SB 507 — INC TX-TUITION SAVINGS

A student shall be considered to be enrolled at least half-time if the student is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the institution at which the student is enrolled.

Distributions made from the pool for qualified expenses shall be made directly to the eligible educational institution, directly to a vendor, or in the form of a check payable to both the beneficiary and the SB0507 Engrossed - 4 - LRB094 08414 BDD 38616 b institution or vendor.

Any moneys that are distributed in any other manner or that are used for expenses other than qualified expenses at an eligible educational institution shall be subject to a penalty of 10% of the earnings unless the beneficiary dies, becomes disabled, or receives a scholarship that equals or exceeds the distribution.

Penalties shall be withheld at the time the distribution is made.

The Treasurer shall limit the contributions that may be made on behalf of a designated beneficiary based on the limitations established by the Internal Revenue Service.

an actuarial estimate of what is required to pay tuition, fees, and room and board for 5 undergraduate years at the highest cost eligible educational institution.

The contributions made on behalf of a beneficiary who is also a beneficiary under the Illinois Prepaid Tuition Program shall be further restricted to ensure that the contributions in both programs combined do not exceed the limit established for the College Savings Pool.

The Treasurer shall provide the Illinois Student Assistance Commission each year at a time designated by the Commission, an electronic report of all participant accounts in the Treasurer’s College Savings Pool, listing total contributions and disbursements from each individual account during the previous calendar year.

As soon thereafter as is possible following receipt of the Treasurer’s report, the Illinois Student Assistance Commission shall, in turn, provide the Treasurer with an electronic report listing those College Savings Pool participants who also participate in the State’s prepaid tuition program, administered by the Commission.

The Commission shall be responsible for filing any combined tax reports regarding State qualified savings programs required by the United States Internal Revenue Service.

The Treasurer shall work with the Illinois Student Assistance Commission to coordinate the marketing of the College Savings Pool and the Illinois Prepaid Tuition Program when considered beneficial by the Treasurer and the Director of the Illinois Student Assistance Commission.

The Treasurer’s office shall not SB0507 Engrossed - 5 - LRB094 08414 BDD 38616 b publicize or otherwise market the College Savings Pool or accept any moneys into the College Savings Pool prior to March 1, 2000.

The Treasurer shall provide a separate accounting for each designated beneficiary to each participant, the Illinois Student Assistance Commission, and the participating financial institution at which the account was processed.

No interest in the program may be pledged as security for a loan.

The assets of the College Savings Pool and its income and operation shall be exempt from all taxation by the State of Illinois and any of its subdivisions.

The accrued earnings on investments in the Pool once disbursed on behalf of a designated beneficiary shall be similarly exempt from all taxation by the State of Illinois and its subdivisions, so long as they are used for qualified expenses.

Contributions to a College Savings Pool account during the taxable year may be deducted from adjusted gross income as provided in Section 203 of the Illinois Income Tax Act.

The provisions of this paragraph are exempt from Section 250 of the Illinois Income Tax Act.

The Treasurer shall adopt rules he or she considers necessary for the efficient administration of the College Savings Pool.

The rules shall provide whatever additional parameters and restrictions are necessary to ensure that the College Savings Pool meets all of the requirements for a qualified state tuition program under Section 529 of the Internal Revenue Code (26 U.S.C.

529).

The rules shall provide for the administration expenses of the pool to be paid from its earnings and for the investment earnings in excess of the expenses and all moneys collected as penalties to be credited or paid monthly to the several participants in the pool in a manner which equitably reflects the differing amounts of their respective investments in the pool and the differing periods of time for which those amounts were in the custody of the pool.

Also, the rules shall require the maintenance of records that enable the Treasurer’s office to produce a report for each account in the pool at least annually that documents the SB0507 Engrossed - 6 - LRB094 08414 BDD 38616 b account balance and investment earnings.

Notice of any proposed amendments to the rules and regulations shall be provided to all participants prior to adoption.

Amendments to rules and regulations shall apply only to contributions made after the adoption of the amendment.

Upon creating the College Savings Pool, the State Treasurer shall give bond with 2 or more sufficient sureties, payable to and for the benefit of the participants in the College Savings Pool, in the penal sum of $1,000,000, conditioned upon the faithful discharge of his or her duties in relation to the College Savings Pool.

(Source:

P.A.

92-16, eff.

6-28-01;

92-439, eff.

8-17-01;

92-626, eff.

7-11-02;

93-812, eff.

1-1-05.) Section 10.

(B) An amount equal to the amount of tax imposed by this Act to the extent deducted from gross income in SB0507 Engrossed - 7 - LRB094 08414 BDD 38616 b the computation of adjusted gross income for the taxable year;

(C) An amount equal to the amount received during the taxable year as a recovery or refund of real property taxes paid with respect to the taxpayer’s principal residence under the Revenue Act of 1939 and for which a deduction was previously taken under subparagraph (L) of this paragraph (2) prior to July 1, SB0507 - 2 - LRB094 08414 BDD 38616 b 1991, the retrospective application date of Article 4 of Public Act 87-17.

