposed by this Act which was refunded to the taxpayer
32         and included in such total for the taxable year;
33             (I) An amount equal to all amounts included in such
34         total pursuant to the provisions of Section 111 of the
35         Internal Revenue Code as a recovery of items previously
36         deducted from adjusted gross income in the computation

 

 

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

 

 

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

 

 

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1         pursuant to item (D-5) of this paragraph (2);
2             (U) For one taxable year beginning on or after
3         January 1, 1994, an amount equal to the total amount of
4         tax imposed and paid under subsections (a) and (b) of
5         Section 201 of this Act on grant amounts received by
6         the taxpayer under the Nursing Home Grant Assistance
7         Act during the taxpayer's taxable years 1992 and 1993;
8             (V) Beginning with tax years ending on or after
9         December 31, 1995 and ending with tax years ending on
10         or before December 31, 2004, an amount equal to the
11         amount paid by a taxpayer who is a self-employed
12         taxpayer, a partner of a partnership, or a shareholder
13         in a Subchapter S corporation for health insurance or
14         long-term care insurance for that taxpayer or that
15         taxpayer's spouse or dependents, to the extent that the
16         amount paid for that health insurance or long-term care
17         insurance may be deducted under Section 213 of the
18         Internal Revenue Code of 1986, has not been deducted on
19         the federal income tax return of the taxpayer, and does
20         not exceed the taxable income attributable to that
21         taxpayer's income, self-employment income, or
22         Subchapter S corporation income; except that no
23         deduction shall be allowed under this item (V) if the
24         taxpayer is eligible to participate in any health
25         insurance or long-term care insurance plan of an
26         employer of the taxpayer or the taxpayer's spouse. The
27         amount of the health insurance and long-term care
28         insurance subtracted under this item (V) shall be
29         determined by multiplying total health insurance and
30         long-term care insurance premiums paid by the taxpayer
31         times a number that represents the fractional
32         percentage of eligible medical expenses under Section
33         213 of the Internal Revenue Code of 1986 not actually
34         deducted on the taxpayer's federal income tax return;
35             (W) For taxable years beginning on or after January
36         1, 1998, all amounts included in the taxpayer's federal

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

HB3677 - 26 - LRB094 07472 BDD 37635 b

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

 

 

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1             304(f);
2                 Nothing in this subsection shall preclude the
3             Director from making any other adjustment
4             otherwise allowed under Section 404 of this Act for
5             any tax year beginning after the effective date of
6             this amendment provided such adjustment is made
7             pursuant to regulation adopted by the Department
8             and such regulations provide methods and standards
9             by which the Department will utilize its authority
10             under Section 404 of this Act;
11     and by deducting from the total so obtained the sum of the
12     following amounts:
13             (F) An amount equal to the amount of any tax
14         imposed by this Act which was refunded to the taxpayer
15         and included in such total for the taxable year;
16             (G) An amount equal to any amount included in such
17         total under Section 78 of the Internal Revenue Code;
18             (H) In the case of a regulated investment company,
19         an amount equal to the amount of exempt interest
20         dividends as defined in subsection (b) (5) of Section
21         852 of the Internal Revenue Code, paid to shareholders
22         for the taxable year;
23             (I) With the exception of any amounts subtracted
24         under subparagraph (J), an amount equal to the sum of
25         all amounts disallowed as deductions by (i) Sections
26         171(a) (2), and 265(a)(2) and amounts disallowed as
27         interest expense by Section 291(a)(3) of the Internal
28         Revenue Code, as now or hereafter amended, and all
29         amounts of expenses allocable to interest and
30         disallowed as deductions by Section 265(a)(1) of the
31         Internal Revenue Code, as now or hereafter amended; and
32         (ii) for taxable years ending on or after August 13,
33         1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and
34         832(b)(5)(B)(i) of the Internal Revenue Code; the
35         provisions of this subparagraph are exempt from the
36         provisions of Section 250;

 

 

