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 100.2430 - Addition and Subtraction Modifications for Transactions with 80/20 and Noncombination Rule Companies

Current through Register Vol. 48, No. 28, July 12, 2024
a) For
				taxable years ending on or after December 31, 2004, IITA Section 203 requires a
				taxpayer, in computing base income, to add back deductions allowed in computing
				federal taxable income or adjusted gross income for interest expenses and
				intangible expenses incurred in transactions with a person who would be a
				member of a unitary business group with the taxpayer, if not for the 80/20
				test. These provisions were expanded by Public Act 95-233 and Public Act 95-707
				to also require the add-back of deductions for interest expenses, intangible
				expenses and insurance premium expenses when incurred in taxable years ending
				on or after December 31, 2008, in transactions with a person who would be a
				member of a unitary business group with a taxpayer if not for the prohibition
				in IITA Section 1501(a)(27) against including in a single unitary business
				group taxpayers who use different apportionment formulas under IITA Section 304
				(the "noncombination rule"). The noncombination rule was repealed by Public Act
				100-22, so that the expansions of the add-back provisions in Public Act 95-233
				and Public Act 95-707 have no application for taxable years ending on or after
				December 31, 2017. Taxpayers are also allowed subtraction modifications that
				would ensure that the addition modifications do not result in double taxation.
				Exceptions are provided for instances in which requiring the addition
				modifications would not be appropriate.
b) Definitions
1) Dividend Included in Base Income.
				"Dividend" means any item defined as a dividend under
				26 USC 316 and
				any other item of income characterized or treated as a dividend under the
				Internal Revenue Code, and includes any item
included in gross income
				under Sections 951 through 964 of the Internal Revenue Code and amounts
				included in gross income under Section 78 of the Internal Revenue
				Code.
(IITA Section 203(a)(2)(D-17), (D-18) and (D-19), (b)(2)(E-12),
				(E-13) and (E-14), (c)(2)(G-12), (G-13) and (G-14), and (d)(2)(D-7), (D-8) and
				(D-9)) A dividend is included in base income of a taxpayer only to the extent
				the dividend is neither deducted in computing the federal taxable or adjusted
				gross income of the taxpayer nor subtracted from federal taxable income or
				adjusted gross income under IITA Section 203.
2) Foreign Person. A "foreign person" is any
				person who would be included in a unitary business group with the taxpayer if
				not for the fact that
80% or more of that person's business activities
				are conducted outside the United States
. (IITA Section
				1501(a)(30))
3) Interest.
				"Interest" means "compensation for the use or forbearance of money". (See
				Deputy v. du Pont, 308 U.S. 488, 498 (1940).) Interest includes the
				amortization of any discount at which an obligation is purchased and is net of
				the amortization of any premium at which an obligation is purchased.
4) Intangible Expense. "Intangible expense"
				includes
expenses, losses, and costs for, or related to, the direct or
				indirect acquisition, use, maintenance or management, ownership, sale,
				exchange, or any other disposition of intangible property; losses incurred,
				directly or indirectly, from factoring transactions or discounting
				transactions; royalty, patent, technical, and copyright fees; licensing fees;
				and other similar expenses and costs.
(IITA Section 203(a)(2)(D-18),
				(b)(2)(E-13), (c)(2)(G-13) and (d)(2)(D-8))
5) Intangible Income. "Intangible income"
				means the income received or accrued by a person from a transaction that
				generates intangible expense for the other party to the transaction.
6) Intangible Property. "Intangible property"
				includes
patents, patent applications, trade names, trademarks, service
				marks, copyrights, mask works, trade secrets, and similar types of intangible
				assets.
(IITA Section 203(a)(2)(D-18), (b)(2)(E-13), (c)(2)(G-13) and
				(d)(2)(D-8))
7) Related Party.
				"Related parties" means persons disallowed a deduction for losses by section
				267(b), (c) and (f) of the Internal Revenue Code, as well as a partner and its
				partnership and each of the other partners in that partnership.
8) Noncombination Rule Company.
				"Noncombination rule company" means any person who would be a member of a
				unitary business group with a taxpayer if not for the prohibition in IITA
				Section 1501(a)(27) against including in a single unitary business group
				persons who use different apportionment formulas under IITA Section
				304.
