Illinois Administrative Code › Title 86 - REVENUE › Part 100 - INCOME TAX › Subpart E - ADDITIONS TO AND SUBTRACTIONS FROM TAXABLE INCOME OF INDIVIDUALS, CORPORATIONS, TRUSTS AND ESTATES AND PARTNERSHIPS › Section 100.2455 - Subtraction Modification: Federally Disallowed Deductions (IITA Sections 203(a)(2)(M), 203(b)(2)(I), 203(c)(2)(L) and 203(d)(2)(J))

Current through Register Vol. 48, No. 28, July 12, 2024
a) Taxpayers are entitled to subtract from
				taxable income (adjusted gross income, in the case of an individual), an amount
				equal to the sum of all amounts disallowed as deductions by sections 171(a)(2)
				and 265(2) of the Internal Revenue Code of 1954, and all amounts of expenses
				allocable to interest and disallowed as deductions by section 265(1) of the
				Internal Revenue Code of 1954, and, for taxable years ending on or after August
				13, 1999, sections 171(a)(2), 265, 280C, 291(a)(3) and 832(b)(5)(B)(i) of the
				Internal Revenue Code. (IITA Section 203) In order to prevent double
				deductions, no subtraction is allowed under these provisions for amounts
				already subtracted because of an exemption from taxation by virtue of Illinois
				law or the Illinois or U.S. Constitution, or by reason of U.S. treaties or
				statutes (see Section
				100.2470
				).
b) Section 171 of the Internal
				Revenue Code requires amortization of premiums paid for a tax-exempt bond over
				the period between the purchase date and either the maturity date or, if
				earlier, the first date on which the bond may be called. Section 171(a)(2) of
				the Internal Revenue Code states that, when the interest of a tax-exempt bond
				is excludable from gross income, there shall be no deduction for the
				amortizable bond premium for the taxable year. The IITA allows taxpayers to
				subtract the bond premium amortization required by section 171 of the Internal
				Revenue Code for that year to the extent the taxpayer was prohibited from
				deducting the amortization by section 171(a)(2) of the Internal Revenue Code.
				Illinois does not provide any adjustment to federal taxable income (adjusted
				gross income in the case of an individual) related to gains or losses on the
				sales of bonds. The only subtraction is for the amortization of bond premium
				that is allocable to that particular tax year. If the bond is called before
				maturity, then there is no subtraction for periods after the call
				date.
c) Section 265 of the
				Internal Revenue Code provides that no deduction shall be allowed from federal
				taxable income (adjusted gross income in the case of an individual) for
				expenses relating to tax-exempt income (section 265(a)(1) of the Internal
				Revenue Code), and for interest relating to tax-exempt income (section
				265(a)(2) of the Internal Revenue Code). These expense and interest amounts,
				determined in a manner consistent with the provisions of the Internal Revenue
				Code, are allowable subtractions for Illinois income tax purposes.
d) Section 280C(a) of the Internal Revenue
				Code provides that no deduction shall be allowed for that portion of wages or
				salaries paid or incurred for the taxable year that is equal to the sum of the
				credits determined for the taxable year under sections 45A (the Indian
				Employment Credit), 51(a) (the Work Opportunity Credit), 1396(a) (the
				Empowerment Zone Employment Credit), 1400P(b) (
employer provided housing
				for individuals affected by Hurricane Katrina)
, and 1400R (employee
				retention by employers affected by hurricanes) of the Internal Revenue Code.
				Section 280C(b) of the Internal Revenue Code provides that no deduction shall
				be allowed for that portion of the qualified clinical testing expenses for
				certain drugs for rare diseases or conditions otherwise allowable as a
				deduction for the taxable year that is equal to the amount of the credit
				allowable for the taxable year under section 45(C) of the Internal Revenue
				Code. Section 280(C)(c) of the Internal Revenue Code provides that no deduction
				or credit shall be allowed for that portion of the qualified research expenses
				or basic research expenses otherwise allowable as a deduction or credit for the
				taxable year that is equal to the amount of the credit determined for such
				taxable year under section 41(a) of the Internal Revenue Code.
e) Section 291(a)(3) of the Internal Revenue
				Code provides that the amount allowable as a deduction with respect to certain
				financial institution preference items shall be reduced by 20%. Illinois
				provides a subtraction modification for the remaining 20% not deducted
				federally with respect to those financial institution preference
				items.
f) Section 835(b)(5)(B)(i)
				of the Internal Revenue Code provides that the amount of federal deduction for
				losses incurred on insurance company contracts shall be reduced by an amount
				equal to 15% of the sum of tax-exempt interest received or accrued during the
				taxable year. Illinois provides a subtraction modification for the remaining
				15% not deducted federally with respect to the tax-exempt interest received or
				accrued during the taxable year from insurance company contracts.