Illinois Response to Bonus Depreciation

BNA, 9/16/02

Bonus Depreciation Amended Returns Must Be Filed by Oct. 15 to Avoid Penalty
Illinois taxpayers who claimed the federal bonus depreciation deduction on their state returns have until Oct. 15 to file corrected returns without penalty or interest on the additional taxes owed, according to an Illinois Department of Revenue informational bulletin.
Gov. George Ryan (R) June 28 signed legislation (S.B. 1543) decoupling the state's corporate income tax code from the recently enacted federal stimulus package (127 DTR H-3, 2/2/02).

Informational Bulletin No. FY 2003-02, released Aug. 2, explains that Illinois taxpayers must add back to Illinois income the bonus deduction taken on their federal income. Taxpayers may then deduct the depreciation amount that would have been allowed on their federal return if the bonus depreciation law had not been enacted.

The federal Job Creation and Worker Assistance Act of 2002 (Pub. L. No. 107-147) established a 30 percent depreciation bonus for qualified capital investments, effective for 36 months for property placed in service after Sept. 10, 2001.

Changes Reversed When Asset Sold
The bulletin also addressed the concern that, when assets are sold, taxpayers would not receive a deduction for the entire cost.
The bulletin explained that, if an asset were sold, all of the Illinois changes to the federal depreciation deduction would be reversed in the year of sale.
After the changes were reversed, the bulletin explained, total Illinois depreciation would equal total federal depreciation, and the taxpayer would have received a deduction for the entire cost of the asset.

Amended Returns
Taxpayers must report their depreciation deduction changes on Form IL-4562, Special Depreciation. The form allows taxpayers to determine their state addition and subtraction modifications, according to the bulletin.

Taxpayers that already have filed federal and state tax returns reflecting the new bonus deduction must amend their state return and add the bonus depreciation back and subtract Illinois depreciation. These taxpayers must write "bonus depreciation" in red on the top of their amended return and attach a completed Form IL-4562.

Taxpayers that file amended returns by Oct. 15, 2002, will not be assessed additional penalties and interest, according to the bulletin. Taxpayers that receive a notice assessing penalties or interest should write "bonus depreciation" in red at the top of the notice and return it to the address shown on the notice.
However, returns filed after Oct. 15 will be assessed interest and any applicable penalties.

Text of the bulletin is available at http://www.revenue.state.il.us/publications/bulletins/2003/Fy200302.pdf.

CCH 8/30/02:

The Department of Revenue explains S.B. 1543 (P.A. 92-0603), Laws 2002, which decoupled Illinois corporate and personal income tax provisions from the federal Job Creation and Worker Assistance Act of 2002 (P.L. 107-147) (JCWAA). The JCWAA, for federal income tax purposes for taxable years 2001 and after, allows taxpayers to deduct the bonus depreciation of 30% of the cost of capital assets acquired and placed in service between September 10, 2001, and September 11, 2004. S.B. 1543, effective July 1, 2002, requires Illinois personal and corporate income tax taxpayers to add back the 30% bonus depreciation and allows a deduction of the depreciation amount that would have been allowed on their federal return if the bonus depreciation law had not been enacted. The deduction is allowed for each year that depreciation is claimed for an asset, not just for the year in which the bonus depreciation on the asset is added back.
  
 Illinois personal and corporate income tax taxpayers must file a Form IL-4562, Special Depreciation, which allows the taxpayer to determine Illinois addition and subtraction modifications, to report the changes. The form must be completed and attached to a return or amended return. Partnerships, S corporations, trusts, and estates pass these modifications through to their owners in the same manner as income and report the modifications on a Schedule K-1-P, Partner's or Shareholder's Share of Income Deductions, Credits, and Recapture, or on a Schedule K-1-T, Beneficiary's Share of Income and Deductions.
 
A personal or corporate income tax taxpayer that has already filed a federal and Illinois tax return reflecting the additional deductions from the new federal law must amend the return to add the bonus depreciation back and to subtract the Illinois depreciation. The taxpayer must file a Form IL-1040-X, Amended Individual Income Tax Return, Form IL-1120-X, Amended Corporation Income and Replacement Tax Return, or a Form IL-843, Amended Return or Notice of Change of Income, and write "bonus depreciation" in red on the top of the amended return and attach a completed Form IL-4562 showing the amount added back in on the "other additions" line and the amount deducted on the "other subtractions" line.
  
 Penalties and interest will not be assessed if an amended return is filed by October 15, 2002.

 Information Bulletin FY 2003-02, Illinois Department of Revenue,August 2002

BNA, 7/2/02

State From Federal Tax Relief Program
CHICAGO--Gov. George Ryan (R) sewed up a hole in the Illinois state budget June 28, signing legislation (S.B. 1543) decoupling the state's corporate income tax code from the recently enacted federal stimulus package.

The legislation permits Illinois to maintain its current corporate income tax posture despite the substantial tax relief on capital investments called for under the modified federal system. Ryan described the decoupling legislation as a critical tool for helping establish a balanced budget for fiscal year 2003, which began July 1.

"This was a very tough legislative session, but I am very pleased that the General Assembly and I were able to come together to enact this budget for the citizens of Illinois," Ryan said. "It will enable the state to continue providing necessary programs and services."

S.B. 1543 amends Illinois's corporate income tax statute by removing from consideration the new depreciation provisions of the federal economic stimulus package. The law specifically requires corporations to determine their base income for Illinois income tax purposes by adding the bonus depreciation deduction on their federal return to their adjusted gross income. The bonus depreciation deduction has been pegged at 30 percent of the adjusted basis of qualified property.

Ryan said S.B. 1543 would have a substantial impact on state finances. Maintaining the current depreciation scheme will save Illinois $240 million in corporate income tax breaks. The change also benefits local units of government, which stood to lose $150 million if Illinois had not chosen to decouple from the federal system