(D-15) For taxable years 2001 and thereafter, an amount equal to the bonus depreciation deduction (30% of the adjusted basis of the qualified property) taken on the taxpayer’s federal income tax return for the taxable year under subsection (k) of Section 168 of the SB0507 Engrossed - 8 - LRB094 08414 BDD 38616 b Internal Revenue Code;

(D-16) If the taxpayer reports a capital gain or loss on the taxpayer’s federal income tax return for the taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (D-15), then an amount equal to the aggregate amount of the deductions taken in all taxable SB0507 - 3 - LRB094 08414 BDD 38616 b years under subparagraph (Z) with respect to that property.

(i) an item of interest paid, accrued, or incurred, directly or indirectly, to a foreign person who is subject in a foreign country or SB0507 Engrossed - 9 - LRB094 08414 BDD 38616 b state, other than a state which requires mandatory unitary reporting, to a tax on or measured by net income with respect to such interest;

SB0507 - 4 - LRB094 08414 BDD 38616 b (a) the foreign person, during the same taxable year, paid, accrued, or incurred, the interest to a person that is not a related member, and (b) the transaction giving rise to the interest expense between the taxpayer and the foreign person did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects an arm’s-length interest rate and terms;

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for SB0507 Engrossed - 10 - LRB094 08414 BDD 38616 b any tax year beginning after the effective date of this amendment provided such adjustment is made pursuant to regulation adopted by the Department and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

(D-18) For taxable years ending on or after December 31, 2004, an amount equal to the amount of SB0507 - 5 - LRB094 08414 BDD 38616 b intangible expenses and costs otherwise allowed as a deduction in computing base income, and that were paid, accrued, or incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity.

(2) losses incurred, directly or indirectly, from SB0507 Engrossed - 11 - LRB094 08414 BDD 38616 b factoring transactions or discounting transactions;

SB0507 - 6 - LRB094 08414 BDD 38616 b This paragraph shall not apply to the following:

or (iii) any item of intangible expense or cost paid, accrued, or incurred, directly or indirectly, from a transaction with a foreign person if the taxpayer establishes by clear and SB0507 Engrossed - 12 - LRB094 08414 BDD 38616 b convincing evidence, that the adjustments are unreasonable;

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for SB0507 - 7 - LRB094 08414 BDD 38616 b any tax year beginning after the effective date of this amendment provided such adjustment is made pursuant to regulation adopted by the Department and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

(D-20) For taxable years beginning on or after January 1, 2002 throughand taxable years ending on or before December 31, 2004,2005, in the case of a distribution from a qualified tuition program under Section 529 of the Internal Revenue Code, other than (i) a distribution from a College Savings Pool created under Section 16.5 of the State Treasurer Act or (ii) a distribution from the Illinois Prepaid Tuition Trust Fund, an amount equal to the amount excluded from gross income under Section 529(c)(3)(B);529(c)(3)(B).

For taxable years beginning on or after January 1, 2006, in the case of a distribution from a qualified tuition program under Section 529 of the Internal Revenue Code, other than (i) a distribution from a College Savings Pool created under Section 16.5 of the State Treasurer Act, (ii) a distribution from the Illinois Prepaid Tuition Trust Fund, or (iii) a distribution from a qualified tuition program under Section 529 of the Internal Revenue Code that (I) adopts and determines that its offering materials comply with the College Savings Plans Network’s disclosure principles and (II) has made reasonable efforts to inform in-state residents of the existence SB0507 Engrossed - 13 - LRB094 08414 BDD 38616 b of in-state qualified tuition programs by informing Illinois residents directly and, where applicable, to inform financial intermediaries distributing the program to inform in-state residents of the existence of in-state qualified tuition programs at least annually, an amount equal to the amount excluded from gross income under Section 529(c)(3)(B).

For the purposes of this subparagraph (D-20), a qualified tuition program has made reasonable efforts if it makes disclosures (which may use the term "in-state program" or "in-state plan" and need not specifically refer to Illinois or its qualified programs by name) (i) directly to prospective participants in its offering materials or makes a public disclosure, such as a website posting;

and (ii) where applicable, to intermediaries selling the out-of-state program in the same manner that the out-of-state program distributes its offering materials;

(D-21) For taxable years beginning on or after January 1, 2006, in the case of transfer of moneys from a qualified tuition program under Section 529 of the Internal Revenue Code that is administered by the State to an out-of-state program, an amount equal to the amount of moneys previously deducted from base income under subsection (a)(2)(Y) of this Section.

