Illinois-2011-HB1371-Introduced

97TH GENERAL ASSEMBLY State of Illinois 2011 and 2012 HB1371

Introduced , by Rep. LaShawn K. Ford

SYNOPSIS AS INTRODUCED:

`New Act`
`20 ILCS 1605/7.4a new`
`35 ILCS 5/203`	`from Ch. 120, par. 2-203`

Creates the School Choice Act and amends the Illinois Lottery Law and the Illinois Income Tax Act. Provides findings and declarations of policy. Establishes the School Choice Program. Provides that under the program the custodian of a qualifying pupil is entitled to a School Choice Scholarship to pay for qualified education expenses at participating nonpublic schools. Requires the principal of each public school to notify custodians of qualifying pupils of the availability of scholarships. Requires custodians to apply to the State Board of Education for a scholarship and provide documentation as to eligibility. Requires the State Board to issue a scholarship to custodians who have made proper application and to honor the scholarship when presented for payment by a nonpublic school. Provides for the amount of a scholarship. Provides that the scholarship may be renewed each year through the 12th grade so long as the pupil and custodian remain eligible. Contains funding provisions. Provides that the amount received under the program shall not be considered base income for purposes of Illinois' income tax. Requires the State Board to submit a report to the General Assembly on or before December 31, 2016. Provides criminal penalties for certain violations. Requires the State Board to adopt rules to implement the Act. Repeals the Act on January 1, 2017. Effective immediately.

LRB097 06433 NHT 47211 b

CORRECTIONAL BUDGET AND IMPACT NOTE ACT MAY APPLY

FISCAL NOTE ACT MAY APPLY

STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT

A BILL FOR

HB1371

LRB097 06433 NHT 47211 b

1 AN ACT concerning education.

2 Be it enacted by the People of the State of Illinois,

3 represented in the General Assembly:

4 Section 1. Short title. This Act may be cited as the School

5 Choice Act.

6 Section 5. Findings and declaration of policy. The General

7 Assembly finds and declares the following:

8 (1) There is a crisis in the education programs in this

9 State. Many schools and their pupils are performing

10 significantly below relevant national standards and are

11 unable to access functions of federal and State law

12 designed to improve their performance. Consequently, many

13 pupils are dropping out of school before completing the

14 ordinary course of secondary education or are leaving

15 school without the basic skills and knowledge that will

16 enable them to find and hold a job or otherwise become

17 functioning, productive members of our society.

18 (2) Within this State there are many public and

19 nonpublic schools and independent education services

20 competently and efficiently educating or contributing to

21 the education of children. Most pupils in those schools or

22 receiving those services perform at or above relevant

23 national standards, complete their secondary education,

HB1371

- 2 -

LRB097 06433 NHT 47211 b

1 and matriculate to institutions of higher education at an

2 extremely high rate. These services and schools should be

3 accessible to all and should enjoy a cooperative

4 relationship with public school districts, schools, and

5 employees of this State.

6 (3) Custodians of school age children in this State are

7 frequently unable to enroll their children in schools that

8 will provide them a quality education due to a lack of

9 funds.

10 (4) Adopting a pilot school choice program for a

11 limited number of students would enable parents to select

12 schools or services they believe will provide a quality

13 education for their children, empower them to influence the

14 educational policies and procedures in the schools their

15 children attend, and provide them with at least a portion

16 of the funds necessary to pay for a quality education. Such

17 a program would test a new approach to education that could

18 be expanded to the rest of the State.

19 (5) The provisions of this Act are in the public

20 interest, for the public benefit, and serve a secular

21 public purpose.

22 Section 10. Definitions. As used in this Act:

23 "Base year" means the 2011-2012 school year.

24 "Custodian" means, with respect to a qualifying pupil, a

25 parent or legal guardian who is a resident of a qualifying zip

HB1371

- 3 -

LRB097 06433 NHT 47211 b

1 code.

2 "Final year" means the 2015-2016 school year.

3 "Nonpublic school" means any State-recognized, nonpublic

4 secondary school that elects to participate in the school

5 choice program established under this Act and does not

6 discriminate on the basis of race, color, or national origin

7 under Title VI of the Civil Rights Act of 1964 and attendance

8 at which satisfies the requirements of Section 26-1 of the

9 School Code, except that nothing in Section 26-1 shall be

10 construed to require a child to attend any particular nonpublic

11 school.

12 "Qualified education expenses" means costs reasonably

13 incurred on behalf of a qualifying pupil for the services of a

14 participating nonpublic school in which the qualifying pupil is

15 enrolled during the regular school year. Qualified education

16 expenses does not include costs incurred for supplies or

17 extra-curricular activities.

18 "Qualifying pupil" means an individual who:

19 (1) is a resident of a qualifying zip code;

20 (2) is enrolled in kindergarten through grade 8 during

21 the 2011-2012 school year in a public school or has

22 received a School Choice Scholarship in the previous school

23 year; and

24 (3) during the school year for which a scholarship is

25 sought, will be a full-time pupil enrolled in a 1st grade

26 through 12th grade education program.

HB1371

- 4 -

LRB097 06433 NHT 47211 b

1 "Qualifying zip code" means one of the 20 zip codes that

2 generated the greatest amount of State lottery sales in 2010,

3 as certified by the Department of Revenue.

4 "School Choice Scholarship" means a written instrument

5 issued by the State Board of Education directly to the

6 custodian of a qualifying pupil. The instrument shall be for a

7 sum certain, which must not exceed the foundation level of

8 support amount specified in subsection (B) of Section 18-8.05

9 of the School Code, to be paid within a designated period of

10 time. The custodian may present the instrument only to a

11 participating nonpublic school as payment for qualified

12 education expenses incurred on behalf of the qualifying pupil.

13 Section 15. Establishment of program. There is established

14 the School Choice Program. Under the program, after the base

15 year and through the final year, a custodian of a qualifying

16 pupil shall be entitled to a School Choice Scholarship for

17 payment of qualified education expenses incurred on behalf of

18 the qualifying pupil at any participating nonpublic school in

19 which the qualifying pupil is enrolled. A qualifying pupil

20 shall be entitled to enroll at and attend any participating

21 nonpublic school of his or her choice.

22 Section 20. Notification of scholarships. The principal of

23 each public school in a qualifying zip code shall notify

24 custodians of qualifying pupils that scholarships under this

HB1371

- 5 -

LRB097 06433 NHT 47211 b

1 Act are available for the next school year. Notification shall

2 occur in January of each school year beginning with the base

3 year through the school year before the final year.

4 Section 25. Request for scholarship. A custodian who

5 applies in accordance with procedures established by the State

6 Board of Education shall receive a scholarship under this Act

7 within the scholarship issuance limits set out in this Act. The

8 procedure shall require application for the scholarship, with

9 documentation as to eligibility, between March 1 and May 1

10 prior to the school year in which the scholarship is to be

11 used.

12 Section 30. Issuance and payment of scholarship. A

13 scholarship may only be issued to a custodian who has made

14 proper application pursuant to Section 25 of this Act. The

15 State Board of Education shall issue no more than 1,000

16 scholarships for a school year. Scholarship renewals to

17 qualifying pupils must be prioritized, and the State Board of

18 Education shall strive to issue first-time scholarships

19 equitably between qualifying pupils in the elementary grade

20 levels and qualifying pupils in the secondary grade levels. The

21 custodian shall present the scholarship to a participating

22 nonpublic school of his or her choice as payment for qualified

23 education expenses. Upon presentment, the State Board of

24 Education shall honor the scholarship and, as issuer of the

HB1371

- 6 -

LRB097 06433 NHT 47211 b

1 instrument, pay the participating nonpublic school in

2 accordance with procedures established by the State Board of

3 Education. The procedures shall require all of the following:

4 (1) that the applying custodian be notified of the

5 scholarship award by July 1 of the school year in which the

6 scholarship is to be used;

7 (2) that the scholarship instrument be issued to the

8 custodian no later than August 15 of the school year in

9 which the scholarship is to be used;

10 (3) that the custodian present the scholarship

11 instrument to the participating school no later than

12 September 1 of the school year in which the scholarship is

13 to be used;

14 (4) that the participating school present the

15 scholarship instrument, with proof of service to the

16 custodian of the qualifying pupil, to the State Board of

17 Education no later than September 31 of the school year in

18 which the scholarship is to be used;

19 (5) that the State Board of Education shall honor the

20 scholarship instrument and as issuer pay the participating

21 school no later than November 31 of the school year in

22 which the scholarship is to be used;

23 (6) that participating schools must not be required to

24 accept scholarships as full payment for services but

25 neither shall they charge scholarship pupils tuition or any

26 other educational expenses at a higher rate than other

HB1371

- 7 -

LRB097 06433 NHT 47211 b

1 pupils; and

2 (7) that if a student attending a nonpublic school

3 under the School Choice Program is expelled from the

4 nonpublic school before the State Board of Education has

5 honored the scholarship of the school, then the State Board

6 of Education shall pay the corresponding prorated portion

7 of the scholarship amount to the nonpublic school; and that

8 if the State Board of Education has paid the scholarship

9 amount to the nonpublic school and the pupil is expelled,

10 then the nonpublic school shall refund the corresponding

11 prorated portion of the scholarship to the State Board of

12 Education.

13 No scholarships shall be issued for a school year after the

14 final year.

15 Section 35. Amount of scholarship. A School Choice

16 Scholarship for qualified education expenses incurred through

17 participating schools during any school year after the base

18 year shall be for the lesser of (i) the foundation level of

19 support amount specified in subsection (B) of Section 18-8.05

20 of the School Code or (ii) the actual qualified education

21 expenses related to the qualifying pupil's enrollment.

22 Section 40. Renewal of scholarship. School Choice

23 Scholarships shall be renewable every year through grade 12 so

24 long as the qualifying pupil and custodian continue to remain

HB1371

- 8 -

LRB097 06433 NHT 47211 b

1 eligible pursuant to Section 10 of this Act.

2 Section 50. Funding. Funding for the School Choice Program

3 shall come from the transfers made from the State Lottery Fund

4 to the Common School Fund.

5 Section 55. Not base income. The amount of any scholarship

6 redeemed under this Act shall not be considered base income

7 under subsection (a) of Section 203 of the Illinois Income Tax

8 Act and shall not be taxable for Illinois income tax purposes.

9 Section 60. Report and expansion. On or before December 31,

10 2016, the State Board of Education shall submit a report to the

11 General Assembly reviewing the program operating under this

12 Act. This report shall include, but not be limited to, the

13 number of qualifying pupils receiving a School Choice

14 Scholarship, the names of the schools from which and to which

15 pupils transferred, the financial ramifications of the

16 program, and the results of pupil assessments. In its report,

17 the State Board of Education shall assess whether the program

18 has been financially and academically beneficial and shall make

19 a recommendation on whether the program should be extended or

20 expanded to other areas of this State.

21 Section 65. Penalties. It shall be a Class 3 felony to use

22 or attempt to use a scholarship under this Act for any purpose

HB1371

- 9 -

LRB097 06433 NHT 47211 b

1 other than those permitted by this Act. It shall also be a

2 Class 3 felony for any person, with intent to defraud, to

3 knowingly forge, alter, or misrepresent information on a

4 scholarship application or on any documents submitted in

5 application for a scholarship, to deliver any such document

6 knowing it to have been thus forged, altered, or based on

7 misrepresentation, or to possess, with intent to issue or

8 deliver, any such document knowing it to have been thus forged,

9 altered, or based on misrepresentation.

10 Section 70. Rules. The State Board of Education shall adopt

11 rules to implement this Act. The creation of the School Choice

12 Program does not expand the regulatory authority of this State,

13 its officers, or any school district to impose any additional

14 regulation of nonpublic schools beyond those reasonably

15 necessary to enforce the requirements of the program.

16 Section 500. Expiration. This Act is repealed on January 1,

17 2017.

18 Section 895. The Illinois Lottery Law is amended by adding

19 Section 7.4a as follows:

20 (20 ILCS 1605/7.4a new)

21 Sec. 7.4a. Certification under School Choice Act. Before

22 August 1, 2011, the Department shall certify to the State Board

HB1371

- 10 -

LRB097 06433 NHT 47211 b

1 of Education the 20 zip codes that generated the greatest

2 amount of sales of State lottery tickets in 2010 for the

3 purposes of the School Choice Act.

4 Section 900. 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

24 this Act to the extent deducted from gross income in

HB1371

- 11 -

LRB097 06433 NHT 47211 b

1 the computation of adjusted gross income for the

2 taxable year;

3 (C) An amount equal to the amount received during

4 the taxable year as a recovery or refund of real

5 property taxes paid with respect to the taxpayer's

6 principal residence under the Revenue Act of 1939 and

7 for which a deduction was previously taken under

8 subparagraph (L) of this paragraph (2) prior to July 1,

9 1991, the retrospective application date of Article 4

10 of Public Act 87-17. In the case of multi-unit or

11 multi-use structures and farm dwellings, the taxes on

12 the taxpayer's principal residence shall be that

13 portion of the total taxes for the entire property

14 which is attributable to such principal residence;

15 (D) An amount equal to the amount of the capital

16 gain deduction allowable under the Internal Revenue

17 Code, to the extent deducted from gross income in the

18 computation of adjusted gross income;

19 (D-5) An amount, to the extent not included in

20 adjusted gross income, equal to the amount of money

21 withdrawn by the taxpayer in the taxable year from a

22 medical care savings account and the interest earned on

23 the account in the taxable year of a withdrawal

24 pursuant to subsection (b) of Section 20 of the Medical

25 Care Savings Account Act or subsection (b) of Section

26 20 of the Medical Care Savings Account Act of 2000;

HB1371

- 12 -

LRB097 06433 NHT 47211 b

1 (D-10) For taxable years ending after December 31,

2 1997, an amount equal to any eligible remediation costs

3 that the individual deducted in computing adjusted

4 gross income and for which the individual claims a

5 credit under subsection (l) of Section 201;

6 (D-15) For taxable years 2001 and thereafter, an

7 amount equal to the bonus depreciation deduction taken

8 on the taxpayer's federal income tax return for the

9 taxable year under subsection (k) of Section 168 of the

10 Internal Revenue Code;

11 (D-16) If the taxpayer sells, transfers, abandons,

12 or otherwise disposes of property for which the

13 taxpayer was required in any taxable year to make an

14 addition modification under subparagraph (D-15), then

15 an amount equal to the aggregate amount of the

16 deductions taken in all taxable years under

17 subparagraph (Z) with respect to that property.

