Schedule UB Instructions

              Schedule UB Instructions (R-12/05) Page 1 of 6
Illinois Department of Revenue
Schedule UB Instructions 2005
What is new?
• 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 Public Act 91-205.
• 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 ending on or after December 31, 2003,
the Training Expense Credit is no longer an allowable credit.
• 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.
General Information
What is the purpose of this schedule?
The purpose of Illinois Schedule UB is to enable a unitary
business group to determine the amount of its unitary business
income that is attributable to Illinois. A unitary business group’s
business income consists of income from transactions and
activity in the regular course of the group’s trade or business
and includes all income that may be apportioned by formula
amoung the states in which the group is doing business
without violating the Constitution of the United States. All
income is business income unless it is clearly attributable to
one state and is earned or received through activities totally
unrelated to any business the group is conducting in more than
one state. The amount of unitary business income, however,
must be computed starting with combined Illinois base income
or its equivalent.
What is a unitary business group?
The term “unitary business group” means a group of persons
related through common ownership whose business activities
are integrated with, dependent upon, and contribute to each
other. In the case of a corporation, common ownership is
defined as the direct or indirect ownership or control of more
than 50 percent of the outstanding voting stock. The statutory
definition further provides that a unitary business group
cannot include any person whose business activity outside of
the United States is 80 percent or more of its total business
activity (the “80/20” rule).
A 80/20 rule — To determine what percentage of your business
activity is conducted outside the United States, you must use the
same apportionment formula you use to determine how much
business income is allocable to Illinois. However, if you use the
single sales factor formula to apportion your business income,
you must use only your payroll and property factors (computed in
the same manner as in effect for tax years ending prior to
December 31, 2000) and disregard the sales factor. See Section
E of Specific Instructions. For purposes of the 80/20 rule, gross
figures without eliminations will be used to determine the relevant
apportionment factors of property, payroll, etc.
B Vertical and horizontal integration — Unitary business
activity can ordinarily be illustrated where the activities of the
members are
• steps in a vertically-structured enterprise or process such
as the steps involved in the production of natural resources,
which may include exploration, mining, refining, and
marketing (vertical); or
• in the same general line such as manufacturing,
wholesaling, retailing, insurance, transportation, and
finance (horizontal);
and in either instance, the members are functionally integrated
through the exercise of strong centralized management. For
example, authority over such matters as purchasing, financing,
tax compliance, product line, personnel, marketing, and capital
investment is not left to each member.
C Apportionment method — Persons employing different
single-factor formulas cannot be included in the same unitary
business group; but two or more insurance companies may
constitute a unitary business group, as may two or more financial
organizations or transportation companies. See Form IL-1120
Instructions to compute the apportionment formula.
D Holding companies — A holding company should
generally be treated as unitary with one or more subsidiaries if
• it is unitary in operations with one or more of the
subsidiaries (i.e., operating-holding company); or
• it holds, directly or indirectly, the capital stock of two or
more subsidiaries which are conducting unitary operations;
or
• filing of a separate return would distort the business
income attributable to Illinois of the controlled group.
E Foreign corporations — A foreign corporation that is a
member of a unitary business group shall only include in the
combined income of the group the amount of federal taxable
income described in Internal Revenue Code (IRC), Sections
881 through 885, rather than its worldwide federal taxable
income equivalent. The foreign corporation’s U.S. domestic
“everywhere” factor should be used in the “everywhere”
denominator, rather than its worldwide “everywhere” factor. A
foreign sales corporation (FSC) that is a member of a unitary
business group shall only include in the combined income of
the group the amount of federal taxable income described in
IRC Sections 921 through 927.
F Unitary filers that derive business income solely from
Illinois — Unitary business groups composed exclusively of
members that derive business income solely from Illinois are
required to file as a unitary group. Unitary returns filed by such
a group that report a business loss must also include a
completed Schedule UB so the combined loss can be