Current through Register Vol. 48, No. 38, September 20, 2024
a) IITA Section 207(a) provides for carryover
deductions of any losses that result after applying all of the
modifications provided for in Section 203(b)(2), (c)(2) and (d)(2) and the
allocation and apportionment provisions of Article 3 of the
Act.
b) Years to
Which Illinois Net Losses May be Carried
1) In
General. Under IITA Section 207(a)(2), an Illinois net loss incurred in a tax
year ending on or after December 31, 1999 and prior to December 31, 2003 may be
carried back to the two preceding tax years or carried forward to the 20
succeeding tax years. Under IITA Section 207(a)(3)-(4), for any taxable year
ending on or after December 31, 2003 and prior to December 31, 2021, the loss
is allowed as a carryover to each of the 12 taxable years following the taxable
year of the loss, provided that any such loss not having yet expired as of
November 16, 2021, the effective date of Public Act 102-0669, shall be allowed
as a carryover to each of the 20 taxable years following the taxable year of
the loss. For any taxable year ending on or after December 31, 2021, the loss
is allowed as a carryover to each of the 20 taxable years following the taxable
year of the loss. For tax years ending prior to December 31, 1999, IITA Section
207(a)(1) provides that a carryback or carryover deduction is allowed in the
manner allowed under Internal Revenue Code section 172. The federal rules
concerning the years to which a loss may be carried are contained in IRC
section 172(b) and in Treas. Reg. Sec.
1.172 -4(a)(1). These rules, as
now in effect or hereafter amended, are followed for Illinois income tax
purposes and apply to corporations, partnerships, trusts and estates. In
general, for Illinois net losses incurred in tax years beginning prior to
August 6, 1997, the net loss is first carried back to the three preceding
taxable years and then is carried over to the 15 succeeding taxable years. For
Illinois net losses incurred in tax years beginning on or after August 6, 1997
and ending prior to December 31, 1999, the loss generally is first carried back
to the two preceding tax years and then is carried forward to the 20 succeeding
tax years. In taxable years ending prior to December 31, 1999, special
provisions applied to regulated transportation companies, financial
institutions, product liability losses and other entities or situations, and
the provisions in IRC section 172(b) and the related Treasury Regulations
relating to the years to which a loss incurred in one of those years may be
carried are followed.
2) Specific
Rules for Losses Incurred in Taxable Years Ending Prior to December 31, 1999.
IITA Section 207(a)(1) provides that, for losses incurred in
any
taxable year ending prior to December 31, 1999, the loss is allowed as a
carryover or carryback deduction in the manner allowed under IRC section
172. Pursuant to this provision:
A)
For losses incurred in taxable years beginning prior to August 6, 1997, a loss
generally is first carried back to each of the 3 taxable years preceding the
taxable year in which the loss was incurred and then to each of the 15 taxable
years following the taxable year in which the loss was incurred. (From IRC
section 172(b)(1)(A), as in effect prior to enactment of
P.L.
105-34.)
B) For losses incurred in taxable years
beginning after August 5, 1997, a loss generally is first carried back to each
of the 2 taxable years preceding the taxable year in which the loss was
incurred and then to each of the 20 taxable years following the taxable year in
which the loss was incurred. (From IRC section 172(b)(1)(A), as in effect after
enactment of P.L.
105-34.)
C) Special carryover periods allowed under
IRC section 172(b) for specific kinds of losses or taxpayers also apply. For
example:
i) "Specified liability losses" may
be carried back to each of the 10 taxable years preceding the taxable year in
which the loss was incurred. (From IRC section 172(b)(1)(C).)
ii) For losses incurred in taxable years
beginning after December 31, 1986, and ending before January 1, 1994, bad debt
losses of commercial banks may be carried back to each of the 10 taxable years
preceding the taxable year in which the loss was incurred and to each of the 5
taxable years following the taxable year in which the loss was incurred. (From
IRC section 172(b)(1)(D).)
c) Election to Forgo Carryback Period
1) For losses incurred in tax years ending
prior to December 31, 2003, IITA Section 207(a-5)(A) allows the taxpayer to
elect to relinquish the entire carryback period with respect to the
loss. The election is made on the taxpayer's return for the taxable
year in which the loss is incurred. The election may be made only on or before
the due date (including extensions of time) for filing the return. If an
election is made, the loss is carried forward and deducted only in years
subsequent to the taxable year in which the loss was incurred. The
election, once made, is irrevocable. (IITA Section
207(a-5)(A))
2) If the election is
made on any combined return filed in accordance with IITA Section 502(e), the
election will be considered to be in effect for all eligible members of the
combined group filing the return for the taxable year for which the election is
made.
