Illinois Administrative Code › Title 86 - REVENUE › Part 100 - INCOME TAX › Subpart G - BASE INCOME OF CORPORATIONS › Section 100.2657 - Subtraction Modification for High Impact Business Interest (IITA Section 203(b)(2)(M-1))

Current through Register Vol. 48, No. 28, July 12, 2024
a) A
				corporation that is a "financial organization" within the meaning of IITA
				Section 304(c) may subtract an amount included in its taxable income as
				interest income from a loan or loans made by such taxpayer to a borrower, to
				the extent that such a loan is secured by property which is eligible for the
				High Impact Business Investment Credit under IITA Section 201(h). (IITA Section
				203(b)(2)(M-1))
b) Coordination
				with Subtraction for Enterprise Zone Interest. Notwithstanding subsection (a),
				a taxpayer may not claim a subtraction modification under IITA Section
				203(b)(2)(M-1) and this Section for any taxable year in which the taxpayer is
				allowed to claim the subtraction modification under IITA Section 203(b)(2)(M)
				and Section
				100.2655
				of this Part for interest on a loan secured by property eligible for the
				enterprise zone investment credit or river edge redevelopment zone investment
				credit. (IITA Section 203(b)(2)(M-1))
c) Eligible Property. For purposes of this
				Section, "eligible property" shall mean property that is "qualified property",
				as defined under IITA Section 201(h) and Section
				100.2130(e)
				of this Part, and that is placed in service on or after the date the owner is
				designated as a high impact business by the Department of Commerce and Economic
				Opportunity. To be considered eligible property, it is not necessary that the
				property be placed in service in a federally designated foreign trade zone or
				subzone.
d) Portion of Loan Secured
				by Eligible Property. To determine the portion of a loan that is secured by
				eligible property, the entire principal amount of the loan between the taxpayer
				and the borrower should be divided into the basis of the eligible property
				which secures the loan, using for this purpose the original basis of such
				property on the date it was placed in service. The subtraction modification
				available to the taxpayer in any year under IITA Section 203(b)(2)(M-1) shall
				be that portion of the total interest paid by the borrower with respect to such
				loan attributable to the eligible property as calculated under the previous
				sentence. (IITA Section 203(b)(2)(M-1)) There is no limitation to the length of
				time for which the subtraction may be taken with respect to a particular
				loan.
e) Basis. For purposes of the
				computation in subsection (d), the basis of eligible property shall be its
				borrower's basis in the eligible property for federal income tax purposes,
				including the costs of any improvements or repairs included in that basis, but
				without adjustment for depreciation or IRC section 179 deductions claimed with
				respect to the property.
f)
				Examples. The provisions of IITA Section 203(b)(2)(M-1) and this Section may be
				illustrated by the following examples.
1)
				EXAMPLE 1. Bank lends $1,000 to Borrower, secured by eligible property with a
				basis of $900. The portion of the loan secured by eligible property is the $900
				basis of the borrower in eligible property divided by the $1,000 principal
				amount of the loan, or 90%.
2)
				EXAMPLE 2. Bank lends $1,000 to Borrower, secured by eligible property with a
				basis of $1,000 and by other property with a basis of $2,000. The portion of
				the loan secured by eligible property is the $1,000 basis of the borrower in
				eligible property divided by the $1,000 principal amount of the loan, or 100%.
				The existence of other property securing the loan is irrelevant.
3) EXAMPLE 3. In 2008, DCEO designated ABC
				Company a high impact business. In 2009, ABC Company built a new warehouse at
				the cost of $1,000,000 and is able to claim the high impact business investment
				credit under IITA Section 201(h) with respect to the warehouse. ABC takes out a
				$2,000,000 loan at Bank A, which then places a lien on the property. In 2010,
				when the warehouse had an adjusted basis (after depreciation) of $900,000 and a
				fair market value of $1,300,000, ABC refinanced the loan for the same principal
				amount, but at a lower interest rate. For both loans, the portion of the loan
				secured by eligible property is the $1,000,000 original basis in the warehouse
				divided by the $2,000,000 principal. Neither the adjusted basis after
				depreciation nor the fair market value is relevant to the computation for the
				refinanced amount.
4) EXAMPLE 4.
				Assume the facts are the same as in Example 3, except that, in 2011, ABC
				Company again refinanced the loan, this time at Bank B (unrelated to Bank A).
				There was no change in the principal amount. Bank B takes a lien on the
				warehouse to secure the new loan. The portion of the Bank B loan that qualifies
				for the subtraction modification is 50% because the principal amount of the
				loan and ABC Company's original basis in the property remain
				unchanged.
5) EXAMPLE 5. The facts
				are the same as in Example 4, except that Bank B purchased the refinanced loan
				from Bank A. The loan is not refinanced. ABC continues to pay the same amount,
				but now pays Bank B rather than Bank A. Bank B does not qualify for the
				subtraction modification, which is allowed only with respect to a loan "made by
				such taxpayer to a borrower" and Bank B did not make the loan.