95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008
HB1543

 

Introduced 2/22/2007, by Rep. Kathleen A. Ryg

 

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

    Amends the Illinois Income Tax Act. Allows a deduction from federal adjusted gross income, in arriving at base income for Illinois income tax purposes, of an amount equal to earnings in a special needs trust, to the extent included in adjusted gross income. Defines "special needs trust" as a trust that is not liable to pay or reimburse the State or any public agency for financial aid or services to the individual, as provided in the Trusts and Trustees Act. Effective immediately.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1     AN ACT concerning taxes.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Income Tax Act is amended by
5 changing Section 203 as follows:
 
6     (35 ILCS 5/203)  (from Ch. 120, par. 2-203)
7     Sec. 203. Base income defined.
8     (a) Individuals.
9         (1) In general. In the case of an individual, base
10     income means an amount equal to the taxpayer's adjusted
11     gross income for the taxable year as modified by paragraph
12     (2).
13         (2) Modifications. The adjusted gross income referred
14     to in paragraph (1) shall be modified by adding thereto the
15     sum of the following amounts:
16             (A) An amount equal to all amounts paid or accrued
17         to the taxpayer as interest or dividends during the
18         taxable year to the extent excluded from gross income
19         in the computation of adjusted gross income, except
20         stock dividends of qualified public utilities
21         described in Section 305(e) of the Internal Revenue
22         Code;
23             (B) An amount equal to the amount of tax imposed by

 

 

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1         this Act to the extent deducted from gross income in
2         the computation of adjusted gross income for the
3         taxable year;
4             (C) An amount equal to the amount received during
5         the taxable year as a recovery or refund of real
6         property taxes paid with respect to the taxpayer's
7         principal residence under the Revenue Act of 1939 and
8         for which a deduction was previously taken under
9         subparagraph (L) of this paragraph (2) prior to July 1,
10         1991, the retrospective application date of Article 4
11         of Public Act 87-17. In the case of multi-unit or
12         multi-use structures and farm dwellings, the taxes on
13         the taxpayer's principal residence shall be that
14         portion of the total taxes for the entire property
15         which is attributable to such principal residence;
16             (D) An amount equal to the amount of the capital
17         gain deduction allowable under the Internal Revenue
18         Code, to the extent deducted from gross income in the
19         computation of adjusted gross income;
20             (D-5) An amount, to the extent not included in
21         adjusted gross income, equal to the amount of money
22         withdrawn by the taxpayer in the taxable year from a
23         medical care savings account and the interest earned on
24         the account in the taxable year of a withdrawal
25         pursuant to subsection (b) of Section 20 of the Medical
26         Care Savings Account Act or subsection (b) of Section

 

 

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1         20 of the Medical Care Savings Account Act of 2000;
2             (D-10) For taxable years ending after December 31,
3         1997, an amount equal to any eligible remediation costs
4         that the individual deducted in computing adjusted
5         gross income and for which the individual claims a
6         credit under subsection (l) of Section 201;
7             (D-15) For taxable years 2001 and thereafter, an
8         amount equal to the bonus depreciation deduction taken
9         on the taxpayer's federal income tax return for the
10         taxable year under subsection (k) of Section 168 of the
11         Internal Revenue Code;
12             (D-16) If the taxpayer sells, transfers, abandons,
13         or otherwise disposes of property for which the
14         taxpayer was required in any taxable year to make an
15         addition modification under subparagraph (D-15), then
16         an amount equal to the aggregate amount of the
17         deductions taken in all taxable years under
18         subparagraph (Z) with respect to that property.
19             If the taxpayer continues to own property through
20         the last day of the last tax year for which the
21         taxpayer may claim a depreciation deduction for
22         federal income tax purposes and for which the taxpayer
23         was allowed in any taxable year to make a subtraction
24         modification under subparagraph (Z), then an amount
25         equal to that subtraction modification.
26             The taxpayer is required to make the addition

 

 

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

 

 

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1             unitary reporting, to a tax on or measured by net
2             income with respect to such interest; or
3                 (ii) an item of interest paid, accrued, or
4             incurred, directly or indirectly, to a foreign
5             person if the taxpayer can establish, based on a
6             preponderance of the evidence, both of the
7             following:
8                     (a) the foreign person, during the same
9                 taxable year, paid, accrued, or incurred, the
10                 interest to a person that is not a related
11                 member, and
12                     (b) the transaction giving rise to the
13                 interest expense between the taxpayer and the
14                 foreign person did not have as a principal
15                 purpose the avoidance of Illinois income tax,
16                 and is paid pursuant to a contract or agreement
17                 that reflects an arm's-length interest rate
18                 and terms; or
19                 (iii) the taxpayer can establish, based on
20             clear and convincing evidence, that the interest
21             paid, accrued, or incurred relates to a contract or
22             agreement entered into at arm's-length rates and
23             terms and the principal purpose for the payment is
24             not federal or Illinois tax avoidance; or
25                 (iv) an item of interest paid, accrued, or
26             incurred, directly or indirectly, to 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             (D-18) For taxable years ending on or after
17         December 31, 2004, an amount equal to the amount of
18         intangible expenses and costs otherwise allowed as a
19         deduction in computing base income, and that were paid,
20         accrued, or incurred, directly or indirectly, to a
21         foreign person who would be a member of the same
22         unitary business group but for the fact that the
23         foreign person's business activity outside the United
24         States is 80% or more of that person's total business
25         activity. The addition modification required by this
26         subparagraph shall be reduced to the extent that

 

 

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1         dividends were included in base income of the unitary
2         group for the same taxable year and received by the
3         taxpayer or by a member of the taxpayer's unitary
4         business group (including amounts included in gross
5         income under Sections 951 through 964 of the Internal
6         Revenue Code and amounts included in gross income under
7         Section 78 of the Internal Revenue Code) with respect
8         to the stock of the same person to whom the intangible
9         expenses and costs were directly or indirectly paid,
10         incurred, or accrued. The preceding sentence does not
11         apply to the extent that the same dividends caused a
12         reduction to the addition modification required under
13         Section 203(a)(2)(D-17) of this Act. As used in this
14         subparagraph, the term "intangible expenses and costs"
15         includes (1) expenses, losses, and costs for, or
16         related to, the direct or indirect acquisition, use,
17         maintenance or management, ownership, sale, exchange,
18         or any other disposition of intangible property; (2)
19         losses incurred, directly or indirectly, from
20         factoring transactions or discounting transactions;
21         (3) royalty, patent, technical, and copyright fees;
22         (4) licensing fees; and (5) other similar expenses and
23         costs. For purposes of this subparagraph, "intangible
24         property" includes patents, patent applications, trade
25         names, trademarks, service marks, copyrights, mask
26         works, trade secrets, and similar types of intangible

 

 

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1         assets.
2             This paragraph shall not apply to the following:
3                 (i) any item of intangible expenses or costs
4             paid, accrued, or incurred, directly or
5             indirectly, from a transaction with a foreign
6             person who is subject in a foreign country or
7             state, other than a state which requires mandatory
8             unitary reporting, to a tax on or measured by net
9             income with respect to such item; or
10                 (ii) any item of intangible expense or cost
11             paid, accrued, or incurred, directly or
12             indirectly, if the taxpayer can establish, based
13             on a preponderance of the evidence, both of the
14             following:
15                     (a) the foreign person during the same
16                 taxable year paid, accrued, or incurred, the
17                 intangible expense or cost to a person that is
18                 not a related member, and
19                     (b) the transaction giving rise to the
20                 intangible expense or cost between the
21                 taxpayer and the foreign person did not have as
22                 a principal purpose the avoidance of Illinois
23                 income tax, and is paid pursuant to a contract
24                 or agreement that reflects arm's-length terms;
25                 or
26                 (iii) any item of intangible expense or cost

 

 

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1             paid, accrued, or incurred, directly or
2             indirectly, from a transaction with a foreign
3             person if the taxpayer establishes by clear and
4             convincing evidence, that the adjustments are
5             unreasonable; or if the taxpayer and the Director
6             agree in writing to the application or use of an
7             alternative method of apportionment under Section
8             304(f);
9                 Nothing in this subsection shall preclude the
10             Director from making any other adjustment
11             otherwise allowed under Section 404 of this Act for
12             any tax year beginning after the effective date of
13             this amendment provided such adjustment is made
14             pursuant to regulation adopted by the Department
15             and such regulations provide methods and standards
16             by which the Department will utilize its authority
17             under Section 404 of this Act;
18             (D-20) For taxable years beginning on or after
19         January 1, 2002, in the case of a distribution from a
20         qualified tuition program under Section 529 of the
21         Internal Revenue Code, other than (i) a distribution
22         from a College Savings Pool created under Section 16.5
23         of the State Treasurer Act or (ii) a distribution from
24         the Illinois Prepaid Tuition Trust Fund, an amount
25         equal to the amount excluded from gross income under
26         Section 529(c)(3)(B);

