Illinois Administrative Code
Title 86 - REVENUE
Part 100 - INCOME TAX
Subpart P - COMPOSITE RETURNS
Section 100.5130 - Composite Returns: Required forms and computation of Income (IITA Section 502(f))
Universal Citation: 86 IL Admin Code ยง 100.5130
Current through Register Vol. 48, No. 38, September 20, 2024
a) Composite Returns of Partners and Shareholders
1) Required form and information. Composite
returns of shareholders and partners shall be filed using forms prescribed by
the Department. The following information shall be attached to the composite
returns: the name, address, social security number and amount of income
apportionable and allocable to Illinois for each individual included in the
composite return; and the computation of the proper amount of composite income
reportable to Illinois.
2)
Composite income. The amount of composite income apportionable and allocable to
Illinois shall be the sum of the income earned or received for the taxable year
from the authorized agent by the persons included in the composite return.
A) The composite income of a partnership
shall be computed by first computing the partnership's base income, and then
including in composite income the entire partnership share of the base income
of each resident partner joining in the composite return and the partnership
share of the portion of the base income allocable to Illinois per Form IL-1065
of each nonresident partner joining in the composite return. However, the base
income of the partnership for this purpose shall be computed without regard to:
i) the addition modification under IITA
Section 203(d)(2)(C) for guaranteed payments to partners other than those
partners included in the composite return;
ii) the subtraction modification under IITA
Section 203(d)(2)(H) for personal service income or for a reasonable allowance
for compensation paid or accrued to partners; or
iii) the subtraction (or addition)
modification under IITA Section 203(d)(2)(I) for the share of income (or loss)
distributable to a partner subject to Personal Property Tax Replacement Income
Tax.
B) The authorized
agent shall pay income tax on the composite income that is attributable to the
partners included in the composite return and Personal Property Tax Replacement
Income Tax on the portion of the composite income which is attributable to
trusts included in the composite return.
C) The composite income of a Subchapter S
corporation shall be computed by first computing the Subchapter S corporation's
base income, and then including in composite income the entire share of the
base income distributable to each resident shareholder joining in the composite
return and the share of the portion of the base income allocable to Illinois
per Form IL-1120-ST distributable to each nonresident shareholder. (Line 1 of
Part II of the Subchapter S corporation's IL-1120-ST) However, the base income
of the Subchapter S corporation for this purpose shall be computed without
regard to:
i) the subtraction modification
under IITA Section 203(b)(2)(G) for amounts included in federal taxable income
under IRC section 78;
ii) the
subtraction modification under IITA Section 203(b)(2)(M) for interest income
from loans secured by property eligible for the Enterprise Zone Investment
Credit;
iii) the subtraction
modification under IITA Section 203(b)(2)(M-1) for interest income from loans
secured by property eligible for the High Impact Business Investment
Credit;
iv) the subtraction
modification under IITA Section 203(b)(2)(N) for contributions to eligible
Enterprise Zone projects;
v) the
subtraction modification under IITA Section 203(b)(2)(O) for dividends received
from foreign corporations;
vi) the
subtraction modification under IITA Section 203(b)(2)(P) for contributions to
job training projects; or
vii) the
subtraction modification under IITA Section 203(b)(2)(S) for the share of
income (or loss) distributable to a shareholder subject to Personal Property
Tax Replacement Income Tax.
D) The authorized agent will pay income tax
on the amount of the composite income distributable to shareholders included in
the composite return and pay Personal Property Tax Replacement Income Tax on
the amount distributable to trusts included in the composite return.
b) Composite returns of individuals, corporations and other taxpayers transacting an insurance business under a Lloyd's plan of operation. For taxable years ending on and after December 31, 1999, IITA Section 502(f) permits any persons transacting an insurance business organized under a Lloyd's plan of operation to file composite returns reflecting the income of such persons allocable to Illinois and the tax rates applicable to such persons under IITA Section 201 and to make composite tax payments.
1) Composite returns shall
be made on the forms prescribed by the Department.
