SB 3648 — INC TAX-WRONGFULLY IMPRISONED

SB3648 EngrossedEnrolled LRB096 14906 HLH 29789 b AN ACT concerning revenue.

(B) An amount equal to the amount of tax imposed by SB3648 EngrossedEnrolled - 2 - LRB096 14906 HLH 29789 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(D-5) An amount, to the extent not included in adjusted gross income, equal to the amount of money withdrawn by the taxpayer in the taxable year from a medical care savings account and the interest earned on the account in the taxable year of a withdrawal pursuant to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 SB3648 EngrossedEnrolled - 3 - LRB096 14906 HLH 29789 b 20 of the Medical Care Savings Account Act of 2000;

The taxpayer is required to make the addition SB3648 EngrossedEnrolled - 4 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 5 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 6 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 7 - LRB096 14906 HLH 29789 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" SB3648 EngrossedEnrolled - 8 - LRB096 14906 HLH 29789 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;

SB3648 EngrossedEnrolled - 9 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 10 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 11 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 12 - LRB096 14906 HLH 29789 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) For taxable years beginning on or after January 1, 2009, in the case of a nonqualified SB3648 EngrossedEnrolled - 13 - LRB096 14906 HLH 29789 b withdrawal or refund of moneys from a qualified tuition program under Section 529 of the Internal Revenue Code administered by the State that is not used for qualified expenses at an eligible education institution, an amount equal to the contribution component of the nonqualified withdrawal or refund that was previously deducted from base income under subsection (a)(2)(y) of this Section, provided that the withdrawal or refund did not result from the beneficiary's death or disability;.

(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 governmental employee was a prisoner of war or missing in action, and in respect of any compensation paid to a SB3648 EngrossedEnrolled - 14 - LRB096 14906 HLH 29789 b 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 or, beginning with taxable years ending on or after December 31, 2007, the National Guard of any other state.

(F) An amount equal to all amounts included in such total pursuant to the provisions of Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the Internal Revenue Code, or included in such total as SB3648 EngrossedEnrolled - 15 - LRB096 14906 HLH 29789 b distributions under the provisions of any retirement or disability plan for employees of any governmental agency or unit, or retirement payments to retired partners, which payments are excluded in computing net earnings from self employment by Section 1402 of the Internal Revenue Code and regulations adopted pursuant thereto;

SB3648 EngrossedEnrolled - 16 - LRB096 14906 HLH 29789 b (K) 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 provisions of this subparagraph are exempt from the provisions of Section SB3648 EngrossedEnrolled - 17 - LRB096 14906 HLH 29789 b 250;

(S) An amount, to the extent included in adjusted SB3648 EngrossedEnrolled - 18 - LRB096 14906 HLH 29789 b gross income, equal to the amount of a contribution made in the taxable year on behalf of the taxpayer to a medical care savings account established under the Medical Care Savings Account Act or the Medical Care Savings Account Act of 2000 to the extent the contribution is accepted by the account administrator as provided in that Act;

(V) Beginning with tax years ending on or after 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 SB3648 EngrossedEnrolled - 19 - LRB096 14906 HLH 29789 b 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;

SB3648 EngrossedEnrolled - 20 - LRB096 14906 HLH 29789 b (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 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;

provided, further, this paragraph shall only apply to a taxpayer who was the first recipient of such assets after their recovery and who is a victim of persecution for racial or religious reasons by Nazi SB3648 EngrossedEnrolled - 21 - LRB096 14906 HLH 29789 b Germany or any other Axis regime or as an heir of the victim.

For purposes of this subparagraph, contributions made by an employer on behalf of an employee, or matching contributions made by an employee, shall be treated as SB3648 EngrossedEnrolled - 22 - LRB096 14906 HLH 29789 b made by the employee.

and SB3648 EngrossedEnrolled - 23 - LRB096 14906 HLH 29789 b (ii) for property on which a bonus depreciation deduction of 50% of the adjusted basis was taken, "x" equals "y" multiplied by 1.0.

The taxpayer is allowed to take the deduction under this subparagraph only once with respect to any one SB3648 EngrossedEnrolled - 24 - LRB096 14906 HLH 29789 b piece of property.

(DD) An amount equal to the interest income taken into account for the taxable year (net of the deductions allocable thereto) with respect to SB3648 EngrossedEnrolled - 25 - LRB096 14906 HLH 29789 b 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 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.

and (EE) 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 (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 SB3648 EngrossedEnrolled - 26 - LRB096 14906 HLH 29789 b 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 addition modification required to be made for the same taxable year under Section 203(a)(2)(D-18) for intangible expenses and costs paid, accrued, or incurred, directly or indirectly, to the same foreign person.

SB3648 EngrossedEnrolled - 27 - LRB096 14906 HLH 29789 b (A) An amount equal to all amounts paid or accrued to the taxpayer as interest and all distributions received from regulated investment companies during the taxable year to the extent excluded from gross income in the computation of taxable income;

(E) For taxable years in which a net operating loss carryback or carryforward from a taxable year ending prior to December 31, 1986 is an element of taxable income under paragraph (1) of subsection (e) or SB3648 EngrossedEnrolled - 28 - LRB096 14906 HLH 29789 b subparagraph (E) of paragraph (2) of subsection (e), the amount by which addition modifications other than those provided by this subparagraph (E) exceeded subtraction modifications in such earlier taxable year, with the following limitations applied in the order that they are listed:

SB3648 EngrossedEnrolled - 29 - LRB096 14906 HLH 29789 b (E-5) For taxable years ending after December 31, 1997, an amount equal to any eligible remediation costs that the corporation deducted in computing adjusted gross income and for which the corporation claims a credit under subsection (l) of Section 201;

The taxpayer is required to make the addition modification under this subparagraph only once with SB3648 EngrossedEnrolled - 30 - LRB096 14906 HLH 29789 b 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 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 SB3648 EngrossedEnrolled - 31 - LRB096 14906 HLH 29789 b 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 SB3648 EngrossedEnrolled - 32 - LRB096 14906 HLH 29789 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;

(E-13) 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 SB3648 EngrossedEnrolled - 33 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 34 - LRB096 14906 HLH 29789 b "intangible expenses and costs" 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;

SB3648 EngrossedEnrolled - 35 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 36 - LRB096 14906 HLH 29789 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 SB3648 EngrossedEnrolled - 37 - LRB096 14906 HLH 29789 b modification required under Section 203(b)(2)(E-12) or Section 203(b)(2)(E-13) of this Act;

(I) With the exception of any amounts subtracted under subparagraph (J), an amount equal to the sum of all amounts disallowed as deductions by (i) Sections SB3648 EngrossedEnrolled - 38 - LRB096 14906 HLH 29789 b 171(a) (2), and 265(a)(2) and amounts disallowed as interest expense by Section 291(a)(3) 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(a)(1) of the Internal Revenue Code, as now or hereafter amended;

(K) An amount equal to those dividends included in such total which were paid by a corporation which conducts business operations in an Enterprise Zone or zones created under the Illinois Enterprise Zone Act or a River Edge Redevelopment Zone or zones created under the River Edge Redevelopment Zone Act and conducts SB3648 EngrossedEnrolled - 39 - LRB096 14906 HLH 29789 b substantially all of its operations in an Enterprise Zone or zones or a River Edge Redevelopment Zone or zones.

To determine the portion of a loan or loans that is secured by property eligible for a Section 201(f) 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(f) investment credit SB3648 EngrossedEnrolled - 40 - LRB096 14906 HLH 29789 b 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 the Enterprise Zone or the River Edge Redevelopment Zone.