 

 

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1     and by deducting from the total so obtained the sum of the
2     following amounts:
3             (E) For taxable years ending before December 31,
4         2001, any amount included in such total in respect of
5         any compensation (including but not limited to any
6         compensation paid or accrued to a serviceman while a
7         prisoner of war or missing in action) paid to a
8         resident by reason of being on active duty in the Armed
9         Forces of the United States and in respect of any
10         compensation paid or accrued to a resident who as a
11         governmental employee was a prisoner of war or missing
12         in action, and in respect of any compensation paid to a
13         resident in 1971 or thereafter for annual training
14         performed pursuant to Sections 502 and 503, Title 32,
15         United States Code as a member of the Illinois National
16         Guard. For taxable years ending on or after December
17         31, 2001, any amount included in such total in respect
18         of any compensation (including but not limited to any
19         compensation paid or accrued to a serviceman while a
20         prisoner of war or missing in action) paid to a
21         resident by reason of being a member of any component
22         of the Armed Forces of the United States and in respect
23         of any compensation paid or accrued to a resident who
24         as a governmental employee was a prisoner of war or
25         missing in action, and in respect of any compensation
26         paid to a resident in 2001 or thereafter by reason of

 

 

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1         being a member of the Illinois National Guard. The
2         provisions of this amendatory Act of the 92nd General
3         Assembly are exempt from the provisions of Section 250;
4             (F) An amount equal to all amounts included in such
5         total pursuant to the provisions of Sections 402(a),
6         402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the
7         Internal Revenue Code, or included in such total as
8         distributions under the provisions of any retirement
9         or disability plan for employees of any governmental
10         agency or unit, or retirement payments to retired
11         partners, which payments are excluded in computing net
12         earnings from self employment by Section 1402 of the
13         Internal Revenue Code and regulations adopted pursuant
14         thereto;
15             (G) The valuation limitation amount;
16             (H) An amount equal to the amount of any tax
17         imposed by this Act which was refunded to the taxpayer
18         and included in such total for the taxable year;
19             (I) An amount equal to all amounts included in such
20         total pursuant to the provisions of Section 111 of the
21         Internal Revenue Code as a recovery of items previously
22         deducted from adjusted gross income in the computation
23         of taxable income;
24             (J) An amount equal to those dividends included in
25         such total which were paid by a corporation which
26         conducts business operations in an Enterprise Zone or

 

 

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1         zones created under the Illinois Enterprise Zone Act or
2         a River Edge Redevelopment Zone or zones created under
3         the River Edge Redevelopment Zone Act, and conducts
4         substantially all of its operations in an Enterprise
5         Zone or zones or a River Edge Redevelopment Zone or
6         zones. This subparagraph (J) is exempt from the
7         provisions of Section 250;
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

 

 

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

 

 

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1         total, received by the taxpayer as an acceleration in
2         the payment of life, endowment or annuity benefits in
3         advance of the time they would otherwise be payable as
4         an indemnity for a terminal illness;
5             (R) An amount equal to the amount of any federal or
6         State bonus paid to veterans of the Persian Gulf War;
7             (S) An amount, to the extent included in adjusted
8         gross income, equal to the amount of a contribution
9         made in the taxable year on behalf of the taxpayer to a
10         medical care savings account established under the
11         Medical Care Savings Account Act or the Medical Care
12         Savings Account Act of 2000 to the extent the
13         contribution is accepted by the account administrator
14         as provided in that Act;
15             (T) An amount, to the extent included in adjusted
16         gross income, equal to the amount of interest earned in
17         the taxable year on a medical care savings account
18         established under the Medical Care Savings Account Act
19         or the Medical Care Savings Account Act of 2000 on
20         behalf of the taxpayer, other than interest added
21         pursuant to item (D-5) of this paragraph (2);
22             (U) For one taxable year beginning on or after
23         January 1, 1994, an amount equal to the total amount of
24         tax imposed and paid under subsections (a) and (b) of
25         Section 201 of this Act on grant amounts received by
26         the taxpayer under the Nursing Home Grant Assistance

 

 

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1         Act during the taxpayer's taxable years 1992 and 1993;
2             (V) Beginning with tax years ending on or after
3         December 31, 1995 and ending with tax years ending on
4         or before December 31, 2004, an amount equal to the
5         amount paid by a taxpayer who is a self-employed
6         taxpayer, a partner of a partnership, or a shareholder
7         in a Subchapter S corporation for health insurance or
8         long-term care insurance for that taxpayer or that
9         taxpayer's spouse or dependents, to the extent that the
10         amount paid for that health insurance or long-term care
11         insurance may be deducted under Section 213 of the
12         Internal Revenue Code of 1986, has not been deducted on
13         the federal income tax return of the taxpayer, and does
14         not exceed the taxable income attributable to that
15         taxpayer's income, self-employment income, or
16         Subchapter S corporation income; except that no
17         deduction shall be allowed under this item (V) if the
18         taxpayer is eligible to participate in any health
19         insurance or long-term care insurance plan of an
20         employer of the taxpayer or the taxpayer's spouse. The
21         amount of the health insurance and long-term care
22         insurance subtracted under this item (V) shall be
23         determined by multiplying total health insurance and
24         long-term care insurance premiums paid by the taxpayer
25         times a number that represents the fractional
26         percentage of eligible medical expenses under Section

 

 

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1         213 of the Internal Revenue Code of 1986 not actually
2         deducted on the taxpayer's federal income tax return;
3             (W) For taxable years beginning on or after January
4         1, 1998, all amounts included in the taxpayer's federal
5         gross income in the taxable year from amounts converted
6         from a regular IRA to a Roth IRA. This paragraph is
7         exempt from the provisions of Section 250;
8             (X) 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;

 

 

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

 

 

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1         Tuition Trust Fund, except that amounts excluded from
2         gross income under Section 529(c)(3)(C)(i) of the
3         Internal Revenue Code shall not be considered moneys
4         contributed under this subparagraph (Y). This
5         subparagraph (Y) is exempt from the provisions of
6         Section 250;
7             (Z) For taxable years 2001 and thereafter, for the
8         taxable year in which the bonus depreciation deduction
9         is taken on the taxpayer's federal income tax return
10         under subsection (k) of Section 168 of the Internal
11         Revenue Code and for each applicable taxable year
12         thereafter, an amount equal to "x", where:
13                 (1) "y" equals the amount of the depreciation
14             deduction taken for the taxable year on the
15             taxpayer's federal income tax return on property
16             for which the bonus depreciation deduction 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;
20                 (2) for taxable years ending on or before
21             December 31, 2005, "x" equals "y" multiplied by 30
22             and then divided by 70 (or "y" multiplied by
23             0.429); and
24                 (3) for taxable years ending after December
25             31, 2005:
26                     (i) for property on which a bonus

 

 

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1                 depreciation deduction of 30% of the adjusted
2                 basis was taken, "x" equals "y" multiplied by
3                 30 and then divided by 70 (or "y" multiplied by
4                 0.429); and
5                     (ii) for property on which a bonus
6                 depreciation deduction of 50% of the adjusted
7                 basis was taken, "x" equals "y" multiplied by
8                 1.0.
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 taken on that property on the
13         taxpayer's federal income tax return under subsection
14         (k) of Section 168 of the Internal Revenue Code. This
15         subparagraph (Z) is exempt from the provisions of
16         Section 250;
17             (AA) If the taxpayer sells, transfers, abandons,
18         or otherwise disposes of property for which the
19         taxpayer was required in any taxable year to make an
20         addition modification under subparagraph (D-15), then
21         an amount equal to that addition modification.
22             If the taxpayer continues to own property through
23         the last day of the last tax year for which the
24         taxpayer may claim a depreciation deduction for
25         federal income tax purposes and for which the taxpayer
26         was required in any taxable year to make an addition

 

 

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1         modification under subparagraph (D-15), then an amount
2         equal to that addition modification.
3             The taxpayer is allowed to take the deduction under
4         this subparagraph only once with respect to any one
5         piece of property.
6             This subparagraph (AA) is exempt from the
7         provisions of Section 250;
8             (BB) Any amount included in adjusted gross income,
9         other than salary, received by a driver in a
10         ridesharing arrangement using a motor vehicle;
11             (CC) The amount of (i) any interest income (net of
12         the deductions allocable thereto) taken into account
13         for the taxable year with respect to a transaction with
14         a taxpayer that is required to make an addition
15         modification with respect to such transaction under
16         Section 203(a)(2)(D-17), 203(b)(2)(E-12),
17         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
18         the amount of that addition modification, and (ii) any
19         income from intangible property (net of the deductions
20         allocable thereto) taken into account for the taxable
21         year with respect to a transaction with a taxpayer that
22         is required to make an addition modification with
23         respect to such transaction under Section
24         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
25         203(d)(2)(D-8), but not to exceed the amount of that
26         addition modification;

 

 