(E) For taxable years ending before December 31, 2001, any amount included in such total in respect of any compensation (including but not limited to any compensation paid or accrued to a serviceman while a prisoner of war or missing in action) paid to a resident by reason of being on active duty in the Armed Forces of the United States and in respect of any compensation paid or accrued to a resident who as a SB0507 Engrossed - 14 - LRB094 08414 BDD 38616 b governmental employee was a prisoner of war or missing in action, and in respect of any compensation paid to a resident in 1971 or thereafter for annual training performed pursuant to Sections 502 and 503, Title 32, United States Code as a member of the Illinois National Guard.

For taxable years ending on or after December 31, 2001, any amount included in such total in respect of any compensation (including but not limited to any compensation paid or accrued to a serviceman while a prisoner of war or missing in action) paid to a SB0507 - 8 - LRB094 08414 BDD 38616 b resident by reason of being a member of any component of the Armed Forces of the United States and in respect of any compensation paid or accrued to a resident who as a governmental employee was a prisoner of war or missing in action, and in respect of any compensation paid to a resident in 2001 or thereafter by reason of being a member of the Illinois National Guard.

(I) An amount equal to all amounts included in such total pursuant to the provisions of Section 111 of the SB0507 Engrossed - 15 - LRB094 08414 BDD 38616 b Internal Revenue Code as a recovery of items previously deducted from adjusted gross income in the computation of taxable income;

(K) An amount equal to those dividends included in SB0507 - 9 - LRB094 08414 BDD 38616 b such total that were paid by a corporation that conducts business operations in a federally designated Foreign Trade Zone or Sub-Zone and that is designated a High Impact Business located in Illinois;

SB0507 Engrossed - 16 - LRB094 08414 BDD 38616 b (N) An amount equal to all amounts included in such total which are exempt from taxation by this State either by reason of its statutes or Constitution or by reason of the Constitution, treaties or statutes of the United States;

(O) An amount equal to any contribution made to a SB0507 - 10 - LRB094 08414 BDD 38616 b job training project established pursuant to the Tax Increment Allocation Redevelopment Act;

(T) An amount, to the extent included in adjusted gross income, equal to the amount of interest earned in the taxable year on a medical care savings account established under the Medical Care Savings Account Act SB0507 Engrossed - 17 - LRB094 08414 BDD 38616 b or the Medical Care Savings Account Act of 2000 on behalf of the taxpayer, other than interest added pursuant to item (D-5) of this paragraph (2);

(V) Beginning with tax years ending on or after SB0507 - 11 - LRB094 08414 BDD 38616 b December 31, 1995 and ending with tax years ending on or before December 31, 2004, an amount equal to the amount paid by a taxpayer who is a self-employed taxpayer, a partner of a partnership, or a shareholder in a Subchapter S corporation for health insurance or long-term care insurance for that taxpayer or that taxpayer’s spouse or dependents, to the extent that the amount paid for that health insurance or long-term care insurance may be deducted under Section 213 of the Internal Revenue Code of 1986, has not been deducted on the federal income tax return of the taxpayer, and does not exceed the taxable income attributable to that taxpayer’s income, self-employment income, or Subchapter S corporation income;

SB0507 Engrossed - 18 - LRB094 08414 BDD 38616 b (W) For taxable years beginning on or after January 1, 1998, all amounts included in the taxpayer’s federal gross income in the taxable year from amounts converted from a regular IRA to a Roth IRA.

(X) For taxable year 1999 and thereafter, an amount equal to the amount of any (i) distributions, to the extent includible in gross income for federal income tax purposes, made to the taxpayer because of his or her status as a victim of persecution for racial or SB0507 - 12 - LRB094 08414 BDD 38616 b religious reasons by Nazi Germany or any other Axis regime or as an heir of the victim and (ii) items of income, to the extent includible in gross income for federal income tax purposes, attributable to, derived from or in any way related to assets stolen from, hidden from, or otherwise lost to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime immediately prior to, during, and immediately after World War II, including, but not limited to, interest on the proceeds receivable as insurance under policies issued to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime by European insurance companies immediately prior to and during World War II;

The amount of and the eligibility for any public assistance, benefit, or similar entitlement is not affected by the inclusion of items (i) and (ii) of this paragraph in gross income for federal income tax SB0507 Engrossed - 19 - LRB094 08414 BDD 38616 b purposes.

For taxable SB0507 - 13 - LRB094 08414 BDD 38616 b years beginning on or after January 1, 2005, a maximum of $10,000 contributed in the taxable year to (i) a College Savings Pool account under Section 16.5 of the State Treasurer Act,Act or (ii) the Illinois Prepaid Tuition Trust Fund, or (iii) any other qualified tuition program under Section 529 of the Internal Revenue Code, except that amounts excluded from gross income under Section 529(c)(3)(C)(i) of the Internal Revenue Code shall not be considered moneys contributed under this subparagraph (Y).

and (2) "x" equals "y" multiplied by 30 and then SB0507 Engrossed - 20 - LRB094 08414 BDD 38616 b divided by 70 (or "y" multiplied by 0.429).

