86 Ill. Adm. Code 1000.100.5270
Computation of Combined Net Income and Tax (IITA Section 304(e))
TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 100 INCOME TAX
SECTION 100.5270 COMPUTATION OF COMBINED NET INCOME AND TAX (IITA SECTION 304(E))
Section 100.5270 Computation
of Combined Net Income and Tax
(IITA Section 304(e))
a) Determination of Base Income. The combined base income shall
be determined by first computing the combined group's combined taxable income
and then modifying this amount by the combined group's combined Illinois addition and subtraction modification amounts.
1) Combined Net Income. Combined base income shall be determined
by treating all members of the unitary business group (including ineligible
members) as if they constituted a federal consolidated group and by applying
the federal regulations for determining consolidated taxable income, except
that the separate return limitation year provisions and the limitations on
consolidation of life and non-life companies in 26 CFR 1.1502-47 do not apply.
(See 26 CFR 1.1502-11.) A consolidated net operating loss deduction, as
defined in 26 CFR 1.1502-21 shall be added back to taxable income, in whole or
in part, in accordance with subsections (a)(2), (a)(4) and (a)(5). Pursuant to
IITA Section 203(e)(2)(E), combined base income shall be determined as if the
election provided by IRC section 243(b)(2) had been in effect.
EXAMPLE 1:
Corporations A and B properly make an election under IITA Section 502(e), or
are properly required to file a combined return under IITA Section 502(e). On
a separate return basis, A's federal taxable income would be a loss of ($500).
This amount does not include an excess capital loss of $75 pursuant to IRC section
1211(a). B's federal taxable income is $1,000 of which $100 is capital gain.
As a result of applying 26 CFR 1.1502-11 and 26 CFR 1.1502-22, the combined
federal taxable income for A and B is $425.
2) Combined Illinois Net Loss. The combined group's current year
combined taxable income may be less than zero, in which case combined taxable
income shall be determined by applying the provisions of 26 CFR 1.1502-21(f)
(consolidated net operating loss) to the unitary business group.
EXAMPLE 2:
Same facts as Example 1 in subsection (a)(1) except that Corporation C has also
properly joined in the election, or is properly required to join in the combined
return filing, and its federal taxable income is a loss of ($800). If there
are no addition or subtraction modifications and all of the group's base income
is apportioned to Illinois, the group's combined Illinois net loss for the
taxable year is ($375).
3) Carrybacks and Carryovers. Carrybacks and carryovers, if any,
shall be determined for each member and not for the group. A pro rata share of
the loss is attributable to each of the loss members. For Illinois net losses
that occurred in taxable years ending on or after December 31, 1986, the amount
of any carryback or carryover shall be determined by applying Sections 100.2340
and 100.2350(c)(3) and (c)(4). For federal net operating losses that occurred
in taxable years ending prior to December 31, 1986, the amount of any carryback
or carryforward shall be determined by applying Section 100.2230.
EXAMPLE 3:
Same facts as Example 2 in subsection (a)(2). Assuming the taxable year ends
prior to December 31, 1986, the group's combined net operating loss of ($375) shall
be divided between A and C as follows for purposes of carryback and carryover:
Corp. A:
500/1,300 x (375) = 144
Corp. C:
800/1,300 x (375) = 231
4) Addition Modification of Federal Net Operating Loss (NOL) Deductions
from a Loss Incurred in a Taxable Year Ending on or after December
31, 1986. IITA Section 203(b)(2)(D) requires that the amount of any federal
net operating loss deduction taken in arriving at taxable income for federal
tax purposes, other than from a loss in a taxable year ending prior to December
31, 1986, shall be added back to taxable income in the computation of base
income. (See Section 100.2320(a).)
5) Addition Modification of Pre-December 31, 1986 Federal Losses.
IITA Section 203(b)(2)(E) requires an addition modification subject to two
limitations for taxable years in which a federal net operating loss
carryforward from a taxable year ending prior to December
31, 1986 is an element of taxable income. Consequently, each member allowed to
carryback or forward a portion of the group's combined net operating loss from
a year in which that combined loss was used to offset a portion of the group's
combined excess addition modifications shall take as an addition modification
in the carryback or carryover year its respective share of the NOL addition
modification required by IITA Section 203(b)(2)(E). In accordance with Section
100.2240, the respective shares shall be determined in the same manner as the
determination of the amount of NOL carryback or carryover.