18 If the taxpayer continues to own property through

19 the last day of the last tax year for which the

20 taxpayer may claim a depreciation deduction for

21 federal income tax purposes and for which the taxpayer

22 was allowed in any taxable year to make a subtraction

23 modification under subparagraph (Z), then an amount

24 equal to that subtraction modification.

25 The taxpayer is required to make the addition

26 modification under this subparagraph only once with

HB1371

- 13 -

LRB097 06433 NHT 47211 b

1 respect to any one piece of property;

2 (D-17) An amount equal to the amount otherwise

3 allowed as a deduction in computing base income for

4 interest paid, accrued, or incurred, directly or

5 indirectly, (i) for taxable years ending on or after

6 December 31, 2004, to a foreign person who would be a

7 member of the same unitary business group but for the

8 fact that foreign person's business activity outside

9 the United States is 80% or more of the foreign

10 person's total business activity and (ii) for taxable

11 years ending on or after December 31, 2008, to a person

12 who would be a member of the same unitary business

13 group but for the fact that the person is prohibited

14 under Section 1501(a)(27) from being included in the

15 unitary business group because he or she is ordinarily

16 required to apportion business income under different

17 subsections of Section 304. The addition modification

18 required by this subparagraph shall be reduced to the

19 extent that dividends were included in base income of

20 the unitary group for the same taxable year and

21 received by the taxpayer or by a member of the

22 taxpayer's unitary business group (including amounts

23 included in gross income under Sections 951 through 964

24 of the Internal Revenue Code and amounts included in

25 gross income under Section 78 of the Internal Revenue

26 Code) with respect to the stock of the same person to

HB1371

- 14 -

LRB097 06433 NHT 47211 b

1 whom the interest was paid, accrued, or incurred.

2 This paragraph shall not apply to the following:

3 (i) an item of interest paid, accrued, or

4 incurred, directly or indirectly, to a person who

5 is subject in a foreign country or state, other

6 than a state which requires mandatory unitary

7 reporting, to a tax on or measured by net income

8 with respect to such interest; or

9 (ii) an item of interest paid, accrued, or

10 incurred, directly or indirectly, to a person if

11 the taxpayer can establish, based on a

12 preponderance of the evidence, both of the

13 following:

14 (a) the person, during the same taxable

15 year, paid, accrued, or incurred, the interest

16 to a person that is not a related member, and

17 (b) the transaction giving rise to the

18 interest expense between the taxpayer and the

19 person did not have as a principal purpose the

20 avoidance of Illinois income tax, and is paid

21 pursuant to a contract or agreement that

22 reflects an arm's-length interest rate and

23 terms; or

24 (iii) the taxpayer can establish, based on

25 clear and convincing evidence, that the interest

26 paid, accrued, or incurred relates to a contract or

HB1371

- 15 -

LRB097 06433 NHT 47211 b

1 agreement entered into at arm's-length rates and

2 terms and the principal purpose for the payment is

3 not federal or Illinois tax avoidance; or

4 (iv) an item of interest paid, accrued, or

5 incurred, directly or indirectly, to a person if

6 the taxpayer establishes by clear and convincing

7 evidence that the adjustments are unreasonable; or

8 if the taxpayer and the Director agree in writing

9 to the application or use of an alternative method

10 of apportionment under Section 304(f).

11 Nothing in this subsection shall preclude the

12 Director from making any other adjustment

13 otherwise allowed under Section 404 of this Act for

14 any tax year beginning after the effective date of

15 this amendment provided such adjustment is made

16 pursuant to regulation adopted by the Department

17 and such regulations provide methods and standards

18 by which the Department will utilize its authority

19 under Section 404 of this Act;

20 (D-18) An amount equal to the amount of intangible

21 expenses and costs otherwise allowed as a deduction in

22 computing base income, and that were paid, accrued, or

23 incurred, directly or indirectly, (i) for taxable

24 years ending on or after December 31, 2004, to a

25 foreign person who would be a member of the same

26 unitary business group but for the fact that the

HB1371

- 16 -

LRB097 06433 NHT 47211 b

1 foreign person's business activity outside the United

2 States is 80% or more of that person's total business

3 activity and (ii) for taxable years ending on or after

4 December 31, 2008, to a person who would be a member of

5 the same unitary business group but for the fact that

6 the person is prohibited under Section 1501(a)(27)

7 from being included in the unitary business group

8 because he or she is ordinarily required to apportion

9 business income under different subsections of Section

10 304. The addition modification required by this

11 subparagraph shall be reduced to the extent that

12 dividends were included in base income of the unitary

13 group for the same taxable year and received by the

14 taxpayer or by a member of the taxpayer's unitary

15 business group (including amounts included in gross

16 income under Sections 951 through 964 of the Internal

17 Revenue Code and amounts included in gross income under

18 Section 78 of the Internal Revenue Code) with respect

19 to the stock of the same person to whom the intangible

20 expenses and costs were directly or indirectly paid,

21 incurred, or accrued. The preceding sentence does not

22 apply to the extent that the same dividends caused a

23 reduction to the addition modification required under

24 Section 203(a)(2)(D-17) of this Act. As used in this

25 subparagraph, the term "intangible expenses and costs"

26 includes (1) expenses, losses, and costs for, or

HB1371

- 17 -

LRB097 06433 NHT 47211 b

1 related to, the direct or indirect acquisition, use,

2 maintenance or management, ownership, sale, exchange,

3 or any other disposition of intangible property; (2)

4 losses incurred, directly or indirectly, from

5 factoring transactions or discounting transactions;

6 (3) royalty, patent, technical, and copyright fees;

7 (4) licensing fees; and (5) other similar expenses and

8 costs. For purposes of this subparagraph, "intangible

9 property" includes patents, patent applications, trade

10 names, trademarks, service marks, copyrights, mask

11 works, trade secrets, and similar types of intangible

12 assets.

13 This paragraph shall not apply to the following:

14 (i) any item of intangible expenses or costs

15 paid, accrued, or incurred, directly or

16 indirectly, from a transaction with a person who is

17 subject in a foreign country or state, other than a

18 state which requires mandatory unitary reporting,

19 to a tax on or measured by net income with respect

20 to such item; or

21 (ii) any item of intangible expense or cost

22 paid, accrued, or incurred, directly or

23 indirectly, if the taxpayer can establish, based

24 on a preponderance of the evidence, both of the

25 following:

26 (a) the person during the same taxable

HB1371

- 18 -

LRB097 06433 NHT 47211 b

1 year paid, accrued, or incurred, the

2 intangible expense or cost to a person that is

3 not a related member, and

4 (b) the transaction giving rise to the

5 intangible expense or cost between the

6 taxpayer and the person did not have as a

7 principal purpose the avoidance of Illinois

8 income tax, and is paid pursuant to a contract

9 or agreement that reflects arm's-length terms;

10 or

11 (iii) any item of intangible expense or cost

12 paid, accrued, or incurred, directly or

13 indirectly, from a transaction with a person if the

14 taxpayer establishes by clear and convincing

15 evidence, that the adjustments are unreasonable;

16 or if the taxpayer and the Director agree in

17 writing to the application or use of an alternative

18 method of apportionment under Section 304(f);

19 Nothing in this subsection shall preclude the

20 Director from making any other adjustment

21 otherwise allowed under Section 404 of this Act for

22 any tax year beginning after the effective date of

23 this amendment provided such adjustment is made

24 pursuant to regulation adopted by the Department

25 and such regulations provide methods and standards

26 by which the Department will utilize its authority

HB1371

- 19 -

LRB097 06433 NHT 47211 b

1 under Section 404 of this Act;

2 (D-19) For taxable years ending on or after

3 December 31, 2008, an amount equal to the amount of

4 insurance premium expenses and costs otherwise allowed

5 as a deduction in computing base income, and that were

6 paid, accrued, or incurred, directly or indirectly, to

7 a person who would be a member of the same unitary

8 business group but for the fact that the person is

9 prohibited under Section 1501(a)(27) from being

10 included in the unitary business group because he or

11 she is ordinarily required to apportion business

12 income under different subsections of Section 304. The

13 addition modification required by this subparagraph

14 shall be reduced to the extent that dividends were

15 included in base income of the unitary group for the

16 same taxable year and received by the taxpayer or by a

17 member of the taxpayer's unitary business group

18 (including amounts included in gross income under

19 Sections 951 through 964 of the Internal Revenue Code

20 and amounts included in gross income under Section 78

21 of the Internal Revenue Code) with respect to the stock

22 of the same person to whom the premiums and costs were

23 directly or indirectly paid, incurred, or accrued. The

24 preceding sentence does not apply to the extent that

25 the same dividends caused a reduction to the addition

26 modification required under Section 203(a)(2)(D-17) or

HB1371

- 20 -

LRB097 06433 NHT 47211 b

1 Section 203(a)(2)(D-18) of this Act.

2 (D-20) For taxable years beginning on or after

3 January 1, 2002 and ending on or before December 31,

4 2006, in the case of a distribution from a qualified

5 tuition program under Section 529 of the Internal

6 Revenue Code, other than (i) a distribution from a

7 College Savings Pool created under Section 16.5 of the

8 State Treasurer Act or (ii) a distribution from the

9 Illinois Prepaid Tuition Trust Fund, an amount equal to

10 the amount excluded from gross income under Section

11 529(c)(3)(B). For taxable years beginning on or after

12 January 1, 2007, in the case of a distribution from a

13 qualified tuition program under Section 529 of the

14 Internal Revenue Code, other than (i) a distribution

15 from a College Savings Pool created under Section 16.5

16 of the State Treasurer Act, (ii) a distribution from

17 the Illinois Prepaid Tuition Trust Fund, or (iii) a

18 distribution from a qualified tuition program under

19 Section 529 of the Internal Revenue Code that (I)

20 adopts and determines that its offering materials

21 comply with the College Savings Plans Network's

22 disclosure principles and (II) has made reasonable

23 efforts to inform in-state residents of the existence

24 of in-state qualified tuition programs by informing

25 Illinois residents directly and, where applicable, to

26 inform financial intermediaries distributing the

HB1371

- 21 -

LRB097 06433 NHT 47211 b

1 program to inform in-state residents of the existence

2 of in-state qualified tuition programs at least

3 annually, an amount equal to the amount excluded from

4 gross income under Section 529(c)(3)(B).

5 For the purposes of this subparagraph (D-20), a

6 qualified tuition program has made reasonable efforts

7 if it makes disclosures (which may use the term

8 "in-state program" or "in-state plan" and need not

9 specifically refer to Illinois or its qualified

10 programs by name) (i) directly to prospective

11 participants in its offering materials or makes a

12 public disclosure, such as a website posting; and (ii)

13 where applicable, to intermediaries selling the

14 out-of-state program in the same manner that the

15 out-of-state program distributes its offering

16 materials;

17 (D-21) For taxable years beginning on or after

18 January 1, 2007, in the case of transfer of moneys from

19 a qualified tuition program under Section 529 of the

20 Internal Revenue Code that is administered by the State

21 to an out-of-state program, an amount equal to the

22 amount of moneys previously deducted from base income

23 under subsection (a)(2)(Y) of this Section;

24 (D-22) For taxable years beginning on or after

25 January 1, 2009, in the case of a nonqualified

26 withdrawal or refund of moneys from a qualified tuition

HB1371

- 22 -

LRB097 06433 NHT 47211 b

1 program under Section 529 of the Internal Revenue Code

2 administered by the State that is not used for

3 qualified expenses at an eligible education

4 institution, an amount equal to the contribution

5 component of the nonqualified withdrawal or refund

6 that was previously deducted from base income under

7 subsection (a)(2)(y) of this Section, provided that

8 the withdrawal or refund did not result from the

9 beneficiary's death or disability;

10 (D-23) An amount equal to the credit allowable to

11 the taxpayer under Section 218(a) of this Act,

12 determined without regard to Section 218(c) of this

13 Act;

14 and by deducting from the total so obtained the sum of the

15 following amounts:

16 (E) For taxable years ending before December 31,

17 2001, any amount included in such total in respect of

18 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 on active duty in the Armed

22 Forces of the United States and in respect of any

23 compensation paid or accrued to a resident who as a

24 governmental employee was a prisoner of war or missing

25 in action, and in respect of any compensation paid to a

26 resident in 1971 or thereafter for annual training

HB1371

- 23 -

LRB097 06433 NHT 47211 b

1 performed pursuant to Sections 502 and 503, Title 32,

2 United States Code as a member of the Illinois National

3 Guard or, beginning with taxable years ending on or

4 after December 31, 2007, the National Guard of any

5 other state. For taxable years ending on or after

6 December 31, 2001, any amount included in such total in

7 respect of any compensation (including but not limited

8 to any compensation paid or accrued to a serviceman

9 while a prisoner of war or missing in action) paid to a

10 resident by reason of being a member of any component

11 of the Armed Forces of the United States and in respect

12 of any compensation paid or accrued to a resident who

13 as a governmental employee was a prisoner of war or

14 missing in action, and in respect of any compensation

15 paid to a resident in 2001 or thereafter by reason of

16 being a member of the Illinois National Guard or,

17 beginning with taxable years ending on or after

18 December 31, 2007, the National Guard of any other

19 state. The provisions of this amendatory Act of the

20 92nd General Assembly are exempt from the provisions of

21 Section 250;

22 (F) An amount equal to all amounts included in such

23 total pursuant to the provisions of Sections 402(a),

24 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the

25 Internal Revenue Code, or included in such total as

26 distributions under the provisions of any retirement

HB1371

- 24 -

LRB097 06433 NHT 47211 b

1 or disability plan for employees of any governmental

2 agency or unit, or retirement payments to retired

3 partners, which payments are excluded in computing net

4 earnings from self employment by Section 1402 of the

5 Internal Revenue Code and regulations adopted pursuant

6 thereto;

7 (G) The valuation limitation amount;

8 (H) An amount equal to the amount of any tax

9 imposed by this Act which was refunded to the taxpayer

10 and included in such total for the taxable year;

11 (I) An amount equal to all amounts included in such

12 total pursuant to the provisions of Section 111 of the

13 Internal Revenue Code as a recovery of items previously

14 deducted from adjusted gross income in the computation

15 of taxable income;

16 (J) 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 (J) is exempt from the

