Section 100.9710 Financial Organizations (IITA Section 1501)

TITLE 86: REVENUE

CHAPTER I: DEPARTMENT OF REVENUE

PART 100 INCOME TAX

SECTION 100.9710 FINANCIAL ORGANIZATIONS (IITA SECTION 1501)

Section 100.9710  Financial

Organizations (IITA Section 1501)

a)         General Definition.  The term "financial

organization" is defined in IITA Section 1501(a)(8)(A) to mean

any

bank, bank holding company, trust company, savings bank, industrial bank, land

bank, safe deposit company, private banker, savings and loan association,

building and loan association, credit union, currency exchange, cooperative

bank, small loan company, sales finance company, investment company, or any

person which is owned by a bank or bank holding company.  For the purpose of

this Section a "person" will include only those persons which a bank

holding company may acquire and hold an interest in, directly or indirectly,

under the provisions of the Bank Holding Company Act of 1956 (12

U.S.C.

1841), except where interests in any person

must be disposed of within certain required time limits under the Bank Holding

Company Act of 1956.

This definition constitutes an exclusive and

exhaustive list of the types of organization that are "financial

organizations" under the Illinois Income Tax Act.

b)         Entities Engaged in Financial Organization Activities and

Other Activities.  For purposes of this Section, an entity that is classified

as a "bank" under subsection (e) of this Section; as a "bank

holding company" under subsection (f) of this Section; or as a person

owned by a bank or bank holding company under subsection (g) of this Section,

is a "financial organization" regardless of whether the entity is

predominantly engaged in the business activities characteristic of a financial

organization.  In order for any other entity to be characterized as a

"financial organization" in any tax year, the entity must be predominantly

engaged in the business activities of a financial organization during the

year

tion (g) of this Section,

is a "financial organization" regardless of whether the entity is

predominantly engaged in the business activities characteristic of a financial

organization.  In order for any other entity to be characterized as a

"financial organization" in any tax year, the entity must be predominantly

engaged in the business activities of a financial organization during the

year.  For this purpose, an entity engaged in business activities of a

financial organization, as well as other business activities in the same tax

year, is predominantly engaged in the business activities of a financial

organization during that year only if more than 80% (50% in the case of a sales

finance company under subsection (d)(10) of this Section) of the entity's gross

income, averaged over a period of three years, which includes the current tax

year and the immediately preceding two tax years, is derived from the business

activities characteristic of one or more of the categories of financial

organization defined in this Section for which the entity otherwise qualifies.

For purposes of this subsection, gross income shall include only amounts that

are received in the ordinary course of the entity's regular business activities

and that are included in net income under the Illinois Income Tax Act. For

purposes of determining whether an entity is predominantly engaged in the

business activities of a financial organization when an entity is formed in a

current tax year or in its immediately preceding tax year, only the years for

which the entity is in existence will be used in determining whether the entity

meets the 80% test (or 50% test in the case of a sales finance company under

subsection (d)(10) of this Section).

1)         Income which results from transactions outside the ordinary

course of an entity's regular business activities is not taken into account for

the purposes of the gross income test

he years for

which the entity is in existence will be used in determining whether the entity

meets the 80% test (or 50% test in the case of a sales finance company under

subsection (d)(10) of this Section).

1)         Income which results from transactions outside the ordinary

course of an entity's regular business activities is not taken into account for

the purposes of the gross income test.  For example, amounts received from the

sale of an entity's headquarters shall be disregarded, whether or not the gain

is characterized as business income.

2)         The classification of an entity as a "financial

organization" under the IITA is relevant to how the business income of the

entity shall be apportioned to Illinois under IITA Section 304(c).  The

treatment of items of income that are not included in apportionable business

income is not affected by such classification, and such items are therefore

disregarded for purposes of the gross income test.  For example, interest

received on United States Treasury obligations is excluded from Illinois base

income, and  accordingly is disregarded for purposes of determining whether the

business income of an entity should be apportioned using the financial

organization formula.  Similarly, dividends received by a corporation shall be

disregarded to the extent the dividends are deducted from federal taxable

income under section 243 of the Internal Revenue Code or are subtracted in the

computation of Illinois base income under IITA Section 203(b)(2)(O).

3)         In the case of a sale or disposition of any asset (whether

tangible or intangible, and whether the asset is part of the taxpayer's stock

in trade) that occurs in the ordinary course of an entity's regular business

activities, only the net gain shall be taken into account for purposes of the

gross income test

n the

computation of Illinois base income under IITA Section 203(b)(2)(O).

3)         In the case of a sale or disposition of any asset (whether

tangible or intangible, and whether the asset is part of the taxpayer's stock

in trade) that occurs in the ordinary course of an entity's regular business

activities, only the net gain shall be taken into account for purposes of the

gross income test.  Thus, for example, gross income from the sale of inventory

is equal to its gross receipts minus the cost of goods sold; while gross income

from the sale of stock is equal to the sales price minus any brokerage

commission and minus the taxpayer's basis in the stock.  If gross income from a

transaction is negative, the loss shall not be considered for purposes of the

gross income test.

4)         Leasing Activities.  For purposes of the IITA and the Internal

Revenue Code, a "finance lease" is treated as an extension of credit,

rather than as a true lease.  In a finance lease, the lessor is treated as a

creditor, and the lessee is treated as the owner of the leased asset entitled

to any deduction for depreciation allowed under section 167 of the Internal

Revenue Code.  For purposes of this Section, a finance lease shall be treated

as a loan or other extension of credit, rather than as a lease, regardless of

how the transaction is characterized for any other purpose, including the

purposes of any regulatory agency to which the lessor is subject.

5)         In applying the gross income test to an entity engaged in the

businesses of more than one of the types of organization defined in subsection

ce lease shall be treated

as a loan or other extension of credit, rather than as a lease, regardless of

how the transaction is characterized for any other purpose, including the

purposes of any regulatory agency to which the lessor is subject.

5)         In applying the gross income test to an entity engaged in the

businesses of more than one of the types of organization defined in subsection

(d) of this Section, "gross income from financial services" shall

include gross income derived from all services characteristic of any specific

defined type of organization for which the entity qualifies.  For example:

A)        Selling and exchanging currency is a characteristic service

only of banks.  Accordingly, "gross income from financial services"

of an entity which qualifies as a bank under subsection (d)(1) of this Section,

and as a safe deposit company under subsection (d)(6) of this Section, includes

both income from trading in foreign currency and safe deposit box rentals.

However, "gross income from financial services" of an entity which

qualifies as a safe deposit company, but not as a bank, does not include income

from trading in foreign currency.

B)        A taxpayer that meets all other qualifications of a sales

finance company and also of a small loan company, and that derives 40% of its

gross income from transactions characteristic of a sales finance company and

35% of its gross income from transactions characteristic of a small loan

company is not a financial organization because it does not meet either the 50%

test for sales finance companies nor the 80% test applicable to other types of

financial organization.  If, however, the taxpayer derives 45% of its gross

income from transactions characteristic of a sales finance company and 36% of

its gross income from transactions characteristic of a small loan company, it

would not be a sales finance company because it does not meet the 50% test, but

it would be a financial organization under the 80% test

pplicable to other types of

financial organization.  If, however, the taxpayer derives 45% of its gross

income from transactions characteristic of a sales finance company and 36% of

its gross income from transactions characteristic of a small loan company, it

would not be a sales finance company because it does not meet the 50% test, but

it would be a financial organization under the 80% test.