EXAMPLE 4: Same
facts as Example 2 in subsection (a)(2) except that the group had combined
excess addition modifications of $100. This amount will be divided among the
loss members as follows:
Corp. A:
500/1,300 x 100 = 38
Corp. C:
800/1,300 x 100 = 62
b) Combined Base Income Allocable to Illinois. Combined base
income allocable to Illinois is the sum of the combined business income or loss
apportioned to Illinois plus the combined nonbusiness income or loss allocated
to Illinois plus the combined business income or loss apportioned to Illinois
by partnerships in which the members are partners (other than partnerships that
apportion business income under Section 100.3380(d)), less the combined net
loss deduction.
1) Combined Business Income Apportionable to Illinois. In the
case of a combined group composed solely of members that apportion their
business income under the same subsection of IITA Section 304 (that is,
insurance companies apportioning business income under IITA Section 304(b),
financial organizations apportioning business income under IITA Section 304(c),
federally regulated exchanges apportioning business income under IITA Section
304(c-1), transportation companies apportioning business income under IITA
Section 304(d), and all other businesses apportioning business income under
IITA Section 304(a)), the combined group's combined business income shall be apportioned
using the total Illinois factors of the combined group and total everywhere
factors of the unitary business group. In the case of a combined group that
includes members that apportion their business income under different
subsections of IITA Section 304, the combined group's combined business income
is apportioned as provided in Section 100.3600. Items of income and deduction
arising from transactions between members of the unitary business groups shall
be eliminated whenever necessary to avoid distortion of the denominators used
by the unitary business group in calculating apportionment factors, or of the
numerators used by the combined group or by ineligible members of the group in
calculating apportionment factors.
EXAMPLE 1: Corporations
A, B and C constitute a unitary business group. Corporations A and B are
eligible to make the election under IITA Section 502(e) for tax years ending
before December 31, 1993. However, under Public Law 86-272, Corporation C is
not taxable in Illinois. Based on these facts, if the election to be treated
as one taxpayer is made, the combined Illinois sales factor shall be determined
by dividing the combined group's total combined Illinois sales (that is,
excluding any sales of Corporation C shipped to purchasers in Illinois) by the
total combined sales of the unitary business group everywhere. If the same
facts are applied to a tax year ending on or after December 31, 1993,
and ending before December 31, 2025,
the same
result will occur in the mandatory combined return situation.
If the same facts are applied to a tax year ending on or
after December 31, 2025, both Corporation A and B shall include in their sales
factor numerator a portion of the Illinois sales of Corporation C based on a
ratio, the numerator of which is that taxpayer member's Illinois sales, and the
denominator of which is the aggregate Illinois sales of all the taxpayer
members of the group. The combined Illinois sales factor shall be determined by
dividing the combined group's total combined Illinois sales (which includes the
portion of Corporation C's Illinois sales included in each of the sales factor
numerators of Corporation A and B) by the total combined sales of the unitary
business group everywhere.
EXAMPLE 2:
Same facts as in Example 1, except these additional facts also exist. Under
Public Law 86-272, Corporations B and C are taxable in South Carolina, but
Corporation
A is not. Based on these facts, if the
election to be treated as one taxpayer is made, or the taxpayers are required
to be treated as one taxpayer
for tax years ending
before December 31, 2025
, the combined Illinois sales factor shall be
determined by dividing the combined group's total Illinois sales (including any
sales of Corporation A shipped to purchasers in South Carolina from any place
of storage in Illinois, i.e., throwback sales) by the total sales of the
unitary business group everywhere.
If the taxpayers
are required to be treated as one taxpayer for tax years ending on or after December
31, 2025, then Illinois
' throwback rule would not apply
as at least one member of the unitary business group is
taxable in South Carolina
.
The combined
Illinois sales factor shall be determined by dividing the combined group's
total Illinois sales (excluding any sales of Corporation A shipped to
purchasers in South Carolina from any place of storage in Illinois) by the
total sales of the unitary business group everywhere.
2) Combined Nonbusiness Income and Business Income Apportioned
to Illinois by Partnerships in which the Members are Partners (other than
partnerships that apportion business income under Section 100.3380(d)). The
amount of combined nonbusiness income or loss allocable to Illinois shall be
computed by first determining the amount for each member of the combined group
and then combining these amounts. Similarly, the amount of combined business
income or loss apportioned to Illinois by partnerships in which the members are
partners (other than partnerships that apportion business income under Section
100.3380(d)) shall be computed by first determining the amount for each member
and then combining these amounts.