2) Composite returns shall include an
attachment showing the separate federal taxable income (adjusted gross income,
in the case of an individual), net amount of addition and subtraction
modifications, apportionment fraction and Illinois net income of each
underwriter subject to tax under IITA Section 201(a) and electing to join in
the composite return, and multiplying each amount of Illinois net income by the
appropriate tax rate under IITA Section 201(b). In addition, the attachment
shall show the separate federal taxable income, net amount of addition and
subtraction modifications, apportionment fraction and Illinois net income of
each underwriter subject to replacement tax under IITA Section 201(c) and
electing to join in the composite return. At the election of the underwriter
joining in a composite return, the composite return may include either or both
of the Lloyd's plan amounts included in federal taxable income or adjusted
gross income by the underwriter and any amounts reported (with payment made of
any federal income tax due on those amounts) on behalf of the underwriter by
the Lloyd's plan of operation pursuant to a closing agreement with the
Secretary of the Treasury under IRC section 7121. If the Illinois net income of
an underwriter included in the composite return is less than zero, that loss
may not be used to offset the Illinois net income of any other underwriter
included in the composite return or any Illinois net income derived by that
underwriter from any source other than the Lloyd's plan of operation. However,
in the case of an underwriter other than an individual, that loss may be
carried back or forward in the manner allowed under IITA Section 207 as a
deduction against the Illinois net income of that underwriter in other years
for which a composite return is filed and for which the underwriter's Lloyd's
plan has entered into a closing agreement under IRC section 7121 allowing net
operating losses to be carried over on behalf of its underwriters on returns
filed by that Lloyd's plan. The schedules showing computations of Illinois net
income required by this subsection (b) shall include a separate statement of
any Illinois net loss deduction claimed for an underwriter, showing the amount
of loss incurred in each year from which the deduction is carried and the
amounts of those losses carried to and deducted in years prior to the year for
which the schedules are filed. The composite return shall include an attachment
showing the name and social security number or taxpayer identification number
(or equivalent) of each underwriter who does not elect to join in the composite
return.
3) Alternative
apportionment methods under IITA Section 304(f). IITA Section 304(f) provides
that, if the allocation and apportionment provisions of IITA Section
304(b) do not, for taxable years ending before December 31, 2008, fairly
represent the extent of a person's business activity in this State, or, for
taxable years ending on or after December 31, 2008, fairly represent the market
for the person's goods, services, or other sources of business income, the
Director may require the person to use another method that will
effectuate an equitable allocation and apportionment of the person's
business income.
A) IITA Section
304(b) provides that an insurance company shall apportion its business income
to Illinois by multiplying such income by a fraction, the numerator of
which is the direct premiums written for insurance upon property or risk in
this State, and the denominator of which is the direct premiums written for
insurance upon property or risk everywhere. For purposes of this
subsection (b), the term "direct premiums written" means the
total amount of direct premiums written, assessments and annuity considerations
as reported for the taxable year on the annual statement filed by the company
with the Illinois Director of Insurance in the form approved by the National
Convention of Insurance Commissioners or such other form as may be prescribed
in lieu thereof. A Lloyd's plan syndicate reports only its premiums
written on property and risks within Illinois on its annual statement filed
with the Illinois Director of Insurance. Accordingly, the use of only the
"direct premiums written" by underwriters in a Lloyd's plan of operation as
actually reported on the annual statements would apportion 100% of the business
income of the nonresident underwriters to Illinois, which would not fairly
represent the extent of their business activity or the market for their
services in Illinois within the meaning of IITA Section 304(f). A Lloyd's plan
of operation which files a composite return under this subsection (b) and which
does not report on an annual statement its premiums written on property or
risks outside the State shall apportion the business income of its nonresident
underwriters electing to join in the composite return by multiplying that
business income by a fraction, the numerator of which shall be the
underwriter's premiums written on property or risks within Illinois as reported
on its annual statement and the denominator of which shall be the total of the
underwriter's premiums related to amounts included in the apportionable
business income of the underwriter.
B) A Lloyd's plan of operations will commonly
use a "year of account" as a basis for the conduct of business of its
underwriters. Under the year of account method, a syndicate of underwriters
will be in existence for a specified number of years. The syndicate will
underwrite policies only in the first year of its existence, which is the year
of account. Premiums may be collected and losses incurred by the syndicate only
during the years of the syndicate's existence. After the syndicate's existence
is terminated at the end of the year of account period, any unexpired policies
are reinsured with another syndicate, and profit and loss on all policies for
the year of account are determined and recognized for federal income tax
purposes. Use of the premiums written in the year after the close of the year
of account period to apportion an underwriter's business income earned over
that period would not fairly represent the extent of the underwriter's business
activity or market in Illinois that generated that business income.