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1             (DD) An amount equal to the interest income taken
2         into account for the taxable year (net of the
3         deductions allocable thereto) with respect to
4         transactions with a foreign person who would be a
5         member of the taxpayer's unitary business group but for
6         the fact that the foreign person's business activity
7         outside the United States is 80% or more of that
8         person's total business activity, but not to exceed the
9         addition modification required to be made for the same
10         taxable year under Section 203(a)(2)(D-17) for
11         interest paid, accrued, or incurred, directly or
12         indirectly, to the same foreign person; and
13             (EE) An amount equal to the income from intangible
14         property taken into account for the taxable year (net
15         of the deductions allocable thereto) with respect to
16         transactions with a foreign person who would be a
17         member of the taxpayer's unitary business group but for
18         the fact that the foreign person's business activity
19         outside the United States is 80% or more of that
20         person's total business activity, but not to exceed the
21         addition modification required to be made for the same
22         taxable year under Section 203(a)(2)(D-18) for
23         intangible expenses and costs paid, accrued, or
24         incurred, directly or indirectly, to the same foreign
25         person; and .
26             (FF) For taxable years ending on or after December

 

 

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1         31, 2007, an amount equal to the earnings on a special
2         needs trust, to the extent included in adjusted gross
3         income. As used in this subparagraph, "special needs
4         trust" means a trust that is not liable to pay or
5         reimburse the State or any public agency for financial
6         aid or services to the individual, as provided in
7         Section 15.1 of the Trusts and Trustees Act.
 
8     (b) Corporations.
9         (1) In general. In the case of a corporation, base
10     income means an amount equal to the taxpayer's taxable
11     income for the taxable year as modified by paragraph (2).
12         (2) Modifications. The taxable income referred to in
13     paragraph (1) shall be modified by adding thereto the sum
14     of the following amounts:
15             (A) An amount equal to all amounts paid or accrued
16         to the taxpayer as interest and all distributions
17         received from regulated investment companies during
18         the taxable year to the extent excluded from gross
19         income in the computation of taxable income;
20             (B) An amount equal to the amount of tax imposed by
21         this Act to the extent deducted from gross income in
22         the computation of taxable income for the taxable year;
23             (C) In the case of a regulated investment company,
24         an amount equal to the excess of (i) the net long-term
25         capital gain for the taxable year, over (ii) the amount

 

 

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1         of the capital gain dividends designated as such in
2         accordance with Section 852(b)(3)(C) of the Internal
3         Revenue Code and any amount designated under Section
4         852(b)(3)(D) of the Internal Revenue Code,
5         attributable to the taxable year (this amendatory Act
6         of 1995 (Public Act 89-89) is declarative of existing
7         law and is not a new enactment);
8             (D) The amount of any net operating loss deduction
9         taken in arriving at taxable income, other than a net
10         operating loss carried forward from a taxable year
11         ending prior to December 31, 1986;
12             (E) For taxable years in which a net operating loss
13         carryback or carryforward from a taxable year ending
14         prior to December 31, 1986 is an element of taxable
15         income under paragraph (1) of subsection (e) or
16         subparagraph (E) of paragraph (2) of subsection (e),
17         the amount by which addition modifications other than
18         those provided by this subparagraph (E) exceeded
19         subtraction modifications in such earlier taxable
20         year, with the following limitations applied in the
21         order that they are listed:
22                 (i) the addition modification relating to the
23             net operating loss carried back or forward to the
24             taxable year from any taxable year ending prior to
25             December 31, 1986 shall be reduced by the amount of
26             addition modification under this subparagraph (E)

 

 

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

 

 

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1         or otherwise disposes of property for which the
2         taxpayer was required in any taxable year to make an
3         addition modification under subparagraph (E-10), then
4         an amount equal to the aggregate amount of the
5         deductions taken in all taxable years under
6         subparagraph (T) with respect to that property.
7             If the taxpayer continues to own property through
8         the last day of the last tax year for which the
9         taxpayer may claim a depreciation deduction for
10         federal income tax purposes and for which the taxpayer
11         was allowed in any taxable year to make a subtraction
12         modification under subparagraph (T), then an amount
13         equal to that subtraction modification.
14             The taxpayer is required to make the addition
15         modification under this subparagraph only once with
16         respect to any one piece of property;
17             (E-12) For taxable years ending on or after
18         December 31, 2004, an amount equal to the amount
19         otherwise allowed as a deduction in computing base
20         income for interest paid, accrued, or incurred,
21         directly or indirectly, to a foreign person who would
22         be a member of the same unitary business group but for
23         the fact the foreign person's business activity
24         outside the United States is 80% or more of the foreign
25         person's total business activity. The addition
26         modification required by this subparagraph shall be

 

 

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1         reduced to the extent that dividends were included in
2         base income of the unitary group for the same taxable
3         year and received by the taxpayer or by a member of the
4         taxpayer's unitary business group (including amounts
5         included in gross income pursuant to Sections 951
6         through 964 of the Internal Revenue Code and amounts
7         included in gross income under Section 78 of the
8         Internal Revenue Code) with respect to the stock of the
9         same person to whom the interest was paid, accrued, or
10         incurred.
11             This paragraph shall not apply to the following:
12                 (i) an item of interest paid, accrued, or
13             incurred, directly or indirectly, to 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 interest; or
18                 (ii) an item of interest paid, accrued, or
19             incurred, directly or indirectly, to a foreign
20             person if the taxpayer can establish, based on a
21             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                 interest to a person that is not a related
26                 member, and

 

 

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

 

 

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1             pursuant to regulation adopted by the Department
2             and such regulations provide methods and standards
3             by which the Department will utilize its authority
4             under Section 404 of this Act;
5             (E-13) For taxable years ending on or after
6         December 31, 2004, an amount equal to the amount of
7         intangible expenses and costs otherwise allowed as a
8         deduction in computing base income, and that were paid,
9         accrued, or incurred, directly or indirectly, to a
10         foreign person who would be a member of the same
11         unitary business group but for the fact that the
12         foreign person's business activity outside the United
13         States is 80% or more of that person's total business
14         activity. The addition modification required by this
15         subparagraph shall be reduced to the extent that
16         dividends were included in base income of the unitary
17         group for the same taxable year and received by the
18         taxpayer or by a member of the taxpayer's unitary
19         business group (including amounts included in gross
20         income pursuant to Sections 951 through 964 of the
21         Internal Revenue Code and amounts included in gross
22         income under Section 78 of the Internal Revenue Code)
23         with respect to the stock of the same person to whom
24         the intangible expenses and costs were directly or
25         indirectly paid, incurred, or accrued. The preceding
26         sentence shall not apply to the extent that the same

 

 

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

 

 

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1             indirectly, if the taxpayer can establish, based
2             on a preponderance of the evidence, both of the
3             following:
4                     (a) the foreign person during the same
5                 taxable year paid, accrued, or incurred, the
6                 intangible expense or cost to a person that is
7                 not a related member, and
8                     (b) the transaction giving rise to the
9                 intangible expense or cost between the
10                 taxpayer and the foreign person did not have as
11                 a principal purpose the avoidance of Illinois
12                 income tax, and is paid pursuant to a contract
13                 or agreement that reflects arm's-length terms;
14                 or
15                 (iii) any item of intangible expense or cost
16             paid, accrued, or incurred, directly or
17             indirectly, from a transaction with a foreign
18             person if the taxpayer establishes by clear and
19             convincing evidence, that the adjustments are
20             unreasonable; or if the taxpayer and the Director
21             agree in writing to the application or use of an
22             alternative method of apportionment under Section
23             304(f);
24                 Nothing in this subsection shall preclude the
25             Director from making any other adjustment
26             otherwise allowed under Section 404 of this Act for

 

 

HB1543 - 31 - LRB095 10359 BDD 30574 b

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     and by deducting from the total so obtained the sum of the
8     following amounts:
9             (F) An amount equal to the amount of any tax
10         imposed by this Act which was refunded to the taxpayer
11         and included in such total for the taxable year;
12             (G) An amount equal to any amount included in such
13         total under Section 78 of the Internal Revenue Code;
14             (H) In the case of a regulated investment company,
15         an amount equal to the amount of exempt interest
16         dividends as defined in subsection (b) (5) of Section
17         852 of the Internal Revenue Code, paid to shareholders
18         for the taxable year;
19             (I) With the exception of any amounts subtracted
20         under subparagraph (J), an amount equal to the sum of
21         all amounts disallowed as deductions by (i) Sections
22         171(a) (2), and 265(a)(2) and amounts disallowed as
23         interest expense by Section 291(a)(3) of the Internal
24         Revenue Code, as now or hereafter amended, and all
25         amounts of expenses allocable to interest and
26         disallowed as deductions by Section 265(a)(1) of the

 

 