3) Combined Illinois Net Loss Deduction. The combined Illinois
net loss deduction for losses originating in tax years ending on or after December 31, 1986 shall be computed by determining the amount of deduction available for
each member of the combined group in accordance with Sections 100.2330,
100.2340 and 100.2350 and then by combining these amounts.
c) Combined Exemption. Under the election or requirement to be
treated as one taxpayer, there is one exemption per combined return. The
combined exemption shall be computed by multiplying the amount of the exemption
allowed under IITA Section 204 and Section 100.2055 by a fraction, the
numerator of which is combined base income allocable to Illinois and the
denominator of which is the group's combined base income. The exemption amount
for members of unitary groups not making the election, or not subject to the
requirement, and for members of unitary groups ineligible to make the election,
or not subject to the requirement, shall be computed by multiplying the amount
of the exemption allowed under IITA Sections 204 and 100.2055 by a fraction,
the numerator of which shall be that member's base income allocable to
Illinois, and the denominator of which is the group's combined base income.
d) Combined
Credits
1) Applicability of Credits. Any credit allowed by the IITA is
determined based on the combined activities of the members of the combined
group and that credit shall be applied against the combined liability of the
combined group.
2) Credits Based on Members' Activities. The investment credits
provided in IITA Sections 201(e), (f) and (h), 237, and
239
are available when certain property is purchased and placed
in service by a taxpayer. The combined group is entitled to a combined credit,
assuming the other statutory or regulatory requirements applicable to the given
credit are satisfied, even if one of the members purchases the qualified
property and another member uses the property in a qualified manner.
3) Effective January 1, 1994, the investment credit provided in
IITA Section 201(e) is allowed for a taxpayer who is
primarily engaged in
manufacturing, or in mining coal or fluorite, or in retailing.
In the case
of a combined group, the determination of eligibility shall be made for the
combined group as a whole, rather than for any individual member. The
determination of whether a combined group is primarily engaged in a qualifying
activity shall be made by applying the 50% of gross receipts test in Section
100.2101(f) by taking into account the gross receipts of only the eligible
members of the combined group. Gross receipts of corporations that would
otherwise be members of the combined group, but have no taxable presence in Illinois
or that cannot be combined for any other reason, shall not be considered in
this determination. In determining whether a combined group is primarily
engaged in retailing, gross receipts from transactions between eligible members
of the combined group shall be eliminated from both the numerator and the
denominator of the computation. In determining whether a combined group is
primarily engaged in manufacturing or in the mining of coal or fluorite, gross
receipts from manufacturing or the mining of coal or fluorite shall include:
A) gross receipts from sales of products manufactured or coal or
fluorite mined by one eligible member of the combined group to another eligible
member of the combined group for use or consumption, and not for resale.
However, the amount of those gross receipts shall be subject to adjustment by
the Department under IITA Section 404; and
B) gross receipts from sales to persons outside the combined group
by one eligible member of the combined group of items manufactured, or coal or
fluorite mined, by another eligible member of the combined group.
4) The additional credit provided in IITA Section 201(e) and the
credit provided in IITA Section 201(g) are based on specified increases in
employment in Illinois. For purposes of determining entitlement to these
credits during a combined-return year, the increase in employment shall be
determined with respect to the employment of all members of the combined group
in Illinois and not an individual member's employment. For purposes of
determining the increase in employment in Illinois for a common taxable year,
the Illinois employment of all taxpayers who are members of the combined group
during that common taxable year shall be used; that is, both prior and current
year Illinois employment of current members who were not members of the
combined group in the prior year shall be included in the determination, while
prior and current year Illinois employment of taxpayers who ceased to be
members of the combined group during the current or prior year shall be
excluded. The application of this subsection (d)(4) is illustrated by the
following examples:
EXAMPLE 1: Corporations
A, B and C were members of a unitary business group that elected to file a
combined return for 1989. Corporation D was not a member of the ABC
combined group in 1989, but becomes a member of combined group ABCD filing a
combined return for 1990. During 1989, Corporations A, B and C employed a total
of 150 persons in Illinois and Corporation D employed 50 people in Illinois, for a total of 200. During 1990, Corporations A, B and C employed 100 persons in
Illinois and Corporation D employed 100 persons in Illinois, again for a total
of 200. IITA Section 201(e), which provides for a Replacement Tax Investment
Credit for qualified property placed in service by the taxpayer during the
year, allows an additional 0.5% credit for that property to a taxpayer whose Illinois employment has increased by at least 1% over its Illinois employment in the
immediately preceding year. Combined group ABCD cannot qualify for the
additional 0.5% credit during 1990 because the combined Illinois employment of
Corporations A, B, C and D remained unchanged between 1989 and 1990. Because
eligibility is determined at the combined group level, no additional credit is
allowed for qualified property placed in service by Corporation D in 1990, even
though Corporation D's Illinois employment doubled between 1989 and 1990.