25 provisions of Section 250;

26 (K) An amount equal to those dividends included in

HB1371

- 25 -

LRB097 06433 NHT 47211 b

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 (J) of paragraph (2) of this subsection

7 shall not be eligible for the deduction provided under

8 this subparagraph (K);

9 (L) For taxable years ending after December 31,

10 1983, an amount equal to all social security benefits

11 and railroad retirement benefits included in such

12 total pursuant to Sections 72(r) and 86 of the Internal

13 Revenue Code;

14 (M) With the exception of any amounts subtracted

15 under subparagraph (N), an amount equal to the sum of

16 all amounts disallowed as deductions by (i) Sections

17 171(a) (2), and 265(2) of the Internal Revenue Code of

18 1954, as now or hereafter amended, and all amounts of

19 expenses allocable to interest and disallowed as

20 deductions by Section 265(1) of the Internal Revenue

21 Code of 1954, as now or hereafter amended; and (ii) for

22 taxable years ending on or after August 13, 1999,

23 Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of

24 the Internal Revenue Code; the provisions of this

25 subparagraph are exempt from the provisions of Section

26 250;

HB1371

- 26 -

LRB097 06433 NHT 47211 b

1 (N) An amount equal to all amounts included in such

2 total which are exempt from taxation by this State

3 either by reason of its statutes or Constitution or by

4 reason of the Constitution, treaties or statutes of the

5 United States; provided that, in the case of any

6 statute of this State that exempts income derived from

7 bonds or other obligations from the tax imposed under

8 this Act, the amount exempted shall be the interest net

9 of bond premium amortization;

10 (O) An amount equal to any contribution made to a

11 job training project established pursuant to the Tax

12 Increment Allocation Redevelopment Act;

13 (P) An amount equal to the amount of the deduction

14 used to compute the federal income tax credit for

15 restoration of substantial amounts held under claim of

16 right for the taxable year pursuant to Section 1341 of

17 the Internal Revenue Code of 1986;

18 (Q) An amount equal to any amounts included in such

19 total, received by the taxpayer as an acceleration in

20 the payment of life, endowment or annuity benefits in

21 advance of the time they would otherwise be payable as

22 an indemnity for a terminal illness;

23 (R) An amount equal to the amount of any federal or

24 State bonus paid to veterans of the Persian Gulf War;

25 (S) An amount, to the extent included in adjusted

26 gross income, equal to the amount of a contribution

HB1371

- 27 -

LRB097 06433 NHT 47211 b

1 made in the taxable year on behalf of the taxpayer to a

2 medical care savings account established under the

3 Medical Care Savings Account Act or the Medical Care

4 Savings Account Act of 2000 to the extent the

5 contribution is accepted by the account administrator

6 as provided in that Act;

7 (T) An amount, to the extent included in adjusted

8 gross income, equal to the amount of interest earned in

9 the taxable year on a medical care savings account

10 established under the Medical Care Savings Account Act

11 or the Medical Care Savings Account Act of 2000 on

12 behalf of the taxpayer, other than interest added

13 pursuant to item (D-5) of this paragraph (2);

14 (U) For one taxable year beginning on or after

15 January 1, 1994, an amount equal to the total amount of

16 tax imposed and paid under subsections (a) and (b) of

17 Section 201 of this Act on grant amounts received by

18 the taxpayer under the Nursing Home Grant Assistance

19 Act during the taxpayer's taxable years 1992 and 1993;

20 (V) Beginning with tax years ending on or after

21 December 31, 1995 and ending with tax years ending on

22 or before December 31, 2004, an amount equal to the

23 amount paid by a taxpayer who is a self-employed

24 taxpayer, a partner of a partnership, or a shareholder

25 in a Subchapter S corporation for health insurance or

26 long-term care insurance for that taxpayer or that

HB1371

- 28 -

LRB097 06433 NHT 47211 b

1 taxpayer's spouse or dependents, to the extent that the

2 amount paid for that health insurance or long-term care

3 insurance may be deducted under Section 213 of the

4 Internal Revenue Code of 1986, has not been deducted on

5 the federal income tax return of the taxpayer, and does

6 not exceed the taxable income attributable to that

7 taxpayer's income, self-employment income, or

8 Subchapter S corporation income; except that no

9 deduction shall be allowed under this item (V) if the

10 taxpayer is eligible to participate in any health

11 insurance or long-term care insurance plan of an

12 employer of the taxpayer or the taxpayer's spouse. The

13 amount of the health insurance and long-term care

14 insurance subtracted under this item (V) shall be

15 determined by multiplying total health insurance and

16 long-term care insurance premiums paid by the taxpayer

17 times a number that represents the fractional

18 percentage of eligible medical expenses under Section

19 213 of the Internal Revenue Code of 1986 not actually

20 deducted on the taxpayer's federal income tax return;

21 (W) For taxable years beginning on or after January

22 1, 1998, all amounts included in the taxpayer's federal

23 gross income in the taxable year from amounts converted

24 from a regular IRA to a Roth IRA. This paragraph is

25 exempt from the provisions of Section 250;

26 (X) For taxable year 1999 and thereafter, an amount

HB1371

- 29 -

LRB097 06433 NHT 47211 b

1 equal to the amount of any (i) distributions, to the

2 extent includible in gross income for federal income

3 tax purposes, made to the taxpayer because of his or

4 her status as a victim of persecution for racial or

5 religious reasons by Nazi Germany or any other Axis

6 regime or as an heir of the victim and (ii) items of

7 income, to the extent includible in gross income for

8 federal income tax purposes, attributable to, derived

9 from or in any way related to assets stolen from,

10 hidden from, or otherwise lost to a victim of

11 persecution for racial or religious reasons by Nazi

12 Germany or any other Axis regime immediately prior to,

13 during, and immediately after World War II, including,

14 but not limited to, interest on the proceeds receivable

15 as insurance under policies issued to a victim of

16 persecution for racial or religious reasons by Nazi

17 Germany or any other Axis regime by European insurance

18 companies immediately prior to and during World War II;

19 provided, however, this subtraction from federal

20 adjusted gross income does not apply to assets acquired

21 with such assets or with the proceeds from the sale of

22 such assets; provided, further, this paragraph shall

23 only apply to a taxpayer who was the first recipient of

24 such assets after their recovery and who is a victim of

25 persecution for racial or religious reasons by Nazi

26 Germany or any other Axis regime or as an heir of the

HB1371

- 30 -

LRB097 06433 NHT 47211 b

1 victim. The amount of and the eligibility for any

2 public assistance, benefit, or similar entitlement is

3 not affected by the inclusion of items (i) and (ii) of

4 this paragraph in gross income for federal income tax

5 purposes. This paragraph is exempt from the provisions

6 of Section 250;

7 (Y) For taxable years beginning on or after January

8 1, 2002 and ending on or before December 31, 2004,

9 moneys contributed in the taxable year to a College

10 Savings Pool account under Section 16.5 of the State

11 Treasurer Act, except that amounts excluded from gross

12 income under Section 529(c)(3)(C)(i) of the Internal

13 Revenue Code shall not be considered moneys

14 contributed under this subparagraph (Y). For taxable

15 years beginning on or after January 1, 2005, a maximum

16 of $10,000 contributed in the taxable year to (i) a

17 College Savings Pool account under Section 16.5 of the

18 State Treasurer Act or (ii) the Illinois Prepaid

19 Tuition Trust Fund, except that amounts excluded from

20 gross income under Section 529(c)(3)(C)(i) of the

21 Internal Revenue Code shall not be considered moneys

22 contributed under this subparagraph (Y). For purposes

23 of this subparagraph, contributions made by an

24 employer on behalf of an employee, or matching

25 contributions made by an employee, shall be treated as

26 made by the employee. This subparagraph (Y) is exempt

HB1371

- 31 -

LRB097 06433 NHT 47211 b

1 from the provisions of Section 250;

2 (Z) 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

HB1371

- 32 -

LRB097 06433 NHT 47211 b

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 (Z) is exempt from the provisions of

11 Section 250;

12 (AA) 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 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 (D-15), 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.

HB1371

- 33 -

LRB097 06433 NHT 47211 b

1 This subparagraph (AA) is exempt from the

2 provisions of Section 250;

3 (BB) Any amount included in adjusted gross income,

4 other than salary, received by a driver in a

5 ridesharing arrangement using a motor vehicle;

6 (CC) The amount of (i) any interest income (net of

7 the deductions allocable thereto) taken into account

8 for the taxable year with respect to a transaction with

9 a taxpayer that is required to make an addition

10 modification with respect to such transaction under

11 Section 203(a)(2)(D-17), 203(b)(2)(E-12),

12 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed

13 the amount of that addition modification, and (ii) any

14 income from intangible property (net of the deductions

15 allocable thereto) taken into account for the taxable

16 year with respect to a transaction with a taxpayer that

17 is required to make an addition modification with

18 respect to such transaction under Section

19 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or

20 203(d)(2)(D-8), but not to exceed the amount of that

21 addition modification. This subparagraph (CC) is

22 exempt from the provisions of Section 250;

23 (DD) 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 (i) a foreign person who would be a

HB1371

- 34 -

LRB097 06433 NHT 47211 b

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 and (ii) for taxable

5 years ending on or after December 31, 2008, to a person

6 who would be a member of the same unitary business

7 group but for the fact that the person is prohibited

8 under Section 1501(a)(27) from being included in the

9 unitary business group because he or she is ordinarily

10 required to apportion business income under different

11 subsections of Section 304, but not to exceed the

12 addition modification required to be made for the same

13 taxable year under Section 203(a)(2)(D-17) for

14 interest paid, accrued, or incurred, directly or

15 indirectly, to the same person. This subparagraph (DD)

16 is exempt from the provisions of Section 250;

17 (EE) An amount equal to the income from intangible

18 property taken into account for the taxable year (net

19 of the deductions allocable thereto) with respect to

20 transactions with (i) a foreign person who would be a

21 member of the taxpayer's unitary business group but for

22 the fact that the foreign person's business activity

23 outside the United States is 80% or more of that

24 person's total business activity and (ii) for taxable

25 years ending on or after December 31, 2008, to a person

26 who would be a member of the same unitary business

HB1371

- 35 -

LRB097 06433 NHT 47211 b

1 group but for the fact that the person is prohibited

2 under Section 1501(a)(27) from being included in the

3 unitary business group because he or she is ordinarily

4 required to apportion business income under different

5 subsections of Section 304, but not to exceed the

6 addition modification required to be made for the same

7 taxable year under Section 203(a)(2)(D-18) for

8 intangible expenses and costs paid, accrued, or

9 incurred, directly or indirectly, to the same foreign

10 person. This subparagraph (EE) is exempt from the

11 provisions of Section 250; and

12 (FF) An amount equal to any amount awarded to the

13 taxpayer during the taxable year by the Court of Claims

14 under subsection (c) of Section 8 of the Court of

15 Claims Act for time unjustly served in a State prison.

16 This subparagraph (FF) is exempt from the provisions of

17 Section 250.

18 (GG) For taxable years ending on or after December

19 31, 2011, an amount, to the extent that it is included

20 in adjusted gross income, equal to any scholarship

21 redeemed under the School Choice Act. This

22 subparagraph is exempt from the provisions of Section

23 250.

24 (b) Corporations.

25 (1) In general. In the case of a corporation, base

HB1371

- 36 -

LRB097 06433 NHT 47211 b

1 income means an amount equal to the taxpayer's taxable

2 income for the taxable year as modified by paragraph (2).

3 (2) Modifications. The taxable income referred to in

4 paragraph (1) shall be modified by adding thereto the sum

5 of the following amounts:

6 (A) An amount equal to all amounts paid or accrued

7 to the taxpayer as interest and all distributions

8 received from regulated investment companies during

9 the taxable year to the extent excluded from gross

10 income in the computation of taxable income;

11 (B) An amount equal to the amount of tax imposed by

12 this Act to the extent deducted from gross income in

13 the computation of taxable income for the taxable year;

14 (C) In the case of a regulated investment company,

15 an amount equal to the excess of (i) the net long-term

16 capital gain for the taxable year, over (ii) the amount

17 of the capital gain dividends designated as such in

18 accordance with Section 852(b)(3)(C) of the Internal

19 Revenue Code and any amount designated under Section

20 852(b)(3)(D) of the Internal Revenue Code,

21 attributable to the taxable year (this amendatory Act

22 of 1995 (Public Act 89-89) is declarative of existing

23 law and is not a new enactment);

24 (D) The amount of any net operating loss deduction

25 taken in arriving at taxable income, other than a net

26 operating loss carried forward from a taxable year

HB1371

- 37 -

LRB097 06433 NHT 47211 b

1 ending prior to December 31, 1986;

2 (E) For taxable years in which a net operating loss

3 carryback or carryforward from a taxable year ending

4 prior to December 31, 1986 is an element of taxable

5 income under paragraph (1) of subsection (e) or

6 subparagraph (E) of paragraph (2) of subsection (e),

7 the amount by which addition modifications other than

8 those provided by this subparagraph (E) exceeded

9 subtraction modifications in such earlier taxable

10 year, with the following limitations applied in the

11 order that they are listed:

12 (i) the addition modification relating to the

13 net operating loss carried back or forward to the

14 taxable year from any taxable year ending prior to

15 December 31, 1986 shall be reduced by the amount of

16 addition modification under this subparagraph (E)

17 which related to that net operating loss and which

18 was taken into account in calculating the base

19 income of an earlier taxable year, and

20 (ii) the addition modification relating to the

21 net operating loss carried back or forward to the

22 taxable year from any taxable year ending prior to

23 December 31, 1986 shall not exceed the amount of

24 such carryback or carryforward;

25 For taxable years in which there is a net operating

26 loss carryback or carryforward from more than one other

HB1371

- 38 -

LRB097 06433 NHT 47211 b

1 taxable year ending prior to December 31, 1986, the

2 addition modification provided in this subparagraph

3 (E) shall be the sum of the amounts computed

4 independently under the preceding provisions of this

5 subparagraph (E) for each such taxable year;

6 (E-5) For taxable years ending after December 31,

7 1997, an amount equal to any eligible remediation costs

8 that the corporation deducted in computing adjusted

9 gross income and for which the corporation claims a

10 credit under subsection (l) of Section 201;

11 (E-10) For taxable years 2001 and thereafter, an

12 amount equal to the bonus depreciation deduction taken

13 on the taxpayer's federal income tax return for the

14 taxable year under subsection (k) of Section 168 of the

15 Internal Revenue Code;

16 (E-11) If the taxpayer sells, transfers, abandons,

17 or otherwise disposes of property for which the

18 taxpayer was required in any taxable year to make an

19 addition modification under subparagraph (E-10), then

20 an amount equal to the aggregate amount of the

21 deductions taken in all taxable years under

22 subparagraph (T) with respect to that property.