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1             (J) An amount equal to all amounts included in such
2         total which are exempt from taxation by this State
3         either by reason of its statutes or Constitution or by
4         reason of the Constitution, treaties or statutes of the
5         United States; provided that, in the case of any
6         statute of this State that exempts income derived from
7         bonds or other obligations from the tax imposed under
8         this Act, the amount exempted shall be the interest net
9         of bond premium amortization;
10             (K) An amount equal to those dividends included in
11         such total which were paid by a corporation which
12         conducts business operations in an Enterprise Zone or
13         zones created under the Illinois Enterprise Zone Act
14         and conducts substantially all of its operations in an
15         Enterprise Zone or zones;
16             (L) An amount equal to those dividends included in
17         such total that were paid by a corporation that
18         conducts business operations in a federally designated
19         Foreign Trade Zone or Sub-Zone and that is designated a
20         High Impact Business located in Illinois; provided
21         that dividends eligible for the deduction provided in
22         subparagraph (K) of paragraph 2 of this subsection
23         shall not be eligible for the deduction provided under
24         this subparagraph (L);
25             (M) For any taxpayer that is a financial
26         organization within the meaning of Section 304(c) of
27         this Act, an amount included in such total as interest
28         income from a loan or loans made by such taxpayer to a
29         borrower, to the extent that such a loan is secured by
30         property which is eligible for the Enterprise Zone
31         Investment Credit. To determine the portion of a loan
32         or loans that is secured by property eligible for a
33         Section 201(f) investment credit to the borrower, the
34         entire principal amount of the loan or loans between
35         the taxpayer and the borrower should be divided into
36         the basis of the Section 201(f) investment credit

 

 

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

 

 

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

 

 

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1             (Q) An amount equal to the amount of the deduction
2         used to compute the federal income tax credit for
3         restoration of substantial amounts held under claim of
4         right for the taxable year pursuant to Section 1341 of
5         the Internal Revenue Code of 1986;
6             (R) In the case of an attorney-in-fact with respect
7         to whom an interinsurer or a reciprocal insurer has
8         made the election under Section 835 of the Internal
9         Revenue Code, 26 U.S.C. 835, an amount equal to the
10         excess, if any, of the amounts paid or incurred by that
11         interinsurer or reciprocal insurer in the taxable year
12         to the attorney-in-fact over the deduction allowed to
13         that interinsurer or reciprocal insurer with respect
14         to the attorney-in-fact under Section 835(b) of the
15         Internal Revenue Code for the taxable year;
16             (S) For taxable years ending on or after December
17         31, 1997, in the case of a Subchapter S corporation, an
18         amount equal to all amounts of income allocable to a
19         shareholder subject to the Personal Property Tax
20         Replacement Income Tax imposed by subsections (c) and
21         (d) of Section 201 of this Act, including amounts
22         allocable to organizations exempt from federal income
23         tax by reason of Section 501(a) of the Internal Revenue
24         Code. This subparagraph (S) is exempt from the
25         provisions of Section 250;
26             (T) For taxable years 2001 and thereafter, for the
27         taxable year in which the bonus depreciation deduction
28         (30% of the adjusted basis of the qualified property)
29         is taken on the taxpayer's federal income tax return
30         under subsection (k) of Section 168 of the Internal
31         Revenue Code and for each applicable taxable year
32         thereafter, an amount equal to "x", where:
33                 (1) "y" equals the amount of the depreciation
34             deduction taken for the taxable year on the
35             taxpayer's federal income tax return on property
36             for which the bonus depreciation deduction (30% of

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1             person if the taxpayer establishes by clear and
2             convincing evidence, that the adjustments are
3             unreasonable; or if the taxpayer and the Director
4             agree in writing to the application or use of an
5             alternative method of apportionment under Section
6             304(f);
7                 Nothing in this subsection shall preclude the
8             Director from making any other adjustment
9             otherwise allowed under Section 404 of this Act for
10             any tax year beginning after the effective date of
11             this amendment provided such adjustment is made
12             pursuant to regulation adopted by the Department
13             and such regulations provide methods and standards
14             by which the Department will utilize its authority
15             under Section 404 of this Act;
16     and by deducting from the total so obtained the sum of the
17     following amounts:
18             (H) An amount equal to all amounts included in such
19         total pursuant to the provisions of Sections 402(a),
20         402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the
21         Internal Revenue Code or included in such total as
22         distributions under the provisions of any retirement
23         or disability plan for employees of any governmental
24         agency or unit, or retirement payments to retired
25         partners, which payments are excluded in computing net
26         earnings from self employment by Section 1402 of the
27         Internal Revenue Code and regulations adopted pursuant
28         thereto;
29             (I) The valuation limitation amount;
30             (J) An amount equal to the amount of any tax
31         imposed by this Act which was refunded to the taxpayer
32         and included in such total for the taxable year;
33             (K) An amount equal to all amounts included in
34         taxable income as modified by subparagraphs (A), (B),
35         (C), (D), (E), (F) and (G) which are exempt from
36         taxation by this State either by reason of its statutes

 

 

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

 

 