EXAMPLE 2: Corporations
P, Q, R and S filed a combined Illinois return for calendar year 1990. On January
1, 1991, Corporation S was sold to an unrelated purchaser. Corporations P, Q
and R filed a combined Illinois return for calendar year 1991. Combined group
PQRS employed 400 people in Illinois during 1990, 100 of whom were actually
employees of Corporation P and 100 of whom were actually employees of
Corporation S. Combined group PQR employed 350 people in Illinois during 1991,
50 of whom were actually employees of Corporation P. Combined group PQR can
qualify for the additional 0.5% Replacement Tax Investment Credit allowed under
IITA Section 201(e) for qualified property placed in service during 1990
because the Illinois employment of the three members of the combined group
increased from 300 in 1989 to 400 in 1990. Because the eligibility is
determined at the combined group level, property placed in service by
Corporation P during 1990 may qualify for the additional 0.5% credit even
though Corporation P's Illinois employment actually decreased.
EXAMPLE 3: Prior
to its 2013 repeal by Public Act 98-109, IITA Section 201(g) allowed a Jobs Tax
Credit equal to $500 per eligible employee hired to work in an enterprise zone
during a taxable year. The taxpayer must hire 5 or more eligible employees
during the taxable year in order to qualify for the credit. The credit is
taken in the taxable year following the year the employee is hired. Corporations
W, X, Y and Z filed a combined Illinois return for calendar year 1990.
Corporation Z was sold to an unrelated purchaser on December
31, 1990. Corporations W, X and Y filed a combined return for 1991. During
1990, WXYZ hired 5 eligible employees to work in an enterprise zone, 3 of whom
were actually hired by Corporation Z. Combined group WXY may claim a Jobs Tax
Credit of $2,500 for 1991 because it hired 5 eligible employees during 1990.
The fact that Corporation Z, which hired 3 of the employees, left the combined
group at the beginning of 1991 does not alter the fact that the combined group
earned the Jobs Tax Credit nor entitle Corporation Z to any portion of the
credit for its separate company return for 1991.
5) The research and development credit provided in IITA Section
203(k)
is based on increasing research activities in
this State (see Section 100.2160). For purposes of determining entitlement to
the credit during a combined-return year, the increase in research activities
shall be determined with respect to research activities conducted by all
members of the combined group in Illinois and not an individual member's
research activities. The following series of examples illustrate the
application of the research and development credit in combined return
situations involving Corporations A, B and C that incurred the following expenses
for qualified research activities in Illinois:
1990
1991
1992
1993
Corp. A
50,000
50,000
50,000
0
Corp. B
25,000
25,000
100,000
200,000
Corp. C
75,000
125,000
100,000
100,000
150,000
200,000
250,000
300,000
EXAMPLE 1: A,
B, and C filed combined returns for the years ending December
31, 1990, December 31, 1991, December
31, 1992 and December 31, 1993. The proper amount of the Research and
Development Credit for the year ending December
31, 1993 is determined based upon the combined activities on the combined
return and is calculated as follows:
Total
qualified expenditures for 1993................................ 300,000
Average
qualified expenditures for 1990-92..................... 200,000
Excess of 1993
expenditures over base period.................. 100,000
Research and
development credit for 1993............................ 6,500
EXAMPLE 2: A
and B filed a combined return for the year ending December
31, 1990. C filed a separate return for the year ending December
31, 1990. A purchased the common stock of C on January
1, 1991. A, B and C filed combined returns for the years ending December 31,
1991, December 31, 1992 and December 31, 1993. The $75,000 of expenses for
qualified research activities in Illinois incurred by C for the year ending December 31, 1990 should be included in the calculation of the average qualified
expenditures for the base period. The credit for the combined return is
calculated as follows:
Total
qualified expenditures for 1993................................ 300,000
Average
qualified expenditures for 1990-92..................... 200,000
Excess of 1993
expenditures over base period.................. 100,000
Research &
Development Credit for 1993............................. 6,500
EXAMPLE 3: A,
B and C filed combined returns for the years ending December 31, 1990, December
31, 1991 and December 31, 1992. On January
1, 1993, A sold the common stock of C to P (an unrelated corporation). For
the year ending December 31, 1993, C was included in the combined return filed
by P. In determining the proper amount of the Research and Development Credit
for the combined return filed by A and B for the year ending December 31, 1993,
the expenses for qualified research activities in Illinois incurred by C of