HB1543 - 32 - LRB095 10359 BDD 30574 b

1         Internal Revenue Code, as now or hereafter amended; and
2         (ii) for taxable years ending on or after August 13,
3         1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and
4         832(b)(5)(B)(i) of the Internal Revenue Code; the
5         provisions of this subparagraph are exempt from the
6         provisions of Section 250;
7             (J) An amount equal to all amounts included in such
8         total which are exempt from taxation by this State
9         either by reason of its statutes or Constitution or by
10         reason of the Constitution, treaties or statutes of the
11         United States; provided that, in the case of any
12         statute of this State that exempts income derived from
13         bonds or other obligations from the tax imposed under
14         this Act, the amount exempted shall be the interest net
15         of bond premium amortization;
16             (K) An amount equal to those dividends included in
17         such total which were paid by a corporation which
18         conducts business operations in an Enterprise Zone or
19         zones created under the Illinois Enterprise Zone Act or
20         a River Edge Redevelopment Zone or zones created under
21         the River Edge Redevelopment Zone Act and conducts
22         substantially all of its operations in an Enterprise
23         Zone or zones or a River Edge Redevelopment Zone or
24         zones. This subparagraph (K) is exempt from the
25         provisions of Section 250;
26             (L) 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 (L);
9             (M) 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 Enterprise Zone
15         Investment Credit or the River Edge Redevelopment Zone
16         Investment Credit. To determine the portion of a loan
17         or loans that is secured by property eligible for a
18         Section 201(f) investment credit to the borrower, the
19         entire principal amount of the loan or loans between
20         the taxpayer and the borrower should be divided into
21         the basis of the Section 201(f) investment credit
22         property which secures the loan or loans, using for
23         this purpose the original basis of such property on the
24         date that it was placed in service in the Enterprise
25         Zone or the River Edge Redevelopment Zone. The
26         subtraction modification available to taxpayer in any

 

 

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1         year under this subsection shall be that portion of the
2         total interest paid by the borrower with respect to
3         such loan attributable to the eligible property as
4         calculated under the previous sentence. This
5         subparagraph (M) is exempt from the provisions of
6         Section 250;
7             (M-1) For any taxpayer that is a financial
8         organization within the meaning of Section 304(c) of
9         this Act, an amount included in such total as interest
10         income from a loan or loans made by such taxpayer to a
11         borrower, to the extent that such a loan is secured by
12         property which is eligible for the High Impact Business
13         Investment Credit. To determine the portion of a loan
14         or loans that is secured by property eligible for a
15         Section 201(h) investment credit to the borrower, the
16         entire principal amount of the loan or loans between
17         the taxpayer and the borrower should be divided into
18         the basis of the Section 201(h) investment credit
19         property which secures the loan or loans, using for
20         this purpose the original basis of such property on the
21         date that it was placed in service in a federally
22         designated Foreign Trade Zone or Sub-Zone located in
23         Illinois. No taxpayer that is eligible for the
24         deduction provided in subparagraph (M) of paragraph
25         (2) of this subsection shall be eligible for the
26         deduction provided under this subparagraph (M-1). The

 

 

HB1543 - 35 - LRB095 10359 BDD 30574 b

1         subtraction modification available to taxpayers in any
2         year under this subsection shall be that portion of the
3         total interest paid by the borrower with respect to
4         such loan attributable to the eligible property as
5         calculated under the previous sentence;
6             (N) Two times any contribution made during the
7         taxable year to a designated zone organization to the
8         extent that the contribution (i) qualifies as a
9         charitable contribution under subsection (c) of
10         Section 170 of the Internal Revenue Code and (ii) must,
11         by its terms, be used for a project approved by the
12         Department of Commerce and Economic Opportunity under
13         Section 11 of the Illinois Enterprise Zone Act or under
14         Section 10-10 of the Illinois River Edge Redevelopment
15         Zone Act. This subparagraph (N) is exempt from the
16         provisions of Section 250;
17             (O) An amount equal to: (i) 85% for taxable years
18         ending on or before December 31, 1992, or, a percentage
19         equal to the percentage allowable under Section
20         243(a)(1) of the Internal Revenue Code of 1986 for
21         taxable years ending after December 31, 1992, of the
22         amount by which dividends included in taxable income
23         and received from a corporation that is not created or
24         organized under the laws of the United States or any
25         state or political subdivision thereof, including, for
26         taxable years ending on or after December 31, 1988,

 

 

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1         dividends received or deemed received or paid or deemed
2         paid under Sections 951 through 964 of the Internal
3         Revenue Code, exceed the amount of the modification
4         provided under subparagraph (G) of paragraph (2) of
5         this subsection (b) which is related to such dividends;
6         plus (ii) 100% of the amount by which dividends,
7         included in taxable income and received, including,
8         for taxable years ending on or after December 31, 1988,
9         dividends received or deemed received or paid or deemed
10         paid under Sections 951 through 964 of the Internal
11         Revenue Code, from any such corporation specified in
12         clause (i) that would but for the provisions of Section
13         1504 (b) (3) of the Internal Revenue Code be treated as
14         a member of the affiliated group which includes the
15         dividend recipient, exceed the amount of the
16         modification provided under subparagraph (G) of
17         paragraph (2) of this subsection (b) which is related
18         to such dividends;
19             (P) An amount equal to any contribution made to a
20         job training project established pursuant to the Tax
21         Increment Allocation Redevelopment Act;
22             (Q) An amount equal to the amount of the deduction
23         used to compute the federal income tax credit for
24         restoration of substantial amounts held under claim of
25         right for the taxable year pursuant to Section 1341 of
26         the Internal Revenue Code of 1986;

 

 

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1             (R) On and after July 20, 1999, in the case of an
2         attorney-in-fact with respect to whom an interinsurer
3         or a reciprocal insurer has made the election under
4         Section 835 of the Internal Revenue Code, 26 U.S.C.
5         835, an amount equal to the excess, if any, of the
6         amounts paid or incurred by that interinsurer or
7         reciprocal insurer in the taxable year to the
8         attorney-in-fact over the deduction allowed to that
9         interinsurer or reciprocal insurer with respect to the
10         attorney-in-fact under Section 835(b) of the Internal
11         Revenue Code for the taxable year; the provisions of
12         this subparagraph are exempt from the provisions of
13         Section 250;
14             (S) For taxable years ending on or after December
15         31, 1997, in the case of a Subchapter S corporation, an
16         amount equal to all amounts of income allocable to a
17         shareholder subject to the Personal Property Tax
18         Replacement Income Tax imposed by subsections (c) and
19         (d) of Section 201 of this Act, including amounts
20         allocable to organizations exempt from federal income
21         tax by reason of Section 501(a) of the Internal Revenue
22         Code. This subparagraph (S) is exempt from the
23         provisions of Section 250;
24             (T) For taxable years 2001 and thereafter, for the
25         taxable year in which the bonus depreciation deduction
26         is taken on the taxpayer's federal income tax return

 

 

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1         under subsection (k) of Section 168 of the Internal
2         Revenue Code and for each applicable taxable year
3         thereafter, an amount equal to "x", where:
4                 (1) "y" equals the amount of the depreciation
5             deduction taken for the taxable year on the
6             taxpayer's federal income tax return on property
7             for which the bonus depreciation deduction was
8             taken in any year under subsection (k) of Section
9             168 of the Internal Revenue Code, but not including
10             the bonus depreciation deduction;
11                 (2) for taxable years ending on or before
12             December 31, 2005, "x" equals "y" multiplied by 30
13             and then divided by 70 (or "y" multiplied by
14             0.429); and
15                 (3) for taxable years ending after December
16             31, 2005:
17                     (i) for property on which a bonus
18                 depreciation deduction of 30% of the adjusted
19                 basis was taken, "x" equals "y" multiplied by
20                 30 and then divided by 70 (or "y" multiplied by
21                 0.429); and
22                     (ii) for property on which a bonus
23                 depreciation deduction of 50% of the adjusted
24                 basis was taken, "x" equals "y" multiplied by
25                 1.0.
26             The aggregate amount deducted under this

 

 

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1         subparagraph in all taxable years for any one piece of
2         property may not exceed the amount of the bonus
3         depreciation deduction taken on that property on the
4         taxpayer's federal income tax return under subsection
5         (k) of Section 168 of the Internal Revenue Code. This
6         subparagraph (T) is exempt from the provisions of
7         Section 250;
8             (U) If the taxpayer sells, transfers, abandons, or
9         otherwise disposes of property for which the taxpayer
10         was required in any taxable year to make an addition
11         modification under subparagraph (E-10), then an amount
12         equal to that addition modification.
13             If the taxpayer continues to own property through
14         the last day of the last tax year for which the
15         taxpayer may claim a depreciation deduction for
16         federal income tax purposes and for which the taxpayer
17         was required in any taxable year to make an addition
18         modification under subparagraph (E-10), then an amount
19         equal to that addition modification.
20             The taxpayer is allowed to take the deduction under
21         this subparagraph only once with respect to any one
22         piece of property.
23             This subparagraph (U) is exempt from the
24         provisions of Section 250;
25             (V) The amount of: (i) any interest income (net of
26         the deductions allocable thereto) taken into account

 

 

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

 

 

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1             (X) An amount equal to the income from intangible
2         property taken into account for the taxable year (net
3         of the deductions allocable thereto) with respect to
4         transactions with a foreign person who would be a
5         member of the taxpayer's unitary business group but for
6         the fact that the foreign person's business activity
7         outside the United States is 80% or more of that
8         person's total business activity, but not to exceed the
9         addition modification required to be made for the same
10         taxable year under Section 203(b)(2)(E-13) for
11         intangible expenses and costs paid, accrued, or
12         incurred, directly or indirectly, to the same foreign
13         person; and .
14             (Y) For taxable years ending on or after December
15         31, 2007, an amount equal to the earnings on a special
16         needs trust, to the extent included in adjusted gross
17         income. As used in this subparagraph, "special needs
18         trust" means a trust that is not liable to pay or
19         reimburse the State or any public agency for financial
20         aid or services to the individual, as provided in
21         Section 15.1 of the Trusts and Trustees Act.
22         (3) Special rule. For purposes of paragraph (2) (A),
23     "gross income" in the case of a life insurance company, for
24     tax years ending on and after December 31, 1994, shall mean
25     the gross investment income for the taxable year.
 

