Illinois Administrative Code › Title 86 - REVENUE › Part 100 - INCOME TAX › Subpart D - ILLINOIS NET LOSS DEDUCTIONS FOR LOSSES OCCURRING ON OR AFTER DECEMBER 31, 1986 › Section 100.2360 - Illinois Net Losses and Illinois Net Loss Deductions for Losses of Cooperatives Occurring On or After December 31, 1986 (IITA Section 203(e)(2)(F))

Current through Register Vol. 48, No. 28, July 12, 2024
a) Under Internal
				Revenue Code section 1382(b), cooperatives are allowed to deduct distributions
				of profits made to their members, or "patronage dividends". The deduction may
				only be taken against a cooperative's taxable income from transactions with its
				members, or "patronage income". If patronage income is negative, the
				cooperative may not offset that "patronage loss" against its income from
				transactions with nonmembers, or "nonpatronage income", but instead carries the
				patronage loss over as a net operating loss under IRC section 172 to offset
				patronage income in the carryover year. (See Farm Service Cooperative v.
				Commissioner, 615 F.2d 1235 (8th Cir.
				1980).)
b) IITA Prior to PA 96-932.
				Under IITA Section 203(b), the base income of a cooperative for a taxable year
				is its taxable income for the year, as properly reportable for federal income
				tax purposes, after modifications in IITA Section 203(b)(2). IITA Section
				203(b)(2)(D) requires a cooperative to add back to its taxable income any net
				operating loss deduction claimed under IRC section 172 for a loss incurred in a
				taxable year ending on or after December 31, 1986. As a result, a cooperative
				that incurred a patronage loss in the same year it had positive nonpatronage
				income would receive no tax benefit from the deductions or losses that caused
				the patronage loss, because the patronage loss could not offset its
				nonpatronage income in the year it was incurred and any deduction of a
				carryover of the loss would be added back to taxable income in the carryover
				years under IITA Section 203(b)(2)(D).
c) PA 96-932 amended IITA Section
				203(e)(2)(F) to provide that the taxable income of a cooperative is
determined in accordance with the provisions of IRC sections 1381
				through 1388, but without regard to the prohibition against offsetting losses
				from patronage activities against income from nonpatronage activities,
However, IITA Section 203(e)(2)(F) provides that a cooperative
may make
				an election to follow its federal income tax treatment of patronage losses and
				nonpatronage losses. In the event the election is made, the losses are computed
				and carried over in a manner consistent with
IITA Section 207(a)
and apportioned by the apportionment factor reported by the cooperative
				on its Illinois income tax return filed for the taxable year in which the
				losses are incurred.
PA 96-932 provided that it is declaratory of
				existing law.
d) Making the
				Election. The election to follow the federal income tax treatment of patronage
				losses is made by the cooperative checking the appropriate box on Schedule INL,
				Illinois Net Loss Adjustment for Cooperatives and REMIC Owners, on its original
				return for its first taxable year ending on or after December 31, 2010 to which
				it intends the election to apply. The election may be made for years ending
				prior to December 31, 2010 by filing an amended return for any open year,
				claiming a deduction under IITA Section 207 for any patronage loss carryover to
				that year, as allowed under PA 96-932 for those making the election.
1) Effect of Making the Election. If an
				election has been made, patronage losses carried forward under subsection (c)
				may be used to offset only patronage income, and nonpatronage losses carried
				forward under subsection (c) may be used to offset only nonpatronage income.
The election is effective for all taxable years, with original returns
				due on or after the date of the election. Once made, the election may only be
				revoked upon approval of the Director.
(IITA Section 203(e)(2)(F))
				Requests for approval of a revocation of the election are made by asking for a
				private letter ruling approving the revocation under 2 Ill. Adm. Code
				1200.110.
				The request shall give the reasons for the request and state the first taxable
				year to which the election will no longer apply. The request will be granted or
				denied by private letter ruling. If a request is denied, the taxpayer may
				challenge the denial by filing a return in accordance with the election and
				then filing an amended return that does not apply the election and claiming a
				refund for overpayment.
2) Effect
				of Revoking an Election. If an election is revoked, patronage and nonpatronage
				losses incurred in taxable years to which the election applied under subsection
				(c), and that are otherwise available to carry over, may be used to offset both
				patronage and nonpatronage income in taxable years ending on or after the date
				stated in the private letter ruling request. A cooperative that has revoked an
				election under this subsection (d) may again make the election for any taxable
				year after the first taxable year to which the revocation applied. If a
				subsequent election is made under this subsection (d)(2), any patronage or
				nonpatronage loss carryover under subsection (c) from a taxable year to which
				the earlier election applied may be used only to offset patronage or
				nonpatronage income, respectively, in any taxable year to which the new
				election applies.