Current through Register Vol. 48, No. 38, September 20, 2024
a) The Illinois income tax treatment of net
operating loss carrybacks and carryforwards will generally follow that of the
Internal Revenue Code. However, to the extent that a federal net operating loss
for Illinois income tax purposes of a member is absorbed in the computation of
combined federal taxable income in the year that it arose, no carryback or
carryforward of that loss will be allowed. This prohibition is mandated by IITA
Section 203(g) which precludes deducting the same item more than once.
EXAMPLE: Corporations A, B, C and D are members of a unitary
business group for calendar year 1982. In that year, Corporations A, B and C
had federal taxable incomes for Illinois income tax purposes of $200,000,
$300,000 and $500,000, respectively, while Corporation D had a federal net
operating loss for Illinois income tax purposes of $250,000. Since Corporation
D's 1982 federal net operating loss for Illinois income tax purposes is used to
offset the 1982 federal taxable incomes for Illinois income tax purposes of the
other group members in the computation of 1982 combined federal taxable income,
Corporation D will not be able to carry back to 1979 or carry forward to 1983
or later years any portion of its 1982 federal net operating loss for Illinois
income tax purposes. In these circumstances, Corporation D would not be
entitled to a refund of 1979 Illinois income tax based on a net operating loss
carryback from 1982 even if it received a refund of its 1979 federal income tax
on that basis. In addition, if Corporation D carried forward the 1982 net
operating loss to 1983 or later years in computing federal taxable income for
federal income tax purposes, it is obligated to adjust that figure upward by
those carryforward amounts in calculating its federal taxable income for
Illinois income tax purposes for those carryforward years.
b) In the event that the group members'
federal taxable incomes for Illinois income tax purposes and federal net
operating losses for Illinois income tax purposes result in a combined federal
net operating loss, this loss will be divided among those group members which
incur federal net operating losses for Illinois income tax purposes. This
division will be made pro rata based on the relative size of the federal net
operating losses for Illinois income tax purposes of the members having such
losses. The members will then individually carryback or carryforward their
respective shares of the combined federal net operating loss in conformity with
the applicable provisions of 26 U.S.C. Section 172, i.e. generally 3 year
carryback and 15 year carryforward; for financial institutions, 10 year
carryback and a 5 year carryforward; for real estate investment trusts, no
carryback and a 15 year carryforward, etc. However, the amount of the loss that
the individual member (hereinafter sometimes referred to as the "loss member")
can carryback or forward to any year shall be limited to the lesser of the
following amounts computed with respect to the carryback or carryforward year.
1) (hereinafter sometimes referred to as
Limitation No. 1) The sum of the federal taxable incomes and federal net
operating losses for Illinois income tax purposes in that year for the loss
member and any other person that was a member of the same unitary business
group as the loss member in that year and in the year that the loss was
incurred by the loss member.
2)
(hereinafter sometimes referred to as Limitation No. 2) The combined federal
taxable income for that year of any unitary business group to which the loss
member belonged.
c) This
means that a member of a unitary business group will not be permitted to carry
a loss to a year in which it belonged to a unitary business group that had a
combined federal net operating loss for Illinois income tax purposes or zero
combined federal taxable income for Illinois income tax purposes. In addition,
a member of a unitary business group will not be permitted to carry a loss to a
year in which it and other common members - persons that were members of its
unitary business group in both the loss year and the carryback or carryforward
year - had an aggregate federal net operating loss or zero taxable income among
themselves for Illinois income tax purposes. In the case of losses arising in
non-unitary years (years in which a unitary return was not filed), members will
be permitted to carry such non-unitary losses to their unitary years (other
conditions being met), but the maximum amount of non-unitary loss that any
member may carry to a unitary year shall be limited to that member's federal
taxable income for Illinois income tax purposes in that year (Limitation No.
1), and by the combined federal taxable income for that year of the unitary
group to which the member belongs (Limitation No. 2) whichever is
less.
d) When two or more persons
carry losses back or forward to the same taxable year and both (all) were
members of the same unitary business group in the carryback or carryforward
year, the limitations described in the previous paragraph subsection will be
applied as follows. First, if the persons were both subject to Limitation No. 1
relative to the same common members in the carryback or carryforward year and
if their losses, when added together, exceed Limitation No. 1, then each of the
persons is deemed to have used a proportionate share of its loss in the
carryback or carryforward year, based on the size of its loss as compared to
the total of the losses of the persons subject to the same Limitation No. 1.