 

 

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1     (c) Trusts and estates.
2         (1) In general. In the case of a trust or estate, base
3     income means an amount equal to the taxpayer's taxable
4     income for the taxable year as modified by paragraph (2).
5         (2) Modifications. Subject to the provisions of
6     paragraph (3), the taxable income referred to in paragraph
7     (1) shall be modified by adding thereto the sum of the
8     following amounts:
9             (A) An amount equal to all amounts paid or accrued
10         to the taxpayer as interest or dividends during the
11         taxable year to the extent excluded from gross income
12         in the computation of taxable income;
13             (B) In the case of (i) an estate, $600; (ii) a
14         trust which, under its governing instrument, is
15         required to distribute all of its income currently,
16         $300; and (iii) any other trust, $100, but in each such
17         case, only to the extent such amount was deducted in
18         the computation of taxable income;
19             (C) An amount equal to the amount of tax imposed by
20         this Act to the extent deducted from gross income in
21         the computation of taxable income for the taxable year;
22             (D) The amount of any net operating loss deduction
23         taken in arriving at taxable income, other than a net
24         operating loss carried forward from a taxable year
25         ending prior to December 31, 1986;
26             (E) For taxable years in which a net operating loss

 

 

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1         carryback or carryforward from a taxable year ending
2         prior to December 31, 1986 is an element of taxable
3         income under paragraph (1) of subsection (e) or
4         subparagraph (E) of paragraph (2) of subsection (e),
5         the amount by which addition modifications other than
6         those provided by this subparagraph (E) exceeded
7         subtraction modifications in such taxable year, with
8         the following limitations applied in the order that
9         they are listed:
10                 (i) 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 be reduced by the amount of
14             addition modification under this subparagraph (E)
15             which related to that net operating loss and which
16             was taken into account in calculating the base
17             income of an earlier taxable year, and
18                 (ii) the addition modification relating to the
19             net operating loss carried back or forward to the
20             taxable year from any taxable year ending prior to
21             December 31, 1986 shall not exceed the amount of
22             such carryback or carryforward;
23             For taxable years in which there is a net operating
24         loss carryback or carryforward from more than one other
25         taxable year ending prior to December 31, 1986, the
26         addition modification provided in this subparagraph

 

 

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1         (E) shall be the sum of the amounts computed
2         independently under the preceding provisions of this
3         subparagraph (E) for each such taxable year;
4             (F) For taxable years ending on or after January 1,
5         1989, an amount equal to the tax deducted pursuant to
6         Section 164 of the Internal Revenue Code if the trust
7         or estate is claiming the same tax for purposes of the
8         Illinois foreign tax credit under Section 601 of this
9         Act;
10             (G) An amount equal to the amount of the capital
11         gain deduction allowable under the Internal Revenue
12         Code, to the extent deducted from gross income in the
13         computation of taxable income;
14             (G-5) For taxable years ending after December 31,
15         1997, an amount equal to any eligible remediation costs
16         that the trust or estate deducted in computing adjusted
17         gross income and for which the trust or estate claims a
18         credit under subsection (l) of Section 201;
19             (G-10) For taxable years 2001 and thereafter, an
20         amount equal to the bonus depreciation deduction taken
21         on the taxpayer's federal income tax return for the
22         taxable year under subsection (k) of Section 168 of the
23         Internal Revenue Code; and
24             (G-11) If the taxpayer sells, transfers, abandons,
25         or otherwise disposes of property for which the
26         taxpayer was required in any taxable year to make an

 

 

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1         addition modification under subparagraph (G-10), then
2         an amount equal to the aggregate amount of the
3         deductions taken in all taxable years under
4         subparagraph (R) with respect to that property.
5             If the taxpayer continues to own property through
6         the last day of the last tax year for which the
7         taxpayer may claim a depreciation deduction for
8         federal income tax purposes and for which the taxpayer
9         was allowed in any taxable year to make a subtraction
10         modification under subparagraph (R), then an amount
11         equal to that subtraction modification.
12             The taxpayer is required to make the addition
13         modification under this subparagraph only once with
14         respect to any one piece of property;
15             (G-12) For taxable years ending on or after
16         December 31, 2004, an amount equal to the amount
17         otherwise allowed as a deduction in computing base
18         income for interest paid, accrued, or incurred,
19         directly or indirectly, to a foreign person who would
20         be a member of the same 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 the foreign
23         person's total business activity. The addition
24         modification required by this subparagraph shall be
25         reduced to the extent that dividends were included in
26         base income of the unitary group for the same taxable

 

 

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1         year and received by the taxpayer or by a member of the
2         taxpayer's unitary business group (including amounts
3         included in gross income pursuant to Sections 951
4         through 964 of the Internal Revenue Code and amounts
5         included in gross income under Section 78 of the
6         Internal Revenue Code) with respect to the stock of the
7         same person to whom the interest was paid, accrued, or
8         incurred.
9             This paragraph shall not apply to the following:
10                 (i) an item of interest paid, accrued, or
11             incurred, directly or indirectly, to a foreign
12             person who is subject in a foreign country or
13             state, other than a state which requires mandatory
14             unitary reporting, to a tax on or measured by net
15             income with respect to such interest; or
16                 (ii) an item of interest paid, accrued, or
17             incurred, directly or indirectly, to a foreign
18             person if the taxpayer can establish, based on a
19             preponderance of the evidence, both of the
20             following:
21                     (a) the foreign person, during the same
22                 taxable year, paid, accrued, or incurred, the
23                 interest to a person that is not a related
24                 member, and
25                     (b) the transaction giving rise to the
26                 interest expense between the taxpayer and the

 

 

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

 

 

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

 

 

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

 

 

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1             pursuant to regulation adopted by the Department
2             and such regulations provide methods and standards
3             by which the Department will utilize its authority
4             under Section 404 of this Act;
5     and by deducting from the total so obtained the sum of the
6     following amounts:
7             (H) An amount equal to all amounts included in such
8         total pursuant to the provisions of Sections 402(a),
9         402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the
10         Internal Revenue Code or included in such total as
11         distributions under the provisions of any retirement
12         or disability plan for employees of any governmental
13         agency or unit, or retirement payments to retired
14         partners, which payments are excluded in computing net
15         earnings from self employment by Section 1402 of the
16         Internal Revenue Code and regulations adopted pursuant
17         thereto;
18             (I) The valuation limitation amount;
19             (J) An amount equal to the amount of any tax
20         imposed by this Act which was refunded to the taxpayer
21         and included in such total for the taxable year;
22             (K) An amount equal to all amounts included in
23         taxable income as modified by subparagraphs (A), (B),
24         (C), (D), (E), (F) and (G) which are exempt from
25         taxation by this State either by reason of its statutes
26         or Constitution or by reason of the Constitution,

 

 

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1         treaties or statutes of the United States; provided
2         that, in the case of any statute of this State that
3         exempts income derived from bonds or other obligations
4         from the tax imposed under this Act, the amount
5         exempted shall be the interest net of bond premium
6         amortization;
7             (L) With the exception of any amounts subtracted
8         under subparagraph (K), an amount equal to the sum of
9         all amounts disallowed as deductions by (i) Sections
10         171(a) (2) and 265(a)(2) of the Internal Revenue Code,
11         as now or hereafter amended, and all amounts of
12         expenses allocable to interest and disallowed as
13         deductions by Section 265(1) of the Internal Revenue
14         Code of 1954, as now or hereafter amended; and (ii) for
15         taxable years ending on or after August 13, 1999,
16         Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of
17         the Internal Revenue Code; the provisions of this
18         subparagraph are exempt from the provisions of Section
19         250;
20             (M) An amount equal to those dividends included in
21         such total which were paid by a corporation which
22         conducts business operations in an Enterprise Zone or
23         zones created under the Illinois Enterprise Zone Act or
24         a River Edge Redevelopment Zone or zones created under
25         the River Edge Redevelopment Zone Act and conducts
26         substantially all of its operations in an Enterprise