23 If the taxpayer continues to own property through

24 the last day of the last tax year for which the

25 taxpayer may claim a depreciation deduction for

26 federal income tax purposes and for which the taxpayer

HB1371

- 39 -

LRB097 06433 NHT 47211 b

1 was allowed in any taxable year to make a subtraction

2 modification under subparagraph (T), then an amount

3 equal to that subtraction modification.

4 The taxpayer is required to make the addition

5 modification under this subparagraph only once with

6 respect to any one piece of property;

7 (E-12) An amount equal to the amount otherwise

8 allowed as a deduction in computing base income for

9 interest paid, accrued, or incurred, directly or

10 indirectly, (i) for taxable years ending on or after

11 December 31, 2004, to a foreign person who would be a

12 member of the same unitary business group but for the

13 fact the foreign person's business activity outside

14 the United States is 80% or more of the foreign

15 person's total business activity and (ii) for taxable

16 years ending on or after December 31, 2008, to a person

17 who would be a member of the same unitary business

18 group but for the fact that the person is prohibited

19 under Section 1501(a)(27) from being included in the

20 unitary business group because he or she is ordinarily

21 required to apportion business income under different

22 subsections of Section 304. The addition modification

23 required by this subparagraph shall be reduced to the

24 extent that dividends were included in base income of

25 the unitary group for the same taxable year and

26 received by the taxpayer or by a member of the

HB1371

- 40 -

LRB097 06433 NHT 47211 b

1 taxpayer's unitary business group (including amounts

2 included in gross income pursuant to Sections 951

3 through 964 of the Internal Revenue Code and amounts

4 included in gross income under Section 78 of the

5 Internal Revenue Code) with respect to the stock of the

6 same person to whom the interest was paid, accrued, or

7 incurred.

8 This paragraph shall not apply to the following:

9 (i) an item of interest paid, accrued, or

10 incurred, directly or indirectly, to a person who

11 is subject in a foreign country or state, other

12 than a state which requires mandatory unitary

13 reporting, to a tax on or measured by net income

14 with respect to such interest; or

15 (ii) an item of interest paid, accrued, or

16 incurred, directly or indirectly, to a person if

17 the taxpayer can establish, based on a

18 preponderance of the evidence, both of the

19 following:

20 (a) the person, during the same taxable

21 year, paid, accrued, or incurred, the interest

22 to a person that is not a related member, and

23 (b) the transaction giving rise to the

24 interest expense between the taxpayer and the

25 person did not have as a principal purpose the

26 avoidance of Illinois income tax, and is paid

HB1371

- 41 -

LRB097 06433 NHT 47211 b

1 pursuant to a contract or agreement that

2 reflects an arm's-length interest rate and

3 terms; or

4 (iii) the taxpayer can establish, based on

5 clear and convincing evidence, that the interest

6 paid, accrued, or incurred relates to a contract or

7 agreement entered into at arm's-length rates and

8 terms and the principal purpose for the payment is

9 not federal or Illinois tax avoidance; or

10 (iv) an item of interest paid, accrued, or

11 incurred, directly or indirectly, to a person if

12 the taxpayer establishes by clear and convincing

13 evidence that the adjustments are unreasonable; or

14 if the taxpayer and the Director agree in writing

15 to the application or use of an alternative method

16 of apportionment under Section 304(f).

17 Nothing in this subsection shall preclude the

18 Director from making any other adjustment

19 otherwise allowed under Section 404 of this Act for

20 any tax year beginning after the effective date of

21 this amendment provided such adjustment is made

22 pursuant to regulation adopted by the Department

23 and such regulations provide methods and standards

24 by which the Department will utilize its authority

25 under Section 404 of this Act;

26 (E-13) An amount equal to the amount of intangible

HB1371

- 42 -

LRB097 06433 NHT 47211 b

1 expenses and costs otherwise allowed as a deduction in

2 computing base income, and that were paid, accrued, or

3 incurred, directly or indirectly, (i) for taxable

4 years ending on or after December 31, 2004, to a

5 foreign person who would be a member of the same

6 unitary business group but for the fact that the

7 foreign person's business activity outside the United

8 States is 80% or more of that person's total business

9 activity and (ii) for taxable years ending on or after

10 December 31, 2008, to a person who would be a member of

11 the same unitary business group but for the fact that

12 the person is prohibited under Section 1501(a)(27)

13 from being included in the unitary business group

14 because he or she is ordinarily required to apportion

15 business income under different subsections of Section

16 304. The addition modification required by this

17 subparagraph shall be reduced to the extent that

18 dividends were included in base income of the unitary

19 group for the same taxable year and received by the

20 taxpayer or by a member of the taxpayer's unitary

21 business group (including amounts included in gross

22 income pursuant to Sections 951 through 964 of the

23 Internal Revenue Code and amounts included in gross

24 income under Section 78 of the Internal Revenue Code)

25 with respect to the stock of the same person to whom

26 the intangible expenses and costs were directly or

HB1371

- 43 -

LRB097 06433 NHT 47211 b

1 indirectly paid, incurred, or accrued. The preceding

2 sentence shall not apply to the extent that the same

3 dividends caused a reduction to the addition

4 modification required under Section 203(b)(2)(E-12) of

5 this Act. As used in this subparagraph, the term

6 "intangible expenses and costs" includes (1) expenses,

7 losses, and costs for, or related to, the direct or

8 indirect acquisition, use, maintenance or management,

9 ownership, sale, exchange, or any other disposition of

10 intangible property; (2) losses incurred, directly or

11 indirectly, from factoring transactions or discounting

12 transactions; (3) royalty, patent, technical, and

13 copyright fees; (4) licensing fees; and (5) other

14 similar expenses and costs. For purposes of this

15 subparagraph, "intangible property" includes patents,

16 patent applications, trade names, trademarks, service

17 marks, copyrights, mask works, trade secrets, and

18 similar types of intangible assets.

19 This paragraph shall not apply to the following:

20 (i) any item of intangible expenses or costs

21 paid, accrued, or incurred, directly or

22 indirectly, from a transaction with a person who is

23 subject in a foreign country or state, other than a

24 state which requires mandatory unitary reporting,

25 to a tax on or measured by net income with respect

26 to such item; or

HB1371

- 44 -

LRB097 06433 NHT 47211 b

1 (ii) any item of intangible expense or cost

2 paid, accrued, or incurred, directly or

3 indirectly, if the taxpayer can establish, based

4 on a preponderance of the evidence, both of the

5 following:

6 (a) the person during the same taxable

7 year paid, accrued, or incurred, the

8 intangible expense or cost to a person that is

9 not a related member, and

10 (b) the transaction giving rise to the

11 intangible expense or cost between the

12 taxpayer and the person did not have as a

13 principal purpose the avoidance of Illinois

14 income tax, and is paid pursuant to a contract

15 or agreement that reflects arm's-length terms;

16 or

17 (iii) any item of intangible expense or cost

18 paid, accrued, or incurred, directly or

19 indirectly, from a transaction with a person if the

20 taxpayer establishes by clear and convincing

21 evidence, that the adjustments are unreasonable;

22 or if the taxpayer and the Director agree in

23 writing to the application or use of an alternative

24 method of apportionment under Section 304(f);

25 Nothing in this subsection shall preclude the

26 Director from making any other adjustment

HB1371

- 45 -

LRB097 06433 NHT 47211 b

1 otherwise allowed under Section 404 of this Act for

2 any tax year beginning after the effective date of

3 this amendment provided such adjustment is made

4 pursuant to regulation adopted by the Department

5 and such regulations provide methods and standards

6 by which the Department will utilize its authority

7 under Section 404 of this Act;

8 (E-14) For taxable years ending on or after

9 December 31, 2008, an amount equal to the amount of

10 insurance premium expenses and costs otherwise allowed

11 as a deduction in computing base income, and that were

12 paid, accrued, or incurred, directly or indirectly, to

13 a person who would be a member of the same unitary

14 business group but for the fact that the person is

15 prohibited under Section 1501(a)(27) from being

16 included in the unitary business group because he or

17 she is ordinarily required to apportion business

18 income under different subsections of Section 304. The

19 addition modification required by this subparagraph

20 shall be reduced to the extent that dividends were

21 included in base income of the unitary group for the

22 same taxable year and received by the taxpayer or by a

23 member of the taxpayer's unitary business group

24 (including amounts included in gross income under

25 Sections 951 through 964 of the Internal Revenue Code

26 and amounts included in gross income under Section 78

HB1371

- 46 -

LRB097 06433 NHT 47211 b

1 of the Internal Revenue Code) with respect to the stock

2 of the same person to whom the premiums and costs were

3 directly or indirectly paid, incurred, or accrued. The

4 preceding sentence does not apply to the extent that

5 the same dividends caused a reduction to the addition

6 modification required under Section 203(b)(2)(E-12) or

7 Section 203(b)(2)(E-13) of this Act;

8 (E-15) For taxable years beginning after December

9 31, 2008, any deduction for dividends paid by a captive

10 real estate investment trust that is allowed to a real

11 estate investment trust under Section 857(b)(2)(B) of

12 the Internal Revenue Code for dividends paid;

13 (E-16) An amount equal to the credit allowable to

14 the taxpayer under Section 218(a) of this Act,

15 determined without regard to Section 218(c) of this

16 Act;

17 and by deducting from the total so obtained the sum of the

18 following amounts:

19 (F) 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 (G) An amount equal to any amount included in such

23 total under Section 78 of the Internal Revenue Code;

24 (H) In the case of a regulated investment company,

25 an amount equal to the amount of exempt interest

26 dividends as defined in subsection (b) (5) of Section

HB1371

- 47 -

LRB097 06433 NHT 47211 b

1 852 of the Internal Revenue Code, paid to shareholders

2 for the taxable year;

3 (I) With the exception of any amounts subtracted

4 under subparagraph (J), an amount equal to the sum of

5 all amounts disallowed as deductions by (i) Sections

6 171(a) (2), and 265(a)(2) and amounts disallowed as

7 interest expense by Section 291(a)(3) of the Internal

8 Revenue Code, as now or hereafter amended, and all

9 amounts of expenses allocable to interest and

10 disallowed as deductions by Section 265(a)(1) of the

11 Internal Revenue Code, as now or hereafter amended; and

12 (ii) for taxable years ending on or after August 13,

13 1999, Sections 171(a)(2), 265, 280C, 291(a)(3), and

14 832(b)(5)(B)(i) of the Internal Revenue Code; the

15 provisions of this subparagraph are exempt from the

16 provisions of Section 250;

17 (J) An amount equal to all amounts included in such

18 total which are exempt from taxation by this State

19 either by reason of its statutes or Constitution or by

20 reason of the Constitution, treaties or statutes of the

21 United States; provided that, in the case of any

22 statute of this State that exempts income derived from

23 bonds or other obligations from the tax imposed under

24 this Act, the amount exempted shall be the interest net

25 of bond premium amortization;

26 (K) An amount equal to those dividends included in

HB1371

- 48 -

LRB097 06433 NHT 47211 b

1 such total which were paid by a corporation which

2 conducts business operations in an Enterprise Zone or

3 zones created under the Illinois Enterprise Zone Act or

4 a River Edge Redevelopment Zone or zones created under

5 the River Edge Redevelopment Zone Act and conducts

6 substantially all of its operations in an Enterprise

7 Zone or zones or a River Edge Redevelopment Zone or

8 zones. This subparagraph (K) is exempt from the

9 provisions of Section 250;

10 (L) An amount equal to those dividends included in

11 such total that were paid by a corporation that

12 conducts business operations in a federally designated

13 Foreign Trade Zone or Sub-Zone and that is designated a

14 High Impact Business located in Illinois; provided

15 that dividends eligible for the deduction provided in

16 subparagraph (K) of paragraph 2 of this subsection

17 shall not be eligible for the deduction provided under

18 this subparagraph (L);

19 (M) For any taxpayer that is a financial

20 organization within the meaning of Section 304(c) of

21 this Act, an amount included in such total as interest

22 income from a loan or loans made by such taxpayer to a

23 borrower, to the extent that such a loan is secured by

24 property which is eligible for the Enterprise Zone

25 Investment Credit or the River Edge Redevelopment Zone

26 Investment Credit. To determine the portion of a loan

HB1371

- 49 -

LRB097 06433 NHT 47211 b

1 or loans that is secured by property eligible for a

2 Section 201(f) investment credit to the borrower, the

3 entire principal amount of the loan or loans between

4 the taxpayer and the borrower should be divided into

5 the basis of the Section 201(f) investment credit

6 property which secures the loan or loans, using for

7 this purpose the original basis of such property on the

8 date that it was placed in service in the Enterprise

9 Zone or the River Edge Redevelopment Zone. The

10 subtraction modification available to taxpayer in any

11 year under this subsection shall be that portion of the

12 total interest paid by the borrower with respect to

13 such loan attributable to the eligible property as

14 calculated under the previous sentence. This

15 subparagraph (M) is exempt from the provisions of

16 Section 250;

17 (M-1) For any taxpayer that is a financial

18 organization within the meaning of Section 304(c) of

19 this Act, an amount included in such total as interest

20 income from a loan or loans made by such taxpayer to a

21 borrower, to the extent that such a loan is secured by

22 property which is eligible for the High Impact Business

23 Investment Credit. To determine the portion of a loan

24 or loans that is secured by property eligible for a

25 Section 201(h) investment credit to the borrower, the

26 entire principal amount of the loan or loans between

HB1371

- 50 -

LRB097 06433 NHT 47211 b

1 the taxpayer and the borrower should be divided into

2 the basis of the Section 201(h) investment credit

3 property which secures the loan or loans, using for

4 this purpose the original basis of such property on the

5 date that it was placed in service in a federally

6 designated Foreign Trade Zone or Sub-Zone located in

7 Illinois. No taxpayer that is eligible for the

8 deduction provided in subparagraph (M) of paragraph

9 (2) of this subsection shall be eligible for the

10 deduction provided under this subparagraph (M-1). The

11 subtraction modification available to taxpayers in any

12 year under this subsection shall be that portion of the

13 total interest paid by the borrower with respect to

14 such loan attributable to the eligible property as

15 calculated under the previous sentence;