$75,000, $125,000 and $100,000 for the years ending December 31, 1990, December
31, 1991 and December 31, 1992, respectively, shall not be included in the
calculation of the average qualified expenditures for the base period for A and
B for the year ending December 31, 1993. The credit for the combined return
for A and B for the year ending December
31, 1993 is calculated as follows:
Total qualified expenditures
for 1993................................ 200,000
Average qualified
expenditures for 1990-92..................... 100,000
Excess of 1993
expenditures over base period.................. 100,000
Research &
Development Credit for 1993............................. 6,500
6) Credit Carryforward. Any combined credit carryforward shall
be available to the combined group for the next combined-return year. For
purposes of the credits allowed with respect to certain qualifying property
under IITA Sections 201(e), (f), and (h)
, 237, and
239
, when a member becomes ineligible to join in the election, or is no
longer required to be part of the combined return, the credit carryforward
shall be available to the remaining members if those members continue to both
own and use the property for which the credit was claimed in a qualifying
manner for 48 months after the placed-in-service date. The credit carryforward
shall be available to the former member that has become ineligible if that
former member both owns and uses the property for which the credit was claimed
in a qualifying manner for the remainder of the 48-month period after the
placed-in-service date. If a credit carryforward is available to the former
member that has become ineligible, the amount of the carryforward is equal to
the combined unused credit multiplied by a fraction, the numerator of which
shall be the credit attributable to the qualified property of that former
member for the combined unused credit year, and the denominator of which shall
be the qualified property of the combined group for the unused credit year.
EXAMPLE: In 1985,
Corporation A purchased $300,000 of eligible property, $200,000 of which was used
by A and $100,000 of which was transferred to and used by Corporation B. A and
B filed a combined return for the year that showed an income tax liability of
$1,000 and an investment credit of $1,500. The group's unused credit was
$500. In 1987, B left the group, and during that year it owned and continued
to use the $100,000 of eligible property. Its credit carryforward would be
computed as follows:
$500 x $100,000/$300,000 = $166.67
7) Recapture. For purposes of credits that are recaptured when
property ceases to be qualified property or is moved out of Illinois or when
property is moved outside of an enterprise zone within 48 months after the
placed-in-service date, the members of the combined group are responsible for
the recapture of any personal property replacement tax or income tax.
EXAMPLE: Same
facts as in the Example in subsection (d)(6) except in 1987 Corporation A
transferred its eligible property (originally purchased for $200,000 in 1985)
to Corporation B. Corporation B was acquired by Corporation C in 1987 and,
immediately afterward, B sold all the eligible property (originally purchased
for a total of $300,000) to an unrelated third party. B and C file a combined
return for that year and their tax liability is increased by $1,000 due to the
credit that was allowed on the combined return filed by A and B in 1985 and
recaptured in 1987.
e) Ineligible Members. If a unitary business group contains one
or more ineligible members (e.g., a partnership that is not required to apply
the apportionment method prescribed in Section 100.3380(d), a subchapter S corporation
or, for years ending prior to December
31, 1987, a corporation with a different taxable year), the ineligible members
shall file separate unitary returns
(see Section
100.5215)
.
f) Part-year
Members
1) General Rule. If a corporation becomes a member of a unitary
business group after the beginning of the combined return year or ceases to be
a member of the unitary business group during the combined return year, two tax
returns will be affected for that taxable year. The combined return shall
include the separate company items of that corporation for the part of the year
it was a member of the unitary business group. Separate company items of a
part-year member for any portion of its taxable year prior to the date it joins
or after the date it leaves the unitary business group shall either be reported
in a short-year separate return filed by that part-year member (if it is
subject to Illinois income tax during that period) or included in any combined
return filed on behalf of a unitary business group to which that part-year
member belongs during that portion of the year.
2) Accounting. The part-year member shall use either Method 1 or
Method 2 (described in Section 100.5265(b)) to determine its separate company
items for the portion of the year before it becomes a member and the portion of
the year after it becomes a member of the combined group.