IL-1120 Instructions

              IL-1120 Instructions (R-12/05) Page 1 of 12
Illinois Department of Revenue
IL-1120 Instructions 2005
What’s new for 2005?
• Effective immediately, “business income” is defined to mean
all income that may be apportioned without violating the
Constitution of the United States. This new definition overrules
recent court cases that had ruled that gain from disposition of
an entire business is not business income. Also, if you reported
income from an asset or activity as business income in a prior
year, and report any income from that asset or activity as
nonbusiness income on this return, you must add back all
expenses deducted in connection with that income in this year
and in your two most recent tax years. See Specific Instruc-tions
for Step 4, Lines 26 and 34.
• Effective for tax years ending on or after December 31, 2004,
you may not deduct some interest or “intangible expenses” such
as royalties and losses on sales of intangible assets from
transactions with a taxpayer who would be a member of your
unitary business group, but cannot be included because 80
percent or more of its business is conducted outside the United
States. Also, the 80/20 company that receives the amounts will
not be taxed on them. See Specific Instructions for Step 2, Line
6 and Step 3, Line 20 and Schedule 80/20, Related-Party
Expenses, for more information.
• The subtraction for income received by an attorney-in-fact from
an interinsurer or reciprocal insurer who has made an IRC,
Section 835 election, expired on July 20, 2004. This subtraction
is not allowed for tax years beginning on or after that date, as
provided by Illinois Income Tax Act (IITA), Section 250.
• The IL-477, Replacement Tax Investment Credit, scheduled to
expire on December 31, 2003, has been extended until
December 31, 2008. You may continue to claim a credit for
qualified property placed in service after December 31, 2003.
• Effective for tax years ending on or after December 31, 2003,
and before December 31, 2004, the Research and Development
Credit was not an allowable credit. For tax years ending on or
after December 31, 2004, the Research and Development Credit
has been restored.
• Effective for tax years beginning on or after January 1, 2004,
those businesses in the film industry may qualify for a Film
Production Services Tax Credit. See Schedule 1299-D
Instructions for more information.
• Effective January 1, 2005, the credits for coal research
contributions and coal utilization investments have expired.
See Schedule 1299-D for more information.
• For tax years ending on or after January 1, 2005, the
portion of the Employee Child Care Tax Credit that allows for
a 30 percent credit of all start-up costs, has expired. You may
continue to carry forward any amount that remains from tax
years ending on or before December 31, 2004 for up to five
taxable years.
General Information
Who must file Form IL-1120?
You must file Form IL-1120 if you are a corporation that
• has net income or loss as defined under the IITA; or
• is qualified to do business in the state of Illinois and
is required to file a federal income tax return (regardless of
net income or loss).
It is your duty as a taxpayer to obtain forms. Failure to obtain forms
is not an excuse for failure to file returns as required by law.
Unitary filers — If you are a corporation that is a member of a
unitary business group, see Illinois Schedule UB, Combined
Apportionment for Unitary Business Group, and its instructions
for information about filing requirements.
Political organizations and homeowners’ associations — If
you are a corporation that falls under the definition in Internal
Revenue Code (IRC), Sections 527 and 528, and you report your
federal taxable income on U.S. Form 1120-POL or U.S. Form
1120-H, you are subject to Illinois Income and Replacement Tax
and must file Form IL-1120. If you are a Cooperative, write
“cooperative” at the top of your Form IL-1120.
Limited liability companies — If you are a limited liability
company and you file as a corporation for federal income tax
purposes, you are treated as a corporation for Illinois purposes.
Foreign corporations — If you are a foreign corporation, you
must observe the same filing requirements as U.S. domestic
corporations. For Illinois purposes, you should report the taxable
income you are reporting for federal purposes under IRC Sections
881 through 885. You must use only the domestic factor
information regarding sales information in the “everywhere”
denominator when apportioning business income to Illinois. If you
are a foreign corporation that is a member of a unitary business
group, see Illinois Schedule UB and instructions for information
about filing requirements.
Domestic international sales corporations and foreign sales
corporations — If you are a Domestic International Sales
Corporation (DISC) under IRC Section 992, you are not subject
to the taxes imposed by IRC Subtitle A (except for the tax
imposed on transfers to avoid income tax under IRC Section
1491). Similarly, you are not required to file Form IL-1120.
For Illinois purposes, distributions from DISCs are treated in
accordance with the federal rules pertaining to dividends,
dividend exclusions, and dividend-received deductions.
If you are a Foreign Sales Corporation (FSC) for federal purposes
and have federal taxable income apportionable or allocable to
Illinois, you are subject to Illinois tax rules applicable to all
corporations. You are taxed by Illinois to the extent that your
nonexempt foreign trade income, investment income, and carrying
charges (taxable for federal purposes) are apportionable or
allocable to Illinois.
Corporate shareholders who derive income from Illinois
should include actual and deemed distributions from a DISC or
FSC in business income.