6)         IITA Section 1501(a)(8)(D) provides that an entity

that is

a "financial organization" that engages in any transaction with an

affiliate shall be a "financial organization" for all purposes of the

Act.

Accordingly, in applying the gross income test, an entity's

transactions with a person to which it is related (including transactions with

a member of the entity's unitary business group which are eliminated in

combination under Section

100.5270(b)(1)

of

this Part) shall be treated in the same manner as transactions between the

entity and an unrelated person, subject in all cases to the authority of the

Department under IITA Section 404 to make such adjustments as are necessary to

properly reflect each party's Illinois business activities.

c)         Some of the types of organizations listed in subsection (a) of

this Section are defined by State or federal statutes.  The remaining types of

organization are terms frequently used in other states' laws to refer to

entities engaged in the same businesses as the entities in one or more of the

types defined in Illinois or federal law.  An entity defined as a bank or a

bank holding company, or that is owned by a bank or bank holding company, under

subsection (e), (f) or (g) of this Section, is a financial organization

regardless of its actual business activities

ently used in other states' laws to refer to

entities engaged in the same businesses as the entities in one or more of the

types defined in Illinois or federal law.  An entity defined as a bank or a

bank holding company, or that is owned by a bank or bank holding company, under

subsection (e), (f) or (g) of this Section, is a financial organization

regardless of its actual business activities. For any other entity,

notwithstanding the title or characterization of the entity for purposes of any

other law, the entity is a "financial organization" for purposes of

the IITA only if that entity is predominantly engaged in a business which is

identical in all material respects to the characteristic business of an entity

within one or more of the types of organization defined in Illinois or federal

law. In order for an entity's business to be identical in all material respects

to the business of one of the defined types of organization, the entity must:

1)         provide substantially all of the characteristic services

provided by entities in the defined type of organization; and

2)         be subject to regulation by the Illinois or federal agency (if

any) with authority over entities in the defined type of organization or by the

equivalent authority (if any) established under the laws of the entity's state

or country of formation or of its commercial domicile. However, "sales finance

companies", as defined in subsections (d)(10)(A) and (B) of this Section

are not required to be regulated by any state or federal authority.

d)         Application to Defined Types of Financial Organization.  This

subsection lists the types of financial organization defined in Illinois

or federal law and describes the characteristic business of each type as

provided in the relevant Illinois or federal statutes.  The references to Illinois

State and federal statutes and authorities in this subsection shall be

construed to refer to any predecessor to the current statute or authority,

whenever appropriate

subsection lists the types of financial organization defined in Illinois

or federal law and describes the characteristic business of each type as

provided in the relevant Illinois or federal statutes.  The references to Illinois

State and federal statutes and authorities in this subsection shall be

construed to refer to any predecessor to the current statute or authority,

whenever appropriate.

1)         Entities engaged in the business of a "bank".  The

term "bank" includes any entity described in subsection (e) of this

Section.  In addition, for purposes of categorizing an entity that does not

come within the scope of subsection (e) of this Section, the term

"bank" means an entity predominantly engaged in the business

activities characteristic of an entity which has been issued a charter by the

Secretary of Financial and Professional Regulation

under 205 ILCS 5/13 or that has been given a certificate of authority to

commence banking by the Comptroller of the Currency under 12

U.S.C.

27.  The terms "savings bank",

"industrial bank" and "cooperative bank" are sometimes used

in the laws of other states to refer to entities engaged in the same business

as a "bank" as defined in Illinois or federal law.  The term

"private banker" means an unincorporated bank, conducted as a

partnership of individuals or as an individual proprietorship.  Notwithstanding

that an entity does or does not come within the meaning of any of these terms

for any other purpose, the determination of whether an entity is engaged in the

business of a "bank" for purposes of the IITA shall be made pursuant

to the following standards:

A)        Characteristic Services.  The Illinois and federal statutes

providing for the formation of banks state that the characteristic activities

of banks are accepting deposits, making loans, discounting evidences of debt,

and buying and selling exchange. (See 205 ILCS 5/3; 12

U.S.C

aged in the

business of a "bank" for purposes of the IITA shall be made pursuant

to the following standards:

A)        Characteristic Services.  The Illinois and federal statutes

providing for the formation of banks state that the characteristic activities

of banks are accepting deposits, making loans, discounting evidences of debt,

and buying and selling exchange. (See 205 ILCS 5/3; 12

U.S.C.

24; and section 581 of the Internal Revenue Code.)  In order to be engaged in a

business identical in all material respects to the business of a

"bank," an entity formed under the laws of another state or of a

foreign country as a bank, savings bank, industrial bank, or cooperative bank

must engage in each of these characteristic financial services of a bank.

Thus, for example, an entity that does not accept deposits is not engaged in the

business of a bank.  For purposes of applying the 80% of gross income test in

subsection (b) of this Section, examples of gross income from characteristic

services of a bank include:

i)          application and origination fees, points, interest, late

payment fees and other charges received in connection with loans or with

commitments to make loans or provide other credits;

ii)         service charges and early withdrawal or other penalties

received in connection with deposit accounts;

iii)        fees and gains realized from buying and selling exchange,

including foreign currency;

iv)        loan servicing fees and charges received in connection with

syndicated loans or loans sold to third parties; and

v)         discounts and gains realized on the purchase or resale of

loans.

Examples of

items of income that are not gross income from the characteristic services of a

bank include rental income from real estate; gains from sale of property

obtained in foreclosure or settlement of loans; and interest and dividends

received from, and gains realized on the sale or exchange of, securities.

B)        Regulation

ounts and gains realized on the purchase or resale of

loans.

Examples of

items of income that are not gross income from the characteristic services of a

bank include rental income from real estate; gains from sale of property

obtained in foreclosure or settlement of loans; and interest and dividends

received from, and gains realized on the sale or exchange of, securities.

B)        Regulation.  Illinois State banks are subject to regulation by

the

Secretary of Financial and Professional

Regulation

(see 205 ILCS 5/48), while national banks are subject to

regulation by the Comptroller of the Currency (see 12

U.S.C.

27(b)(2)).    These entities qualify as banks under subsection (e) of this

Section regardless of their business activities.  In order to qualify as a bank,

an entity that is not a bank within the meaning of subsection (e) of this

Section must be regulated by the authority (if any) equivalent to the

Secretary of Financial and Professional Regulation

or the Comptroller of the Currency having regulatory jurisdiction within the

entity's state or country of formation or commercial domicile.

2)         Entities engaged in the business of a "trust

company".  The term "trust company" means a corporation

organized under the laws of the State of Illinois for the purpose of accepting

and executing trusts [205 ILCS 620/1-5.11], and that has received a certificate

of authority to accept trusts from the

Secretary of

Financial and Professional Regulation

under 205 ILCS 620/2-4.