SB0507 - 14 - LRB094 08414 BDD 38616 b (AA) If the taxpayer reports a capital gain or loss on the taxpayer’s federal income tax return for the taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (D-15), then an amount equal to that addition modification.

(CC) The amount of (i) any interest income (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section 203(a)(2)(D-17), 203(b)(2)(E-13), 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed the amount of that addition modification, and (ii) any income from intangible property (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section 203(a)(2)(D-18), 203(b)(2)(E-14), 203(c)(2)(G-13), or 203(d)(2)(D-8), but not to exceed the amount of that SB0507 Engrossed - 21 - LRB094 08414 BDD 38616 b addition modification;

(DD) An amount equal to the interest income taken into account for the taxable year (net of the deductions allocable thereto) with respect to transactions with a foreign person who would be a member of the taxpayer’s unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that SB0507 - 15 - LRB094 08414 BDD 38616 b person’s total business activity, but not to exceed the addition modification required to be made for the same taxable year under Section 203(a)(2)(D-17) for interest paid, accrued, or incurred, directly or indirectly, to the same foreign person;

(A) An amount equal to all amounts paid or accrued to the taxpayer as interest and all distributions SB0507 Engrossed - 22 - LRB094 08414 BDD 38616 b received from regulated investment companies during the taxable year to the extent excluded from gross income in the computation of taxable income;

(C) In the case of a regulated investment company, an amount equal to the excess of (i) the net long-term SB0507 - 16 - LRB094 08414 BDD 38616 b capital gain for the taxable year, over (ii) the amount of the capital gain dividends designated as such in accordance with Section 852(b)(3)(C) of the Internal Revenue Code and any amount designated under Section 852(b)(3)(D) of the Internal Revenue Code, attributable to the taxable year (this amendatory Act of 1995 (Public Act 89-89) is declarative of existing law and is not a new enactment);

(i) the addition modification relating to the net operating loss carried back or forward to the taxable year from any taxable year ending prior to December 31, 1986 shall be reduced by the amount of addition modification under this subparagraph (E) which related to that net operating loss and which SB0507 Engrossed - 23 - LRB094 08414 BDD 38616 b was taken into account in calculating the base income of an earlier taxable year, and (ii) the addition modification relating to the net operating loss carried back or forward to the taxable year from any taxable year ending prior to December 31, 1986 shall not exceed the amount of such carryback or carryforward;

For taxable years in which there is a net operating SB0507 - 17 - LRB094 08414 BDD 38616 b loss carryback or carryforward from more than one other taxable year ending prior to December 31, 1986, the addition modification provided in this subparagraph (E) shall be the sum of the amounts computed independently under the preceding provisions of this subparagraph (E) for each such taxable year;

The taxpayer is required to make the addition modification under this subparagraph only once with SB0507 Engrossed - 24 - LRB094 08414 BDD 38616 b respect to any one piece of property;

(E-12) For taxable years ending on or after December 31, 2004, an amount equal to the amount otherwise allowed as a deduction in computing base income for interest paid, accrued, or incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the fact the foreign person’s business activity SB0507 - 18 - LRB094 08414 BDD 38616 b outside the United States is 80% or more of the foreign person’s total business activity.

(a) the foreign person, during the same taxable year, paid, accrued, or incurred, the interest to a person that is not a related SB0507 Engrossed - 25 - LRB094 08414 BDD 38616 b member, and (b) the transaction giving rise to the interest expense between the taxpayer and the foreign person did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects an arm’s-length interest rate and terms;

or SB0507 - 19 - LRB094 08414 BDD 38616 b (iii) the taxpayer can establish, based on clear and convincing evidence, that the interest paid, accrued, or incurred relates to a contract or agreement entered into at arm’s-length rates and terms and the principal purpose for the payment is not federal or Illinois tax avoidance;

(E-13) For taxable years ending on or after December 31, 2004, an amount equal to the amount of intangible expenses and costs otherwise allowed as a deduction in computing base income, and that were paid, accrued, or incurred, directly or indirectly, to a SB0507 Engrossed - 26 - LRB094 08414 BDD 38616 b foreign person who would be a member of the same unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity.

The addition modification required by this subparagraph shall be reduced to the extent that dividends were included in base income of the unitary group for the same taxable year and received by the SB0507 - 20 - LRB094 08414 BDD 38616 b taxpayer or by a member of the taxpayer’s unitary business group (including amounts included in gross income pursuant to Sections 951 through 964 of the Internal Revenue Code and amounts included in gross income under Section 78 of the Internal Revenue Code) with respect to the stock of the same person to whom the intangible expenses and costs were directly or indirectly paid, incurred, or accrued.

