Current through Register Vol. 48, No. 38, September 20, 2024
a) Joint and several liability of members of
a combined group. The members of a combined group shall be jointly and
severally liable for the combined tax, penalty and interest computed in
accordance with this Subpart P, as well as the Uniform Penalty and Interest Act
and rules adopted pursuant to the UPIA at 86 Ill. Adm. Code 700.
b) Effect of intercompany agreements. No
agreement entered into by one or more members of a combined group with any
other member of such group or with any other person shall in any case have the
effect of reducing the liability prescribed under this Section.
c) Penalties. If a penalty is imposed under
the IITA and the UPIA with respect to a combined return year, the amount shall
be based on the combined tax liability or deficiency for the common taxable
year.
1) For purposes of applying the
penalties for failure to file a return imposed by Section 3-3(a), Section
3-3(a-5) and Section 3-3(a-10) of the Uniform Penalty and Interest Act (UPIA)
[35 ILCS
735/3-3] :
A) A
corporation which erroneously fails to join in the filing of a combined return,
but which timely files a separate Illinois income tax return or joins in the
timely filing of a combined return for another combined group, shall not be
subject to any penalty. In determining whether such separate or combined return
is timely filed, the separate taxable year of such corporation or the common
taxable year of the combined group such corporation erroneously joined shall be
used, rather than the common taxable year of the combined group with which such
corporation should have filed.
B) A
corporation which erroneously fails to join in the filing of a combined return,
and which fails, without reasonable cause, to timely file a separate Illinois
income tax return or to join in the timely filing of a combined return for
another combined group, shall be subject to penalty computed on the amount of
tax shown (or required to be shown) due on the combined return for its proper
combined group. Because it is the duty of the designated agent, acting on
behalf of the combined group, to include such corporation in the combined
return, the members of the combined groups shall be jointly and severally
liable for the penalty.
C) A
corporation which erroneously joins in the timely filing of a combined return
shall not be subject to penalty for failure to file a return.
2) For purposes of applying the
penalty for failure to timely pay tax imposed by UPIA Section 3-3(b), Section
3-3(b-5) and Section 3-3(b-10) [35 ILCS
735/3-3] :
A) In a
case where a corporation erroneously fails to join in the filing of a combined
return for a common taxable year, neither that corporation nor the combined
group shall be subject to any failure-to-pay penalty under UPIA Section
3-3(b)(1), Section 3-3(b-5)(1) or Section 3-3(b-10)(1) if timely payment is
made of the tax shown on a separate return filed by such corporation or on a
combined return in which it erroneously joins in filing for each taxable year
ending with or within such common taxable year. Unless there is reasonable
cause for the failure of such corporation to join in the filing of the combined
return, such corporation and the combined group may be jointly and severally
liable for a penalty under UPIA Section 3-3(b)(2), Section 3-3(b-5)(2) or
Section 3-3(b-10)(2) for failure to pay any additional amount which would have
been shown on the combined return had such corporation been included.
B) A corporation which erroneously fails to
join in the filing of a combined return for a common taxable year and also
fails to timely pay the tax shown on a separate return it files or on a
combined return in which it joins in filing for each taxable year ending with
or within such common taxable year shall be subject to penalty under UPIA
Section 3-3(b)(1), Section 3-3(b-5)(1) or Section 3-3(b-10)(1) only for failure
to pay the tax shown on the return it actually files or joins in filing. Unless
there is reasonable cause for the failure of such corporation to join in the
filing of the combined return, such corporation and the combined group may be
jointly and severally liable for a penalty under UPIA Section 3-3(b)(2),
Section 3-3(b-5)(2) or Section 3-3(b-10)(2) for failure to pay any additional
amount which would have been shown on the combined return had such corporation
been included.
C) If a corporation
erroneously joins in the filing of a combined return, neither such corporation
nor the combined group shall be subject to penalty under UPIA Section
3-3(b)(2), Section 3-3(b-5)(2) or Section 3-3(b-10)(2) for failure to pay any
tax required to be shown on a separate company return and the combined group
shall not be subject to penalty under UPIA Section 3-3(b)(2), Section
3-3(b-5)(2) or Section 3-3(b-10)(2) for failure to pay any increase in tax
resulting from the exclusion of such corporation from the combined group if the
tax timely paid with the original combined return exceeds the total tax
required to be shown on the correct returns.
3) For purposes of applying the negligence
penalty imposed by UPIA Section 3-5 [35
ILCS 735/3-5] or the fraud penalty imposed by UPIA
Section 3-6 [35 ILCS 735/3-6
] in any case in which a corporation erroneously joins or fails to join in the
filing of a combined return, the penalty may be imposed on any deficiency
resulting from such error, without taking into account any overpayment which
may have resulted from the error.
Example. Corporations A, B and C meet all the requirements of
a unitary business group, except that Corporations A and B are financial
organizations which cannot be included in the same unitary business group as
Corporation C, a manufacturer. On a separate-return basis, Corporation A has an
Illinois net loss of $500, Corporation B has Illinois net income of $300 and
Corporation C has Illinois net income of $700. Corporations A and C file a
combined return reporting combined Illinois net income of $200, while
Corporation B files a separate return reporting Illinois net income of $300. On
audit, the Department corrects the liabilities by combining Corporations A and
B, which eliminates Corporation B's separate return income and entitles them to
a refund of the taxes paid by Corporation B, and by determining a separate
return deficiency for Corporation C. If the combination of Corporations B and C
on the original return was due to negligence or an intent to defraud,
Corporation C will be subject to the applicable penalty on its entire
deficiency without regard to the overpayment made by Corporation B.
4) For purposes of applying the
penalty for failure to pay estimated taxes under IITA Section 804, see Section
100.5230
of this Part.
d)
Interest. If interest is imposed under the IITA, at the rate determined under
the UPIA, with respect to a combined return year, the amount shall be based on
the combined tax liability or deficiency for the common taxable year. For
purposes of computing any combined overpayment or underpayment on which
interest is imposed:
1) in a case in which
one or more corporations erroneously failed to join in the filing of the
combined return, all payments, credits and other amounts collected from such
corporations which are properly attributable to the common taxable year shall
be treated as having been paid by the combined group for such common taxable
year; and
2) in a case where one or
more corporations are erroneously included in a combined return, the designated
agent may allocate to each such corporation some or all of the payments,
credits and other amounts collected from the combined group which are properly
attributable to the common taxable year, and all overpayments and underpayments
for such corporations and the combined group will be computed in accordance
with such allocation. The amount of estimated tax payments allocated to each
such corporation pursuant to this subsection (d)(2) must be consistent with the
amounts allocated to such corporation under Section
100.5230(a) and
(g) of this Part.