A)        Characteristic Services.  A trustee performs services as a

fiduciary on behalf of the trust's beneficiaries.

A

trustee is entitled to reimbursement for expenses properly incurred in the

administration and protection of the trust, and for expenses that were not

properly incurred in the administration of the trust but would prevent unjust

enrichment of the trust (see 760 ILCS 3/709)

A)        Characteristic Services.  A trustee performs services as a

fiduciary on behalf of the trust's beneficiaries.

A

trustee is entitled to reimbursement for expenses properly incurred in the

administration and protection of the trust, and for expenses that were not

properly incurred in the administration of the trust but would prevent unjust

enrichment of the trust (see 760 ILCS 3/709)

.  Under Illinois law, a

trustee may continue an unincorporated business on behalf of the trust in

certain circumstances (see 760 ILCS

3/816(36), (37)

).

A trustee may act as an advisor or manager of a mutual fund in which trust

funds are invested, without having to reduce or waive its compensation for such

services when provided to a trust (see 760 ILCS

3/802(e)

).

However, the trustee is not entitled to any profit from any business it

conducts on behalf of a trust or beneficiary, but only to compensation for

services rendered to the trust.  Accordingly, the gross income from

characteristic services of a trust company shall include only trustees' fees or

other compensation receivable for services rendered as a trustee on behalf of

trusts.  Amounts received for services provided other than as a trustee, such

as fees received as an advisor or manager of a mutual fund in which trust funds

are invested, are not gross income from characteristic services of a trust

company.

B)        Regulation.  A trust company conducting business within Illinois

is subject to the Corporate Fiduciary Act [205 ILCS 620].  Some types of

regulated entities, such as national banks, are authorized by law to engage in

trust activities (see 12

U.S.C.

92a). Any

entity operating in any other state must be licensed or subject to regulation

by any equivalent authority in that state.

3)         Entities engaged in the business of a "savings bank"

within Illinois

is subject to the Corporate Fiduciary Act [205 ILCS 620].  Some types of

regulated entities, such as national banks, are authorized by law to engage in

trust activities (see 12

U.S.C.

92a). Any

entity operating in any other state must be licensed or subject to regulation

by any equivalent authority in that state.

3)         Entities engaged in the business of a "savings bank".

The term "savings bank" means a taxpayer which is predominantly

engaged in the business of an entity that is either chartered as a federal

savings bank under the Home Owners' Loan Act (12

U.S.C.

1462 and 1464(a)) and whose investments comply with the guidelines of 12

U.S.C.

1464(c) or of an entity which has been issued

a certificate of organization by the

Secretary of

Financial and Professional Regulation

under the Savings Bank Act [205

ILCS 205/3007] and that, as required by 205 ILCS 205/1009, maintains at least

60% of its total assets in qualifying "domestic

building

and loan association" assets described in section 7701(a)(19) of the

Internal Revenue Code.  The terms "bank", "savings and loan

association", "building and loan association", "industrial

bank" and "cooperative bank" are sometimes used in the laws of

other states to refer to entities engaged in the same business as a

"savings bank" as defined in Illinois or federal law.

Notwithstanding that an entity does or does not come within the meaning of any

of these terms for any other purpose, the determination of whether the entity

is engaged in the business of a "savings bank" for purposes of the

IITA shall be made pursuant to the following standards:

A)        Characteristic Services.  The business of a savings bank

consists principally of acquiring the savings of the public and investing in

loans (section 7701(a)(19)(B) of the Internal Revenue Code).  In general,

qualifying loans are related to residential real estate

is engaged in the business of a "savings bank" for purposes of the

IITA shall be made pursuant to the following standards:

A)        Characteristic Services.  The business of a savings bank

consists principally of acquiring the savings of the public and investing in

loans (section 7701(a)(19)(B) of the Internal Revenue Code).  In general,

qualifying loans are related to residential real estate.  An entity that does

not take deposits from the public and invest the deposited funds primarily in

qualifying loans to the public is not a savings bank for purposes of the IITA.

For purposes of applying the 80% of gross income test in subsection (b) of this

Section, examples of gross income from characteristic services of a savings

bank include:

i)          application and origination fees, points, interest, late

payment fees and other charges received in connection with loans or with

commitments to make loans or provide other credits;

ii)         service charges and early withdrawal or other penalties

received in connection with deposit accounts;

iii)        loan servicing fees and charges received in connection with

syndicated loans or loans sold to third parties; and

iv)        discounts and gains realized on the purchase or resale of

loans.

Examples of

items of income that are not gross income from the characteristic services of a

savings bank include rental income from real estate; gains from sale of

property obtained in foreclosure or settlement of loans; interest and dividends

received from, and gains realized on the sale or exchange of, securities.

B)        Regulation.  No entity is a savings bank for purposes of the

IITA unless it is subject to regulation by the

Secretary

of Financial and Professional Regulation

under the Savings Bank Act [205

ILCS 205/1003], the Office of

the Comptroller of the

Currency under the Home Owners' Loan Act

(12

U.S.C.

1461), or the appropriate authority of another state responsible for regulating

savings banks

Regulation.  No entity is a savings bank for purposes of the

IITA unless it is subject to regulation by the

Secretary

of Financial and Professional Regulation

under the Savings Bank Act [205

ILCS 205/1003], the Office of

the Comptroller of the

Currency under the Home Owners' Loan Act

(12

U.S.C.

1461), or the appropriate authority of another state responsible for regulating

savings banks.

4)         Entities engaged in the business of a "land bank".

The term "land bank" was defined in federal law to mean a federally

chartered association organized to make loans on farm security at low interest

rates as governed by 12

U.S.C.

, ch. 23 (Farm

Credit System).  Under the Agricultural Credit Act of 1987 (P.L. 100-233), the

federal land banks were merged with the Federal Intermediate Credit Banks which

had also been created under the Farm Credit System.  Under current law, the

surviving entities are exempt from state income taxation (see 12

U.S.C.

2098).

A)        Characteristic Services.  Congress established the federal land

banks as cooperatives to encourage farmer and rancher ownership and control

over a system of credit for agriculture.  The characteristic service of a land

bank is making loans to farmers. Gross income from characteristic services of a

land bank include application and origination fees, points, interest, late

payment fees and other charges received in connection with loans to farmers and

ranchers.

B)        Regulation.  Federal land banks are not subject to Illinois taxation.  A land bank that was not created under federal statute must be subject

to any regulation by any authority equivalent to the Farm Credit System

regulation as may exist in the state or country of incorporation or commercial

domicile of the land bank.

5)         Entities engaged in the business of a "safe deposit

company"

Regulation.  Federal land banks are not subject to Illinois taxation.  A land bank that was not created under federal statute must be subject

to any regulation by any authority equivalent to the Farm Credit System

regulation as may exist in the state or country of incorporation or commercial

domicile of the land bank.