(i) any item of intangible expenses or costs paid, accrued, or incurred, directly or SB0507 Engrossed - 27 - LRB094 08414 BDD 38616 b indirectly, from a transaction with a foreign person who is subject in a foreign country or state, other than a state which requires mandatory unitary reporting, to a tax on or measured by net income with respect to such item;

or (ii) any item of intangible expense or cost paid, accrued, or incurred, directly or indirectly, if the taxpayer can establish, based SB0507 - 21 - LRB094 08414 BDD 38616 b on a preponderance of the evidence, both of the following:

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for any tax year beginning after the effective date of this amendment provided such adjustment is made pursuant to regulation adopted by the Department SB0507 Engrossed - 28 - LRB094 08414 BDD 38616 b and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

SB0507 - 22 - LRB094 08414 BDD 38616 b (G) An amount equal to any amount included in such total under Section 78 of the Internal Revenue Code;

provided that, in the case of any statute of this State that exempts income derived from bonds or other obligations from the tax imposed under SB0507 Engrossed - 29 - LRB094 08414 BDD 38616 b this Act, the amount exempted shall be the interest net of bond premium amortization;

SB0507 - 23 - LRB094 08414 BDD 38616 b (L) An amount equal to those dividends included in such total that were paid by a corporation that conducts business operations in a federally designated Foreign Trade Zone or Sub-Zone and that is designated a High Impact Business located in Illinois;

The subtraction modification available to taxpayer in any year under this subsection shall be that portion of the total interest paid by the borrower with respect to such loan attributable to the eligible SB0507 Engrossed - 30 - LRB094 08414 BDD 38616 b property as calculated under the previous sentence;

To determine the portion of a loan SB0507 - 24 - LRB094 08414 BDD 38616 b or loans that is secured by property eligible for a Section 201(h) investment credit to the borrower, the entire principal amount of the loan or loans between the taxpayer and the borrower should be divided into the basis of the Section 201(h) investment credit property which secures the loan or loans, using for this purpose the original basis of such property on the date that it was placed in service in a federally designated Foreign Trade Zone or Sub-Zone located in Illinois.

(i) 85% for taxable years ending on or before December 31, 1992, or, a percentage SB0507 Engrossed - 31 - LRB094 08414 BDD 38616 b equal to the percentage allowable under Section 243(a)(1) of the Internal Revenue Code of 1986 for taxable years ending after December 31, 1992, of the amount by which dividends included in taxable income and received from a corporation that is not created or organized under the laws of the United States or any state or political subdivision thereof, including, for taxable years ending on or after December 31, 1988, SB0507 - 25 - LRB094 08414 BDD 38616 b dividends received or deemed received or paid or deemed paid under Sections 951 through 964 of the Internal Revenue Code, exceed the amount of the modification provided under subparagraph (G) of paragraph (2) of this subsection (b) which is related to such dividends;

(R) In the case of an attorney-in-fact with respect to whom an interinsurer or a reciprocal insurer has SB0507 Engrossed - 32 - LRB094 08414 BDD 38616 b made the election under Section 835 of the Internal Revenue Code, 26 U.S.C.

SB0507 - 26 - LRB094 08414 BDD 38616 b (S) For taxable years ending on or after December 31, 1997, in the case of a Subchapter S corporation, an amount equal to all amounts of income allocable to a shareholder subject to the Personal Property Tax Replacement Income Tax imposed by subsections (c) and (d) of Section 201 of this Act, including amounts allocable to organizations exempt from federal income tax by reason of Section 501(a) of the Internal Revenue Code.

The aggregate amount deducted under this SB0507 Engrossed - 33 - LRB094 08414 BDD 38616 b subparagraph in all taxable years for any one piece of property may not exceed the amount of the bonus depreciation deduction (30% of the adjusted basis of the qualified property) taken on that property on the taxpayer’s federal income tax return under subsection (k) of Section 168 of the Internal Revenue Code;

(U) If the taxpayer reports a capital gain or loss on the taxpayer’s federal income tax return for the SB0507 - 27 - LRB094 08414 BDD 38616 b taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (E-10), then an amount equal to that addition modification.

(W) An amount equal to the interest income taken into account for the taxable year (net of the deductions allocable thereto) with respect to transactions with a foreign person who would be a SB0507 Engrossed - 34 - LRB094 08414 BDD 38616 b member of the taxpayer’s unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity, but not to exceed the addition modification required to be made for the same taxable year under Section 203(b)(2)(E-12) for interest paid, accrued, or incurred, directly or indirectly, to the same foreign person;

and SB0507 - 28 - LRB094 08414 BDD 38616 b (X) An amount equal to the income from intangible property taken into account for the taxable year (net of the deductions allocable thereto) with respect to transactions with a foreign person who would be a member of the taxpayer’s unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity, but not to exceed the addition modification required to be made for the same taxable year under Section 203(b)(2)(E-13) for intangible expenses and costs paid, accrued, or incurred, directly or indirectly, to the same foreign person.