Accordingly, in apportioning the business income recognized after the
termination of a year of account period, the direct premiums written on
property or risk in this State and on property and risk everywhere shall be the
direct premiums written during the year of account period. A composite return
that includes for an underwriter both income recognized after the termination
of a year of account period apportioned under this subsection (b)(3)(B) and
other income apportioned using the direct premiums written during the taxable
year shall show each type of income and each apportionment fraction separately
on the schedules attached to the return under subsection (b)(2).
4) IITA Section 502(f) provides
that the income and apportionment factors attributable to the
transaction of an insurance business organized under a Lloyd's plan of
operation by any person joining in the filing of a composite return shall, for
purposes of allocating and apportioning income under IITA
Article 3 and computing net income under IITA Section
202, be excluded from any other income and apportionment factors of that person
or of any unitary business group, as defined in IITA Section
1501(a)(27), to which that person may belong.
A) Because the Lloyd's income and
apportionment factors are excluded from the computation of the Illinois income
tax liability of any person joining in a composite return under this subsection
(b), no credit may be allowed to that person under Section
100.5160.
Because no underwriter shall be allowed to claim a credit for taxes paid on its
behalf under this subsection (b), no administrative burden will be created by
allowing an underwriter who is a resident or who has other sources of Illinois
income to join in the filing of a composite return and accordingly no
underwriter need petition for permission under Section
100.5100(c)
or (e) to join in the filing of a composite
return under this subsection (b).
B) Because any Illinois income, positive or
negative, of an underwriter that is reported on a composite return must be
excluded from other income of that underwriter in determining its Illinois net
income, an Illinois net loss reported on a composite return may not be used to
reduce net income of an underwriter otherwise reportable in the taxable year
the net loss is incurred nor carried over to another taxable year to reduce net
income of that underwriter, other than net income reported on a Lloyd's plan
composite return for that taxable year.
C) The statutory provision excluding income
reported on a composite return from other income of the underwriter does not
imply that the Lloyd's plan business conducted by the underwriter is unitary
with any other business conducted by the underwriter. If an underwriter chooses
not to join in a composite return, the determination of whether the
underwriter's Lloyd's plan business is unitary with any other business
conducted by the underwriter and of whether the underwriter is a member of a
unitary business group will be made based on the facts and circumstances of the
case, without any consideration given to this statutory provision.
5) Time for returns and payment.
In the case of a Lloyd's plan of operation that files a federal income tax
return and pays federal income taxes on behalf of its underwriters for a
taxable year pursuant to a closing agreement with the Secretary of the Treasury
under IRC section 7121, the due date for filing a composite return and paying
tax under this subsection (b) shall be the due date (including any extensions)
for filing the federal return for that taxable year.
6) The composite estimated tax vouchers and
the composite returns shall be clearly marked "Composite Payment by
Underwriters at Lloyd's, London" or "Composite Return by Underwriters at
Lloyd's, London" in the top center of the voucher or return. The tax I.D.
number on the voucher or return shall be left blank, and the payment or return
shall be mailed to the address specified in the instructions for the
form.
7) Transition rule. Public
Act 91-913, allowing Lloyd's plans of operation to file composite returns on
behalf of all underwriters for taxable years ending on or after December 31,
1999, was not enacted until July 9, 2000, after the unextended due date for the
composite return for calendar year 1999. Accordingly, a Lloyd's plan of
operation that had filed a composite return for a taxable year ending on or
after December 31, 1999, prior to the enactment of Public Act 91-913, may file
a second composite return for that year, on or before the due date in
subsection (b)(5), on behalf of any of its underwriters which were unable to
join in the composite return prior to the enactment of Public Act
91-913.
c) Standard exemption. The amount of composite income apportionable and allocable to Illinois shall not be reduced by the standard exemption. (See IITA Section 204(a).)
Disclaimer: These regulations may not be the most recent version. Illinois may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
