Could a liquidating C corporation use its Illinois net-loss carryover on a final return during the historical suspension period?

Plain-English summary

Liquidation did not create an exception to the historical net-loss suspension. Section 207(d) barred C-corporation carryover deductions for the specified 2011–2014 taxable-year endings. It contained no exception for a corporation that ceased business or filed its final return.

The corporation also faced estimated-tax penalties after the law changed during its March 31, 2011 year. Regulation 100.8010(h) protected installments paid under the pre-amendment law when the annualized-income method was satisfied. IDOR said filing Form IL-2220 with that method should avoid penalties for the first three installments on the stated facts.

What this means for you

Treat deduction availability and penalty computation separately. A final return may lose the chance to use a suspended carryover, while law-change relief may still reduce installment penalties.

Common questions

Q: Could the final return use the suspended loss?
A: No.

Q: Could estimated-tax penalty relief still apply?
A: Yes, through the annualized-income method on the facts described.

Citations and references

• 35 ILCS 5/207(a), (d)
• 35 ILCS 5/803, 804
• 86 Ill. Adm. Code 100.8010(h)

Subject

Net Operating Loss And Net Operating Loss Deduction

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2011/it-11-0021.pdf

Original ruling text

IT 11-0021-GIL 10/25/2011 NET OPERATING LOSS AND NET OPERATING LOSS DEDUCTION
General Information Letter: There is no exception to the suspension of Illinois net loss
deductions in IITA Section 207(d) for taxpayers ceasing to do business during the
suspension period.
October 25, 2011
Dear:
This is in response to your letter dated October 17, 2011 in which you request information related to
the Illinois income tax. 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:
COMPANY, Inc. (COMPANY), which is a cash basis C corporation, ceased business
operations on MONTH X, 2010, and began the process of liquidating the corporation. Due to
the length of time to collect accounts receivable from insurance companies COMPANY did not
file a final tax return prior to January 1, 2011 but chose to remain on its fiscal year ended
March 31, 2011. A Plan of Liquidation was adopted March XX, 2011, and the IRS and IDOR
were notified of the corporate dissolution. In the meantime the Illinois corporate income tax
increase was passed January 12, 2011, which retroactively denied the carry forward of a net
operating loss for the years ending after December 31, 2010. The attached Return Correction
Notice is penalizing COMPANY for not timely paying its quarterly estimates. Since the
corporation had no tax liability due to the NOL carry forward which was not eliminated until
very late in the corporation’s March 31, 2011, fiscal year then the assessment of late payment
and late estimated payments penalties should be removed.
Another issue is the assessment of the $XXXX tax liability. Since COMPANY will be filing a
final return effective September XX, 2011, now that accounts receivable have been fully
collected as of that date, then how will COMPANY ever be able to use the NOL since it will not
be in existence in 2015 when the NOL is scheduled to resume? I assume that the NOL should
be used on the final pre-2015 tax return, i.e. the September XX, 2011 return, and carried back
to obtain a refund of the $XXXX proposed tax payment for the year ended March 31, 2011.
Please advise.

RULING
Estimated Tax
Section 803(a) of the Illinois Income Tax Act (“IITA” ; 35 ILCS 5/803(a)) requires a corporation to pay
estimated tax where the amount payable as estimated tax can be reasonably expected to exceed
$400. Under IITA Section 803(d), a corporation with a taxable year ending March 31st must make
estimated tax payments in 4 equal installments on July 15th, September 15th, December 15th, and
March 15th of the taxable year. IITA Section 804(a) imposes a penalty for failure to timely pay each
required installment. Under IITA Section 804(c), the amount of each required installment is equal to
25% of the required annual payment. In general, the required annual payment means the lesser of
90% of the tax shown on the return for the taxable year, or 100% (150% for payments due on or after

