Illinois DOR amends income tax regulations.

• Author: Packard, Pamela
• Position: Illinois Department of Revenue

Near the end of 2000, the Illinois Department of Revenue (DOR) promulgated and proposed several significant amendments to its income tax regulations. These amendments include changes to the net operating loss (NOL) carryback and carryover provisions and several amendments to the composite-return-filing methodology for passthrough investors, including provisions that allow resident partners and shareholders to join in filing a composite return. In November 2000, the DOR issued long-awaited amendments to its regulations defining "financial organizations" for income tax apportionment purposes.

NOL Carryback and Carryover Changes

Effective Dec. 11, 2000, the Illinois DOR amended 86 Ill. Admin. Code Section 100.2330 on NOL carryforwards and carrybacks. This amendment also provides guidance for Federal law changes. According to the amended regulations, an Illinois NOL that occurred in a tax year ending after Dec. 30, 1999 may be carried back to the two preceding tax years or carried forward to the 20 succeeding tax years. For Illinois NOLs incurred in tax years beginning after Aug. 5, 1997 and ending prior to 2000, special carryover provisions allowed under Sec. 172(b) also apply.

The amendments also clarify the S corporation loss carryover provisions under Illinois Income Tax Act (IITA) Section 207. The DOR explains with its amendments that a loss incurred in a tax year in which a corporation is an S corporation may be carried to a tax year in which it is no longer an S corporation (i.e., in the same manner as if the corporation were an S corporation for the whole year). Likewise, a C loss may be carried over to and deducted in any tax year in which it is an S corporation.

Composite-Filing-Return Provisions

The DOR amended 86 Ill. Admin. Code Section 100.5130, effective Dec. 11, 2000, to update the provisions for filing composite returns by partnerships and S corporations on behalf of their partners and shareholders. The previous regulation was modified to update the listing of addition and subtraction modifications allowed to partnerships and S corporations in computing their personal property tax replacement income tax liabilities, but not to their partners and shareholders in computing the tax due on composite returns. The regulation was also amended to add statutory references for the addition and subtraction modifications, and to eliminate specific line references for the modifications, so that the regulation will not require future...