 

 

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1         Zone or Zones or a River Edge Redevelopment Zone or
2         zones. This subparagraph (M) is exempt from the
3         provisions of Section 250;
4             (N) An amount equal to any contribution made to a
5         job training project established pursuant to the Tax
6         Increment Allocation Redevelopment Act;
7             (O) An amount equal to those dividends included in
8         such total that were paid by a corporation that
9         conducts business operations in a federally designated
10         Foreign Trade Zone or Sub-Zone and that is designated a
11         High Impact Business located in Illinois; provided
12         that dividends eligible for the deduction provided in
13         subparagraph (M) of paragraph (2) of this subsection
14         shall not be eligible for the deduction provided under
15         this subparagraph (O);
16             (P) An amount equal to the amount of the deduction
17         used to compute the federal income tax credit for
18         restoration of substantial amounts held under claim of
19         right for the taxable year pursuant to Section 1341 of
20         the Internal Revenue Code of 1986;
21             (Q) For taxable year 1999 and thereafter, an amount
22         equal to the amount of any (i) distributions, to the
23         extent includible in gross income for federal income
24         tax purposes, made to the taxpayer because of his or
25         her status as a victim of persecution for racial or
26         religious reasons by Nazi Germany or any other Axis

 

 

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

 

 

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1         of Section 250;
2             (R) For taxable years 2001 and thereafter, for the
3         taxable year in which the bonus depreciation deduction
4         is taken on the taxpayer's federal income tax return
5         under subsection (k) of Section 168 of the Internal
6         Revenue Code and for each applicable taxable year
7         thereafter, an amount equal to "x", where:
8                 (1) "y" equals the amount of the depreciation
9             deduction taken for the taxable year on the
10             taxpayer's federal income tax return on property
11             for which the bonus depreciation deduction was
12             taken in any year under subsection (k) of Section
13             168 of the Internal Revenue Code, but not including
14             the bonus depreciation deduction;
15                 (2) for taxable years ending on or before
16             December 31, 2005, "x" equals "y" multiplied by 30
17             and then divided by 70 (or "y" multiplied by
18             0.429); and
19                 (3) for taxable years ending after December
20             31, 2005:
21                     (i) for property on which a bonus
22                 depreciation deduction of 30% of the adjusted
23                 basis was taken, "x" equals "y" multiplied by
24                 30 and then divided by 70 (or "y" multiplied by
25                 0.429); and
26                     (ii) for property on which a bonus

 

 

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1                 depreciation deduction of 50% of the adjusted
2                 basis was taken, "x" equals "y" multiplied by
3                 1.0.
4             The aggregate amount deducted under this
5         subparagraph in all taxable years for any one piece of
6         property may not exceed the amount of the bonus
7         depreciation deduction taken on that property on the
8         taxpayer's federal income tax return under subsection
9         (k) of Section 168 of the Internal Revenue Code. This
10         subparagraph (R) is exempt from the provisions of
11         Section 250;
12             (S) If the taxpayer sells, transfers, abandons, or
13         otherwise disposes of property for which the taxpayer
14         was required in any taxable year to make an addition
15         modification under subparagraph (G-10), then an amount
16         equal to that addition modification.
17             If the taxpayer continues to own property through
18         the last day of the last tax year for which the
19         taxpayer may claim a depreciation deduction for
20         federal income tax purposes and for which the taxpayer
21         was required in any taxable year to make an addition
22         modification under subparagraph (G-10), then an amount
23         equal to that addition modification.
24             The taxpayer is allowed to take the deduction under
25         this subparagraph only once with respect to any one
26         piece of property.

 

 

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1             This subparagraph (S) is exempt from the
2         provisions of Section 250;
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

 

 

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1         addition modification required to be made for the same
2         taxable year under Section 203(c)(2)(G-12) for
3         interest paid, accrued, or incurred, directly or
4         indirectly, to the same foreign person; and
5             (V) An amount equal to the income from intangible
6         property taken into account for the taxable year (net
7         of the deductions allocable thereto) with respect to
8         transactions with a foreign person who would be a
9         member of the taxpayer's unitary business group but for
10         the fact that the foreign person's business activity
11         outside the United States is 80% or more of that
12         person's total business activity, but not to exceed the
13         addition modification required to be made for the same
14         taxable year under Section 203(c)(2)(G-13) for
15         intangible expenses and costs paid, accrued, or
16         incurred, directly or indirectly, to the same foreign
17         person; and .
18             (W) For taxable years ending on or after December
19         31, 2007, an amount equal to the earnings on a special
20         needs trust, to the extent included in adjusted gross
21         income. As used in this subparagraph, "special needs
22         trust" means a trust that is not liable to pay or
23         reimburse the State or any public agency for financial
24         aid or services to the individual, as provided in
25         Section 15.1 of the Trusts and Trustees Act.
26         (3) Limitation. The amount of any modification

 

 

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1     otherwise required under this subsection shall, under
2     regulations prescribed by the Department, be adjusted by
3     any amounts included therein which were properly paid,
4     credited, or required to be distributed, or permanently set
5     aside for charitable purposes pursuant to Internal Revenue
6     Code Section 642(c) during the taxable year.
 
7     (d) Partnerships.
8         (1) In general. In the case of a partnership, base
9     income means an amount equal to the taxpayer's taxable
10     income for the taxable year as modified by paragraph (2).
11         (2) Modifications. The taxable income referred to in
12     paragraph (1) shall be modified by adding thereto the sum
13     of the following amounts:
14             (A) An amount equal to all amounts paid or accrued
15         to the taxpayer as interest or dividends during the
16         taxable year to the extent excluded from gross income
17         in the computation of taxable income;
18             (B) An amount equal to the amount of tax imposed by
19         this Act to the extent deducted from gross income for
20         the taxable year;
21             (C) The amount of deductions allowed to the
22         partnership pursuant to Section 707 (c) of the Internal
23         Revenue Code in calculating its taxable income;
24             (D) An amount equal to the amount of the capital
25         gain deduction allowable under the Internal Revenue

 

 

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1         Code, to the extent deducted from gross income in the
2         computation of taxable income;
3             (D-5) For taxable years 2001 and thereafter, an
4         amount equal to the bonus depreciation deduction taken
5         on the taxpayer's federal income tax return for the
6         taxable year under subsection (k) of Section 168 of the
7         Internal Revenue Code;
8             (D-6) If the taxpayer sells, transfers, abandons,
9         or otherwise disposes of property for which the
10         taxpayer was required in any taxable year to make an
11         addition modification under subparagraph (D-5), then
12         an amount equal to the aggregate amount of the
13         deductions taken in all taxable years under
14         subparagraph (O) with respect to that property.
15             If the taxpayer continues to own property through
16         the last day of the last tax year for which the
17         taxpayer may claim a depreciation deduction for
18         federal income tax purposes and for which the taxpayer
19         was allowed in any taxable year to make a subtraction
20         modification under subparagraph (O), then an amount
21         equal to that subtraction modification.
22             The taxpayer is required to make the addition
23         modification under this subparagraph only once with
24         respect to any one piece of property;
25             (D-7) For taxable years ending on or after December
26         31, 2004, an amount equal to the amount otherwise

 

 

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1         allowed as a deduction in computing base income for
2         interest paid, accrued, or incurred, directly or
3         indirectly, to a foreign person who would be a member
4         of the same unitary business group but for the fact the
5         foreign person's business activity outside the United
6         States is 80% or more of the foreign person's total
7         business activity. The addition modification required
8         by this subparagraph shall be reduced to the extent
9         that dividends were included in base income of the
10         unitary group for the same taxable year and received by
11         the taxpayer or by a member of the taxpayer's unitary
12         business group (including amounts included in gross
13         income pursuant to Sections 951 through 964 of the
14         Internal Revenue Code and amounts included in gross
15         income under Section 78 of the Internal Revenue Code)
16         with respect to the stock of the same person to whom
17         the interest was paid, accrued, or incurred.
18             This paragraph shall not apply to the following:
19                 (i) an item of interest paid, accrued, or
20             incurred, directly or indirectly, to a foreign
21             person who is subject in a foreign country or
22             state, other than a state which requires mandatory
23             unitary reporting, to a tax on or measured by net
24             income with respect to such interest; or
25                 (ii) an item of interest paid, accrued, or
26             incurred, directly or indirectly, to a foreign

 

 

