Current through Register Vol. 48, No. 38, September 20, 2024
a) In general.
IITA Section 102 provides that, except as otherwise expressly provided or
clearly appearing from the context, any term used in the IITA shall have the
same meaning as when used in a comparable context in the United States Internal
Revenue Code of 1954 or any successor law or laws relating to federal income
taxes and other provisions of the statutes of the United States relating to
federal income taxes as such Code, laws and statutes are in effect for the
taxable year.
b) Corporations. The
term "corporation" includes associations, joint stock companies, insurance
companies and cooperatives. Any entity, including a limited liability company
formed under the Illinois Limited Liability Company Act [805 ILCS 180 ], shall
be treated as a corporation if it is so classified for federal income tax
purposes. (IITA Section 1501(a)(4))
1)
26
USC 7701(a)(3) defines
"corporation" to include associations, joint stock companies, and insurance
companies. This definition is identical to the definition in IITA Section
1501(a)(4), except that the IITA definition includes cooperatives. Accordingly,
any entity treated as a corporation for federal income tax purposes must be
treated as a corporation for all purposes of the IITA, and no entity (other
than a cooperative) that is not treated as a corporation for federal income tax
purposes may be treated as a corporation for purposes of the IITA. Thus, any
entity electing to be taxed as a corporation under 26 CFR 301.7701(a) is a
corporation for all purposes of the IITA, and any entity that elects not to be
treated as a corporation separate and distinct from its owners is not a
corporation separate and distinct from its owners. For example:
A) An entity that has elected to be
disregarded as an entity separate from its corporate owner for any federal
income tax purpose pursuant to
26 CFR
301.7701-3(a) and its
corporate owner are a single corporation for the equivalent purpose of the
IITA.
B) An entity eligible to
elect treatment as a corporation under
26 CFR
301.7701-3(a) is deemed to
have elected to be treated as a corporation if it elects to be treated as a
real estate investment trust (REIT) under IITA Section 856(c)(1). (See 26 CFR
301.7701(c)(1)(v)(B).) Pursuant to
26 USC
856(i), the separate
existence of a qualified REIT subsidiary is ignored, and its assets,
liabilities and other items are deemed to belong to the REIT that owns the
subsidiary. Accordingly, a REIT and its qualified REIT subsidiaries are a
single corporation for all purposes of the IITA.
2) An entity that, despite its uninterrupted
existence, is treated as a new corporation for purposes of the Internal Revenue
Code shall also be treated as a new corporation separate and distinct from its
deemed predecessor, for all purposes of the IITA. For example:
A) An entity that has elected to be
disregarded as an entity separate from its corporate owner for any federal
income tax purpose pursuant to
26 CFR
301.7701-3(a), and
subsequently elects to be taxed as a corporation, is treated under 26 CFR
301.7701 - 3(g)(1)(iv) as a new corporation to which the assets of the entity
were transferred by the corporate owner in exchange for the stock of the new
corporation. Accordingly, prior to the date of the subsequent election, the
entity and its corporate owner are a single corporation for the equivalent
purpose of the IITA, while after that election the two entities will be
separate corporations.
B) A
corporation that is treated as two separate corporations (as a corporation that
has sold all of its assets and as a new corporation that has purchased all of
the assets) pursuant to
26 USC
338 is similarly treated as two separate
corporations, one in existence before the
26 USC
338 transaction and one in existence
subsequent to the transaction, for all purposes of the IITA.
3) Prior to January 1, 2009, an
election to be disregarded under
26 CFR
301.7701-3(a) meant that the
owner of the entity would be treated as the employer of the entity's employees
for purposes of withholding. For wages paid on or after January 1, 2009, the
election to be disregarded does not apply to the entity's duty to withhold
federal income tax from employees. (See
26 CFR
301.7701-2(c)(2)(iv) and
(e)(5).) Accordingly, an entity that has
elected to be disregarded and its owner are treated as a single entity for
purposes of computing the federal and Illinois income tax liability of the
owner, but the entity will be treated as a corporation separate from its owner
for purposes of federal and Illinois obligations to withhold tax from wages
paid to employees on or after January 1, 2009.
c) Subchapter S Corporations. The term
"subchapter S corporation" means a corporation for which there is in effect an
election under section 1362 of the Internal Revenue Code, or for which there is
a federal election to opt out of the provisions of the Subchapter S Revision
Act of 1982 and have applied instead the prior federal subchapter S rules as in
effect on July 1, 1982. (IITA Section 1501(a)(28))
1) Any corporation that has elected
subchapter S corporation status for federal income tax purposes is
automatically a subchapter S corporation for purposes of the IITA until its
status as a subchapter S corporation is terminated for federal income tax
purposes. No separate election is required.
2) Under
26 USC
1361(b)(3), the separate
existence of a "qualified subchapter S subsidiary" is disregarded and the
assets, liabilities and other items of the qualified subchapter S subsidiary
are attributed to the parent subchapter S corporation. Accordingly, for all
purposes of the IITA, a subchapter S corporation and its qualified subchapter S
subsidiaries shall be treated as a single subchapter S corporation.
d) Partnerships. The term
"partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on, and which is not, within the
meaning of the IITA, a trust or estate or a corporation. (IITA Section
1501(a)(16))
1)
26
USC 761 provides that the term "partnership"
includes a syndicate, group, pool, joint venture or other unincorporated
organization through or by means of which any business, financial operation or
venture is carried on, and which is not, within the meaning of this Title 26, a
corporation or a trust or estate. This definition is essentially identical to
the definition in (IITA Section 1501(a)(16)). Also, IITA Section 1501(a)(16)
provides that any entity, including a limited liability company formed under
the Illinois Limited Liability Company Act, shall be treated as a partnership
if it is so classified for federal income tax purposes. Accordingly, every
entity treated as a partnership for federal income tax purposes is a
partnership for purposes of the IITA, and no entity that is not treated as a
partnership for federal income tax purposes is a partnership for purposes of
the IITA. For example:
A) An entity that
elects to be treated as a partnership for federal income tax purposes under 26
CFR 301.7701(a) is a partnership for purposes of the IITA.
B) An entity that makes an election under
26
USC 761(a) to not be treated
as a partnership is not a partnership for purposes of the IITA.
C) If a partnership is treated as a
continuation of another partnership pursuant to 26 CFR 1.708 - 1(b)(2), those
partnerships are a single, continuing partnership for all purposes of the
IITA.
2) As amended by
Public Act 91-913, IITA Section 1501(a)(16) provides that the term
"partnership" does not include a syndicate, group, pool, joint venture or other
unincorporated organization established for the sole purpose of playing the
Illinois State Lottery. Accordingly, notwithstanding any other provisions of
this Section, an entity established for the sole purpose of playing the
Illinois State Lottery is not a partnership for purposes of the IITA.
3) Under IITA Section 1501(a)(16), any member
of an entity treated as a partnership shall be treated as a partner.
Accordingly, any reference in the IITA to a partner refers the owners or
members of any entity treated as a partnership.
e) Trusts. The term "trust" is not defined in
the IITA. However, pursuant to IITA Section 102, any entity treated as a trust
for federal income tax purposes under
26 CFR
301.7701-4 is a trust for all purposes of the
IITA. An entity that has elected to be treated as part of an estate under
26 USC
645 is not a trust, but is part of the estate
for all purposes of the IITA. Similarly, a trust whose assets, activities and
income are treated as belonging to its grantor for federal income tax purposes
under the "grantor trust" provisions of
26
USC 671 is not treated as a trust for
Illinois income tax purposes.
