Subtraction Modifications-Other Rulings

              IT 09-0011-GIL 04/13/2009 SUBTRACTION MODIFICATIONS – OTHER RULINGS
General Information Letter: Illinois law does not provide for modification of the
taxpayer’s basis in property on which federal bonus depreciation was claimed.
Subtraction modifications related to federal bonus depreciation must be computed and
reported on the Schedule 4562.
April 13, 2009
Dear:
This is in response to your letter dated January 5, 2009 in which you request abatement of an
estimated tax penalty and correction of changes made to the above-named taxpayer’s return for its
tax year ending February 2, 2008. The nature of your letter and the information provided require that
we respond with a General Information Letter (GIL). A GIL is designed to provide general information,
is not a statement of Department policy and is not binding on the Department. See 86 Ill. Adm. Code
1200.120(b) and (c), which may be accessed from the Department’s web site at www.ILtax.com.
Your letter states as follows:
In response to the notice dated November 6, 2008, I am requesting an abatement of the
assessed late estimated payment penalty and a correction to the changes made to the year
ending February 2, 2008 tax return. According to the notice, the changes were a reduction in
the items claimed on the Schedule M and a reduction to the amount of total payments and
credits for the reporting period. However, both adjustments originated from the same source.
The “State Gain/Loss Adjustment” on Line 16 of Schedule M was disallowed on the year
ending February 3, 2007 and February 2, 2008 tax returns. As a result, the overpayment
credited to 2007 and 2008 were reduced.
The state gain/loss adjustment represents the difference between the federal and state
gain/loss calculated on bonus depreciation eligible tangible personal property disposals. ILCS
Chapter 35 §5/203 (b)(2)(U) states the following:
“If the taxpayer sells, transfers, abandons, or otherwise disposes of property for which the
taxpayer was required in any taxable year to make an addition modification under
subparagraph (E-10), then an amount equal to that addition modification.
If the taxpayer continues to own property through the last day of the last tax year for which the
taxpayer may claim a depreciation deduction for federal income tax purposes and for which the
taxpayer was required in any taxable year to make an addition modification under
subparagraph (E-10), then an amount equal to that addition modification.
The taxpayer is allowed to take the deduction under this subparagraph only once with respect
to any one piece of property.”
The aforementioned subparagraph E-10 requires the taxpayer to reflect the federal bonus
depreciation deduction taken on the federal income tax return as an addition modification on
the Illinois state tax return. Addition and/or subtraction modifications have been made on the
Illinois state return every year that the federal bonus deduction has been taken on the federal
tax return. The Illinois law addresses the treatment of the federal-state differences on the
gain/loss disposal of these assets. However, it does not specify where the modification should
be reported on the Illinois income tax return. As a result, a modification was reported on Line