5)         Entities engaged in the business of a "safe deposit

company".  The term "safe deposit company" means an entity

licensed by the

Division

of Financial

Institutions under the Safety Deposit License Act [240 ILCS 5/22] to engage in

the business of renting or permitting the use of, for compensation, safety

deposit boxes, safes, vaults or other facilities for the safekeeping of

personal property (see 240 ILCS 5/2).  The Safety Deposit License Act does not

apply to banks, savings and loans, credit unions, warehouses, or grain storage

companies (see 240 ILCS 5/3).

A)        Characteristic Services.  A safe deposit company provides

facilities for the safekeeping of personal property in safes or vaults, as

compared to warehouses.  Gross income from the characteristic services of a

safe deposit company includes rental income or similar charges for safe deposit

boxes.

B)        Regulation.  Safe deposit companies doing business in Illinois

must be licensed by the

Division

of Financial

Institutions.  An entity operating in any other state must be licensed or

subject to regulation by any equivalent authority in that state.

6)         Entities engaged in the business of a "savings and loan

association". The term "savings and loan association" means a

federal savings and loan association chartered under the Home Owners' Loan Act

of 1933 (12

U.S.C.

1462 and 1464(a)) whose

investments comply with the guidelines of 12

U.S.C.

1464(c) or a savings and loan association organized under the

Savings Bank Act

[205 ILCS

205/1001

]

and whose investments comply with the requirements of

Article

6 of the Savings Bank Act [205 ILCS 205/Art.6]

on" means a

federal savings and loan association chartered under the Home Owners' Loan Act

of 1933 (12

U.S.C.

1462 and 1464(a)) whose

investments comply with the guidelines of 12

U.S.C.

1464(c) or a savings and loan association organized under the

Savings Bank Act

[205 ILCS

205/1001

]

and whose investments comply with the requirements of

Article

6 of the Savings Bank Act [205 ILCS 205/Art.6]

.  The Internal Revenue

Code provides special rules for savings and loan associations, which are

defined in section 7701(a)(19) of the Internal Revenue Code as depository

institutions that invest at least 60% of their assets in cash, federal and

municipal obligations, loans secured by deposits or shares in the lender,

residential real estate loans, educational loans, and related investments. The

terms "bank", "savings bank", "building and loan

association" and "cooperative bank" are sometimes used in the

laws of other states or of other countries to refer to entities engaged in the

same business as a "savings and loan association" as defined in

Illinois or federal law. Notwithstanding that an entity does or does not come

within the meaning of any of these terms for any other purpose, the

determination of whether the entity is engaged in the business of a

"savings and loan association" for purposes of the IITA shall be made

pursuant to the following standards:

A)        Characteristic Services.  The business of a savings and loan

association consists principally of acquiring the savings of the public and

investing in loans (section 7701(a)(19)(B) of the Internal Revenue Code).  An

entity that does not take deposits and invest primarily in qualifying loans is

not a savings and loan association for purposes of the IITA

uant to the following standards:

A)        Characteristic Services.  The business of a savings and loan

association consists principally of acquiring the savings of the public and

investing in loans (section 7701(a)(19)(B) of the Internal Revenue Code).  An

entity that does not take deposits and invest primarily in qualifying loans is

not a savings and loan association for purposes of the IITA.  For purposes of

applying the gross income test in subsection (b) of this Section, examples of

gross income from characteristic services of a savings and loan association include:

i)          application and origination fees, points, interest, late

payment fees and other charges received in connection with loans or with

commitments to make loans or provide other credits;

ii)         service charges and early withdrawal or other penalties received

in connection with deposit accounts;

iii)        loan servicing fees and charges received in connection with

syndicated loans or loans sold to third parties; and

iv)        discounts and gains realized on the purchase or resale of

loans.

Examples of

items of income that are not gross income from the characteristic services of a

savings and loan association include rental income from real estate; gains from

sale of property obtained in foreclosure or settlement of loans; interest and

dividends received from, and gains realized on the sale or exchange of,

securities.

B)        Regulation.  No entity is a savings and loan association for

purposes of the IITA unless it is subject to regulation by the

Division of Banking

under the Savings Bank Act [205

ILCS

205/1001

], the Office of

the Comptroller of the Currency

(12

U.S.C.

1462), or the appropriate authority (if any)

of another state responsible for regulating savings and loan associations.

7)         Entities engaged in the business of a "credit union".

Federal credit unions that have received a charter under 12

U.S.C.

1754 are exempt from state income taxation

(see 12

U.S.C.

1768)

[205

ILCS

205/1001

], the Office of

the Comptroller of the Currency

(12

U.S.C.

1462), or the appropriate authority (if any)

of another state responsible for regulating savings and loan associations.

7)         Entities engaged in the business of a "credit union".

Federal credit unions that have received a charter under 12

U.S.C.

1754 are exempt from state income taxation

(see 12

U.S.C.

1768).  Under present law, only

"cooperative, non-profit" credit unions may be incorporated under the

Illinois Credit Union Act or permitted to do business in Illinois (see 205 ILCS

305/1.1 (defining "credit union") and 7 (permitting credit unions

chartered in other states to do business in Illinois)).  Under current law, a

credit union doing business in Illinois is most likely exempt from Illinois

Income Tax pursuant to IITA Section 205(a) and

Sections

501(a) and (c)(14)

of the Internal Revenue Code

.

12

U.S.C.

1753(5) and 205 ILCS 305/2(2)(b)

each require an entity applying for permission to organize as a credit union to

define the class of persons entitled to membership.

A)        Characteristic Services.  12

U.S.C.

1752(1) provides that a federal credit union is a cooperative association

organized for the purpose of promoting thrift among its members and creating a

source of credit for provident or productive purposes and 12

U.S.C.

1757(7) requires a federal credit union to

invest its funds in loans to its members, bank accounts, government securities

and in other credit unions.  205 ILCS 305/1.1 defines "credit union"

to mean a

cooperative, non-profit association, incorporated for the purposes

of encouraging thrift, creating a source of credit at a reasonable rate of

interest, and providing an opportunity for its members to use and control their

own money in order to improve their economic and social conditions,

and 205

ILCS 305/59 allows credit unions to invest only in loans to members, bank

accounts, government securities and other credit unions

ion, incorporated for the purposes

of encouraging thrift, creating a source of credit at a reasonable rate of

interest, and providing an opportunity for its members to use and control their

own money in order to improve their economic and social conditions,

and 205

ILCS 305/59 allows credit unions to invest only in loans to members, bank

accounts, government securities and other credit unions.  The characteristic

services of a credit union involve taking interest-paying deposits from its

members and making loans to its members.  For purposes of applying the gross

income test in subsection (b) of this Section, examples of gross income from

characteristic services of a credit union include:

i)          application and origination fees, points, interest, late

payment fees and other charges received in connection with loans or with

commitments to make loans to members; and

ii)         service charges and early withdrawal or other penalties

received in connection with deposit accounts.

Examples of

items of income that are not gross income from the characteristic services of a

credit union include interest and other income from loans to non-members;

rental income from real estate; gains from sale of property obtained in

foreclosure or settlement of loans; interest and dividends received from, and

gains realized on the sale or exchange of, securities.