16 (N) Two times any contribution made during the

17 taxable year to a designated zone organization to the

18 extent that the contribution (i) qualifies as a

19 charitable contribution under subsection (c) of

20 Section 170 of the Internal Revenue Code and (ii) must,

21 by its terms, be used for a project approved by the

22 Department of Commerce and Economic Opportunity under

23 Section 11 of the Illinois Enterprise Zone Act or under

24 Section 10-10 of the River Edge Redevelopment Zone Act.

25 This subparagraph (N) is exempt from the provisions of

26 Section 250;

HB1371

- 51 -

LRB097 06433 NHT 47211 b

1 (O) An amount equal to: (i) 85% for taxable years

2 ending on or before December 31, 1992, or, a percentage

3 equal to the percentage allowable under Section

4 243(a)(1) of the Internal Revenue Code of 1986 for

5 taxable years ending after December 31, 1992, of the

6 amount by which dividends included in taxable income

7 and received from a corporation that is not created or

8 organized under the laws of the United States or any

9 state or political subdivision thereof, including, for

10 taxable years ending on or after December 31, 1988,

11 dividends received or deemed received or paid or deemed

12 paid under Sections 951 through 964 of the Internal

13 Revenue Code, exceed the amount of the modification

14 provided under subparagraph (G) of paragraph (2) of

15 this subsection (b) which is related to such dividends,

16 and including, for taxable years ending on or after

17 December 31, 2008, dividends received from a captive

18 real estate investment trust; plus (ii) 100% of the

19 amount by which dividends, included in taxable income

20 and received, including, for taxable years ending on or

21 after December 31, 1988, dividends received or deemed

22 received or paid or deemed paid under Sections 951

23 through 964 of the Internal Revenue Code and including,

24 for taxable years ending on or after December 31, 2008,

25 dividends received from a captive real estate

26 investment trust, from any such corporation specified

HB1371

- 52 -

LRB097 06433 NHT 47211 b

1 in clause (i) that would but for the provisions of

2 Section 1504 (b) (3) of the Internal Revenue Code be

3 treated as a member of the affiliated group which

4 includes the dividend recipient, exceed the amount of

5 the modification provided under subparagraph (G) of

6 paragraph (2) of this subsection (b) which is related

7 to such dividends. This subparagraph (O) is exempt from

8 the provisions of Section 250 of this Act;

9 (P) An amount equal to any contribution made to a

10 job training project established pursuant to the Tax

11 Increment Allocation Redevelopment Act;

12 (Q) An amount equal to the amount of the deduction

13 used to compute the federal income tax credit for

14 restoration of substantial amounts held under claim of

15 right for the taxable year pursuant to Section 1341 of

16 the Internal Revenue Code of 1986;

17 (R) On and after July 20, 1999, in the case of an

18 attorney-in-fact with respect to whom an interinsurer

19 or a reciprocal insurer has made the election under

20 Section 835 of the Internal Revenue Code, 26 U.S.C.

21 835, an amount equal to the excess, if any, of the

22 amounts paid or incurred by that interinsurer or

23 reciprocal insurer in the taxable year to the

24 attorney-in-fact over the deduction allowed to that

25 interinsurer or reciprocal insurer with respect to the

26 attorney-in-fact under Section 835(b) of the Internal

HB1371

- 53 -

LRB097 06433 NHT 47211 b

1 Revenue Code for the taxable year; the provisions of

2 this subparagraph are exempt from the provisions of

3 Section 250;

4 (S) For taxable years ending on or after December

5 31, 1997, in the case of a Subchapter S corporation, an

6 amount equal to all amounts of income allocable to a

7 shareholder subject to the Personal Property Tax

8 Replacement Income Tax imposed by subsections (c) and

9 (d) of Section 201 of this Act, including amounts

10 allocable to organizations exempt from federal income

11 tax by reason of Section 501(a) of the Internal Revenue

12 Code. This subparagraph (S) is exempt from the

13 provisions of Section 250;

14 (T) For taxable years 2001 and thereafter, for the

15 taxable year in which the bonus depreciation deduction

16 is taken on the taxpayer's federal income tax return

17 under subsection (k) of Section 168 of the Internal

18 Revenue Code and for each applicable taxable year

19 thereafter, an amount equal to "x", where:

20 (1) "y" equals the amount of the depreciation

21 deduction taken for the taxable year on the

22 taxpayer's federal income tax return on property

23 for which the bonus depreciation deduction was

24 taken in any year under subsection (k) of Section

25 168 of the Internal Revenue Code, but not including

26 the bonus depreciation deduction;

HB1371

- 54 -

LRB097 06433 NHT 47211 b

1 (2) for taxable years ending on or before

2 December 31, 2005, "x" equals "y" multiplied by 30

3 and then divided by 70 (or "y" multiplied by

4 0.429); and

5 (3) for taxable years ending after December

6 31, 2005:

7 (i) for property on which a bonus

8 depreciation deduction of 30% of the adjusted

9 basis was taken, "x" equals "y" multiplied by

10 30 and then divided by 70 (or "y" multiplied by

11 0.429); and

12 (ii) for property on which a bonus

13 depreciation deduction of 50% of the adjusted

14 basis was taken, "x" equals "y" multiplied by

15 1.0.

16 The aggregate amount deducted under this

17 subparagraph in all taxable years for any one piece of

18 property may not exceed the amount of the bonus

19 depreciation deduction taken on that property on the

20 taxpayer's federal income tax return under subsection

21 (k) of Section 168 of the Internal Revenue Code. This

22 subparagraph (T) is exempt from the provisions of

23 Section 250;

24 (U) If the taxpayer sells, transfers, abandons, or

25 otherwise disposes of property for which the taxpayer

26 was required in any taxable year to make an addition

HB1371

- 55 -

LRB097 06433 NHT 47211 b

1 modification under subparagraph (E-10), then an amount

2 equal to that addition modification.

3 If the taxpayer continues to own property through

4 the last day of the last tax year for which the

5 taxpayer may claim a depreciation deduction for

6 federal income tax purposes and for which the taxpayer

7 was required in any taxable year to make an addition

8 modification under subparagraph (E-10), then an amount

9 equal to that addition modification.

10 The taxpayer is allowed to take the deduction under

11 this subparagraph only once with respect to any one

12 piece of property.

13 This subparagraph (U) is exempt from the

14 provisions of Section 250;

15 (V) The amount of: (i) any interest income (net of

16 the deductions allocable thereto) taken into account

17 for the taxable year with respect to a transaction with

18 a taxpayer that is required to make an addition

19 modification with respect to such transaction under

20 Section 203(a)(2)(D-17), 203(b)(2)(E-12),

21 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed

22 the amount of such addition modification, (ii) any

23 income from intangible property (net of the deductions

24 allocable thereto) taken into account for the taxable

25 year with respect to a transaction with a taxpayer that

26 is required to make an addition modification with

HB1371

- 56 -

LRB097 06433 NHT 47211 b

1 respect to such transaction under Section

2 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or

3 203(d)(2)(D-8), but not to exceed the amount of such

4 addition modification, and (iii) any insurance premium

5 income (net of deductions allocable thereto) taken

6 into account for the taxable year with respect to a

7 transaction with a taxpayer that is required to make an

8 addition modification with respect to such transaction

9 under Section 203(a)(2)(D-19), Section

10 203(b)(2)(E-14), Section 203(c)(2)(G-14), or Section

11 203(d)(2)(D-9), but not to exceed the amount of that

12 addition modification. This subparagraph (V) is exempt

13 from the provisions of Section 250;

14 (W) An amount equal to the interest income taken

15 into account for the taxable year (net of the

16 deductions allocable thereto) with respect to

17 transactions with (i) a foreign person who would be a

18 member of the taxpayer's unitary business group but for

19 the fact that the foreign person's business activity

20 outside the United States is 80% or more of that

21 person's total business activity and (ii) for taxable

22 years ending on or after December 31, 2008, to a person

23 who would be a member of the same unitary business

24 group but for the fact that the person is prohibited

25 under Section 1501(a)(27) from being included in the

26 unitary business group because he or she is ordinarily

HB1371

- 57 -

LRB097 06433 NHT 47211 b

1 required to apportion business income under different

2 subsections of Section 304, but not to exceed the

3 addition modification required to be made for the same

4 taxable year under Section 203(b)(2)(E-12) for

5 interest paid, accrued, or incurred, directly or

6 indirectly, to the same person. This subparagraph (W)

7 is exempt from the provisions of Section 250; and

8 (X) An amount equal to the income from intangible

9 property taken into account for the taxable year (net

10 of the deductions allocable thereto) with respect to

11 transactions with (i) a foreign person who would be a

12 member of the taxpayer's unitary business group but for

13 the fact that the foreign person's business activity

14 outside the United States is 80% or more of that

15 person's total business activity and (ii) for taxable

16 years ending on or after December 31, 2008, to a person

17 who would be a member of the same unitary business

18 group but for the fact that the person is prohibited

19 under Section 1501(a)(27) from being included in the

20 unitary business group because he or she is ordinarily

21 required to apportion business income under different

22 subsections of Section 304, but not to exceed the

23 addition modification required to be made for the same

24 taxable year under Section 203(b)(2)(E-13) for

25 intangible expenses and costs paid, accrued, or

26 incurred, directly or indirectly, to the same foreign

HB1371

- 58 -

LRB097 06433 NHT 47211 b

1 person. This subparagraph (X) is exempt from the

2 provisions of Section 250.

3 (3) Special rule. For purposes of paragraph (2) (A),

4 "gross income" in the case of a life insurance company, for

5 tax years ending on and after December 31, 1994, shall mean

6 the gross investment income for the taxable year.

7 (c) Trusts and estates.

8 (1) In general. In the case of a trust or estate, 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. Subject to the provisions of

12 paragraph (3), the taxable income referred to in paragraph

13 (1) shall be modified by adding thereto the sum of the

14 following amounts:

15 (A) An amount equal to all amounts paid or accrued

16 to the taxpayer as interest or dividends during the

17 taxable year to the extent excluded from gross income

18 in the computation of taxable income;

19 (B) In the case of (i) an estate, $600; (ii) a

20 trust which, under its governing instrument, is

21 required to distribute all of its income currently,

22 $300; and (iii) any other trust, $100, but in each such

23 case, only to the extent such amount was deducted in

24 the computation of taxable income;

25 (C) An amount equal to the amount of tax imposed by

HB1371

- 59 -

LRB097 06433 NHT 47211 b

1 this Act to the extent deducted from gross income in

2 the computation of taxable income for the taxable year;

3 (D) The amount of any net operating loss deduction

4 taken in arriving at taxable income, other than a net

5 operating loss carried forward from a taxable year

6 ending prior to December 31, 1986;

7 (E) For taxable years in which a net operating loss

8 carryback or carryforward from a taxable year ending

9 prior to December 31, 1986 is an element of taxable

10 income under paragraph (1) of subsection (e) or

11 subparagraph (E) of paragraph (2) of subsection (e),

12 the amount by which addition modifications other than

13 those provided by this subparagraph (E) exceeded

14 subtraction modifications in such taxable year, with

15 the following limitations applied in the order that

16 they are listed:

17 (i) the addition modification relating to the

18 net operating loss carried back or forward to the

19 taxable year from any taxable year ending prior to

20 December 31, 1986 shall be reduced by the amount of

21 addition modification under this subparagraph (E)

22 which related to that net operating loss and which

23 was taken into account in calculating the base

24 income of an earlier taxable year, and

25 (ii) the addition modification relating to the

26 net operating loss carried back or forward to the

HB1371

- 60 -

LRB097 06433 NHT 47211 b

1 taxable year from any taxable year ending prior to

2 December 31, 1986 shall not exceed the amount of

3 such carryback or carryforward;

4 For taxable years in which there is a net operating

5 loss carryback or carryforward from more than one other

6 taxable year ending prior to December 31, 1986, the

7 addition modification provided in this subparagraph

8 (E) shall be the sum of the amounts computed

9 independently under the preceding provisions of this

10 subparagraph (E) for each such taxable year;

11 (F) For taxable years ending on or after January 1,

12 1989, an amount equal to the tax deducted pursuant to

13 Section 164 of the Internal Revenue Code if the trust

14 or estate is claiming the same tax for purposes of the

15 Illinois foreign tax credit under Section 601 of this

16 Act;

17 (G) An amount equal to the amount of the capital

18 gain deduction allowable under the Internal Revenue

19 Code, to the extent deducted from gross income in the

20 computation of taxable income;

21 (G-5) For taxable years ending after December 31,

22 1997, an amount equal to any eligible remediation costs

23 that the trust or estate deducted in computing adjusted

24 gross income and for which the trust or estate claims a

25 credit under subsection (l) of Section 201;

26 (G-10) For taxable years 2001 and thereafter, an

HB1371

- 61 -

LRB097 06433 NHT 47211 b

1 amount equal to the bonus depreciation deduction taken

2 on the taxpayer's federal income tax return for the

3 taxable year under subsection (k) of Section 168 of the

4 Internal Revenue Code; and

5 (G-11) If the taxpayer sells, transfers, abandons,

6 or otherwise disposes of property for which the

7 taxpayer was required in any taxable year to make an

8 addition modification under subparagraph (G-10), then

9 an amount equal to the aggregate amount of the

10 deductions taken in all taxable years under

11 subparagraph (R) with respect to that property.

12 If the taxpayer continues to own property through

13 the last day of the last tax year for which the

14 taxpayer may claim a depreciation deduction for

15 federal income tax purposes and for which the taxpayer

16 was allowed in any taxable year to make a subtraction

17 modification under subparagraph (R), then an amount

18 equal to that subtraction modification.