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1         shall not be eligible for the deduction provided under
2         this subparagraph (O);
3             (P) An amount equal to the amount of the deduction
4         used to compute the federal income tax credit for
5         restoration of substantial amounts held under claim of
6         right for the taxable year pursuant to Section 1341 of
7         the Internal Revenue Code of 1986;
8             (Q) For taxable year 1999 and thereafter, an amount
9         equal to the amount of any (i) distributions, to the
10         extent includible in gross income for federal income
11         tax purposes, made to the taxpayer because of his or
12         her status as a victim of persecution for racial or
13         religious reasons by Nazi Germany or any other Axis
14         regime or as an heir of the victim and (ii) items of
15         income, to the extent includible in gross income for
16         federal income tax purposes, attributable to, derived
17         from or in any way related to assets stolen from,
18         hidden from, or otherwise lost to a victim of
19         persecution for racial or religious reasons by Nazi
20         Germany or any other Axis regime immediately prior to,
21         during, and immediately after World War II, including,
22         but not limited to, interest on the proceeds receivable
23         as insurance under policies issued to a victim of
24         persecution for racial or religious reasons by Nazi
25         Germany or any other Axis regime by European insurance
26         companies immediately prior to and during World War II;
27         provided, however, this subtraction from federal
28         adjusted gross income does not apply to assets acquired
29         with such assets or with the proceeds from the sale of
30         such assets; provided, further, this paragraph shall
31         only apply to a taxpayer who was the first recipient of
32         such assets after their recovery and who is a victim of
33         persecution for racial or religious reasons by Nazi
34         Germany or any other Axis regime or as an heir of the
35         victim. The amount of and the eligibility for any
36         public assistance, benefit, or similar entitlement is

 

 

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

 

 

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

 

 

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1         outside the United States is 80% or more of that
2         person's total business activity, but not to exceed the
3         addition modification required to be made for the same
4         taxable year under Section 203(c)(2)(G-13) for
5         intangible expenses and costs paid, accrued, or
6         incurred, directly or indirectly, to the same foreign
7         person.
8         (3) Limitation. The amount of any modification
9     otherwise required under this subsection shall, under
10     regulations prescribed by the Department, be adjusted by
11     any amounts included therein which were properly paid,
12     credited, or required to be distributed, or permanently set
13     aside for charitable purposes pursuant to Internal Revenue
14     Code Section 642(c) during the taxable year.
 
15     (d) Partnerships.
16         (1) In general. In the case of a partnership, base
17     income means an amount equal to the taxpayer's taxable
18     income for the taxable year as modified by paragraph (2).
19         (2) Modifications. The taxable income referred to in
20     paragraph (1) shall be modified by adding thereto the sum
21     of the following amounts:
22             (A) An amount equal to all amounts paid or accrued
23         to the taxpayer as interest or dividends during the
24         taxable year to the extent excluded from gross income
25         in the computation of taxable income;
26             (B) An amount equal to the amount of tax imposed by
27         this Act to the extent deducted from gross income for
28         the taxable year;
29             (C) The amount of deductions allowed to the
30         partnership pursuant to Section 707 (c) of the Internal
31         Revenue Code in calculating its taxable income;
32             (D) An amount equal to the amount of the capital
33         gain deduction allowable under the Internal Revenue
34         Code, to the extent deducted from gross income in the
35         computation of taxable income;

 

 

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1             (D-5) For taxable years 2001 and thereafter, an
2         amount equal to the bonus depreciation deduction (30%
3         of the adjusted basis of the qualified property) taken
4         on the taxpayer's federal income tax return for the
5         taxable year under subsection (k) of Section 168 of the
6         Internal Revenue Code;
7             (D-6) If the taxpayer reports a capital gain or
8         loss on the taxpayer's federal income tax return for
9         the taxable year based on a sale or transfer of
10         property for which the taxpayer was required in any
11         taxable year to make an addition modification under
12         subparagraph (D-5), then an amount equal to the
13         aggregate amount of the deductions taken in all taxable
14         years under subparagraph (O) with respect to that
15         property.
16             The taxpayer is required to make the addition
17         modification under this subparagraph only once with
18         respect to any one piece of property;
19             (D-7) For taxable years ending on or after December
20         31, 2004, an amount equal to the amount otherwise
21         allowed as a deduction in computing base income for
22         interest paid, accrued, or incurred, directly or
23         indirectly, to a foreign person who would be a member
24         of the same unitary business group but for the fact the
25         foreign person's business activity outside the United
26         States is 80% or more of the foreign person's total
27         business activity. The addition modification required
28         by this subparagraph shall be reduced to the extent
29         that dividends were included in base income of the
30         unitary group for the same taxable year and received by
31         the taxpayer or by a member of the taxpayer's unitary
32         business group (including amounts included in gross
33         income pursuant to Sections 951 through 964 of the
34         Internal Revenue Code and amounts included in gross
35         income under Section 78 of the Internal Revenue Code)
36         with respect to the stock of the same person to whom