Second, if the total combined loss of the persons, otherwise eligible to be
used in the carryback or carryforward year, exceeds Limitation No. 2, each of
the persons is deemed to have used a proportionate share of its loss, based on
the size of its loss, otherwise eligible for use, as compared to the total
combined loss of the persons, otherwise eligible for use. (See Examples 4 and 5
below.)
e) When losses are carried
back or forward from two or more loss years against the combined federal
taxable income of a unitary business group for a particular taxable year,
losses originating in the earliest year shall be used first. Appropriate
adjustments shall be made to Limitation No. 1 and Limitation No. 2 in
determining the amounts of losses that may be used in that particular year from
later loss years.
1) EXAMPLE 1:
A) FACTS:
i) In 1983, Corporations X, Y, Z, and Q are
members of a unitary business group with federal taxable incomes (NOL) for
Illinois tax purposes as follows:
Corporation X $10 million
Corporation Y $10 million
Corporation Z $10 million
Corporation Q ($40 million)
ii) As a consequence, there is a $10 million
unabsorbed net operating loss originating in 1983.
iii) In 1980, Corporations X, Y, Z, Q, and R
were members of a unitary business group with federal taxable incomes (NOL) for
Illinois income tax purposes as follows:
Corporation R $10 million
Corporation Z ($5 million)
Corporation Y ($5 million)
Corporation Q $10 million
Corporation X ($5 million)
iv) As a consequence, the unitary business
group X, Y, Z, Q and R had a combined federal taxable income in 1980 of $5
million.
B) ANALYSIS AND
CONCLUSION: As a result of Limitation No. 1, the $10 million unabsorbed loss of
Corporation Q, originating in 1983, cannot be used to any extent in computing
the liabilities of Corporations Q, X, Y, Z, or R for 1980. The entire $10
million unabsorbed loss of Corporation Q originating in 1983 may be tested
against 1981 income and loss figures of Corporation Q and other members of its
unitary business group in that year.
2) EXAMPLE 2:
A) FACTS:
i) Corporations A, B, C, D and E are members
of a unitary business group in 1981, 1982, and 1983. In 1983, they have federal
taxable incomes (NOL) for Illinois income tax purposes as follows:
Corporation A $30,000
Corporation B $60,000
Corporation C $70,000
Corporation D ($150,000)
Corporation E ($50,000)
ii) The group's combined federal net
operating loss is ($40,000) which will be divided between Corporations D and E
for purposes of carryback and carryforward:
Corp. D: $150,000/$200,000 x ($40,000) = ($10,000)
Corp. E: $50,000/$200,000 x ($40,000) = ($10,000)
iii) In 1980 Corporations A, D, E
and F were members of a unitary business group with federal taxable incomes
(NOL) for Illinois income tax purposes as follows:
Corporation A $6,000
Corporation D $7,000
Corporation E $7,000
Corporation F 30,000
iv) As a consequence, the unitary business
group A, D, E, and F had combined federal taxable income for 1980 of
$50,000.
B) ANALYSIS AND
CONCLUSION: Under Limitation No. 1, no more than $20,000 of the net operating
loss of Corporations D and E originating in 1983 may be used in computing 1980
liabilities. Of the $20,000 in 1983 net operating losses that may be used in
1980, Corporation D is deemed to have provided $15,000 and Corporation E is
deemed to have provided $5,000, this being the ratio indicated by the relative
amounts of their respective net operating losses originating in 1983. As a
consequence, Corporation D will have an unabsorbed loss of $15,000, which it
may test against its income figures and those of other members of its unitary
business group for 1981; Corporation E will have the same opportunity with
respect to its $5,000 of unabsorbed loss.
3) EXAMPLE 3:
A) Same facts as Example 2, except
Corporation F had a $25,000 net operating loss in 1982 and Corporation E had a
$3,000 net operating loss in 1982. Neither Corporations F nor E were members of
unitary business groups in 1982; both had zero taxable income in 1979, and
neither was a member of a unitary business group in 1979.
