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, the same result will occur in the
mandatory combined return situation.
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, 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.
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.
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) and 206(b) 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(j) 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) and
206(b), 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.
