Current through Register Vol. 48, No. 38, September 20, 2024
a) In General.
1) This Section provides guidance for
allocation and apportionment of base income by nonresidents. All base income of
a resident is allocated to Illinois pursuant to IITA Section 301(a).
2) Part-year residents. Under IRC section
706(a), the income from a partnership for a given taxable year is included in
the gross income of a partner in the taxable year of the partner in which the
partnership's taxable year ends. Accordingly, this Section shall apply to the
income of a part-year resident from any partnership whose taxable year ends
during the period in which the partner was a nonresident. Income from a
partnership whose taxable year ends during the period in which the partner is a
resident will be allocated entirely to Illinois.
3) Unitary partners. This Section shall not
apply to the apportionment of business income of a nonresident partner who is
engaged in a unitary business with the partnership. Such partners shall
apportion their unitary business income derived from the partnership in
accordance with IITA Section 304(e) and Section
100.3380(d)
of this Part.
4) Except as provided
in this subsection (a), all items of base income of a partner that are derived
from the partnership shall be allocated or apportioned pursuant to this
Section, including all items required to be separately stated to the partner
under IRC section 703(a)(1), all guaranteed payments under IRC section 707(c),
and all addition and subtraction modifications, but excluding items described
in IRC section 707(a).
b) Business Income. The respective shares of
partners other than residents in so much of the business income of the
partnership as is apportioned to this State in the possession of the
partnership shall be taken into account by such partners pro rata in accordance
with their respective distributive shares of such partnership income for the
partnership's taxable year and allocated to this State. (IITA Section 305(a))
1) For purposes of this subsection (b), the
determination of whether an item of base income is business income or
nonbusiness income shall be based on the facts and circumstances of the
partnership itself. Trade or business activities of a partner or of any related
party are irrelevant.
2) Business
income of the partnership shall be apportioned to this State pursuant to IITA
Section 304, in the same manner as it is allocated or apportioned for any other
nonresident. (IITA Section 305(c))
3) Lower-tier partnerships. In the case of a
partnership that is itself a partner in a second partnership, a partner in the
first partnership shall include in net income its partnership share of the
first partnership's share of the items of business income of the second
partnership, as apportioned to Illinois by that second partnership. If the
second partnership is itself a partner in a third partnership, a partner in the
first partnership shall include in net income its partnership share of the
first partnership's share of the items of business income of the third
partnership as determined under the preceding sentence, and so on through all
partnerships that are themselves partners in other partnerships.
c) Nonbusiness Income. The
respective shares of partners other than residents in the items of partnership
income and deduction not taken into account in computing the business income of
a partnership shall be taken into account by such partners pro rata in
accordance with their respective distributive shares of such partnership income
for the partnership's taxable year, and allocated as if such items had been
paid, incurred or accrued directly to such partners in their separate
capacities. (IITA Section 305(b))
d) Investment Partnerships. For taxable years
ending on or after July 30, 2004 (the effective date of Public Act 93-840), in
the case of an investment partnership, as defined in Section
100.9730
of this Part:
1) Except as provided in
subsection (d)(2), taxable income that is distributable to a nonresident
partner shall be treated as nonbusiness income and shall be allocated to the
partner's state of residence (in the case of an individual) or commercial
domicile (in the case of any other person). (IITA Section 305(c-5)) IITA
Section 203(e)(3) shall not require recapture of business expenses if the
income from an investment partnership was treated as business income in years
prior to July 30, 2004 (the effective date of Public Act 93-840) and is treated
as nonbusiness income under this subsection (d).
2) Any income distributable to a nonresident
partner shall be treated as business income and apportioned as if such income
had been received directly by the partner if the partner has made an election
under Section 1501(a)(1) of the IITA to treat all income as business income or
if such income is from investment activity:
A) that is directly or integrally related to
any other business activity conducted in this State by the nonresident partner
(or any member of that partner's unitary business group) (IITA Section
305(c-5)(1));
B) that serves an
operational function to any other business activity of the nonresident partner
(or any member of that partner's unitary business group) in this State (IITA
Section 305(c-5)(2)); or
C) where
assets of the investment partnership were acquired with working capital from a
trade or business activity conducted in this State in which the nonresident
partner (or any member of that partner's unitary business group) owns an
interest (IITA Section 305(c-5)(3)).
3) Income treated as business income received
directly by a partner under subsection (d)(2) shall be apportioned using the
apportionment factors of the partner, without regard to any factors of the
partnership.
