SB 77 — INC TAX- COLLEGE SAVINGS PLAN

SB0077 EngrossedEnrolled LRB096 01731 HLH 11740 b AN ACT concerning State government.

(B) An amount equal to the amount of tax imposed by SB0077 EngrossedEnrolled - 2 - LRB096 01731 HLH 11740 b this Act to the extent deducted from gross income in the computation of adjusted gross income for the taxable year;

(D-5) An amount, to the extent not included in adjusted gross income, equal to the amount of money withdrawn by the taxpayer in the taxable year from a medical care savings account and the interest earned on the account in the taxable year of a withdrawal pursuant to subsection (b) of Section 20 of the Medical Care Savings Account Act or subsection (b) of Section SB0077 EngrossedEnrolled - 3 - LRB096 01731 HLH 11740 b 20 of the Medical Care Savings Account Act of 2000;

The taxpayer is required to make the addition SB0077 EngrossedEnrolled - 4 - LRB096 01731 HLH 11740 b modification under this subparagraph only once with respect to any one piece of property;

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 taxpayer or by a member of the taxpayer's unitary business group (including amounts included in gross income under Sections 951 through 964 of the Internal Revenue Code and amounts included in gross income under Section 78 of the Internal Revenue SB0077 EngrossedEnrolled - 5 - LRB096 01731 HLH 11740 b Code) with respect to the stock of the same person to whom the interest was paid, accrued, or incurred.

or (iii) the taxpayer can establish, based on clear and convincing evidence, that the interest SB0077 EngrossedEnrolled - 6 - LRB096 01731 HLH 11740 b 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;

(D-18) 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, (i) for taxable years ending on or after December 31, 2004, to a foreign person who would be a member of the same SB0077 EngrossedEnrolled - 7 - LRB096 01731 HLH 11740 b 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 and (ii) for taxable years ending on or after December 31, 2008, to a person who would be a member of the same unitary business group but for the fact that the person is prohibited under Section 1501(a)(27) from being included in the unitary business group because he or she is ordinarily required to apportion business income under different subsections of Section 304.

As used in this subparagraph, the term "intangible expenses and costs" SB0077 EngrossedEnrolled - 8 - LRB096 01731 HLH 11740 b includes (1) expenses, losses, and costs for, or related to, the direct or indirect acquisition, use, maintenance or management, ownership, sale, exchange, or any other disposition of intangible property;

SB0077 EngrossedEnrolled - 9 - LRB096 01731 HLH 11740 b (a) the person during the same taxable year paid, accrued, or incurred, the intangible expense or cost to a person that is not a related member, and (b) the transaction giving rise to the intangible expense or cost between the taxpayer and the 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 arm's-length 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 pursuant to regulation adopted by the Department and such regulations provide methods and standards SB0077 EngrossedEnrolled - 10 - LRB096 01731 HLH 11740 b by which the Department will utilize its authority under Section 404 of this Act;

The preceding sentence does not apply to the extent that the same dividends caused a reduction to the addition SB0077 EngrossedEnrolled - 11 - LRB096 01731 HLH 11740 b modification required under Section 203(a)(2)(D-17) or Section 203(a)(2)(D-18) of this Act.

For taxable years beginning on or after January 1, 2007, 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 of in-state qualified tuition programs by informing Illinois residents directly and, where applicable, to SB0077 EngrossedEnrolled - 12 - LRB096 01731 HLH 11740 b 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).

(D-22) An amount equal to the credit allowable to the taxpayer under Section 218(a) of this Act, SB0077 EngrossedEnrolled - 13 - LRB096 01731 HLH 11740 b determined without regard to Section 218(c) of this Act.

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 resident by reason of being a member of any component of the Armed Forces of the United States and in respect SB0077 EngrossedEnrolled - 14 - LRB096 01731 HLH 11740 b 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 or, beginning with taxable years ending on or after December 31, 2007, the National Guard of any other state.

(I) An amount equal to all amounts included in such SB0077 EngrossedEnrolled - 15 - LRB096 01731 HLH 11740 b total pursuant to the provisions of Section 111 of the Internal Revenue Code as a recovery of items previously deducted from adjusted gross income in the computation of taxable income;

(L) For taxable years ending after December 31, 1983, an amount equal to all social security benefits and railroad retirement benefits included in such SB0077 EngrossedEnrolled - 16 - LRB096 01731 HLH 11740 b total pursuant to Sections 72(r) and 86 of the Internal Revenue Code;

(O) An amount equal to any contribution made to a job training project established pursuant to the Tax SB0077 EngrossedEnrolled - 17 - LRB096 01731 HLH 11740 b 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 or the Medical Care Savings Account Act of 2000 on SB0077 EngrossedEnrolled - 18 - LRB096 01731 HLH 11740 b behalf of the taxpayer, other than interest added pursuant to item (D-5) of this paragraph (2);

except that no deduction shall be allowed under this item (V) if the taxpayer is eligible to participate in any health insurance or long-term care insurance plan of an SB0077 EngrossedEnrolled - 19 - LRB096 01731 HLH 11740 b employer of the taxpayer or the taxpayer's spouse.