9) Insurance Premiums.
				"Insurance premiums" means the total amount paid or accrued during the taxable
				year, net of refunds or abatements, for coverage against any risk under a
				policy issued by an entity that is required to apportion its business income
				under the provisions of IITA Section 304(b) or that would be required to do so
				if it were subject to Illinois income taxation.
10) Federal Deduction Allowed for Interest
				Paid to a Foreign Person
A) Under
				26 USC
				163(j), for taxable years
				beginning after December 31, 2017, a taxpayer's federal income tax deduction
				for business interest paid is limited to an amount equal to the sum of the
				taxpayer's business interest income plus 30% of its adjusted taxable income
				plus its floor plan financing interest. Business interest in excess of that
				limitation is carried forward under
				26 USC
				163(j)(2) and treated as
				interest paid in the following taxable year. For purposes of this Section, in
				the case of a taxpayer whose federal income tax deduction for business interest
				expense for a taxable year beginning after December 31, 2017 is subject to
				limitation by
				26 USC
				163(j):
i) the deduction allowed in computing federal
				taxable income for business interest paid to a foreign person for that taxable
				year equals the business interest paid to that foreign person for that taxable
				year (including any amount of business interest paid to that foreign person in
				the preceding taxable year and carried forward from the preceding taxable year
				under 26 USC
				163(j)(2)) times a fraction
				equal to the deduction allowed under
				26 USC
				163(j) in computing federal
				taxable income for business interest paid for that taxable year divided by the
				total business interest paid for that taxable year (including any amount of
				business interest paid in the preceding taxable year and carried forward from
				the preceding taxable year under
				26 USC
				163(j)(2)); and
ii) the amount of business interest paid to a
				foreign person for a taxable year and carried forward to the next taxable year
				under 26 USC
				163(j)(2) equals the
				business interest paid to that foreign person for that taxable year (including
				any amount of business interest carried forward from the preceding taxable year
				under 26 USC
				163(j)(2)) times a fraction
				equal to the total amount of business interest to be carried forward to the
				next taxable year under
				26 USC
				163(j)(2) divided by the
				total business interest paid for that taxable year (including any amount of
				business interest carried forward from the preceding taxable year and carried
				forward to that taxable year under
				26 USC
				163(j)(2)).
B) EXAMPLE:
i) In Year 1, Taxpayer paid $100 in business
				interest to Foreign Person and $1,000 in total business interest. There was no
				carryforward under
				26 USC
				163(j)(2) from the prior
				year. Under
				26 USC
				163(j), Taxpayer's federal
				income tax deduction for business interest in Year 1 was limited to $800. In
				Year 2, Taxpayer paid $130 in business interest to Foreign Person and $1,800 in
				total business interest. Taxpayer's federal income tax deduction for business
				interest in Year 2 was limited under
				26 USC
				163(j) to $1,200.
ii) For purposes of this Section, the federal
				income tax deduction allowed to Taxpayer for interest paid to Foreign Person in
				Year 1 equals $80: the $100 actually paid multiplied by 80% (the $800 federal
				income tax deduction allowed for business interest divided by the $1,000 in
				total business interest paid). The carryforward of interest paid to Foreign
				Person in Year 1 to Year 2 equals $20: the $100 actually paid to Foreign Person
				multiplied by 20% (the $200 carryforward to Year 2 divided by the $1,000 in
				total business interest paid in Year 1).
iii) For purposes of this Section, the
				federal income tax deduction allowed to Taxpayer for interest paid to Foreign
				Person in Year 2 equals $90: the $130 in interest actually paid to Foreign
				Person in Year 2 plus the $20 paid to Foreign Person in Year 1 and carried
				forward to Year 2, or $150, multiplied by 60% (the $1,200 federal income tax
				deduction allowed for business interest divided by the $2,000 in total business
				interest for Year 2, which equals the $1,800 actually paid plus the $200
				carryover from Year 1). The carryforward of interest paid to Foreign Person in
				Year 2 to Year 3 equals $60: the $150 paid to Foreign Person in Year 2 or
				carried forward from Year 1, multiplied by 40% (the $800 carryforward to Year 3
				divided by the $2,000 in total business interest paid in Year 2 or carried
				forward from Year 1).