B) ANALYSIS AND CONCLUSION: The entire
$25,000 net operating loss of Corporation F originating in 1982 may be used in
computing the liabilities of all four members of the unitary business groups
for 1980. Also, the entire $3,000 net operating loss of Corporation E
originating in 1982 may be used in computing the 1980 liabilities of all four
members of the unitary business group. As a result of the application of
Corporation E's 1982 net operating loss to the group's income in 1980,
Limitation No. 1, as it applies to the net operating losses of Corporations D
and E originating in 1983 is $17,000, i.e., the 1980 federal taxable income for
Illinois income tax purposes less absorption of the 1982 loss for Corporation A
is $6,000, for Corporation D is $7,000, for Corporation E is $4,000. The
$17,000 of 1983 net operating loss will be divided between Corporations D and E
in accordance with the 3 to 1 ratio in which they incurred losses in 1983, with
the result that $12,750 of Corporation D's 1983 net operating loss will be used
in 1980 and $4,250 of Corporation E's net operating loss will be used in 1980
with the remaining unabsorbed amounts potentially available for application to
1981 and later years.
4)
EXAMPLE 4:
A) FACTS:
i) Corporations A, B, C and D are members of
a unitary business group in 1983. In that year, they have federal taxable
income (NOL) for Illinois income tax purposes as follows:
A - $20,000
B - $40,000
C - $40,000
D - ($150,000)
ii) As a consequence, there is a $50,000
unabsorbed loss for Corporation D originating in 1983.
iii) Corporations W, X, Y and Z are members
of a different unitary business group in 1983 and have the following amounts of
federal taxable income (NOL) for Illinois income tax purposes in that year.
W - $20,000
X - $40,000
Y - $40,000
Z - ($150,000)
iv) As a consequence, there is a $50,000
unabsorbed loss for Corporation Z originating in 1983.
v) In 1980 Corporations A, B, C, D, V, X, Y
and Z were all members of the same unitary business group with the following
amounts of federal taxable income (NOL) for Illinois income tax purposes.
A - $10,000
B - $10,000
C - $10,000
D - $5,000
V - ($40,000)
X - $15,000
Y - $15,000
Z - $15,000
vi) As a consequence, the combined federal
taxable income of the unitary business group, A, B, C, D, V, X, Y and Z in 1980
was $40,000.
B) ANALYSIS
AND CONCLUSION:
i) Limitation No. 2 against
which the loss carrybacks relating to both Corporations D and Z must be tested
is $40,000. Limitation No. 1 for the loss carryback of Corporation D is $35,000
(the 1980 federal taxable incomes for Illinois income tax purposes of
Corporations A, B, C and D) and Limitation No. 1 for the loss carryback of
Corporation Z is $45,000 (the 1980 federal taxable incomes for Illinois income
tax purposes of Corporations X, Y and Z). Even though Corporations D and Z had
identical $50,000 unabsorbed net operating losses originating in 1983,
different amounts of those losses will be absorbed in 1980. In D's case,
$17,500 will be absorbed in 1980, computed as follows:
ii) Corp. D's Limitation No. 1 for
1980/Limitation No. 2 x Combined Limitation No. 1 for 1980 of corporations D
and Z
35,000/80,000 x 40,000 = 17,500
iii) and $32,500 will be available for use in
other years. In Z's case $22,500 will be absorbed in 1980, computed as
follows:
iv) Corp. Z's Limitation
No. 1 for 1980/Limitation No. 2 x Combined Limitation No. 1 for 1980 of
Corporations Z and D
45,000/80,000 x 40,000 = 22,500
and $27,500 will available for use in future years.
5) EXAMPLE
5:
A) FACTS:
i) Corporations A, B, C and D are members of
a unitary business group in 1983. In that year, they have federal taxable
income (NOL) for Illinois income tax purposes as follows:
Corporation A - $20,000
Corporation B - $40,000
Corporation C - $40,000
Corporation D - ($150,000)
ii) As a consequence, there is a $50,000
unabsorbed loss for Corporation D originating in 1983. Corporations W, X, Y and
Z are members of a different unitary business group in 1983 and have the
following amounts of federal taxable income (NOL) for Illinois income tax
purposes in that year:
Corporation W - $20,000
Corporation X - $10,000
Corporation Y - $30,000
Corporation Z - ($140,000)
iii) As a consequence, there is an $80,000
unabsorbed loss for Corporation Z originating in 1983. In 1980, Corporations A,
B, C, D, V, X, Y and Z were all members of the same unitary business group with
the following amounts of federal taxable income (NOL) for Illinois income tax
purposes:
Corporation A - $10,000
Corporation B - $10,000
Corporation C - $10,000
Corporation D - ( $5,000)
Corporation V - ($25,000)
Corporation X - $50,000
Corporation Y - $10,000
Corporation Z - ($30,000)
iv) As a consequence, the combined federal
taxable income of the unitary business group A, B, C, D, V, X, Y and Z in 1980
was $30,000.