 

 

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

 

 

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1             alternative method of apportionment under Section
2             304(f).
3                 Nothing in this subsection shall preclude the
4             Director from making any other adjustment
5             otherwise allowed under Section 404 of this Act for
6             any tax year beginning after the effective date of
7             this amendment provided such adjustment is made
8             pursuant to regulation adopted by the Department
9             and such regulations provide methods and standards
10             by which the Department will utilize its authority
11             under Section 404 of this Act; and
12             (D-8) For taxable years ending on or after December
13         31, 2004, an amount equal to the amount of intangible
14         expenses and costs otherwise allowed as a deduction in
15         computing base income, and that were paid, accrued, or
16         incurred, directly or indirectly, to a foreign person
17         who would be a member of the same unitary business
18         group but for the fact that the foreign person's
19         business activity outside the United States is 80% or
20         more of that person's total business activity. The
21         addition modification required by this subparagraph
22         shall be reduced to the extent that dividends were
23         included in base income of the unitary group for the
24         same taxable year and received by the taxpayer or by a
25         member of the taxpayer's unitary business group
26         (including amounts included in gross income pursuant
27         to Sections 951 through 964 of the Internal Revenue
28         Code and amounts included in gross income under Section
29         78 of the Internal Revenue Code) with respect to the
30         stock of the same person to whom the intangible
31         expenses and costs were directly or indirectly paid,
32         incurred or accrued. The preceding sentence shall not
33         apply to the extent that the same dividends caused a
34         reduction to the addition modification required under
35         Section 203(d)(2)(D-7) of this Act. As used in this
36         subparagraph, the term "intangible expenses and costs"

 

 

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

 

 

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1                 or
2                 (iii) any item of intangible expense or cost
3             paid, accrued, or incurred, directly or
4             indirectly, from a transaction with a foreign
5             person if the taxpayer establishes by clear and
6             convincing evidence, that the adjustments are
7             unreasonable; or if the taxpayer and the Director
8             agree in writing to the application or use of an
9             alternative method of apportionment under Section
10             304(f);
11                 Nothing in this subsection shall preclude the
12             Director from making any other adjustment
13             otherwise allowed under Section 404 of this Act for
14             any tax year beginning after the effective date of
15             this amendment provided such adjustment is made
16             pursuant to regulation adopted by the Department
17             and such regulations provide methods and standards
18             by which the Department will utilize its authority
19             under Section 404 of this Act;
20     and by deducting from the total so obtained the following
21     amounts:
22             (E) The valuation limitation amount;
23             (F) An amount equal to the amount of any tax
24         imposed by this Act which was refunded to the taxpayer
25         and included in such total for the taxable year;
26             (G) An amount equal to all amounts included in
27         taxable income as modified by subparagraphs (A), (B),
28         (C) and (D) which are exempt from taxation by this
29         State either by reason of its statutes or Constitution
30         or by reason of the Constitution, treaties or statutes
31         of the United States; provided that, in the case of any
32         statute of this State that exempts income derived from
33         bonds or other obligations from the tax imposed under
34         this Act, the amount exempted shall be the interest net
35         of bond premium amortization;
36             (H) Any income of the partnership which

 

 

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1         constitutes personal service income as defined in
2         Section 1348 (b) (1) of the Internal Revenue Code (as
3         in effect December 31, 1981) or a reasonable allowance
4         for compensation paid or accrued for services rendered
5         by partners to the partnership, whichever is greater;
6             (I) An amount equal to all amounts of income
7         distributable to an entity subject to the Personal
8         Property Tax Replacement Income Tax imposed by
9         subsections (c) and (d) of Section 201 of this Act
10         including amounts distributable to organizations
11         exempt from federal income tax by reason of Section
12         501(a) of the Internal Revenue Code;
13             (J) With the exception of any amounts subtracted
14         under subparagraph (G), an amount equal to the sum of
15         all amounts disallowed as deductions by (i) Sections
16         171(a) (2), and 265(2) of the Internal Revenue Code of
17         1954, as now or hereafter amended, and all amounts of
18         expenses allocable to interest and disallowed as
19         deductions by Section 265(1) of the Internal Revenue
20         Code, as now or hereafter amended; and (ii) for taxable
21         years ending on or after August 13, 1999, Sections
22         171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the
23         Internal Revenue Code; the provisions of this
24         subparagraph are exempt from the provisions of Section
25         250;
26             (K) An amount equal to those dividends included in
27         such total which were paid by a corporation which
28         conducts business operations in an Enterprise Zone or
29         zones created under the Illinois Enterprise Zone Act,
30         enacted by the 82nd General Assembly, and conducts
31         substantially all of its operations in an Enterprise
32         Zone or Zones;
33             (L) An amount equal to any contribution made to a
34         job training project established pursuant to the Real
35         Property Tax Increment Allocation Redevelopment Act;
36             (M) An amount equal to those dividends included in