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1             person if the taxpayer can establish, based on a
2             preponderance of the evidence, both of the
3             following:
4                     (a) the foreign person, during the same
5                 taxable year, paid, accrued, or incurred, the
6                 interest to a person that is not a related
7                 member, and
8                     (b) the transaction giving rise to the
9                 interest expense between the taxpayer and the
10                 foreign person did not have as a principal
11                 purpose the avoidance of Illinois income tax,
12                 and is paid pursuant to a contract or agreement
13                 that reflects an arm's-length interest rate
14                 and terms; or
15                 (iii) the taxpayer can establish, based on
16             clear and convincing evidence, that the interest
17             paid, accrued, or incurred relates to a contract or
18             agreement entered into at arm's-length rates and
19             terms and the principal purpose for the payment is
20             not federal or Illinois tax avoidance; or
21                 (iv) an item of interest paid, accrued, or
22             incurred, directly or indirectly, to a foreign
23             person if the taxpayer establishes by clear and
24             convincing evidence that the adjustments are
25             unreasonable; or if the taxpayer and the Director
26             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

 

 

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1         to Sections 951 through 964 of the Internal Revenue
2         Code and amounts included in gross income under Section
3         78 of the Internal Revenue Code) with respect to the
4         stock of the same person to whom the intangible
5         expenses and costs were directly or indirectly paid,
6         incurred or accrued. The preceding sentence shall not
7         apply to the extent that the same dividends caused a
8         reduction to the addition modification required under
9         Section 203(d)(2)(D-7) of this Act. As used in this
10         subparagraph, the term "intangible expenses and costs"
11         includes (1) expenses, losses, and costs for, or
12         related to, the direct or indirect acquisition, use,
13         maintenance or management, ownership, sale, exchange,
14         or any other disposition of intangible property; (2)
15         losses incurred, directly or indirectly, from
16         factoring transactions or discounting transactions;
17         (3) royalty, patent, technical, and copyright fees;
18         (4) licensing fees; and (5) other similar expenses and
19         costs. For purposes of this subparagraph, "intangible
20         property" includes patents, patent applications, trade
21         names, trademarks, service marks, copyrights, mask
22         works, trade secrets, and similar types of intangible
23         assets;
24             This paragraph shall not apply to the following:
25                 (i) any item of intangible expenses or costs
26             paid, accrued, or incurred, directly or

 

 

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1             indirectly, from a transaction with a foreign
2             person who is subject in a foreign country or
3             state, other than a state which requires mandatory
4             unitary reporting, to a tax on or measured by net
5             income with respect to such item; or
6                 (ii) any item of intangible expense or cost
7             paid, accrued, or incurred, directly or
8             indirectly, if the taxpayer can establish, based
9             on a preponderance of the evidence, both of the
10             following:
11                     (a) the foreign person during the same
12                 taxable year paid, accrued, or incurred, the
13                 intangible expense or cost to a person that is
14                 not a related member, and
15                     (b) the transaction giving rise to the
16                 intangible expense or cost between the
17                 taxpayer and the foreign person did not have as
18                 a principal purpose the avoidance of Illinois
19                 income tax, and is paid pursuant to a contract
20                 or agreement that reflects arm's-length terms;
21                 or
22                 (iii) any item of intangible expense or cost
23             paid, accrued, or incurred, directly or
24             indirectly, from a transaction with a foreign
25             person if the taxpayer establishes by clear and
26             convincing evidence, that the adjustments are

 

 

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1             unreasonable; or if the taxpayer and the Director
2             agree in writing to the application or use of an
3             alternative method of apportionment under Section
4             304(f);
5                 Nothing in this subsection shall preclude the
6             Director from making any other adjustment
7             otherwise allowed under Section 404 of this Act for
8             any tax year beginning after the effective date of
9             this amendment provided such adjustment is made
10             pursuant to regulation adopted by the Department
11             and such regulations provide methods and standards
12             by which the Department will utilize its authority
13             under Section 404 of this Act;
14     and by deducting from the total so obtained the following
15     amounts:
16             (E) The valuation limitation amount;
17             (F) An amount equal to the amount of any tax
18         imposed by this Act which was refunded to the taxpayer
19         and included in such total for the taxable year;
20             (G) An amount equal to all amounts included in
21         taxable income as modified by subparagraphs (A), (B),
22         (C) and (D) which are exempt from taxation by this
23         State either by reason of its statutes or Constitution
24         or by reason of the Constitution, treaties or statutes
25         of the United States; provided that, in the case of any
26         statute of this State that exempts income derived from

 

 

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1         bonds or other obligations from the tax imposed under
2         this Act, the amount exempted shall be the interest net
3         of bond premium amortization;
4             (H) Any income of the partnership which
5         constitutes personal service income as defined in
6         Section 1348 (b) (1) of the Internal Revenue Code (as
7         in effect December 31, 1981) or a reasonable allowance
8         for compensation paid or accrued for services rendered
9         by partners to the partnership, whichever is greater;
10             (I) An amount equal to all amounts of income
11         distributable to an entity subject to the Personal
12         Property Tax Replacement Income Tax imposed by
13         subsections (c) and (d) of Section 201 of this Act
14         including amounts distributable to organizations
15         exempt from federal income tax by reason of Section
16         501(a) of the Internal Revenue Code;
17             (J) With the exception of any amounts subtracted
18         under subparagraph (G), an amount equal to the sum of
19         all amounts disallowed as deductions by (i) Sections
20         171(a) (2), and 265(2) of the Internal Revenue Code of
21         1954, as now or hereafter amended, and all amounts of
22         expenses allocable to interest and disallowed as
23         deductions by Section 265(1) of the Internal Revenue
24         Code, as now or hereafter amended; and (ii) for taxable
25         years ending on or after August 13, 1999, Sections
26         171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the

 

 

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1         Internal Revenue Code; the provisions of this
2         subparagraph are exempt from the provisions of Section
3         250;
4             (K) An amount equal to those dividends included in
5         such total which were paid by a corporation which
6         conducts business operations in an Enterprise Zone or
7         zones created under the Illinois Enterprise Zone Act,
8         enacted by the 82nd General Assembly, or a River Edge
9         Redevelopment Zone or zones created under the River
10         Edge Redevelopment Zone Act and conducts substantially
11         all of its operations in an Enterprise Zone or Zones or
12         from a River Edge Redevelopment Zone or zones. This
13         subparagraph (K) is exempt from the provisions of
14         Section 250;
15             (L) An amount equal to any contribution made to a
16         job training project established pursuant to the Real
17         Property Tax Increment Allocation Redevelopment Act;
18             (M) An amount equal to those dividends included in
19         such total that were paid by a corporation that
20         conducts business operations in a federally designated
21         Foreign Trade Zone or Sub-Zone and that is designated a
22         High Impact Business located in Illinois; provided
23         that dividends eligible for the deduction provided in
24         subparagraph (K) of paragraph (2) of this subsection
25         shall not be eligible for the deduction provided under
26         this subparagraph (M);

 

 

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1             (N) 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             (O) For taxable years 2001 and thereafter, for the
7         taxable year in which the bonus depreciation deduction
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 was
16             taken in any year under subsection (k) of Section
17             168 of the Internal Revenue Code, but not including
18             the bonus depreciation deduction;
19                 (2) for taxable years ending on or before
20             December 31, 2005, "x" equals "y" multiplied by 30
21             and then divided by 70 (or "y" multiplied by
22             0.429); and
23                 (3) for taxable years ending after December
24             31, 2005:
25                     (i) for property on which a bonus
26                 depreciation deduction of 30% of the adjusted

 

 

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1                 basis was taken, "x" equals "y" multiplied by
2                 30 and then divided by 70 (or "y" multiplied by
3                 0.429); and
4                     (ii) for property on which a bonus
5                 depreciation deduction of 50% of the adjusted
6                 basis was taken, "x" equals "y" multiplied by
7                 1.0.
8             The aggregate amount deducted under this
9         subparagraph in all taxable years for any one piece of
10         property may not exceed the amount of the bonus
11         depreciation deduction 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. This
14         subparagraph (O) is exempt from the provisions of
15         Section 250;
16             (P) If the taxpayer sells, transfers, abandons, or
17         otherwise disposes of property for which the taxpayer
18         was required in any taxable year to make an addition
19         modification under subparagraph (D-5), then an amount
20         equal to that addition modification.
21             If the taxpayer continues to own property through
22         the last day of the last tax year for which the
23         taxpayer may claim a depreciation deduction for
24         federal income tax purposes and for which the taxpayer
25         was required in any taxable year to make an addition
26         modification under subparagraph (D-5), then an amount

 

 

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1         equal to that addition modification.
2             The taxpayer is allowed to take the deduction under
3         this subparagraph only once with respect to any one
4         piece of property.
5             This subparagraph (P) is exempt from the
6         provisions of Section 250;
7             (Q) The amount of (i) any interest income (net of
8         the deductions allocable thereto) taken into account
9         for the taxable year with respect to a transaction with
10         a taxpayer that is required to make an addition
11         modification with respect to such transaction under
12         Section 203(a)(2)(D-17), 203(b)(2)(E-12),
13         203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed
14         the amount of such addition modification and (ii) any
15         income from intangible property (net of the deductions
16         allocable thereto) taken into account for the taxable
17         year with respect to a transaction with a taxpayer that
18         is required to make an addition modification with
19         respect to such transaction under Section
20         203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or
21         203(d)(2)(D-8), but not to exceed the amount of such
22         addition modification;
23             (R) An amount equal to the interest income taken
24         into account for the taxable year (net of the
25         deductions allocable thereto) with respect to
26         transactions with a foreign person who would be a