B)        Regulation.  In order for an entity to qualify as a credit

union, an entity must be subject to regulation by any appropriate authority in

the state of organization, and the class of persons entitled to membership in

the entity must be defined by law or approved by the appropriate state

authority.

8)         Entities engaged in the business of a "currency

exchange"

ge of, securities.

B)        Regulation.  In order for an entity to qualify as a credit

union, an entity must be subject to regulation by any appropriate authority in

the state of organization, and the class of persons entitled to membership in

the entity must be defined by law or approved by the appropriate state

authority.

8)         Entities engaged in the business of a "currency

exchange".  The term "currency exchange" means an entity

licensed by the Director of

the Division of

Financial

Institutions under the Currency Exchange Act [205 ILCS 405/4]

for purposes

of engaging in the business of, and providing facilities for, cashing checks,

drafts, money orders or any other evidences of money for a consideration or

selling or issuing money orders in the entity's own name

[205 ILCS 405/1].

A)        Characteristic Services.  Currency exchanges cash checks and

other evidences of money for the general public, and may issue money orders.

Currency exchanges are not permitted to accept any form of deposit or bailment

of money (see 205 ILCS 405/3). The gross income from characteristic services of

a currency exchange is the fees or other charges for cashing checks or issuing

money orders.  Interest or other income earned from investment of funds

received from the issuance of money orders during the period between the

issuance of a money order and its clearance is not gross income from a

characteristic service of a currency exchange.

B)        Regulation.  A currency exchange doing business in Illinois

must be licensed by the Director of

the Division of

Financial Institutions and meet certain bonding requirements to protect its

customers.  An entity operating in any other state must be licensed or subject

to regulation by any equivalent authority in that state.

9)         Entities engaged in the business of a "small loan

company"

Regulation.  A currency exchange doing business in Illinois

must be licensed by the Director of

the Division of

Financial Institutions and meet certain bonding requirements to protect its

customers.  An entity operating in any other state must be licensed or subject

to regulation by any equivalent authority in that state.

9)         Entities engaged in the business of a "small loan

company".  The term "small loan company" means an entity

licensed by the Director of

the Division of

Financial

Institutions under the Consumer Installment Loan Act [205 ILCS 670/1] for the

purpose of making loans in a principal amount not exceeding

$40,000

.  Small loan companies are required to

disclose the terms of their loans pursuant to specific statutory requirements

or in conformity with the federal Truth in Lending Act (see 205 ILCS 670/16

(referencing 15

U.S.C.

1601)).  The

predecessor of the Consumer Installment Loan Act, the Small Loans Act (Ill.

Rev. Stat., ch. 74, par. 27 (1933)), was held to apply only to lenders, and not

to persons selling goods or services on a credit or installment basis. (See,

e.g., Wernick v. National Bond and Investment Co., 276 Ill. App. 84 (1934).)

A)        Characteristic Services.  Small loan companies are permitted to

make loans not exceeding an aggregate principal amount of

$40,000

to any obligor and for terms not exceeding 181

months.

(See 205 ILCS 670/17.)

A credit or

installment sale of goods or services is not a characteristic service of a

small loan company.  Gross income from the provision of the characteristic

services of a small loan company includes loan application and origination

fees, interest, late payment charges and similar amounts realized in connection

with loans not exceeding the principal amount of

$40,000

and for terms not exceeding

181

months

allment sale of goods or services is not a characteristic service of a

small loan company.  Gross income from the provision of the characteristic

services of a small loan company includes loan application and origination

fees, interest, late payment charges and similar amounts realized in connection

with loans not exceeding the principal amount of

$40,000

and for terms not exceeding

181

months.

Amounts received or accrued in connection with any loan for a principal amount

in excess of

$40,000

or for a term in excess

of

181

months are not gross income from the

provision of the characteristic services of a small loan company.  Finally,

because 205 ILCS 670/21 provides that the Consumer Installment Loan Act does

not apply to persons making loans to business associations or corporations, or

to sole proprietors of businesses for the purpose of carrying on or acquiring

such businesses, amounts received in connection with such business loans are

not gross income from the provision of the characteristic services of a small

loan company.

B)        Regulation.  A small loan company operating in Illinois must be

licensed by the Director of

the Division of

Financial

Institutions.  An entity operating in any other state must be licensed or

subject to regulation by any equivalent authority in that state.  In all cases,

the entity must comply with the regulations issued by the Board of Governors of

the Federal Reserve System under the Truth in Lending Act.

10)       Entities engaged in the business of a "sales finance

company"

r of

the Division of

Financial

Institutions.  An entity operating in any other state must be licensed or

subject to regulation by any equivalent authority in that state.  In all cases,

the entity must comply with the regulations issued by the Board of Governors of

the Federal Reserve System under the Truth in Lending Act.

10)       Entities engaged in the business of a "sales finance

company".  The term "sales finance company" has the meaning

provided in subsection (d)(10)(A) or (B):

A)        Under IITA Section 1501(a)(8)(C)(i), the term "sales

finance company" means an entity

primarily engaged in one or more of

the following businesses: the business of purchasing customer receivables, the

business of making loans upon the security of customer receivables, the

business of making loans for the express purpose of funding purchases of

tangible personal property or services by the borrower, or the business of

finance leasing.

For purposes of this subsection (d)(10)(A), a

"customer receivable" means:

i)

A retail installment contract or retail charge agreement

within the meaning of the Sales Finance Agency Act

[205 ILCS 660/2],

the

Retail Installment Sales Act

[815 ILCS 405/2.6 and 2.7],

or the Motor

Vehicle Retail Installment Sales Act

[815 ILCS 375/2.5];

ii)

An installment, charge, or similar contract or agreement

arising from the sale of tangible personal property or services in a

transaction involving a deferred payment price payable in one or more

installments subsequent to the sale;

iii)

The outstanding balance of a contract or agreement

described in subsection (d)(10)(A)(i) or (ii) of this Section;

or

iv)        A loan, or balance under a loan, made by a lender for the

express purpose of funding purchases of tangible personal property or services

by the borrower.

A customer

receivable need not provide for payment of interest on deferred payments

s subsequent to the sale;

iii)

The outstanding balance of a contract or agreement

described in subsection (d)(10)(A)(i) or (ii) of this Section;

or

iv)        A loan, or balance under a loan, made by a lender for the

express purpose of funding purchases of tangible personal property or services

by the borrower.

A customer

receivable need not provide for payment of interest on deferred payments.  A

sales finance company may purchase a customer receivable from, or make a loan

secured by a customer receivable to, the seller or lender in the original

transaction or from or to a person who purchased the customer receivable

directly or indirectly from that seller or lender.

Example 1:  A

manufacturer sells a product to a retailer.  Payment is due 7 days after

issuing the sales invoice.  An account receivable is recorded when the invoice

is issued.  The receivable would constitute a customer receivable.

Example 2:  An

entity purchases or otherwise acquires customer receivables or finance leases.

The entity sells those customer receivables or finance leases to a third party

and enters into an agreement to service such receivables or finance leases in

exchange for a fee.  The purchase, sale and/or servicing of such receivables or

finance leases is a business of a "sales finance company".