19 The taxpayer is required to make the addition

20 modification under this subparagraph only once with

21 respect to any one piece of property;

22 (G-12) An amount equal to the amount otherwise

23 allowed as a deduction in computing base income for

24 interest paid, accrued, or incurred, directly or

25 indirectly, (i) for taxable years ending on or after

26 December 31, 2004, to a foreign person who would be a

HB1371

- 62 -

LRB097 06433 NHT 47211 b

1 member of the same unitary business group but for the

2 fact that the foreign person's business activity

3 outside the United States is 80% or more of the foreign

4 person's total business activity and (ii) for taxable

5 years ending on or after December 31, 2008, to a person

6 who would be a member of the same unitary business

7 group but for the fact that the person is prohibited

8 under Section 1501(a)(27) from being included in the

9 unitary business group because he or she is ordinarily

10 required to apportion business income under different

11 subsections of Section 304. The addition modification

12 required by this subparagraph shall be reduced to the

13 extent that dividends were included in base income of

14 the unitary group for the same taxable year and

15 received by the taxpayer or by a member of the

16 taxpayer's unitary business group (including amounts

17 included in gross income pursuant to Sections 951

18 through 964 of the Internal Revenue Code and amounts

19 included in gross income under Section 78 of the

20 Internal Revenue Code) with respect to the stock of the

21 same person to whom the interest was paid, accrued, or

22 incurred.

23 This paragraph shall not apply to the following:

24 (i) an item of interest paid, accrued, or

25 incurred, directly or indirectly, to a person who

26 is subject in a foreign country or state, other

HB1371

- 63 -

LRB097 06433 NHT 47211 b

1 than a state which requires mandatory unitary

2 reporting, to a tax on or measured by net income

3 with respect to such interest; or

4 (ii) an item of interest paid, accrued, or

5 incurred, directly or indirectly, to a person if

6 the taxpayer can establish, based on a

7 preponderance of the evidence, both of the

8 following:

9 (a) the person, during the same taxable

10 year, paid, accrued, or incurred, the interest

11 to a person that is not a related member, and

12 (b) the transaction giving rise to the

13 interest expense between the taxpayer and the

14 person did not have as a principal purpose the

15 avoidance of Illinois income tax, and is paid

16 pursuant to a contract or agreement that

17 reflects an arm's-length interest rate and

18 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 person if

HB1371

- 64 -

LRB097 06433 NHT 47211 b

1 the taxpayer establishes by clear and convincing

2 evidence that the adjustments are unreasonable; or

3 if the taxpayer and the Director agree in writing

4 to the application or use of an alternative method

5 of apportionment under Section 304(f).

6 Nothing in this subsection shall preclude the

7 Director from making any other adjustment

8 otherwise allowed under Section 404 of this Act for

9 any tax year beginning after the effective date of

10 this amendment provided such adjustment is made

11 pursuant to regulation adopted by the Department

12 and such regulations provide methods and standards

13 by which the Department will utilize its authority

14 under Section 404 of this Act;

15 (G-13) An amount equal to the amount of intangible

16 expenses and costs otherwise allowed as a deduction in

17 computing base income, and that were paid, accrued, or

18 incurred, directly or indirectly, (i) for taxable

19 years ending on or after December 31, 2004, to a

20 foreign person who would be a member of the same

21 unitary business group but for the fact that the

22 foreign person's business activity outside the United

23 States is 80% or more of that person's total business

24 activity and (ii) for taxable years ending on or after

25 December 31, 2008, to a person who would be a member of

26 the same unitary business group but for the fact that

HB1371

- 65 -

LRB097 06433 NHT 47211 b

1 the person is prohibited under Section 1501(a)(27)

2 from being included in the unitary business group

3 because he or she is ordinarily required to apportion

4 business income under different subsections of Section

5 304. The addition modification required by this

6 subparagraph shall be reduced to the extent that

7 dividends were included in base income of the unitary

8 group for the same taxable year and received by the

9 taxpayer or by a member of the taxpayer's unitary

10 business group (including amounts included in gross

11 income pursuant to Sections 951 through 964 of the

12 Internal Revenue Code and amounts included in gross

13 income under Section 78 of the Internal Revenue Code)

14 with respect to the stock of the same person to whom

15 the intangible expenses and costs were directly or

16 indirectly paid, incurred, or accrued. The preceding

17 sentence shall not apply to the extent that the same

18 dividends caused a reduction to the addition

19 modification required under Section 203(c)(2)(G-12) of

20 this Act. As used in this subparagraph, the term

21 "intangible expenses and costs" includes: (1)

22 expenses, losses, and costs for or related to the

23 direct or indirect acquisition, use, maintenance or

24 management, ownership, sale, exchange, or any other

25 disposition of intangible property; (2) losses

26 incurred, directly or indirectly, from factoring

HB1371

- 66 -

LRB097 06433 NHT 47211 b

1 transactions or discounting transactions; (3) royalty,

2 patent, technical, and copyright fees; (4) licensing

3 fees; and (5) other similar expenses and costs. For

4 purposes of this subparagraph, "intangible property"

5 includes patents, patent applications, trade names,

6 trademarks, service marks, copyrights, mask works,

7 trade secrets, and similar types of intangible assets.

8 This paragraph shall not apply to the following:

9 (i) any item of intangible expenses or costs

10 paid, accrued, or incurred, directly or

11 indirectly, from a transaction with a person who is

12 subject in a foreign country or state, other than a

13 state which requires mandatory unitary reporting,

14 to a tax on or measured by net income with respect

15 to such item; or

16 (ii) any item of intangible expense or cost

17 paid, accrued, or incurred, directly or

18 indirectly, if the taxpayer can establish, based

19 on a preponderance of the evidence, both of the

20 following:

21 (a) the person during the same taxable

22 year paid, accrued, or incurred, the

23 intangible expense or cost to a person that is

24 not a related member, and

25 (b) the transaction giving rise to the

26 intangible expense or cost between the

HB1371

- 67 -

LRB097 06433 NHT 47211 b

1 taxpayer and the person did not have as a

2 principal purpose the avoidance of Illinois

3 income tax, and is paid pursuant to a contract

4 or agreement that reflects arm's-length terms;

5 or

6 (iii) any item of intangible expense or cost

7 paid, accrued, or incurred, directly or

8 indirectly, from a transaction with a person if the

9 taxpayer establishes by clear and convincing

10 evidence, that the adjustments are unreasonable;

11 or if the taxpayer and the Director agree in

12 writing to the application or use of an alternative

13 method of apportionment under Section 304(f);

14 Nothing in this subsection shall preclude the

15 Director from making any other adjustment

16 otherwise allowed under Section 404 of this Act for

17 any tax year beginning after the effective date of

18 this amendment provided such adjustment is made

19 pursuant to regulation adopted by the Department

20 and such regulations provide methods and standards

21 by which the Department will utilize its authority

22 under Section 404 of this Act;

23 (G-14) For taxable years ending on or after

24 December 31, 2008, an amount equal to the amount of

25 insurance premium expenses and costs otherwise allowed

26 as a deduction in computing base income, and that were

HB1371

- 68 -

LRB097 06433 NHT 47211 b

1 paid, accrued, or incurred, directly or indirectly, to

2 a person who would be a member of the same unitary

3 business group but for the fact that the person is

4 prohibited under Section 1501(a)(27) from being

5 included in the unitary business group because he or

6 she is ordinarily required to apportion business

7 income under different subsections of Section 304. The

8 addition modification required by this subparagraph

9 shall be reduced to the extent that dividends were

10 included in base income of the unitary group for the

11 same taxable year and received by the taxpayer or by a

12 member of the taxpayer's unitary business group

13 (including amounts included in gross income under

14 Sections 951 through 964 of the Internal Revenue Code

15 and amounts included in gross income under Section 78

16 of the Internal Revenue Code) with respect to the stock

17 of the same person to whom the premiums and costs were

18 directly or indirectly paid, incurred, or accrued. The

19 preceding sentence does not apply to the extent that

20 the same dividends caused a reduction to the addition

21 modification required under Section 203(c)(2)(G-12) or

22 Section 203(c)(2)(G-13) of this Act;

23 (G-15) An amount equal to the credit allowable to

24 the taxpayer under Section 218(a) of this Act,

25 determined without regard to Section 218(c) of this

26 Act;

HB1371

- 69 -

LRB097 06433 NHT 47211 b

1 and by deducting from the total so obtained the sum of the

2 following amounts:

3 (H) An amount equal to all amounts included in such

4 total pursuant to the provisions of Sections 402(a),

5 402(c), 403(a), 403(b), 406(a), 407(a) and 408 of the

6 Internal Revenue Code or included in such total as

7 distributions under the provisions of any retirement

8 or disability plan for employees of any governmental

9 agency or unit, or retirement payments to retired

10 partners, which payments are excluded in computing net

11 earnings from self employment by Section 1402 of the

12 Internal Revenue Code and regulations adopted pursuant

13 thereto;

14 (I) The valuation limitation amount;

15 (J) An amount equal to the amount of any tax

16 imposed by this Act which was refunded to the taxpayer

17 and included in such total for the taxable year;

18 (K) An amount equal to all amounts included in

19 taxable income as modified by subparagraphs (A), (B),

20 (C), (D), (E), (F) and (G) which are exempt from

21 taxation by this State either by reason of its statutes

22 or Constitution or by reason of the Constitution,

23 treaties or statutes of the United States; provided

24 that, in the case of any statute of this State that

25 exempts income derived from bonds or other obligations

26 from the tax imposed under this Act, the amount

HB1371

- 70 -

LRB097 06433 NHT 47211 b

1 exempted shall be the interest net of bond premium

2 amortization;

3 (L) With the exception of any amounts subtracted

4 under subparagraph (K), an amount equal to the sum of

5 all amounts disallowed as deductions by (i) Sections

6 171(a) (2) and 265(a)(2) of the Internal Revenue Code,

7 as now or hereafter amended, and all amounts of

8 expenses allocable to interest and disallowed as

9 deductions by Section 265(1) of the Internal Revenue

10 Code of 1954, as now or hereafter amended; and (ii) for

11 taxable years ending on or after August 13, 1999,

12 Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of

13 the Internal Revenue Code; the provisions of this

14 subparagraph are exempt from the provisions of Section

15 250;

16 (M) 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 (M) is exempt from the

25 provisions of Section 250;

26 (N) An amount equal to any contribution made to a

HB1371

- 71 -

LRB097 06433 NHT 47211 b

1 job training project established pursuant to the Tax

2 Increment Allocation Redevelopment Act;

3 (O) An amount equal to those dividends included in

4 such total that were paid by a corporation that

5 conducts business operations in a federally designated

6 Foreign Trade Zone or Sub-Zone and that is designated a

7 High Impact Business located in Illinois; provided

8 that dividends eligible for the deduction provided in

9 subparagraph (M) of paragraph (2) of this subsection

10 shall not be eligible for the deduction provided under

11 this subparagraph (O);

12 (P) An amount equal to the amount of the deduction

13 used to compute the federal income tax credit for

14 restoration of substantial amounts held under claim of

15 right for the taxable year pursuant to Section 1341 of

16 the Internal Revenue Code of 1986;

17 (Q) For taxable year 1999 and thereafter, an amount

18 equal to the amount of any (i) distributions, to the

19 extent includible in gross income for federal income

20 tax purposes, made to the taxpayer because of his or

21 her status as a victim of persecution for racial or

22 religious reasons by Nazi Germany or any other Axis

23 regime or as an heir of the victim and (ii) items of

24 income, to the extent includible in gross income for

25 federal income tax purposes, attributable to, derived

26 from or in any way related to assets stolen from,

HB1371

- 72 -

LRB097 06433 NHT 47211 b

1 hidden from, or otherwise lost to a victim of

2 persecution for racial or religious reasons by Nazi

3 Germany or any other Axis regime immediately prior to,

4 during, and immediately after World War II, including,

5 but not limited to, interest on the proceeds receivable

6 as insurance under policies issued to a victim of

7 persecution for racial or religious reasons by Nazi

8 Germany or any other Axis regime by European insurance

9 companies immediately prior to and during World War II;

10 provided, however, this subtraction from federal

11 adjusted gross income does not apply to assets acquired

12 with such assets or with the proceeds from the sale of

13 such assets; provided, further, this paragraph shall

14 only apply to a taxpayer who was the first recipient of

15 such assets after their recovery and who is a victim of

16 persecution for racial or religious reasons by Nazi

17 Germany or any other Axis regime or as an heir of the

18 victim. The amount of and the eligibility for any

19 public assistance, benefit, or similar entitlement is

20 not affected by the inclusion of items (i) and (ii) of

21 this paragraph in gross income for federal income tax

22 purposes. This paragraph is exempt from the provisions

23 of Section 250;

24 (R) 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

HB1371

- 73 -

LRB097 06433 NHT 47211 b

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

HB1371

- 74 -

LRB097 06433 NHT 47211 b

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 (R) is exempt from the provisions of

7 Section 250;

8 (S) 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 (G-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 (G-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 (S) is exempt from the

24 provisions of Section 250;

25 (T) The amount of (i) any interest income (net of

26 the deductions allocable thereto) taken into account

HB1371

- 75 -

LRB097 06433 NHT 47211 b

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. This subparagraph (T) is exempt

15 from the provisions of Section 250;

16 (U) An amount equal to the interest income taken

17 into account for the taxable year (net of the

18 deductions allocable thereto) with respect to

19 transactions with (i) a foreign person who would be a

20 member of the taxpayer's unitary business group but for

21 the fact the foreign person's business activity

22 outside the United States is 80% or more of that

23 person's total business activity and (ii) for taxable

24 years ending on or after December 31, 2008, to a person

25 who would be a member of the same unitary business

26 group but for the fact that the person is prohibited

HB1371

- 76 -

LRB097 06433 NHT 47211 b

1 under Section 1501(a)(27) from being included in the

2 unitary business group because he or she is ordinarily

3 required to apportion business income under different

4 subsections of Section 304, but not to exceed the

5 addition modification required to be made for the same

6 taxable year under Section 203(c)(2)(G-12) for

7 interest paid, accrued, or incurred, directly or

8 indirectly, to the same person. This subparagraph (U)

9 is exempt from the provisions of Section 250; and

10 (V) An amount equal to the income from intangible

11 property taken into account for the taxable year (net

12 of the deductions allocable thereto) with respect to

13 transactions with (i) a foreign person who would be a

14 member of the taxpayer's unitary business group but for

15 the fact that the foreign person's business activity

16 outside the United States is 80% or more of that

17 person's total business activity and (ii) for taxable

18 years ending on or after December 31, 2008, to a person

19 who would be a member of the same unitary business

20 group but for the fact that the person is prohibited

21 under Section 1501(a)(27) from being included in the

22 unitary business group because he or she is ordinarily

23 required to apportion business income under different

24 subsections of Section 304, but not to exceed the

25 addition modification required to be made for the same

26 taxable year under Section 203(c)(2)(G-13) for

HB1371

- 77 -

LRB097 06433 NHT 47211 b

1 intangible expenses and costs paid, accrued, or

2 incurred, directly or indirectly, to the same foreign

3 person. This subparagraph (V) is exempt from the

4 provisions of Section 250.