 

 

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1         member of the taxpayer's unitary business group but for
2         the fact that the foreign person's business activity
3         outside the United States is 80% or more of that
4         person's total business activity, but not to exceed the
5         addition modification required to be made for the same
6         taxable year under Section 203(d)(2)(D-7) for interest
7         paid, accrued, or incurred, directly or indirectly, to
8         the same foreign person; and
9             (S) An amount equal to the income from intangible
10         property taken into account for the taxable year (net
11         of the deductions allocable thereto) with respect to
12         transactions with a foreign person who would be a
13         member of the taxpayer's unitary business group but for
14         the fact that the foreign person's business activity
15         outside the United States is 80% or more of that
16         person's total business activity, but not to exceed the
17         addition modification required to be made for the same
18         taxable year under Section 203(d)(2)(D-8) for
19         intangible expenses and costs paid, accrued, or
20         incurred, directly or indirectly, to the same foreign
21         person; and .
22             (T) For taxable years ending on or after December
23         31, 2007, an amount equal to the earnings on a special
24         needs trust, to the extent included in adjusted gross
25         income. As used in this subparagraph, "special needs
26         trust" means a trust that is not liable to pay or

 

 

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1         reimburse the State or any public agency for financial
2         aid or services to the individual, as provided in
3         Section 15.1 of the Trusts and Trustees Act.
 
4     (e) Gross income; adjusted gross income; taxable income.
5         (1) In general. Subject to the provisions of paragraph
6     (2) and subsection (b) (3), for purposes of this Section
7     and Section 803(e), a taxpayer's gross income, adjusted
8     gross income, or taxable income for the taxable year shall
9     mean the amount of gross income, adjusted gross income or
10     taxable income properly reportable for federal income tax
11     purposes for the taxable year under the provisions of the
12     Internal Revenue Code. Taxable income may be less than
13     zero. However, for taxable years ending on or after
14     December 31, 1986, net operating loss carryforwards from
15     taxable years ending prior to December 31, 1986, may not
16     exceed the sum of federal taxable income for the taxable
17     year before net operating loss deduction, plus the excess
18     of addition modifications over subtraction modifications
19     for the taxable year. For taxable years ending prior to
20     December 31, 1986, taxable income may never be an amount in
21     excess of the net operating loss for the taxable year as
22     defined in subsections (c) and (d) of Section 172 of the
23     Internal Revenue Code, provided that when taxable income of
24     a corporation (other than a Subchapter S corporation),
25     trust, or estate is less than zero and addition

 

 

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

 

 

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1         a regulated investment company subject to the tax
2         imposed by Section 852 of the Internal Revenue Code,
3         investment company taxable income;
4             (D) Real estate investment trusts. In the case of a
5         real estate investment trust subject to the tax imposed
6         by Section 857 of the Internal Revenue Code, real
7         estate investment trust taxable income;
8             (E) Consolidated corporations. In the case of a
9         corporation which is a member of an affiliated group of
10         corporations filing a consolidated income tax return
11         for the taxable year for federal income tax purposes,
12         taxable income determined as if such corporation had
13         filed a separate return for federal income tax purposes
14         for the taxable year and each preceding taxable year
15         for which it was a member of an affiliated group. For
16         purposes of this subparagraph, the taxpayer's separate
17         taxable income shall be determined as if the election
18         provided by Section 243(b) (2) of the Internal Revenue
19         Code had been in effect for all such years;
20             (F) Cooperatives. In the case of a cooperative
21         corporation or association, the taxable income of such
22         organization determined in accordance with the
23         provisions of Section 1381 through 1388 of the Internal
24         Revenue Code;
25             (G) Subchapter S corporations. In the case of: (i)
26         a Subchapter S corporation for which there is in effect

 

 

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1         an election for the taxable year under Section 1362 of
2         the Internal Revenue Code, the taxable income of such
3         corporation determined in accordance with Section
4         1363(b) of the Internal Revenue Code, except that
5         taxable income shall take into account those items
6         which are required by Section 1363(b)(1) of the
7         Internal Revenue Code to be separately stated; and (ii)
8         a Subchapter S corporation for which there is in effect
9         a federal election to opt out of the provisions of the
10         Subchapter S Revision Act of 1982 and have applied
11         instead the prior federal Subchapter S rules as in
12         effect on July 1, 1982, the taxable income of such
13         corporation determined in accordance with the federal
14         Subchapter S rules as in effect on July 1, 1982; and
15             (H) Partnerships. In the case of a partnership,
16         taxable income determined in accordance with Section
17         703 of the Internal Revenue Code, except that taxable
18         income shall take into account those items which are
19         required by Section 703(a)(1) to be separately stated
20         but which would be taken into account by an individual
21         in calculating his taxable income.
22         (3) Recapture of business expenses on disposition of
23     asset or business. Notwithstanding any other law to the
24     contrary, if in prior years income from an asset or
25     business has been classified as business income and in a
26     later year is demonstrated to be non-business income, then

 

 

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1     all expenses, without limitation, deducted in such later
2     year and in the 2 immediately preceding taxable years
3     related to that asset or business that generated the
4     non-business income shall be added back and recaptured as
5     business income in the year of the disposition of the asset
6     or business. Such amount shall be apportioned to Illinois
7     using the greater of the apportionment fraction computed
8     for the business under Section 304 of this Act for the
9     taxable year or the average of the apportionment fractions
10     computed for the business under Section 304 of this Act for
11     the taxable year and for the 2 immediately preceding
12     taxable years.
13     (f) Valuation limitation amount.
14         (1) In general. The valuation limitation amount
15     referred to in subsections (a) (2) (G), (c) (2) (I) and
16     (d)(2) (E) is an amount equal to:
17             (A) The sum of the pre-August 1, 1969 appreciation
18         amounts (to the extent consisting of gain reportable
19         under the provisions of Section 1245 or 1250 of the
20         Internal Revenue Code) for all property in respect of
21         which such gain was reported for the taxable year; plus
22             (B) The lesser of (i) the sum of the pre-August 1,
23         1969 appreciation amounts (to the extent consisting of
24         capital gain) for all property in respect of which such
25         gain was reported for federal income tax purposes for
26         the taxable year, or (ii) the net capital gain for the

 

 

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1         taxable year, reduced in either case by any amount of
2         such gain included in the amount determined under
3         subsection (a) (2) (F) or (c) (2) (H).
4         (2) Pre-August 1, 1969 appreciation amount.
5             (A) If the fair market value of property referred
6         to in paragraph (1) was readily ascertainable on August
7         1, 1969, the pre-August 1, 1969 appreciation amount for
8         such property is the lesser of (i) the excess of such
9         fair market value over the taxpayer's basis (for
10         determining gain) for such property on that date
11         (determined under the Internal Revenue Code as in
12         effect on that date), or (ii) the total gain realized
13         and reportable for federal income tax purposes in
14         respect of the sale, exchange or other disposition of
15         such property.
16             (B) If the fair market value of property referred
17         to in paragraph (1) was not readily ascertainable on
18         August 1, 1969, the pre-August 1, 1969 appreciation
19         amount for such property is that amount which bears the
20         same ratio to the total gain reported in respect of the
21         property for federal income tax purposes for the
22         taxable year, as the number of full calendar months in
23         that part of the taxpayer's holding period for the
24         property ending July 31, 1969 bears to the number of
25         full calendar months in the taxpayer's entire holding
26         period for the property.

 

 

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1             (C) The Department shall prescribe such
2         regulations as may be necessary to carry out the
3         purposes of this paragraph.
 
4     (g) Double deductions. Unless specifically provided
5 otherwise, nothing in this Section shall permit the same item
6 to be deducted more than once.
 
7     (h) Legislative intention. Except as expressly provided by
8 this Section there shall be no modifications or limitations on
9 the amounts of income, gain, loss or deduction taken into
10 account in determining gross income, adjusted gross income or
11 taxable income for federal income tax purposes for the taxable
12 year, or in the amount of such items entering into the
13 computation of base income and net income under this Act for
14 such taxable year, whether in respect of property values as of
15 August 1, 1969 or otherwise.
16 (Source: P.A. 93-812, eff. 7-26-04; 93-840, eff. 7-30-04;
17 94-776, eff. 5-19-06; 94-789, eff. 5-19-06; 94-1021, eff.
18 7-12-06; 94-1074, eff. 12-26-06; revised 1-2-07.)
 
19     Section 99. Effective date. This Act takes effect upon
20 becoming law.