3) If the timely return for
the taxable year reflects Illinois income and:
A) a finalized federal change eliminates
Illinois income thereby creating an Illinois net loss for the year, the
taxpayer may make the election to relinquish the entire carryback period for
the Illinois net loss on an amended return or form prescribed by the Department
within the 120 day time period prescribed by IITA Section 506(b);or
B) an Illinois audit or other Illinois change
eliminates Illinois income thereby creating an Illinois net loss for the year,
the taxpayer may make the election to relinquish the entire carryback period
for the Illinois net loss on forms prescribed by the Department at the time the
loss is first reported to Illinois.
d) Portion of Illinois Net Loss That Is a
Carryback or a Carryover to the Taxable Year in Issue. Pursuant to IITA Section
207(a-5)(B), the entire amount of a loss is carried to the earliest
taxable year to which the loss may be carried. The amount of the loss, which is
carried to each of the other taxable years, is the excess, if any, of the
amount of the loss over the sum of the deductions for carryback or carryover of
the loss allowable for each of the prior taxable years to which the loss may be
carried. This is illustrated in the following Example.
EXAMPLE: A taxpayer that makes its return on the calendar
year basis has an Illinois net loss for 1986. Under the provisions of IRC
section 172(b) as in effect in that year, the entire net loss for 1986 may be
carried back to 1983. The amount of the carryback to 1984 is the excess of the
1986 loss over the net income for 1983. The amount of the carryback to 1985 is
the excess of the 1986 loss over the aggregate of the net incomes for 1983 and
1984. The amount of the carryover to 1987 is the excess of the 1986 loss over
the aggregate of the net incomes for 1983, 1984, and 1985,
etc.
e) Carryover of
Pre-12/31/86 Losses and Post-12/30/86 Losses. Net operating losses incurred
prior to December 31, 1986, can be carried over into years in which Illinois
net losses (incurred on or after December 31, 1986) are also carried. In these
cases, the losses incurred in tax years ending prior to December 31, 1986 are
treated as an adjustment to taxable income (i.e., before apportionment) while
the losses incurred in tax years ending after December 30, 1986 are subtracted
in computing Illinois net income (i.e., after apportionment). This is
illustrated in the following Example.
EXAMPLE: Corporation A is a calendar year taxpayer. It has no
partnership income and no nonbusiness income. In 1985, it reported a federal
net operating loss of $1,000, and on its Illinois return for 1986, it reported
an Illinois net loss of $50, neither of which could be carried back to prior
years due to losses existing in those years. In 1987, A had federal taxable
income (before special deductions) of $200, and Illinois addition modifications
of $100. Corporation A would compute its Illinois net income in 1987 as
follows: The $1,000 net operating loss from 1985 would offset the $200 of 1987
federal taxable income and would offset the $100 of 1987 Illinois addition
modifications. In 1988, Corporation A would have remaining $700 of net
operating loss carryover from 1985 and $50 of Illinois net loss carryover from
1986.
f) Special Rules
1) IITA Section 207(b) provides that
any loss determined under subsection (a) of this Section is carried
back or carried forward in the same manner for purposes of both the
regular income tax imposed by IITA Section 201(a) and (b) and the personal
property replacement income tax imposed under IITA Section 201(c) and
(d).
2) For the carryforward of
losses incurred prior to certain corporate or partnership reorganizations or
acquisitions, see Section
100.4500.
3) IITA Section 207(a) provides that losses
that may be carried over and deducted in other years are those losses that
result after the modifications of IITA Section 203(b)(2), (c)(2) and (d)(2) are
made, and after the allocation and apportionment rules of IITA Article 3 are
applied. Accordingly:
A) No exemption allowed
under IITA Section 204 is taken into account in computing a loss that may be
carried over and deducted under IITA Section 207; and
B) No deduction for any loss carried over
pursuant to IITA Section 207 is taken into account in computing a loss that may
be carried to and deducted in another taxable year under IITA Section
207.
4) Subchapter S
Corporations and Partnerships
A) IITA Section
207(a) allows the carryover of losses that result after the modifications of
IITA Section 203(b)(2) and (d)(2) are made. IITA Section 203(b) applies to
subchapter S corporations and IITA Section 203(d) applies to partnerships.
Accordingly, IITA Section 207 allows subchapter S corporations and partnerships
carryover deductions for losses incurred.
B) Neither IITA Section 207 nor IRC section
172 distinguishes between subchapter S corporations and corporations governed
by subchapter C of the Internal Revenue Code. IRC section 1363(b)(2) provides
that no net operating deduction allowable under IRC section 172 is allowed in
the computation of taxable income of a subchapter S corporation and IRC section
1371(b) prohibits any carryforward or carryback between a taxable year in which
a corporation is a subchapter S corporation and a taxable year in which it is
not. Neither IRC section 1363 nor IRC section 1371 is applicable to the
carryover and deduction of losses under IITA Section 207. Accordingly, subject
to the other provisions of this Section, a loss incurred in a taxable year in
which a corporation is a subchapter S corporation shall be carried to and
deducted in any taxable year in which it is not a subchapter S corporation in
the same manner as if the corporation were a subchapter S corporation in that
year, and a loss incurred in a taxable year in which a corporation is not a
subchapter S corporation may likewise be carried to and deducted in any taxable
year in which it is a subchapter S corporation.