(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 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 SB0077 EngrossedEnrolled - 20 - LRB096 01731 HLH 11740 b 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;

(Y) For taxable years beginning on or after January 1, 2002 and ending on or before December 31, 2004, moneys contributed in the taxable year to a College Savings Pool account under Section 16.5 of the State Treasurer Act, except that amounts excluded from gross SB0077 EngrossedEnrolled - 21 - LRB096 01731 HLH 11740 b income under Section 529(c)(3)(C)(i) of the Internal Revenue Code shall not be considered moneys contributed under this subparagraph (Y).

(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 was SB0077 EngrossedEnrolled - 22 - LRB096 01731 HLH 11740 b taken in any year under subsection (k) of Section 168 of the Internal Revenue Code, but not including the bonus depreciation deduction;

SB0077 EngrossedEnrolled - 23 - LRB096 01731 HLH 11740 b (AA) If the taxpayer sells, transfers, abandons, or otherwise disposes 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-12), SB0077 EngrossedEnrolled - 24 - LRB096 01731 HLH 11740 b 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-13), 203(c)(2)(G-13), or 203(d)(2)(D-8), but not to exceed the amount of that 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 (i) 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 and (ii) for taxable years ending on or after December 31, 2008, to a person who would be a member of the same unitary business group but for the fact that the person is prohibited under Section 1501(a)(27) from being included in the unitary business group because he or she is ordinarily required to apportion business income under different subsections of Section 304, but not to exceed the SB0077 EngrossedEnrolled - 25 - LRB096 01731 HLH 11740 b 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 person.

SB0077 EngrossedEnrolled - 26 - LRB096 01731 HLH 11740 b (b) Corporations.

SB0077 EngrossedEnrolled - 27 - LRB096 01731 HLH 11740 b (D) The amount of any net operating loss deduction taken in arriving at taxable income, other than a net operating loss carried forward from a taxable year ending prior to December 31, 1986;

(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 December 31, 1986 shall not exceed the amount of SB0077 EngrossedEnrolled - 28 - LRB096 01731 HLH 11740 b such carryback or carryforward;

If the taxpayer continues to own property through SB0077 EngrossedEnrolled - 29 - LRB096 01731 HLH 11740 b the last day of the last tax year for which the taxpayer may claim a depreciation deduction for federal income tax purposes and for which the taxpayer was allowed in any taxable year to make a subtraction modification under subparagraph (T), then an amount equal to that subtraction modification.

The addition modification required by this subparagraph shall be reduced to the SB0077 EngrossedEnrolled - 30 - LRB096 01731 HLH 11740 b extent that dividends were included in base income of the unitary group for the same taxable year and received by the 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 interest was paid, accrued, or incurred.

(a) the 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 SB0077 EngrossedEnrolled - 31 - LRB096 01731 HLH 11740 b interest expense between the taxpayer and the 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 pursuant to regulation adopted by the Department and such regulations provide methods and standards SB0077 EngrossedEnrolled - 32 - LRB096 01731 HLH 11740 b by which the Department will utilize its authority under Section 404 of this Act;

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 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 SB0077 EngrossedEnrolled - 33 - LRB096 01731 HLH 11740 b 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 indirectly, from a transaction with a person who is subject in a foreign country or state, other than a SB0077 EngrossedEnrolled - 34 - LRB096 01731 HLH 11740 b 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 agree in writing to the application or use of an alternative SB0077 EngrossedEnrolled - 35 - LRB096 01731 HLH 11740 b method of apportionment under Section 304(f);

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 taxpayer or by a member of the taxpayer's unitary business group SB0077 EngrossedEnrolled - 36 - LRB096 01731 HLH 11740 b (including amounts included in gross income under 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 premiums and costs were directly or indirectly paid, incurred, or accrued.

SB0077 EngrossedEnrolled - 37 - LRB096 01731 HLH 11740 b (H) In the case of a regulated investment company, an amount equal to the amount of exempt interest dividends as defined in subsection (b) (5) of Section 852 of the Internal Revenue Code, paid to shareholders for the taxable year;

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 SB0077 EngrossedEnrolled - 38 - LRB096 01731 HLH 11740 b this Act, the amount exempted shall be the interest net of bond premium amortization;

(M) For any taxpayer that is a financial organization within the meaning of Section 304(c) of this Act, an amount included in such total as interest income from a loan or loans made by such taxpayer to a borrower, to the extent that such a loan is secured by SB0077 EngrossedEnrolled - 39 - LRB096 01731 HLH 11740 b property which is eligible for the Enterprise Zone Investment Credit or the River Edge Redevelopment Zone Investment Credit.

To determine the portion of a loan SB0077 EngrossedEnrolled - 40 - LRB096 01731 HLH 11740 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.