5 (3) Limitation. The amount of any modification

6 otherwise required under this subsection shall, under

7 regulations prescribed by the Department, be adjusted by

8 any amounts included therein which were properly paid,

9 credited, or required to be distributed, or permanently set

10 aside for charitable purposes pursuant to Internal Revenue

11 Code Section 642(c) during the taxable year.

12 (d) Partnerships.

13 (1) In general. In the case of a partnership, base

14 income means an amount equal to the taxpayer's taxable

15 income for the taxable year as modified by paragraph (2).

16 (2) Modifications. The taxable income referred to in

17 paragraph (1) shall be modified by adding thereto the sum

18 of the following amounts:

19 (A) An amount equal to all amounts paid or accrued

20 to the taxpayer as interest or dividends during the

21 taxable year to the extent excluded from gross income

22 in the computation of taxable income;

23 (B) An amount equal to the amount of tax imposed by

24 this Act to the extent deducted from gross income for

25 the taxable year;

HB1371

- 78 -

LRB097 06433 NHT 47211 b

1 (C) The amount of deductions allowed to the

2 partnership pursuant to Section 707 (c) of the Internal

3 Revenue Code in calculating its taxable income;

4 (D) An amount equal to the amount of the capital

5 gain deduction allowable under the Internal Revenue

6 Code, to the extent deducted from gross income in the

7 computation of taxable income;

8 (D-5) For taxable years 2001 and thereafter, an

9 amount equal to the bonus depreciation deduction taken

10 on the taxpayer's federal income tax return for the

11 taxable year under subsection (k) of Section 168 of the

12 Internal Revenue Code;

13 (D-6) If the taxpayer sells, transfers, abandons,

14 or otherwise disposes of property for which the

15 taxpayer was required in any taxable year to make an

16 addition modification under subparagraph (D-5), then

17 an amount equal to the aggregate amount of the

18 deductions taken in all taxable years under

19 subparagraph (O) with respect to that property.

20 If the taxpayer continues to own property through

21 the last day of the last tax year for which the

22 taxpayer may claim a depreciation deduction for

23 federal income tax purposes and for which the taxpayer

24 was allowed in any taxable year to make a subtraction

25 modification under subparagraph (O), then an amount

26 equal to that subtraction modification.

HB1371

- 79 -

LRB097 06433 NHT 47211 b

1 The taxpayer is required to make the addition

2 modification under this subparagraph only once with

3 respect to any one piece of property;

4 (D-7) An amount equal to the amount otherwise

5 allowed as a deduction in computing base income for

6 interest paid, accrued, or incurred, directly or

7 indirectly, (i) for taxable years ending on or after

8 December 31, 2004, to a foreign person who would be a

9 member of the same unitary business group but for the

10 fact the foreign person's business activity outside

11 the United States is 80% or more of the foreign

12 person's total business activity and (ii) for taxable

13 years ending on or after December 31, 2008, to a person

14 who would be a member of the same unitary business

15 group but for the fact that the person is prohibited

16 under Section 1501(a)(27) from being included in the

17 unitary business group because he or she is ordinarily

18 required to apportion business income under different

19 subsections of Section 304. The addition modification

20 required by this subparagraph shall be reduced to the

21 extent that dividends were included in base income of

22 the unitary group for the same taxable year and

23 received by the taxpayer or by a member of the

24 taxpayer's unitary business group (including amounts

25 included in gross income pursuant to Sections 951

26 through 964 of the Internal Revenue Code and amounts

HB1371

- 80 -

LRB097 06433 NHT 47211 b

1 included in gross income under Section 78 of the

2 Internal Revenue Code) with respect to the stock of the

3 same person to whom the interest was paid, accrued, or

4 incurred.

5 This paragraph shall not apply to the following:

6 (i) an item of interest paid, accrued, or

7 incurred, directly or indirectly, to a person who

8 is subject in a foreign country or state, other

9 than a state which requires mandatory unitary

10 reporting, to a tax on or measured by net income

11 with respect to such interest; or

12 (ii) an item of interest paid, accrued, or

13 incurred, directly or indirectly, to a person if

14 the taxpayer can establish, based on a

15 preponderance of the evidence, both of the

16 following:

17 (a) the person, during the same taxable

18 year, paid, accrued, or incurred, the interest

19 to a person that is not a related member, and

20 (b) the transaction giving rise to the

21 interest expense between the taxpayer and the

22 person did not have as a principal purpose the

23 avoidance of Illinois income tax, and is paid

24 pursuant to a contract or agreement that

25 reflects an arm's-length interest rate and

26 terms; or

HB1371

- 81 -

LRB097 06433 NHT 47211 b

1 (iii) the taxpayer can establish, based on

2 clear and convincing evidence, that the interest

3 paid, accrued, or incurred relates to a contract or

4 agreement entered into at arm's-length rates and

5 terms and the principal purpose for the payment is

6 not federal or Illinois tax avoidance; or

7 (iv) an item of interest paid, accrued, or

8 incurred, directly or indirectly, to a person if

9 the taxpayer establishes by clear and convincing

10 evidence that the adjustments are unreasonable; or

11 if the taxpayer and the Director agree in writing

12 to the application or use of an alternative method

13 of apportionment under Section 304(f).

14 Nothing in this subsection shall preclude the

15 Director from making any other adjustment

16 otherwise allowed under Section 404 of this Act for

17 any tax year beginning after the effective date of

18 this amendment provided such adjustment is made

19 pursuant to regulation adopted by the Department

20 and such regulations provide methods and standards

21 by which the Department will utilize its authority

22 under Section 404 of this Act; and

23 (D-8) An amount equal to the amount of intangible

24 expenses and costs otherwise allowed as a deduction in

25 computing base income, and that were paid, accrued, or

26 incurred, directly or indirectly, (i) for taxable

HB1371

- 82 -

LRB097 06433 NHT 47211 b

1 years ending on or after December 31, 2004, to a

2 foreign person who would be a member of the same

3 unitary business group but for the fact that the

4 foreign person's business activity outside the United

5 States is 80% or more of that person's total business

6 activity and (ii) for taxable years ending on or after

7 December 31, 2008, to a person who would be a member of

8 the same unitary business group but for the fact that

9 the person is prohibited under Section 1501(a)(27)

10 from being included in the unitary business group

11 because he or she is ordinarily required to apportion

12 business income under different subsections of Section

13 304. The addition modification required by this

14 subparagraph shall be reduced to the extent that

15 dividends were included in base income of the unitary

16 group for the same taxable year and received by the

17 taxpayer or by a member of the taxpayer's unitary

18 business group (including amounts included in gross

19 income pursuant to Sections 951 through 964 of the

20 Internal Revenue Code and amounts included in gross

21 income under Section 78 of the Internal Revenue Code)

22 with respect to the stock of the same person to whom

23 the intangible expenses and costs were directly or

24 indirectly paid, incurred or accrued. The preceding

25 sentence shall not apply to the extent that the same

26 dividends caused a reduction to the addition

HB1371

- 83 -

LRB097 06433 NHT 47211 b

1 modification required under Section 203(d)(2)(D-7) of

2 this Act. As used in this subparagraph, the term

3 "intangible expenses and costs" includes (1) expenses,

4 losses, and costs for, or related to, the direct or

5 indirect acquisition, use, maintenance or management,

6 ownership, sale, exchange, or any other disposition of

7 intangible property; (2) losses incurred, directly or

8 indirectly, from factoring transactions or discounting

9 transactions; (3) royalty, patent, technical, and

10 copyright fees; (4) licensing fees; and (5) other

11 similar expenses and costs. For purposes of this

12 subparagraph, "intangible property" includes patents,

13 patent applications, trade names, trademarks, service

14 marks, copyrights, mask works, trade secrets, and

15 similar types of intangible assets;

16 This paragraph shall not apply to the following:

17 (i) any item of intangible expenses or costs

18 paid, accrued, or incurred, directly or

19 indirectly, from a transaction with a person who is

20 subject in a foreign country or state, other than a

21 state which requires mandatory unitary reporting,

22 to a tax on or measured by net income with respect

23 to such item; or

24 (ii) any item of intangible expense or cost

25 paid, accrued, or incurred, directly or

26 indirectly, if the taxpayer can establish, based

HB1371

- 84 -

LRB097 06433 NHT 47211 b

1 on a preponderance of the evidence, both of the

2 following:

3 (a) the person during the same taxable

4 year paid, accrued, or incurred, the

5 intangible expense or cost to a person that is

6 not a related member, and

7 (b) the transaction giving rise to the

8 intangible expense or cost between the

9 taxpayer and the person did not have as a

10 principal purpose the avoidance of Illinois

11 income tax, and is paid pursuant to a contract

12 or agreement that reflects arm's-length terms;

13 or

14 (iii) any item of intangible expense or cost

15 paid, accrued, or incurred, directly or

16 indirectly, from a transaction with a person if the

17 taxpayer establishes by clear and convincing

18 evidence, that the adjustments are unreasonable;

19 or if the taxpayer and the Director agree in

20 writing to the application or use of an alternative

21 method of apportionment under Section 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

HB1371

- 85 -

LRB097 06433 NHT 47211 b

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 (D-9) For taxable years ending on or after December

6 31, 2008, an amount equal to the amount of insurance

7 premium 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 person who would be a member of the same unitary

11 business group but for the fact that the person is

12 prohibited under Section 1501(a)(27) from being

13 included in the unitary business group because he or

14 she is ordinarily required to apportion business

15 income under different subsections of Section 304. The

16 addition modification required by this subparagraph

17 shall be reduced to the extent that dividends were

18 included in base income of the unitary group for the

19 same taxable year and received by the taxpayer or by a

20 member of the taxpayer's unitary business group

21 (including amounts included in gross income under

22 Sections 951 through 964 of the Internal Revenue Code

23 and amounts included in gross income under Section 78

24 of the Internal Revenue Code) with respect to the stock

25 of the same person to whom the premiums and costs were

26 directly or indirectly paid, incurred, or accrued. The

HB1371

- 86 -

LRB097 06433 NHT 47211 b

1 preceding sentence does not apply to the extent that

2 the same dividends caused a reduction to the addition

3 modification required under Section 203(d)(2)(D-7) or

4 Section 203(d)(2)(D-8) of this Act;

5 (D-10) An amount equal to the credit allowable to

6 the taxpayer under Section 218(a) of this Act,

7 determined without regard to Section 218(c) of this

8 Act;

9 and by deducting from the total so obtained the following

10 amounts:

11 (E) The valuation limitation amount;

12 (F) An amount equal to the amount of any tax

13 imposed by this Act which was refunded to the taxpayer

14 and included in such total for the taxable year;

15 (G) An amount equal to all amounts included in

16 taxable income as modified by subparagraphs (A), (B),

17 (C) and (D) which are exempt from taxation by this

18 State either by reason of its statutes or Constitution

19 or by reason of the Constitution, treaties or statutes

20 of the United States; provided that, in the case of any

21 statute of this State that exempts income derived from

22 bonds or other obligations from the tax imposed under

23 this Act, the amount exempted shall be the interest net

24 of bond premium amortization;

25 (H) Any income of the partnership which

26 constitutes personal service income as defined in

HB1371

- 87 -

LRB097 06433 NHT 47211 b

1 Section 1348 (b) (1) of the Internal Revenue Code (as

2 in effect December 31, 1981) or a reasonable allowance

3 for compensation paid or accrued for services rendered

4 by partners to the partnership, whichever is greater;

5 (I) An amount equal to all amounts of income

6 distributable to an entity subject to the Personal

7 Property Tax Replacement Income Tax imposed by

8 subsections (c) and (d) of Section 201 of this Act

9 including amounts distributable to organizations

10 exempt from federal income tax by reason of Section

11 501(a) of the Internal Revenue Code;

12 (J) With the exception of any amounts subtracted

13 under subparagraph (G), an amount equal to the sum of

14 all amounts disallowed as deductions by (i) Sections

15 171(a) (2), and 265(2) of the Internal Revenue Code of

16 1954, as now or hereafter amended, and all amounts of

17 expenses allocable to interest and disallowed as

18 deductions by Section 265(1) of the Internal Revenue

19 Code, as now or hereafter amended; and (ii) for taxable

20 years ending on or after August 13, 1999, Sections

21 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the

22 Internal Revenue Code; the provisions of this

23 subparagraph are exempt from the provisions of Section

24 250;

25 (K) An amount equal to those dividends included in

26 such total which were paid by a corporation which

HB1371

- 88 -

LRB097 06433 NHT 47211 b

1 conducts business operations in an Enterprise Zone or

2 zones created under the Illinois Enterprise Zone Act,

3 enacted by the 82nd General Assembly, or a River Edge

4 Redevelopment Zone or zones created under the River

5 Edge Redevelopment Zone Act and conducts substantially

6 all of its operations in an Enterprise Zone or Zones or

7 from a River Edge Redevelopment Zone or zones. This

8 subparagraph (K) is exempt from the provisions of

9 Section 250;

10 (L) An amount equal to any contribution made to a

11 job training project established pursuant to the Real

12 Property Tax Increment Allocation Redevelopment Act;

13 (M) An amount equal to those dividends included in

14 such total that were paid by a corporation that

15 conducts business operations in a federally designated

16 Foreign Trade Zone or Sub-Zone and that is designated a

17 High Impact Business located in Illinois; provided

18 that dividends eligible for the deduction provided in

19 subparagraph (K) of paragraph (2) of this subsection

20 shall not be eligible for the deduction provided under

21 this subparagraph (M);

22 (N) 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;

HB1371

- 89 -

LRB097 06433 NHT 47211 b

1 (O) For taxable years 2001 and thereafter, for the

2 taxable year in which the bonus depreciation deduction

3 is taken on the taxpayer's federal income tax return

4 under subsection (k) of Section 168 of the Internal

5 Revenue Code and for each applicable taxable year

6 thereafter, an amount equal to "x", where:

7 (1) "y" equals the amount of the depreciation

8 deduction taken for the taxable year on the

9 taxpayer's federal income tax return on property

10 for which the bonus depreciation deduction was

11 taken in any year under subsection (k) of Section

12 168 of the Internal Revenue Code, but not including

13 the bonus depreciation deduction;

14 (2) for taxable years ending on or before

15 December 31, 2005, "x" equals "y" multiplied by 30

16 and then divided by 70 (or "y" multiplied by

17 0.429); and

18 (3) for taxable years ending after December

19 31, 2005:

20 (i) for property on which a bonus

21 depreciation deduction of 30% of the adjusted

22 basis was taken, "x" equals "y" multiplied by

23 30 and then divided by 70 (or "y" multiplied by

24 0.429); and

25 (ii) for property on which a bonus

26 depreciation deduction of 50% of the adjusted

HB1371

- 90 -

LRB097 06433 NHT 47211 b

1 basis was taken, "x" equals "y" multiplied by

2 1.0.