IT 11-0021-GIL
October 25, 2011
Page 2
February 1, 2011 and before February 1, 2012) of the tax shown on the return for the preceding
taxable year. However, where the amount of the required installment is lower applying the annualized
income installment method, the taxpayer is required to pay only the annualized income installment.
Department Regulations § 100.8010(h) provides for an exception to the estimated tax penalty in
certain cases where there is a change in the tax law during the taxable year. The section states:
If the IITA is amended during a taxable year, and the amendment does not contain specific
provisions granting relief from penalties under IITA Section 804, no penalty imposed by IITA
Section 804 shall apply for late payment of an installment of estimated tax due before the
amendment becomes law if, on or before the due date of that installment, the taxpayer has
paid the estimated tax due under the annualized income installment method in subsection
(d)(2) applied using the IITA as in effect prior to the date the amendment became law.
Example 6
P.A. 93-840 disallows certain subtractions allowed under prior law. P.A. 93-840 did not
become law until July 30, 2004, but applies to tax years ending on or after December 31, 2004.
A calendar-year taxpayer who, on or before June 15, 2004, had paid the estimated tax due
under subsection (d)(2), computed by allowing the subtractions subsequently disallowed by
P.A. 93-840, shall not be subject to penalty under IITA Section 804 with respect to the
installment due on June 15, 2004.
Taxpayers may compute their estimated tax liability applying the annualized installment method on
Form IL-2220. The instructions to Step 6 of the form deal specifically with the computation of the
required installment where the IITA is amended during the tax year. Therefore, you may wish to
respond to the Department’s notice by filing Form IL-2220 and computing the taxpayer’s estimated
tax liability using the annualized income installment method. Based on the facts you have provided,
application of the annualized income installment method should allow the taxpayer to avoid penalty
with respect to the first 3 installments of its taxable year ending March 31, 2011.

NOL Deduction
Section 207 of the Illinois Income Tax Act (“IITA” ; 35 ILCS 5/207) states in part:
(a) If after applying all of the (i) modifications provided for in paragraph (2) of Section 203(b),
paragraph (2) of Section 203(c) and paragraph (2) of Section 203(d) and (ii) the allocation and
apportionment provisions of Article 3 of this Act and subsection (c) of this Section, the
taxpayer’s net income results in a loss;
(1)

for any taxable year ending prior to December 31, 1999, such loss shall be
allowed as a carryover or carryback deduction in the manner allowed under
Section 172 of the Internal Revenue Code;

(2)

for any taxable year ending on or after December 31, 1999 and prior to
December 31, 2003, such loss shall be allowed as a carryback to each of the 2
taxable years preceding the taxable year of such loss and shall be a net

IT 11-0021-GIL
October 25, 2011
Page 3
operating loss carryover to each of the 20 taxable years following the taxable
year of such loss; and
(3)

for any taxable year ending on or after December 31, 2003, such loss shall be
allowed as a net operating loss carryover to each of the 12 taxable years
following the taxable year of such loss, except as provided in subsection (d).

…
(d)
In the case of a corporation (other than a Subchapter S corporation), no carryover
deduction shall be allowed under this Section for any taxable year ending after December 31,
2010 and prior to December 31, 2014; provided that, for purposes of determining the taxable
years to which a net loss may be carried under subsection (a) of this Section, no taxable year
for which a deduction is disallowed under this subsection shall be counted.
Accordingly, pursuant to subsection (d), no net operating loss deduction otherwise allowed a
corporate taxpayer (other than an S corporation) under subsection (a)(1), (2), or (3) for taxable years
ending after December 31, 2010 and prior to December 31, 2014, shall be allowed. There are no
exceptions to the rule in subsection (d) for the final taxable year of a corporation or otherwise. In this
case, then, the taxpayer is not allowed an Illinois NOL deduction on its final pre-2015 tax return.
Unless taxpayer has a taxable year ending on or after December 31, 2014, its NOL carryover may not
be deducted.
As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies, interprets
or prescribes the tax laws, and it is not binding on the Department. If you have further questions
regarding this GIL, please call (217) 782-7055. If you have additional questions regarding Illinois
income tax laws, please visit the Department’s website at www.ILtax.com.

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)