 

 

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1         such total that were paid by a corporation that
2         conducts business operations in a federally designated
3         Foreign Trade Zone or Sub-Zone and that is designated a
4         High Impact Business located in Illinois; provided
5         that dividends eligible for the deduction provided in
6         subparagraph (K) of paragraph (2) of this subsection
7         shall not be eligible for the deduction provided under
8         this subparagraph (M);
9             (N) An amount equal to the amount of the deduction
10         used to compute the federal income tax credit for
11         restoration of substantial amounts held under claim of
12         right for the taxable year pursuant to Section 1341 of
13         the Internal Revenue Code of 1986;
14             (O) For taxable years 2001 and thereafter, for the
15         taxable year in which the bonus depreciation deduction
16         (30% of the adjusted basis of the qualified property)
17         is taken on the taxpayer's federal income tax return
18         under subsection (k) of Section 168 of the Internal
19         Revenue Code and for each applicable taxable year
20         thereafter, an amount equal to "x", where:
21                 (1) "y" equals the amount of the depreciation
22             deduction taken for the taxable year on the
23             taxpayer's federal income tax return on property
24             for which the bonus depreciation deduction (30% of
25             the adjusted basis of the qualified property) was
26             taken in any year under subsection (k) of Section
27             168 of the Internal Revenue Code, but not including
28             the bonus depreciation deduction; and
29                 (2) "x" equals "y" multiplied by 30 and then
30             divided by 70 (or "y" multiplied by 0.429).
31             The aggregate amount deducted under this
32         subparagraph in all taxable years for any one piece of
33         property may not exceed the amount of the bonus
34         depreciation deduction (30% of the adjusted basis of
35         the qualified property) taken on that property on the
36         taxpayer's federal income tax return under subsection

 

 

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1         (k) of Section 168 of the Internal Revenue Code;
2             (P) If the taxpayer reports a capital gain or loss
3         on the taxpayer's federal income tax return for the
4         taxable year based on a sale or transfer of property
5         for which the taxpayer was required in any taxable year
6         to make an addition modification under subparagraph
7         (D-5), then an amount equal to that addition
8         modification.
9             The taxpayer is allowed to take the deduction under
10         this subparagraph only once with respect to any one
11         piece of property;
12             (Q) The amount of (i) any interest income (net of
13         the deductions allocable thereto) taken into account
14         for the taxable year with respect to a transaction with
15         a taxpayer that is required to make an addition
16         modification with respect to such transaction under
17         Section 203(a)(2)(D-17), 203(b)(2)(E-12),
18         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
19         the amount of such addition modification and (ii) any
20         income from intangible property (net of the deductions
21         allocable thereto) taken into account for the taxable
22         year with respect to a transaction with a taxpayer that
23         is required to make an addition modification with
24         respect to such transaction under Section
25         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
26         203(d)(2)(D-8), but not to exceed the amount of such
27         addition modification;
28             (R) An amount equal to the interest income taken
29         into account for the taxable year (net of the
30         deductions allocable thereto) with respect to
31         transactions with a foreign person who would be a
32         member of the taxpayer's unitary business group but for
33         the fact that the foreign person's business activity
34         outside the United States is 80% or more of that
35         person's total business activity, but not to exceed the
36         addition modification required to be made for the same

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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1 account in determining gross income, adjusted gross income or
2 taxable income for federal income tax purposes for the taxable
3 year, or in the amount of such items entering into the
4 computation of base income and net income under this Act for
5 such taxable year, whether in respect of property values as of
6 August 1, 1969 or otherwise.
7 (Source: P.A. 92-16, eff. 6-28-01; 92-244, eff. 8-3-01; 92-439,
8 eff. 8-17-01; 92-603, eff. 6-28-02; 92-626, eff. 7-11-02;
9 92-651, eff. 7-11-02; 92-846, eff. 8-23-02; 93-812, eff.
10 7-26-04; 93-840, eff. 7-30-04; revised 10-12-04.)
 
11     Section 99. Effective date. This Act takes effect upon
12 becoming law.