3 The aggregate amount deducted under this

4 subparagraph in all taxable years for any one piece of

5 property may not exceed the amount of the bonus

6 depreciation deduction taken on that property on the

7 taxpayer's federal income tax return under subsection

8 (k) of Section 168 of the Internal Revenue Code. This

9 subparagraph (O) is exempt from the provisions of

10 Section 250;

11 (P) If the taxpayer sells, transfers, abandons, or

12 otherwise disposes of property for which the taxpayer

13 was required in any taxable year to make an addition

14 modification under subparagraph (D-5), then an amount

15 equal to that addition modification.

16 If the taxpayer continues to own property through

17 the last day of the last tax year for which the

18 taxpayer may claim a depreciation deduction for

19 federal income tax purposes and for which the taxpayer

20 was required in any taxable year to make an addition

21 modification under subparagraph (D-5), then an amount

22 equal to that addition modification.

23 The taxpayer is allowed to take the deduction under

24 this subparagraph only once with respect to any one

25 piece of property.

26 This subparagraph (P) is exempt from the

HB1371

- 91 -

LRB097 06433 NHT 47211 b

1 provisions of Section 250;

2 (Q) The amount of (i) any interest income (net of

3 the deductions allocable thereto) taken into account

4 for the taxable year with respect to a transaction with

5 a taxpayer that is required to make an addition

6 modification with respect to such transaction under

7 Section 203(a)(2)(D-17), 203(b)(2)(E-12),

8 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed

9 the amount of such addition modification and (ii) any

10 income from intangible property (net of the deductions

11 allocable thereto) taken into account for the taxable

12 year with respect to a transaction with a taxpayer that

13 is required to make an addition modification with

14 respect to such transaction under Section

15 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or

16 203(d)(2)(D-8), but not to exceed the amount of such

17 addition modification. This subparagraph (Q) is exempt

18 from Section 250;

19 (R) 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 (i) a foreign person who would be a

23 member of the taxpayer's unitary business group but for

24 the fact that the foreign person's business activity

25 outside the United States is 80% or more of that

26 person's total business activity and (ii) for taxable

HB1371

- 92 -

LRB097 06433 NHT 47211 b

1 years ending on or after December 31, 2008, to a person

2 who would be a member of the same unitary business

3 group but for the fact that the person is prohibited

4 under Section 1501(a)(27) from being included in the

5 unitary business group because he or she is ordinarily

6 required to apportion business income under different

7 subsections of Section 304, but not to exceed the

8 addition modification required to be made for the same

9 taxable year under Section 203(d)(2)(D-7) for interest

10 paid, accrued, or incurred, directly or indirectly, to

11 the same person. This subparagraph (R) is exempt from

12 Section 250; and

13 (S) 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 (i) 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 and (ii) for taxable

21 years ending on or after December 31, 2008, to a person

22 who would be a member of the same unitary business

23 group but for the fact that the person is prohibited

24 under Section 1501(a)(27) from being included in the

25 unitary business group because he or she is ordinarily

26 required to apportion business income under different

HB1371

- 93 -

LRB097 06433 NHT 47211 b

1 subsections of Section 304, but not to exceed the

2 addition modification required to be made for the same

3 taxable year under Section 203(d)(2)(D-8) for

4 intangible expenses and costs paid, accrued, or

5 incurred, directly or indirectly, to the same person.

6 This subparagraph (S) is exempt from Section 250.

7 (e) Gross income; adjusted gross income; taxable income.

8 (1) In general. Subject to the provisions of paragraph

9 (2) and subsection (b) (3), for purposes of this Section

10 and Section 803(e), a taxpayer's gross income, adjusted

11 gross income, or taxable income for the taxable year shall

12 mean the amount of gross income, adjusted gross income or

13 taxable income properly reportable for federal income tax

14 purposes for the taxable year under the provisions of the

15 Internal Revenue Code. Taxable income may be less than

16 zero. However, for taxable years ending on or after

17 December 31, 1986, net operating loss carryforwards from

18 taxable years ending prior to December 31, 1986, may not

19 exceed the sum of federal taxable income for the taxable

20 year before net operating loss deduction, plus the excess

21 of addition modifications over subtraction modifications

22 for the taxable year. For taxable years ending prior to

23 December 31, 1986, taxable income may never be an amount in

24 excess of the net operating loss for the taxable year as

25 defined in subsections (c) and (d) of Section 172 of the

HB1371

- 94 -

LRB097 06433 NHT 47211 b

1 Internal Revenue Code, provided that when taxable income of

2 a corporation (other than a Subchapter S corporation),

3 trust, or estate is less than zero and addition

4 modifications, other than those provided by subparagraph

5 (E) of paragraph (2) of subsection (b) for corporations or

6 subparagraph (E) of paragraph (2) of subsection (c) for

7 trusts and estates, exceed subtraction modifications, an

8 addition modification must be made under those

9 subparagraphs for any other taxable year to which the

10 taxable income less than zero (net operating loss) is

11 applied under Section 172 of the Internal Revenue Code or

12 under subparagraph (E) of paragraph (2) of this subsection

13 (e) applied in conjunction with Section 172 of the Internal

14 Revenue Code.

15 (2) Special rule. For purposes of paragraph (1) of this

16 subsection, the taxable income properly reportable for

17 federal income tax purposes shall mean:

18 (A) Certain life insurance companies. In the case

19 of a life insurance company subject to the tax imposed

20 by Section 801 of the Internal Revenue Code, life

21 insurance company taxable income, plus the amount of

22 distribution from pre-1984 policyholder surplus

23 accounts as calculated under Section 815a of the

24 Internal Revenue Code;

25 (B) Certain other insurance companies. In the case

26 of mutual insurance companies subject to the tax

HB1371

- 95 -

LRB097 06433 NHT 47211 b

1 imposed by Section 831 of the Internal Revenue Code,

2 insurance company taxable income;

3 (C) Regulated investment companies. In the case of

4 a regulated investment company subject to the tax

5 imposed by Section 852 of the Internal Revenue Code,

6 investment company taxable income;

7 (D) Real estate investment trusts. In the case of a

8 real estate investment trust subject to the tax imposed

9 by Section 857 of the Internal Revenue Code, real

10 estate investment trust taxable income;

11 (E) Consolidated corporations. In the case of a

12 corporation which is a member of an affiliated group of

13 corporations filing a consolidated income tax return

14 for the taxable year for federal income tax purposes,

15 taxable income determined as if such corporation had

16 filed a separate return for federal income tax purposes

17 for the taxable year and each preceding taxable year

18 for which it was a member of an affiliated group. For

19 purposes of this subparagraph, the taxpayer's separate

20 taxable income shall be determined as if the election

21 provided by Section 243(b) (2) of the Internal Revenue

22 Code had been in effect for all such years;

23 (F) Cooperatives. In the case of a cooperative

24 corporation or association, the taxable income of such

25 organization determined in accordance with the

26 provisions of Section 1381 through 1388 of the Internal

HB1371

- 96 -

LRB097 06433 NHT 47211 b

1 Revenue Code, but without regard to the prohibition

2 against offsetting losses from patronage activities

3 against income from nonpatronage activities; except

4 that a cooperative corporation or association may make

5 an election to follow its federal income tax treatment

6 of patronage losses and nonpatronage losses. In the

7 event such election is made, such losses shall be

8 computed and carried over in a manner consistent with

9 subsection (a) of Section 207 of this Act and

10 apportioned by the apportionment factor reported by

11 the cooperative on its Illinois income tax return filed

12 for the taxable year in which the losses are incurred.

13 The election shall be effective for all taxable years

14 with original returns due on or after the date of the

15 election. In addition, the cooperative may file an

16 amended return or returns, as allowed under this Act,

17 to provide that the election shall be effective for

18 losses incurred or carried forward for taxable years

19 occurring prior to the date of the election. Once made,

20 the election may only be revoked upon approval of the

21 Director. The Department shall adopt rules setting

22 forth requirements for documenting the elections and

23 any resulting Illinois net loss and the standards to be

24 used by the Director in evaluating requests to revoke

25 elections. Public Act 96-932 ~~This amendatory Act of the~~

26 ~~96th General Assembly~~ is declaratory of existing law;

HB1371

- 97 -

LRB097 06433 NHT 47211 b

1 (G) Subchapter S corporations. In the case of: (i)

2 a Subchapter S corporation for which there is in effect

3 an election for the taxable year under Section 1362 of

4 the Internal Revenue Code, the taxable income of such

5 corporation determined in accordance with Section

6 1363(b) of the Internal Revenue Code, except that

7 taxable income shall take into account those items

8 which are required by Section 1363(b)(1) of the

9 Internal Revenue Code to be separately stated; and (ii)

10 a Subchapter S corporation for which there is in effect

11 a federal election to opt out of the provisions of the

12 Subchapter S Revision Act of 1982 and have applied

13 instead the prior federal Subchapter S rules as in

14 effect on July 1, 1982, the taxable income of such

15 corporation determined in accordance with the federal

16 Subchapter S rules as in effect on July 1, 1982; and

17 (H) Partnerships. In the case of a partnership,

18 taxable income determined in accordance with Section

19 703 of the Internal Revenue Code, except that taxable

20 income shall take into account those items which are

21 required by Section 703(a)(1) to be separately stated

22 but which would be taken into account by an individual

23 in calculating his taxable income.

24 (3) Recapture of business expenses on disposition of

25 asset or business. Notwithstanding any other law to the

26 contrary, if in prior years income from an asset or

HB1371

- 98 -

LRB097 06433 NHT 47211 b

1 business has been classified as business income and in a

2 later year is demonstrated to be non-business income, then

3 all expenses, without limitation, deducted in such later

4 year and in the 2 immediately preceding taxable years

5 related to that asset or business that generated the

6 non-business income shall be added back and recaptured as

7 business income in the year of the disposition of the asset

8 or business. Such amount shall be apportioned to Illinois

9 using the greater of the apportionment fraction computed

10 for the business under Section 304 of this Act for the

11 taxable year or the average of the apportionment fractions

12 computed for the business under Section 304 of this Act for

13 the taxable year and for the 2 immediately preceding

14 taxable years.

15 (f) Valuation limitation amount.

16 (1) In general. The valuation limitation amount

17 referred to in subsections (a) (2) (G), (c) (2) (I) and

18 (d)(2) (E) is an amount equal to:

19 (A) The sum of the pre-August 1, 1969 appreciation

20 amounts (to the extent consisting of gain reportable

21 under the provisions of Section 1245 or 1250 of the

22 Internal Revenue Code) for all property in respect of

23 which such gain was reported for the taxable year; plus

24 (B) The lesser of (i) the sum of the pre-August 1,

25 1969 appreciation amounts (to the extent consisting of

HB1371

- 99 -

LRB097 06433 NHT 47211 b

1 capital gain) for all property in respect of which such

2 gain was reported for federal income tax purposes for

3 the taxable year, or (ii) the net capital gain for the

4 taxable year, reduced in either case by any amount of

5 such gain included in the amount determined under

6 subsection (a) (2) (F) or (c) (2) (H).

7 (2) Pre-August 1, 1969 appreciation amount.

8 (A) If the fair market value of property referred

9 to in paragraph (1) was readily ascertainable on August

10 1, 1969, the pre-August 1, 1969 appreciation amount for

11 such property is the lesser of (i) the excess of such

12 fair market value over the taxpayer's basis (for

13 determining gain) for such property on that date

14 (determined under the Internal Revenue Code as in

15 effect on that date), or (ii) the total gain realized

16 and reportable for federal income tax purposes in

17 respect of the sale, exchange or other disposition of

18 such property.

19 (B) If the fair market value of property referred

20 to in paragraph (1) was not readily ascertainable on

21 August 1, 1969, the pre-August 1, 1969 appreciation

22 amount for such property is that amount which bears the

23 same ratio to the total gain reported in respect of the

24 property for federal income tax purposes for the

25 taxable year, as the number of full calendar months in

26 that part of the taxpayer's holding period for the

HB1371

- 100 -

LRB097 06433 NHT 47211 b

1 property ending July 31, 1969 bears to the number of

2 full calendar months in the taxpayer's entire holding

3 period for the property.

4 (C) The Department shall prescribe such

5 regulations as may be necessary to carry out the

6 purposes of this paragraph.

7 (g) Double deductions. Unless specifically provided

8 otherwise, nothing in this Section shall permit the same item

9 to be deducted more than once.

10 (h) Legislative intention. Except as expressly provided by

11 this Section there shall be no modifications or limitations on

12 the amounts of income, gain, loss or deduction taken into

13 account in determining gross income, adjusted gross income or

14 taxable income for federal income tax purposes for the taxable

15 year, or in the amount of such items entering into the

16 computation of base income and net income under this Act for

17 such taxable year, whether in respect of property values as of

18 August 1, 1969 or otherwise.

19 (Source: P.A. 95-23, eff. 8-3-07; 95-233, eff. 8-16-07; 95-286,

20 eff. 8-20-07; 95-331, eff. 8-21-07; 95-707, eff. 1-11-08;

21 95-876, eff. 8-21-08; 96-45, eff. 7-15-09; 96-120, eff. 8-4-09;

22 96-198, eff. 8-10-09; 96-328, eff. 8-11-09; 96-520, eff.

23 8-14-09; 96-835, eff. 12-16-09; 96-932, eff. 1-1-11; 96-935,

24 eff. 6-21-10; 96-1214, eff. 7-22-10; revised 9-16-10.)

HB1371

- 101 -

LRB097 06433 NHT 47211 b