B) ANALYSIS
AND CONCLUSION:
i) Limitation No. 2 against
which the loss carrybacks relating to both Corporations D and Z must be tested
is $30,000. Limitation No. 1 for the loss carryback of Corporation D is $25,000
(the 1980 federal taxable incomes and net operating losses for Illinois income
tax purposes of Corporations A, B, C and D). Limitations No. 1 for the loss
carryback of Corporation Z is $30,000 (the 1980 federal taxable incomes and net
operating losses for Illinois income tax purposes of Corporations X, Y and
Z).
ii) Corporation D will be
deemed to have used $13,636 of its net operating loss in 1980, computed as
follows:
Corp. D's Limitation No. 1/Limitation No. 1 of Corps. D and Z
x Limitation No. 2
25,000/55,000 x 30,000
iii) and $36,364 will be available for use in
other years. Corporation Z will be deemed to have used $16,364 of its net
operating loss in 1980 computed as follows:
Corp. Z's Limitation No. 1/Limitation No. 1 of Corps. Z and D
x Limitation No. 2
30,000/55,000 x 30,000
iv) and will have $63,636 of its net
operating loss available for use in future years.
f) Application of the
loss in the carryback and/or carryforward year.
1) Limitations Nos. 1 and 2 do not obviate
the necessity for determining the amount of federal taxable income remaining to
each group member in the carryback or carryforward year after application of
the loss. This computation is necessary so that the limitation on loss carried
from other years can be determined.
2) When the total loss allowed to be carried
back or forward is less than the total federal taxable income of the common
group members in the carryback or carryforward year, each loss member's share
of the total loss shall be used first to offset its own income in the carryback
or carryforward year. Any remaining loss (up to the limitation) shall be
attributed to each of the common members having federal taxable income in the
carry over year pro rata based on each member's income over the total income of
the common group members.
3)
EXAMPLE:
A) FACTS:
i) In 1983, Corporations A, B, C, D and G are
members of the unitary business group with federal taxable incomes (NOL) for
Illinois income tax purposes as follows:
Corporation A - ($10,000)
Corporation B - $30,000
Corporation C - $5,000
Corporation D - ($60,000)
Corporation G - $5,000
ii) As a consequence, there is a $30,000
unabsorbed net operating loss originating in 1983 which will be divided between
Corporation A and Corporation D for carry back or carry forward purposes as
follows:
Corp. A: $10,000/$70,000 x ($30,000) = ($4,286)
Corp. D: $60,000/$70,000 x ($30,000) = ($25,714)
iii) In 1980, Corporations A, B, D
and F were members of a unitary business group with federal taxable incomes
(NOL) for Illinois income tax purposes as follows:
Corporation A - $15,000
Corporation B - $10,000
Corporation D - $16,000
Corporation F - $20,000
iv) As a consequence, the unitary business
group A, B, D and F had combined federal taxable income for 1980 of
$61,000.
B) ANALYSIS AND
CONCLUSION:
i) As a result of the Limitation
No. 1, Corporation A and Corporation D can carryback the entire amount of
unabsorbed federal net operating loss originating in 1983 to offset their 1980
income as well as the 1980 income of the other common group member, Corporation
B. After application of this 1983 carryback, the unitary business group
consisting of Corporations A, B, D and F will have a combined federal taxable
income in 1980 of $31,000, i.e., the original 1980 combined federal taxable
income of $61,000 less the loss carried back from 1983 to $30,000.
ii) The $30,000 loss carried back from 1983
will be attributed to each of the common group members in 1980 in the following
manner. Corporation D will use $16,000 of the $25,714 1983 unabsorbed loss
assigned to it to reduce its 1980 federal taxable income to zero. Corporation A
will use the entire amount of its 1983 loss of $4,286 against its 1980 federal
taxable income of $15,000 resulting in a balance of $10,714. Corporation A and
Corporation B will share D's remaining loss between them based on their income
in 1980. Thus, Corporation A will be allowed to use $5,828 of Corporation D's
remaining loss, resulting in a balance of federal taxable income in 1980 of
$4,886. Corporation B will be allowed to use $3,886 of Corporation D's
remaining loss against its 1980 federal taxable income of $10,000, resulting in
a balance of federal taxable income in 1980 of $6,114.