(A) An amount equal to all amounts paid or accrued to the taxpayer as interest or dividends during the SB0507 Engrossed - 35 - LRB094 08414 BDD 38616 b taxable year to the extent excluded from gross income in the computation of taxable income;

SB0507 - 29 - LRB094 08414 BDD 38616 b (C) An amount equal to the amount of tax imposed by this Act to the extent deducted from gross income in the computation of taxable income for the taxable year;

(i) the addition modification relating to the net operating loss carried back or forward to the taxable year from any taxable year ending prior to December 31, 1986 shall be reduced by the amount of addition modification under this subparagraph (E) which related to that net operating loss and which was taken into account in calculating the base income of an earlier taxable year, and (ii) the addition modification relating to the net operating loss carried back or forward to the taxable year from any taxable year ending prior to SB0507 Engrossed - 36 - LRB094 08414 BDD 38616 b December 31, 1986 shall not exceed the amount of such carryback or carryforward;

For taxable years in which there is a net operating loss carryback or carryforward from more than one other taxable year ending prior to December 31, 1986, the addition modification provided in this subparagraph (E) shall be the sum of the amounts computed independently under the preceding provisions of this SB0507 - 30 - LRB094 08414 BDD 38616 b subparagraph (E) for each such taxable year;

and (G-11) If the taxpayer reports a capital gain or loss on the taxpayer’s federal income tax return for the taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (G-10), then an amount equal to the SB0507 Engrossed - 37 - LRB094 08414 BDD 38616 b aggregate amount of the deductions taken in all taxable years under subparagraph (R) with respect to that property.

(G-12) For taxable years ending on or after December 31, 2004, an amount equal to the amount SB0507 - 31 - LRB094 08414 BDD 38616 b otherwise allowed as a deduction in computing base income for interest paid, accrued, or incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of the foreign person’s total business activity.

or (ii) an item of interest paid, accrued, or incurred, directly or indirectly, to a foreign person if the taxpayer can establish, based on a SB0507 Engrossed - 38 - LRB094 08414 BDD 38616 b preponderance of the evidence, both of the following:

(a) the foreign person, during the same taxable year, paid, accrued, or incurred, the interest to a person that is not a related member, and (b) the transaction giving rise to the interest expense between the taxpayer and the SB0507 - 32 - LRB094 08414 BDD 38616 b foreign person did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects an arm’s-length interest rate and terms;

SB0507 Engrossed - 39 - LRB094 08414 BDD 38616 b (G-13) For taxable years ending on or after December 31, 2004, an amount equal to the amount of intangible expenses and costs otherwise allowed as a deduction in computing base income, and that were paid, accrued, or incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the fact that the foreign person’s business activity outside the United SB0507 - 33 - LRB094 08414 BDD 38616 b States is 80% or more of that person’s total business activity.

For purposes of this subparagraph, "intangible property" includes patents, patent applications, trade names, SB0507 Engrossed - 40 - LRB094 08414 BDD 38616 b trademarks, service marks, copyrights, mask works, trade secrets, and similar types of intangible assets.

(i) any item of intangible expenses or costs paid, accrued, or incurred, directly or indirectly, from a transaction with a foreign person who is subject in a foreign country or state, other than a state which requires mandatory SB0507 - 34 - LRB094 08414 BDD 38616 b unitary reporting, to a tax on or measured by net income with respect to such item;

Nothing in this subsection shall preclude the SB0507 Engrossed - 41 - LRB094 08414 BDD 38616 b Director from making any other adjustment otherwise allowed under Section 404 of this Act for any tax year beginning after the effective date of this amendment provided such adjustment is made pursuant to regulation adopted by the Department and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

SB0507 - 35 - LRB094 08414 BDD 38616 b and by deducting from the total so obtained the sum of the following amounts:

SB0507 Engrossed - 42 - LRB094 08414 BDD 38616 b (L) With the exception of any amounts subtracted under subparagraph (K), an amount equal to the sum of all amounts disallowed as deductions by (i) Sections 171(a) (2) and 265(a)(2) of the Internal Revenue Code, as now or hereafter amended, and all amounts of expenses allocable to interest and disallowed as deductions by Section 265(1) of the Internal Revenue Code of 1954, as now or hereafter amended;

and (ii) for SB0507 - 36 - LRB094 08414 BDD 38616 b taxable years ending on or after August 13, 1999, Sections 171(a)(2), 265, 280C, and 832(b)(5)(B)(i) of the Internal Revenue Code;

SB0507 Engrossed - 43 - LRB094 08414 BDD 38616 b (Q) For taxable year 1999 and thereafter, an amount equal to the amount of any (i) distributions, to the extent includible in gross income for federal income tax purposes, made to the taxpayer because of his or her status as a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime or as an heir of the victim and (ii) items of income, to the extent includible in gross income for SB0507 - 37 - LRB094 08414 BDD 38616 b federal income tax purposes, attributable to, derived from or in any way related to assets stolen from, hidden from, or otherwise lost to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime immediately prior to, during, and immediately after World War II, including, but not limited to, interest on the proceeds receivable as insurance under policies issued to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime by European insurance companies immediately prior to and during World War II;