B)        Under IITA Section 1501(a)(8)(C)(ii), the term "sales

finance company" also means a corporation meeting each of the following

criteria:

i)

The corporation must be a member of an "affiliated

group" within the meaning of

section

1504(a) of the Internal

Revenue Code, determined without regard to

section

1504(b) of the

Internal Revenue Code;

ii)

More than 50% of the gross income of the corporation for

the taxable year must be interest income derived from qualifying loans

means a corporation meeting each of the following

criteria:

i)

The corporation must be a member of an "affiliated

group" within the meaning of

section

1504(a) of the Internal

Revenue Code, determined without regard to

section

1504(b) of the

Internal Revenue Code;

ii)

More than 50% of the gross income of the corporation for

the taxable year must be interest income derived from qualifying loans.  A

"qualifying loan" is a loan made to a member of the corporation's

affiliated group that originates customer receivables or to whom customer

receivables originated by a member of the affiliated group have been

transferred, to the extent the average outstanding balance of loans from that

corporation to members of its affiliated group during the taxable year do not

exceed the limitation amount for that corporation. The "limitation

amount" for a corporation is the average outstanding balances during the

taxable year of customer receivables originated by all members of the

affiliated group. If the average outstanding balances of the loans made by a

corporation to members of its affiliated group exceed the limitation amount,

the interest income of that corporation from qualifying loans shall be equal to

its interest income from loans to members of its affiliated group times a

fraction equal to the limitation amount divided by the average outstanding

balances of the loans made by that corporation to members of its affiliated

group;

iii)

The total of all shareholder's equity (including, without

limitation, paid-in capital on common and preferred stock and retained

earnings) of the corporation plus the total of all of its loans, advances, and

other obligations payable or owed to members of its affiliated group may not

exceed 20% of the total assets of the corporation at any time during the tax

year; and

iv)

More than 50% of all interest-bearing obligations of the

affiliated group payable to persons outside the group determined in accordance

with generally accepted accounting principles must be obligatio

of its loans, advances, and

other obligations payable or owed to members of its affiliated group may not

exceed 20% of the total assets of the corporation at any time during the tax

year; and

iv)

More than 50% of all interest-bearing obligations of the

affiliated group payable to persons outside the group determined in accordance

with generally accepted accounting principles must be obligations of the

corporation.

Example 3: In

connection with the conduct of its business, A Corporation either originates

customer receivables (as defined in subsection (d)(10)(A) of this Section), or

is transferred customer receivables from one or more of its affiliates.  B

Corporation, a wholly-owned subsidiary of A and a member of its affiliated

group, conducts business exclusively in State X, its commercial domicile.  B

issues commercial paper and other debt obligations and uses the proceeds to

make loans to A or other members of the affiliated group.  B Corporation derives

more than 50% of its gross income from interest on making "qualifying

loans" to A or other members of the affiliated group.  Assuming B also

meets the tests in subsections (d)(10)(B)(iii) and (iv) of this Section, B

would constitute a "sales finance company" as defined in IITA Section

1501(a)(8)(C)(ii).

C)        Characteristic Services.  A "sales finance company"

is defined by its characteristic services in subsections (d)(10)(A) and (B) of

this Section.  A company satisfies the primary test of subsection (d)(10)(A) of

this Section if more than 50% of its gross income is from its characteristic

services.

D)        Regulation.  There is no requirement that a sales finance

company that meets the definition provided in subsection (d)(10)(A) or (B) of

this Section be subject to license or regulation by any state or federal

authority.

11)       Entities engaged in the business of an “investment company”.

The term “investment company” means an entity that comes within the meaning of

15

U.S.C

ices.

D)        Regulation.  There is no requirement that a sales finance

company that meets the definition provided in subsection (d)(10)(A) or (B) of

this Section be subject to license or regulation by any state or federal

authority.

11)       Entities engaged in the business of an “investment company”.

The term “investment company” means an entity that comes within the meaning of

15

U.S.C.

80a-3 and is predominantly engaged

in the business of investing, reinvesting and trading in securities.

A)        Characteristic Services.  In the Investment Company Act of

1940, 15

U.S.C.

80a-3 defines an investment

company as an entity engaged in the business of investing, reinvesting and

trading in securities.  Accordingly, the characteristic services of an

investment company are the raising of capital from investors in order to

purchase capital securities of other entities.  Gross income from the

characteristic services of an investment company includes interest, dividends

and gains from sales of securities.

B)        Regulation.  In order to be characterized as an investment

company under the IITA, an entity doing business in the United

States must be registered as an investment company with the Securities and

Exchange Commission under the Investment Company Act of 1940.  Any entity that

is not doing business in the United States must be subject to the equivalent

authority (if any) in its country of formation or commercial domicile.

e)         The term "bank" includes the following entities,

regardless of whether the entity is engaged in the characteristic business of a

bank as described in subsection (d)(1) of this Section.  An entity described in

this subsection (e) is a bank even if it qualifies as a financial organization

under one of the provisions of subsection (d) of this Section:

1)         any entity that is regulated by the Comptroller of the

Currency under the National Bank Act, or by the Federal Reserve Board, or by

the Federal Deposit Insurance Corporation

scribed in subsection (d)(1) of this Section.  An entity described in

this subsection (e) is a bank even if it qualifies as a financial organization

under one of the provisions of subsection (d) of this Section:

1)         any entity that is regulated by the Comptroller of the

Currency under the National Bank Act, or by the Federal Reserve Board, or by

the Federal Deposit Insurance Corporation.

A)        An "entity regulated by the Comptroller of the Currency

under the National Bank Act" means a national banking association formed

under 12

U.S.C.

21.

B)        An "entity regulated by the Federal Reserve Board"

means a member of the Federal Reserve System under the provisions of 12

U.S.C.

222 or 12

U.S.C.

321.

C)        An "entity regulated by the Federal Deposit Insurance

Corporation" means an insured depository institution under 12

U.S.C.

1814.

2)         any federally or State chartered bank operating as a credit

card bank. A "credit card bank" is the common term for an entity that

comes within the definition of "bank" for purposes of the Bank

Holding Company Act of 1956 (12

U.S.C.

1841(c)(1)), but that is excluded from being treated as a bank under 12

U.S.C.

1841(c)(2)(F).

f)         Entities Engaged in the Business of a "Bank Holding

Company".  The term "bank holding company" means an entity that

directly or indirectly owns, controls or has power to vote 25% or more of any

class of voting securities of any bank or of any other bank holding company

(see 12

U.S.C.

1841(a)), and which is

registered with the Board of Governors of the Federal Reserve System under

Section 1844(a) of the Bank Holding Company Act of 1956 (12

U.S.C.

1844(a)).

g)         Special Rule for Persons Owned by a Bank or Bank Holding

Company

wns, controls or has power to vote 25% or more of any

class of voting securities of any bank or of any other bank holding company

(see 12

U.S.C.

1841(a)), and which is

registered with the Board of Governors of the Federal Reserve System under

Section 1844(a) of the Bank Holding Company Act of 1956 (12

U.S.C.