EXAMPLE: X Corporation is a subchapter S corporation
throughout the calendar year 1998. Effective for 1999, X Corporation's
subchapter S election is terminated. In 2000, X Corporation incurs an Illinois
loss. Unless X Corporation elects to carry the loss forward only, the loss is
first carried back and deducted in 1998 and only the amount of loss in excess
of 1998 taxable income is carried to 1999 and subsequent
years.
C) Losses carried
over pursuant to IITA Section 207 are deductible only under that Section, and
that Section allows the deduction only of losses that result when the
taxpayer's own taxable income is less than zero. Accordingly, no loss carried
over and deducted by a partnership or subchapter S corporation in a taxable
year may reduce the taxable income of any partner or shareholder of the
taxpayer in that taxable year.
5) Suspension of Illinois Net Loss
Deductions.
In the case of a corporation (other than a subchapter S
corporation), no carryover deduction is allowed under IITA Section 207
for any taxable year ending after December 31, 2010 and prior to
December 31, 2012, and no carryover deduction may exceed $100,000 for any
taxable year ending on or after December 31, 2012 and prior to December 31,
2014, and for any taxable year ending on or after December 31, 2021 and prior
to December 31, 2024; provided that, for purposes of determining the taxable
years to which a net loss may be carried under IITA Section 207(a),
any taxable year for which a deduction is disallowed under this
subsection (f)(5), or for which the deduction would exceed $100,000 if not for
this subsection (f)(5), is not counted. (IITA Section 207(d))
EXAMPLE: Pursuant to this subsection (f)(5), in determining
the taxable years to which a loss incurred by C Corporation in its taxable year
ending December 31, 2009 may be carried:
A) the taxable year ending December 31, 2011
is not counted even if C Corporation's net income for the year is a
negative;
B) the taxable year
ending December 31, 2012 is not counted if C Corporation's net income (before
any net loss deduction) is greater than $100,000; and
C) the taxable year ending December 31, 2012
is counted if C Corporation's net income (before any net loss deduction) is
$100,000 or less or is negative.
6) Holders of Residual Interests in Real
Estate Mortgage Investment Companies (REMICs)
A) Under IRC section 860E(a)(1), the taxable
income of a holder of a residual interest in a REMIC may not be less than the
amount of "excess inclusion" income from the REMIC for that taxable year. If
the residual interest holder's federal net income would otherwise be less than
the excess inclusion amount, the residual interest holder carries over the
excess of its actual federal taxable income over the amount of its federal
taxable income computed without regard to IRC section 860E(a)(1) as a net
operating loss under IRC section 172.
B) IITA Prior to PA 97-507. Under IITA
Section 207, the net loss of a taxpayer (other than an individual) for a
taxable year is its taxable income for the year, as properly reportable for
federal income tax purposes, after modifications in IITA Section 203(b)(2),
(c)(2) and (d)(2). Under IITA Section 203(b)(2)(D) and (c)(2)(D), corporations,
trusts and estates add back to their taxable income any net operating loss
deduction claimed under IRC section 172 for a loss incurred in a taxable year
ending on or after December 31, 1986. As a result, a corporation, trust or
estate whose excess inclusion amount exceeded its federal taxable income
computed without regard to IRC section 860E(a)(1) for a taxable year would
receive no tax benefit from the deductions or losses that caused the excess,
because those deductions or losses could not reduce its federal taxable income
in the year incurred and any resulting IRC section 172 carryover deduction
would need to be added back to taxable income in the carryover years under IITA
Section 203(b)(2)(D) or (c)(2)(D).
C) In order to allow a corporation the
benefit of deductions otherwise disallowed by IRC section 860E(a)(1) and IITA
Section 203(b)(2)(D) and (c)(2)(D), PA 97-507 added subsection (e) to IITA
Section 207 to allow a residual interest holder an Illinois net loss carryover
computed in the same manner as the federal net operating loss carryover allowed
under IRC section 860E. IITA Section 207(e) provides that,
in the case
of a residual interest holder in a REMIC subject to IRC section 860E, the net
loss in IITA Section 207(a)
is equal to:
i)
the amount computed under
IITA Section 207(a), without regard to IITA Section 207(e)
or, if that amount is positive, zero;
ii)
minus an amount equal to the
amount computed under IITA Section 207(a), without regard
to IITA Section 207(e), minus the amount that would be
computed under IITA Section 207(a) if the taxpayer's federal
taxable income were computed without regard to IRC section 860E and without
regard to IITA Section 207(e).
D) IITA Section 207(e) applies to all taxable
years and is exempt from automatic sunset under IITA Section 250.