(R) For taxable years 2001 and thereafter, for the taxable year in which the bonus depreciation deduction (30% of the adjusted basis of the qualified property) SB0507 Engrossed - 44 - LRB094 08414 BDD 38616 b is taken on the taxpayer’s federal income tax return under subsection (k) of Section 168 of the Internal Revenue Code and for each applicable taxable year thereafter, an amount equal to "x", where:

(1) "y" equals the amount of the depreciation deduction taken for the taxable year on the taxpayer’s federal income tax return on property for which the bonus depreciation deduction (30% of SB0507 - 38 - LRB094 08414 BDD 38616 b the adjusted basis of the qualified property) was taken in any year under subsection (k) of Section 168 of the Internal Revenue Code, but not including the bonus depreciation deduction;

(T) The amount of (i) any interest income (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under SB0507 Engrossed - 45 - LRB094 08414 BDD 38616 b Section 203(a)(2)(D-17), 203(b)(2)(E-12), 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed the amount of such addition modification and (ii) any income from intangible property (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section SB0507 - 39 - LRB094 08414 BDD 38616 b 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or 203(d)(2)(D-8), but not to exceed the amount of such addition modification;

SB0507 Engrossed - 46 - LRB094 08414 BDD 38616 b (3) Limitation.

SB0507 - 40 - LRB094 08414 BDD 38616 b (d) Partnerships.

(D-6) If the taxpayer reports a capital gain or SB0507 Engrossed - 47 - LRB094 08414 BDD 38616 b loss on the taxpayer’s federal income tax return for the taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (D-5), then an amount equal to the aggregate amount of the deductions taken in all taxable years under subparagraph (O) with respect to that property.

SB0507 - 41 - LRB094 08414 BDD 38616 b The taxpayer is required to make the addition modification under this subparagraph only once with respect to any one piece of property;

(i) an item of interest paid, accrued, or incurred, directly or indirectly, to a foreign person who is subject in a foreign country or state, other than a state which requires mandatory unitary reporting, to a tax on or measured by net SB0507 Engrossed - 48 - LRB094 08414 BDD 38616 b income with respect to such interest;

(a) the foreign person, during the same taxable year, paid, accrued, or incurred, the SB0507 - 42 - LRB094 08414 BDD 38616 b interest to a person that is not a related member, and (b) the transaction giving rise to the interest expense between the taxpayer and the foreign person did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects an arm’s-length interest rate and terms;

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for any tax year beginning after the effective date of this amendment provided such adjustment is made SB0507 Engrossed - 49 - LRB094 08414 BDD 38616 b pursuant to regulation adopted by the Department and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

and (D-8) For taxable years ending on or after December 31, 2004, an amount equal to the amount of intangible expenses and costs otherwise allowed as a deduction in computing base income, and that were paid, accrued, or SB0507 - 43 - LRB094 08414 BDD 38616 b incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity.

SB0507 Engrossed - 50 - LRB094 08414 BDD 38616 b (4) licensing fees;

(i) any item of intangible expenses or costs SB0507 - 44 - LRB094 08414 BDD 38616 b paid, accrued, or incurred, directly or indirectly, from a transaction with a foreign person who is subject in a foreign country or state, other than a state which requires mandatory unitary reporting, to a tax on or measured by net income with respect to such item;

or if the taxpayer and the Director SB0507 Engrossed - 51 - LRB094 08414 BDD 38616 b agree in writing to the application or use of an alternative method of apportionment under Section 304(f);

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for any tax year beginning after the effective date of this amendment provided such adjustment is made SB0507 - 45 - LRB094 08414 BDD 38616 b pursuant to regulation adopted by the Department and such regulations provide methods and standards by which the Department will utilize its authority under Section 404 of this Act;

(I) An amount equal to all amounts of income distributable to an entity subject to the Personal SB0507 Engrossed - 52 - LRB094 08414 BDD 38616 b Property Tax Replacement Income Tax imposed by subsections (c) and (d) of Section 201 of this Act including amounts distributable to organizations exempt from federal income tax by reason of Section 501(a) of the Internal Revenue Code;

(J) With the exception of any amounts subtracted under subparagraph (G), an amount equal to the sum of all amounts disallowed as deductions by (i) Sections SB0507 - 46 - LRB094 08414 BDD 38616 b 171(a) (2), and 265(2) of the Internal Revenue Code of 1954, as now or hereafter amended, and all amounts of expenses allocable to interest and disallowed as deductions by Section 265(1) of the Internal Revenue Code, as now or hereafter amended;

provided that dividends eligible for the deduction provided in subparagraph (K) of paragraph (2) of this subsection shall not be eligible for the deduction provided under SB0507 Engrossed - 53 - LRB094 08414 BDD 38616 b this subparagraph (M);

(O) For taxable years 2001 and thereafter, for the taxable year in which the bonus depreciation deduction SB0507 - 47 - LRB094 08414 BDD 38616 b (30% of the adjusted basis of the qualified property) is taken on the taxpayer’s federal income tax return under subsection (k) of Section 168 of the Internal Revenue Code and for each applicable taxable year thereafter, an amount equal to "x", where:

(P) If the taxpayer reports a capital gain or loss on the taxpayer’s federal income tax return for the taxable year based on a sale or transfer of property for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (D-5), then an amount equal to that addition SB0507 Engrossed - 54 - LRB094 08414 BDD 38616 b modification.