1844(a)).

g)         Special Rule for Persons Owned by a Bank or Bank Holding

Company.  The term "financial organization" under the Illinois Income

Tax Act includes any person that is owned by a bank (within the meaning of

subsection (d)(1) of this Section or subsection (e) of this Section) or by a

bank holding company (within the meaning of subsection (f) of this Section).

For purposes of this provision, the term "person" includes only those

persons in which a bank holding company may acquire and hold an interest,

directly or indirectly, under the provisions of the Bank Holding Company Act of

1956 (12

U.S.C.

1841) and Regulation Y

promulgated thereunder by the Board of Governors of the Federal Reserve System

(12 CFR 225), and does not include any person that must be disposed of within

certain required time limits under the Bank Holding Company Act of 1956.  Under

this provision, an entity that would not otherwise be a "financial

organization" is deemed to be a financial organization for any period

during which it is owned by a bank or bank holding company.  For example, prior

to the enactment of Public Law 106-102, 12

U.S.C.

1843(c)(8) authorized bank holding companies to own insurance companies in

certain circumstances.  12

U.S.C.

1843(c)(8)

allows a bank holding company that owned an insurance company prior to November

12, 1999, to continue to own that insurance company.  An insurance company

owned by a bank holding company is a "financial organization" for

purposes of the IITA, even though the insurance company would not otherwise be

a financial organization

n insurance companies in

certain circumstances.  12

U.S.C.

1843(c)(8)

allows a bank holding company that owned an insurance company prior to November

12, 1999, to continue to own that insurance company.  An insurance company

owned by a bank holding company is a "financial organization" for

purposes of the IITA, even though the insurance company would not otherwise be

a financial organization.  The fact that an entity that is not owned by a bank

holding company would be a financial organization under this provision if it

were owned by a bank holding company, or that the entity in the past may have

been owned by a bank holding company and therefore characterized as a financial

organization, is irrelevant to the determination of whether the entity is a

financial organization.

h)         Effective Dates and Elections.  Public Act 89-711 amended the

definition of "financial organization" in IITA Section 1501(a)(8) by

adding the definition of "bank" in IITA Section 1501(a)(8)(B) and the

definition of "sales finance company" in IITA Section 1501(a)(8)(C).

1)         Application of IITA Section 1501(a)(8) to taxable years

beginning on or before December 31, 1996.  The General Assembly declared in

IITA Section 1501(a)(8)(D) that the definitions of the terms "bank"

and "sales finance company" in IITA Section 1501(a)(8)(B) and (C) are

declaratory of existing law and apply retroactively for all tax years

beginning on or before December 31, 1996.

No other definitions were

changed.  Accordingly, except as provided in this subsection (h), the

interpretations of the statutory definitions contained in subsections (a)

through (g) apply retroactively and for all purposes to all taxable years

n IITA Section 1501(a)(8)(B) and (C) are

declaratory of existing law and apply retroactively for all tax years

beginning on or before December 31, 1996.

No other definitions were

changed.  Accordingly, except as provided in this subsection (h), the

interpretations of the statutory definitions contained in subsections (a)

through (g) apply retroactively and for all purposes to all taxable years.

2)         For taxable years beginning on or before December 31, 1996,

Public Act 89-711 provides that the definitions of "bank" and

"sales finance company" shall apply to all original returns; to all

amended returns filed within 30 days after the effective date of the Act; to

all math error notices issued by the Department under IITA Section 903(a); to

all Notices of Deficiency issued by the Department under IITA Section 904(a);

to all notices of denial of refund claims issued under IITA Section 909(e); and

to all assessments of erroneous refunds made under IITA Section 912.

A)        Public Act 89-711 imposes no time limit for the filing of an

original return applying its provisions to taxable years beginning on or prior

to December 31, 1996.  Accordingly, taxpayers may file original returns

claiming financial organization status under the amended definitions of

"bank" and "sales finance company" at any time, provided

that such returns are filed within the applicable statute of limitations period

and meet all other relevant requirements of the IITA.

B)        Taxpayers required to file amended returns in order to claim

financial organization status for a taxable year beginning on or prior to December 31, 1996, were required to do so on or before March

17, 1997, which was 30 days after the enactment of Public Act 89-711

eturns are filed within the applicable statute of limitations period

and meet all other relevant requirements of the IITA.

B)        Taxpayers required to file amended returns in order to claim

financial organization status for a taxable year beginning on or prior to December 31, 1996, were required to do so on or before March

17, 1997, which was 30 days after the enactment of Public Act 89-711.

C)        In the case of a taxpayer that had claimed financial

organization status on an original or amended return and whose status as a

financial organization was denied by the Department, IITA Section 1501(a)(8)(D)

provides that the amended definitions of "bank" and "sales

finance company" apply to the Notice of Deficiency or notice of denial of refund

claim issued by the Department after review of such return.

i)          If the Notice of Deficiency or notice of denial has not

become final, a taxpayer with a matter pending before the Office of

Administrative Hearings of the Illinois Department of Revenue for a particular

taxable year may raise as an issue the taxpayer's status as a "bank"

or "sales finance company" by the making of a motion in conformance

with the rules on motion practice as set forth in 86 Ill. Adm. Code 200.185.

ii)         If the Notice of Deficiency or notice of denial has become

final, and the taxpayer is not contesting the Department's action in the courts

under the Administrative Review Law [735 ILCS 5/Art. III] or the State Officers

and Employees Money Disposition Act [30 ILCS 230], the taxpayer must have filed

a timely amended return as set forth in subsection (h)(2)(B) of this Section in

order to assert a claim that it qualifies as a "bank" or "sales

finance company" under the amended definitions.

iii)        A taxpayer with a matter pending before the courts of this

State for a particular taxable year must request treatment as a

"bank" or "sales finance company" by the making of a motion

in conformance with the rules of the court

th in subsection (h)(2)(B) of this Section in

order to assert a claim that it qualifies as a "bank" or "sales

finance company" under the amended definitions.

iii)        A taxpayer with a matter pending before the courts of this

State for a particular taxable year must request treatment as a

"bank" or "sales finance company" by the making of a motion

in conformance with the rules of the court.

3)         Election under IITA Section 1501(a)(8)(E).  IITA Section

1501(a)(8)(E) provides that,

for all taxable years beginning on or before

December 31, 1996, a taxpayer that falls within the definition of a

"financial organization" under Section 1501(a)(8)(B) or (C) of the

IITA, but who does not fall within the definition of a "financial organization"

under the Proposed Regulations issued by the Department of Revenue on July 19,

1996 (20 Ill. Reg. 9488) may irrevocably elect to apply the Proposed

Regulations for all of those years as though the Proposed Regulations had been

lawfully promulgated, adopted, and in effect for all of those years.

A)        In order to support a claim for refund, the election must have

been filed by March 17, 1997.  Procedures for making an election which would

support a claim for refund were published in Emergency Rule 100.9710 (21 Ill.

Reg. 2969).

