Illinois ~ Corporate, Personal Income Taxes: Regulations on Unitary and Composite Returns, Tax Overpayments Amended

CCH Tax Day Report

The Illinois Department of Revenue has amended a regulation on the filing of separate unitary returns to provide examples on computing income from Illinois sources for S corporations and partnerships that are engaged in a unitary business, but that are not permitted to join with other members of the unitary group in filing a single Illinois combined corporate income and replacement tax return. In addition, amendments have been made to regulations that provide guidance on the filing of composite returns by partnerships and S corporations. Effective for tax years before 2015, partnerships and S corporations were allowed to file composite returns, reporting and paying Illinois income tax for some nonresident partners and shareholders, and were required to withhold Illinois income tax from nonresidents who were not included on composite returns. Partnerships and S corporations now must withhold from nonresident partners and shareholders, rather than comply with two different methods of reporting and paying tax for them. Changes were also made to the method for computing the required withholding to allow credits earned by the partnership or S corporation and passed through to the nonresident partners and shareholders to reduce the amount of required withholding. Finally, regulations have been amended to implement law changes allowing a taxpayer to elect to apply overpayments of Illinois income tax reported on any return or amended return against the taxpayer’s Illinois income tax obligation for the following taxable year. Previously, this election could only be made on a timely-filed original return.

86 Ill. Adm. Code Secs. 100.5060, 100.5100, 100.5130, 100.5215, 100.7035, 100.8010, and 100.9400, Illinois Department of Revenue, effective November 2, 2016

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