iii) Corporation A and Corporation's B share
of Corporation D's remaining loss carryback from 1983 is computed as follows:
Corp. A: $15,000/$25,000 x ($9,714) = ($5,828)
Corp. B: $10,000/$25,000 x ($9,714) = ($3,886)
g) A further additional complication arises
where a member of a unitary business group filing an Illinois income tax return
is also a member of an affiliated group filing a consolidated return for
federal income purposes. In any such case, the member having a federal net
operating loss for Illinois income tax purposes which contributes to the
combined federal net operating loss will be required to carry forward (may not
carryback) its pro rata share of that combined net operating loss (see IITA
Section 203(e)(2)(E)).
h) A
schedule shall be attached to the pro form a U.S. 1120 showing the computation
of the amount of the carryforward and its derivation, i.e., original federal
net operating loss for Illinois income tax purposes less amounts absorbed in
the loss year and in previous carryforward years. The taxpayer shall also
provide any other documentation required by the Department to support the
amount of the carryforward. As indicated with respect to carrybacks, per
Limitation No. 1 and Limitation No. 2, the maximum amount of pro rata share of
combined federal net operating loss that can be individually carried forward to
any year by a member shall be limited to the lesser of the aggregate total of
federal taxable incomes and federal net operating losses for Illinois income
tax purposes of the loss member and other common members of the unitary
business group in the carryforward year or the entire unitary business group's
combined federal taxable income in the carryforward year. This means that a
member of a unitary business group will not be permitted to carry a loss
forward to a year in which the group's combined federal taxable income (without
the loss carryforward) is already zero or less nor may it carry a loss forward
to a year in which the group had combined federal taxable income if its federal
taxable income or federal net operating loss for Illinois income tax purposes
in the carryforward year, when added to comparable figures for other common
members, did not exceed zero. Unabsorbed losses may be saved for use as
appropriate in future years up to the maximum number of years permitted under
IRC Section 172.
1) EXAMPLE 1:
A) FACTS:
i) In 1983, Corporations A, B, C and D are
members of a unitary business group with federal taxable incomes (NOL) for
Illinois income tax purposes as follows:
Corporation A - $100,000
Corporation B - 40,000
Corporation C - 40,000
Corporation D - (200,000)
ii) As a consequence, there is a $20,000
unabsorbed loss for Corporation D originating in 1983. All four corporations
are members of an affiliated group filing a consolidated federal income tax
return for 1983.
iii) In 1984,
Corporation D is an unaffiliated corporation filing an unconsolidated federal
income tax return. In filing its own unconsolidated federal income tax return
for 1984, Corporation D reflected a federal taxable income of $100,000, being
$200,000 taxable income less a federal net operating loss deduction
carryforward of $100,000. Corporation D's federal taxable income for Illinois
income tax purposes is $200,000, computed by adding to its federal taxable
income on its unconsolidated federal income tax return of $100,000 the amount
of its net operating loss deduction of $100,000. In 1984, Corporation D was a
member of the same unitary business group as in 1983, with federal taxable
incomes (NOL) for Illinois income tax purposes as follows:
Corporation A - $ 30,000
Corporation B - 30,000
Corporation C - 30,000
Corporation D - 200,000
iv) As a consequence, there is a $290,000
combined federal taxable income for the group for 1984, prior to any net
operating loss carryforward under these rules.
B) ANALYSIS AND CONCLUSION: Because it was a
member of an affiliated group filing a consolidated federal income tax return
in 1983, Corporation D could not carryback any part of its unabsorbed $20,000
loss for Illinois income tax purposes. The entire amount of that loss can be
carried forward to 1984 to reduce the combined federal taxable income of the
unitary business group A, B, C and D to $270,000, since neither Limitation No.1
or Limitation No. 2 applies.
2) EXAMPLE 2:
A) FACTS: Same facts as Example 6 in
subsection (f)(3) above except that in 1984 Corporations A, B, C and D are
members of a unitary business group with Corporation E and the five
corporations have federal taxable income (NOL) for Illinois income tax purposes
as follows:
Corporation A - $ 40,000
Corporation B - 40,000
Corporation C - 40,000
Corporation D - (130,000)
Corporation E - 40,000
B) ANALYSIS AND CONCLUSION: No part of
Corporation D's $20,000 unabsorbed loss originating in 1983 may be used in 1984
since Limitation No. 1 against which this loss must be tested is ($10,000), the
aggregate total of the federal taxable income for Illinois income tax purposes
of Corporations A, B and C and the federal Net operating loss for Illinois
income tax purposes of Corporation D.