B)        A taxpayer who has filed an original or amended return for any

taxable year beginning on or before December 31, 1996, as a non-financial

organization and that wishes to elect to be bound by the July 19, 1996,

proposed rules solely for the purpose of preserving its return position, and

not for purposes of claiming a refund for any year, may file an election

document meeting the following requirements:

i)          The election document must state on the first page

"Financial Organization Election to Apply Proposed Rules Under Public Act

89-711 – No Refund Claim"

ect to be bound by the July 19, 1996,

proposed rules solely for the purpose of preserving its return position, and

not for purposes of claiming a refund for any year, may file an election

document meeting the following requirements:

i)          The election document must state on the first page

"Financial Organization Election to Apply Proposed Rules Under Public Act

89-711 – No Refund Claim".

ii)         The election document must be filed prior to the issuance of

any Notice of Deficiency or notice of claim denial that is based in whole or in

part on the retroactive application of Public Act 89-711 to treat the taxpayer

as a financial organization.

iii)        The election document must list all members of the unitary

business group to whom the election applies.  The election shall be binding on

all such members, whether or not listed, and the Department may enforce such

election against such members.  In addition, no refund claimed after the

effective date of Public Act 89-711 shall be allowed to the extent such refund

results from the application of the July

19, 1996, proposed rules to any such member.

C)        All elections to apply the July

19, 1996, proposed rules, whether made by amended return or by an election

document, shall be sent to the following address:

Deputy General

Counsel – Income Tax

Legal Services

Office – Room 5-500

Illinois

Department of Revenue

P.O.

Box 19014

Springfield, Illinois  62794-9014

D)        Effect of election.

i)          Effect on "banks" as defined in IITA Section

1501(a)(8)(B).  Public Act 89-711 expanded the definition of the term

"bank" to include entities described in subsection (e) of this

Section, without regard to the actual business activities of the entity.  A

taxpayer governed by an election under this subsection (h) must be engaged in

the business of a "bank" as described in subsection (d)(1) of this

Section in order to be characterized as a bank

a)(8)(B).  Public Act 89-711 expanded the definition of the term

"bank" to include entities described in subsection (e) of this

Section, without regard to the actual business activities of the entity.  A

taxpayer governed by an election under this subsection (h) must be engaged in

the business of a "bank" as described in subsection (d)(1) of this

Section in order to be characterized as a bank.  For example, under IITA

Section 1501(a)(8)(B), a "credit card bank" is characterized as a

"bank" even though a credit card bank is prohibited from accepting

deposits from the public.  A credit card bank governed by an election under

this subsection (h) therefore cannot be a "bank" under subsection

(d)(1) of this Section.  Note, however, that a credit card bank governed by

such an election may qualify as a financial organization under some other

provision of this Section; in particular, a credit card bank may be engaged in

the business of a sales finance company as defined in subsection (i)(3)(D)(ii)

of this Section.

ii)         Effect on "sales finance companies" as defined in

IITA Section 1501(a)(8)(C).  Public Act 89-711 expanded the definition of

"sales finance company" to include entities that buy, or make loans

secured by, installment agreements or charge agreements of corporations and

businesses and to include entities which are primarily engaged in the business

of a sales finance company.  An entity governed by an election under this

subsection (h) will be a sales finance company only if:  it is engaged in the

business of buying, or making loans secured by, installment agreements and

charge agreements arising from retail purchases for personal, family or

household use; more than 80% of its gross income is derived from transactions

characteristic of a financial organization; and it meets the other requirements

of subsection (d)(10) of this Section.

iii)        An election made under Section 1501(a)(8)(E) applies only to

taxable years beginning on or before December

31, 1996

harge agreements arising from retail purchases for personal, family or

household use; more than 80% of its gross income is derived from transactions

characteristic of a financial organization; and it meets the other requirements

of subsection (d)(10) of this Section.

iii)        An election made under Section 1501(a)(8)(E) applies only to

taxable years beginning on or before December

31, 1996.  For all subsequent taxable years, the provisions of Section

1501(a)(8) as amended in Public Act 89-711 and interpreted in subsections (a)

through (h) of this Section shall apply.

iv)        Section 1501(a)(8)(E) provides that the election applies

to

those members of the taxpayer's unitary business group who are ordinarily

required to apportion business income under the same subsection of Section 304

of the IITA.

An election made by one or more such members is binding on all

such members, whether or not they expressly joined in the election, and the Department

may enforce such election either directly or by offsetting any refund payable

to the taxpayer as the result of the election by any underpayment of any other

taxpayer to whom such election also applies to the extent such underpayment

results from the making of the election.

v)         Effective January 1, 2000, Public Act 91-535 amended the

definition of the term "sales finance company" in IITA Section

1501(a)(8)(C).  The General Assembly declared the definition of the term

"sales finance company" in Public Act 91-535 to be declaratory of

existing law.  Accordingly, except as provided in this subsection (i), the

interpretation of the term "sales finance company" shall apply

retroactively and for all purposes to all taxable years

definition of the term "sales finance company" in IITA Section

1501(a)(8)(C).  The General Assembly declared the definition of the term

"sales finance company" in Public Act 91-535 to be declaratory of

existing law.  Accordingly, except as provided in this subsection (i), the

interpretation of the term "sales finance company" shall apply

retroactively and for all purposes to all taxable years.

1)         The definition of "sales finance company" provided

by Public Act 91-535 shall apply to all original returns; to all amended

returns; to all math error notices issued by the Department under IITA Section

904(a); to all Notices of Denial of refund claims issued under IITA Section

909(e); and to all notices of erroneous refunds made under IITA Section 912.

A)        Public act 91-535 imposes no time limit for the filing of an

original or amended return applying its provisions to a particular taxable

year.  Accordingly, taxpayers may file original or amended returns claiming

financial organization status under the amended definition of "sales

finance company" at any time, provided that such returns are filed within

the applicable statute of limitations period and meet all other relevant

requirements of the IITA.

B)        In the case of a taxpayer that had claimed financial

organization status on an original or amended return and whose status as a

financial organization was denied by the Department:

i)          If the Notice of Deficiency or Notice of Denial has not

become final, a taxpayer with a matter pending before the Office of

Administrative Hearings of the Illinois Department of Revenue for a particular

taxable year may raise as an issue the taxpayer's status as a "sales

finance company" by making of a motion in conformance with the rules on

motion practice as set forth in Section 100.185 of this Part

tice of Deficiency or Notice of Denial has not

become final, a taxpayer with a matter pending before the Office of

Administrative Hearings of the Illinois Department of Revenue for a particular

taxable year may raise as an issue the taxpayer's status as a "sales

finance company" by making of a motion in conformance with the rules on

motion practice as set forth in Section 100.185 of this Part.

ii)         If the Notice of Deficiency or Notice of Denial has become

final, and the taxpayer is not contesting the Department's action in the courts

under the Administrative Review Law [735 ILCS 5/Art. III] or the State Officers

and Employees Money Disposition Act [30 ILCS 230], the taxpayer must have filed

a timely amended return as set forth in subsection (h)(2)(B) of this Section in

order to assert a claim that it qualifies as a "sales finance

company" under the amended definition.

iii)        A taxpayer with a matter pending before the courts of this

State for a particular taxable year must request treatment as a "sales

finance company" by the making of a motion in conformance with the rules

of the court.