Allocation and Apportionment of Deductions.
1)
Deductions described in subsection (a) of this Section that are taken into
account in a taxable year shall be allocated and apportioned according to the
facts and circumstances of that taxable year. A
taxpayer may request
alternative apportionment of business losses or deductions by filing a petition
pursuant to Section
100.3390 of this Part.
Example 1: An individual incurs a federal net operating loss
in 1995, when he is a nonresident. None of the individual's 1995 income is
allocated or apportioned to Illinois. At the beginning of 1996, the individual
moves to Illinois and becomes a resident. Any net operating loss carried
forward from 1995 and deducted in computing the individual's 1996 federal
adjusted gross income is allocated to Illinois pursuant to IITA Section 301(a),
which in the case of a resident allocates to Illinois all items of income or
deduction which were taken into account in the computation of base income for
the taxable year.
Example 2: A nonresident individual conducts a business as a
sole proprietorship. During 1998, the individual apportions 20% of his business
income from the proprietorship to Illinois pursuant to IITA Section 304(a). In
2000, the business is conducted entirely outside Illinois and has no Illinois
apportionment factor. If the individual incurs net operating loss in 2000 from
the sole proprietorship and carries the loss back to 1998, 20% of the loss will
be apportioned to Illinois.
Example 3: In 1999, a resident individual incurs a passive
activity loss from rental of real estate located in Indiana. The individual's
income from the property is nonbusiness income. At the beginning of 2000, the
individual moves away from Illinois and becomes a nonresident. For federal
income tax purposes, the individual is allowed to deduct the loss in 2000.
Because the individual is not a resident, the deduction allowed in 2000 is
allocated to Indiana under IITA Section 303(c)(1).
Example 4: A nonresident individual incurs a federal net
operating loss in 1995 from his investment in Partnership A. Partnership A has
only business income. For 1995, Partnership A's Illinois apportionment factor
under IITA Section 304 is 50%. For federal income tax purposes, the individual
carries the net operating loss back to 1992. Partnership A's Illinois
apportionment factor under IITA Section 304 is 25% for 1992. Accordingly, 25%
of the individual's 1992 net operating loss is apportioned to Illinois.
2) Deductions arising in the same
taxable year and subject to apportionment or allocation under different rules.
When two or more deductions to which this Section applies arise in the same
taxable year, but are apportioned or allocated under different rules, the
amount of each such deduction carried over from that year shall be in
proportion to the total of all such deductions arising in that year, and the
amount of each such deduction allowed in a carryover year shall be in
proportion to the total amount of such deductions carried over to that year
from the same taxable year.
Example 5: In 2000, Corporation A engages in three capital
transactions. In the first, it realizes $700 in capital gain, which is
characterized as business income. In the second, it incurs $400 in capital
loss, which is characterized as business income from the same business as the
gain in the first transaction. In the third, it incurs $600 in capital loss on
real property located in Illinois, which is characterized as nonbusiness income
allocable entirely to Illinois. Corporation A's apportionment factor in 2000 is
20%.
On its federal income tax return for 2000, Corporation A
reports net capital gain of zero, because corporations are not allowed to
deduct capital losses in excess of capital gains. In actuality, it is allowed
to deduct $700 in capital losses and carry over $300 to be deducted in another
year.
In 2000, Corporation A is treated as deducting $280 in
business loss from the second transaction ($400 in loss, divided by the $1,000
in total capital losses, multiplied by the $700 capital loss deduction allowed)
and $420 in nonbusiness capital loss ($600 in loss, divided by $1,000, and
multiplied by $700). The $280 in business loss would be combined with
Corporation A's other business income, and 20% would be apportioned to
Illinois. The entire $420 in nonbusiness capital loss will be allocated to
Illinois.
If Corporation A carries the $300 excess loss back to offset
$200 in capital gains realized in 1997, $80 of the 1997 deduction will be
business loss (the $120 excess loss attributable to the business transaction,
divided by the entire $300 in excess loss, times $200) and $120 will be
nonbusiness loss ($180 divided by $300, times $200). The $80 of business loss
will be combined with Corporation A's other business income from 1997 and
apportioned according to Corporation A's 1997 apportionment factor. The entire
$120 in nonbusiness loss will be allocated to Illinois.
Example 6: Assume the same facts as in Example 5, except that
the $600 nonbusiness capital loss was incurred on the sale of an intangible
asset, and so is allocated to the commercial domicile of Corporation A. At the
time the loss was realized in 2000, Corporation A's commercial domicile was in
State X, so the $420 in nonbusiness capital loss deducted in that year would be
allocated to State X. However, in 1997, Corporation A's commercial domicile was
in Illinois. The $120 in nonbusiness capital loss deducted in 1997 would be
allocated entirely to Illinois, because that is the commercial domicile of
Corporation A at the time the deduction is taken.
Example 7: In 2002, Taxpayer, a nonresident individual, has
$20,000 in federal net losses from Partnership A and $180,000 in net losses
from Partnership B. Taxpayer has $100,000 in income from other sources, and so
Taxpayer's adjusted gross income for 2002 is a net operating loss of $100,000.
Taxpayer carries the entire $100,000 loss back to 2000, when Partnership A's
Illinois apportionment factor is 30% and Partnership B's apportionment factor
is zero. In determining Taxpayer's Illinois net income for 2000, 10% of the
federal net operating loss carryback ($20,000 loss from Partnership A divided
by $200,000 in total losses incurred from partnerships in 2002), $3,000 of the
net operating loss deduction in 2000 is apportioned to Illinois (Partnership
A's 30% apportionment factor times the 10% of the $100,000 federal net
operating loss carryback attributable to Partnership A's loss). The remaining
90% of the net operating loss deduction is from Partnership B, and none of that
loss is apportioned to Illinois.