(Q) The amount of (i) any interest income (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition SB0507 - 48 - LRB094 08414 BDD 38616 b modification with respect to such transaction under Section 203(a)(2)(D-17), 203(b)(2)(E-12), 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed the amount of such addition modification and (ii) any income from intangible property (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or 203(d)(2)(D-8), but not to exceed the amount of such addition modification;

and (S) An amount equal to the income from intangible property taken into account for the taxable year (net of the deductions allocable thereto) with respect to transactions with a foreign person who would be a SB0507 Engrossed - 55 - LRB094 08414 BDD 38616 b member of the taxpayer’s unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity, but not to exceed the addition modification required to be made for the same taxable year under Section 203(d)(2)(D-8) for intangible expenses and costs paid, accrued, or incurred, directly or indirectly, to the same foreign SB0507 - 49 - LRB094 08414 BDD 38616 b person.

For taxable years ending prior to December 31, 1986, taxable income may never be an amount in excess of the net operating loss for the taxable year as defined in subsections (c) and (d) of Section 172 of the Internal Revenue Code, provided that when taxable income of a corporation (other than a Subchapter S corporation), trust, or estate is less than zero and addition modifications, other than those provided by subparagraph (E) of paragraph (2) of subsection (b) for corporations or subparagraph (E) of paragraph (2) of subsection (c) for trusts and estates, exceed subtraction modifications, an SB0507 Engrossed - 56 - LRB094 08414 BDD 38616 b addition modification must be made under those subparagraphs for any other taxable year to which the taxable income less than zero (net operating loss) is applied under Section 172 of the Internal Revenue Code or under subparagraph (E) of paragraph (2) of this subsection (e) applied in conjunction with Section 172 of the Internal Revenue Code.

For purposes of paragraph (1) of this SB0507 - 50 - LRB094 08414 BDD 38616 b subsection, the taxable income properly reportable for federal income tax purposes shall mean:

In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated income tax return for the taxable year for federal income tax purposes, taxable income determined as if such corporation had filed a separate return for federal income tax purposes for the taxable year and each preceding taxable year SB0507 Engrossed - 57 - LRB094 08414 BDD 38616 b for which it was a member of an affiliated group.

In the case of a cooperative corporation or association, the taxable income of such organization determined in accordance with the SB0507 - 51 - LRB094 08414 BDD 38616 b provisions of Section 1381 through 1388 of the Internal Revenue Code;

Notwithstanding any other law to the contrary, if in prior years income from an asset or SB0507 Engrossed - 58 - LRB094 08414 BDD 38616 b business has been classified as business income and in a later year is demonstrated to be non-business income, then all expenses, without limitation, deducted in such later year and in the 2 immediately preceding taxable years related to that asset or business that generated the non-business income shall be added back and recaptured as business income in the year of the disposition of the asset or business.

Such amount shall be apportioned to Illinois SB0507 - 52 - LRB094 08414 BDD 38616 b using the greater of the apportionment fraction computed for the business under Section 304 of this Act for the taxable year or the average of the apportionment fractions computed for the business under Section 304 of this Act for the taxable year and for the 2 immediately preceding taxable years.

(A) If the fair market value of property referred to in paragraph (1) was readily ascertainable on August 1, 1969, the pre-August 1, 1969 appreciation amount for such property is the lesser of (i) the excess of such SB0507 Engrossed - 59 - LRB094 08414 BDD 38616 b fair market value over the taxpayer’s basis (for determining gain) for such property on that date (determined under the Internal Revenue Code as in effect on that date), or (ii) the total gain realized and reportable for federal income tax purposes in respect of the sale, exchange or other disposition of such property.

(B) If the fair market value of property referred SB0507 - 53 - LRB094 08414 BDD 38616 b to in paragraph (1) was not readily ascertainable on August 1, 1969, the pre-August 1, 1969 appreciation amount for such property is that amount which bears the same ratio to the total gain reported in respect of the property for federal income tax purposes for the taxable year, as the number of full calendar months in that part of the taxpayer’s holding period for the property ending July 31, 1969 bears to the number of full calendar months in the taxpayer’s entire holding period for the property.

92-439, SB0507 Engrossed - 60 - LRB094 08414 BDD 38616 b eff.