Why did historical Illinois Schedule CR put the full federal alimony deduction in the non-Illinois column when limiting the other-state tax credit?

Plain-English summary

The Schedule CR instructions correctly treated the full historical alimony deduction as non-Illinois for the credit-limit calculation. Lunding prohibited states from denying nonresidents an alimony deduction allowed to residents, so Illinois allocated the full federal deduction to Illinois for a nonresident's Illinois net income.

For an Illinois resident's other-state credit, Section 601(b)(3) asked what income would be allocated elsewhere if every state followed Illinois rules. Consistency required allocating the same full alimony deduction to the hypothetical other states, which could reduce or eliminate the credit numerator.

What this means for you

Use the law and form instructions for the specific tax year. Historical alimony deductions and current federal treatment may differ sharply.

Common questions

Q: Were the Schedule CR instructions mistaken?
A: No.

Q: Could the allocation eliminate the other-state credit?
A: Yes.

Citations and references

• 35 ILCS 5/601(b)(3)
• Lunding v. New York Tax Appeals Tribunal, 522 U.S. 287 (1998)

Subject

Allocation

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-11-0014.pdf

Original ruling text

IT 11-0014-GIL 07/12/2011 ALLOCATION
General Information Letter: The decision of the United States Supreme Court in
Lunding requires a state to allow nonresidents to allocate to the state deductions for
alimony paid.
July 12, 2011
Dear:
This is in response to your letter dated June 2, 2011, in which you request guidance. The nature of
your request and the information you have provided require that we respond with a General
Information Letter, which 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 found on the Department's web site at www. tax.illinois.gov.
In your letter you have stated the following:
According to the 2010 Form Schedule CR instructions for Column B, Non-Illinois Portion
of Line 26, Alimony Paid, the total from Column A should be entered into Column B.
These are also the same instructions for Lines 20, 28 and 29. The question I asked to
your agents was “why should the entire (federal) amount from column A be reported in
column B as a non-Illinois deduction?”
One answer was “because that is what the instructions say”. Another answer was “all
the alimony is non-illinois sourced even if it was paid by an Illinois resident to an Illinois
resident”. Another agent said the instructions to the form aren’t worded correctly and I
should only report the alimony paid to Non-Illinois residents in Column B. None of your
agents could explain the reasoning behind their answers or direct me to a statute citing
facts.
I mentioned to one of the agents that our tax software was including the entire amount
from column A in column B which was resulting in a net negative amount of non-Illinois
income and therefore eliminating any tax credit allowed for taxes paid to other states.
The agent suggested I complete the form by hand and not include any amount in
column B, but the agent couldn’t tell me if that was correct or not based upon his
interpretation of the form’s instructions for Line 26.
I have attached two scenarios to illustrate why this question is relevant. In Scenario #1,
I’ve included the $90,000 of alimony in Line 26 of Column B which results in no other
state tax credit being allowed. In Scenario #2, I have not include any amount in Column
B. Scenario #2 results in an allowance for other states tax credit in the amount of
$2,500.
We are requesting guidance on the proper reporting method and ask that you consider
revising the instructions to the Form CR for future clarification benefiting taxpayers,
preparers, and your department’s agents.
Response
Section 601(b)(3) of the Illinois Income Tax Act (35 ILCS 5/601) allows Illinois residents a credit for
taxes paid to other states. That section provides, in part:

IT 11-0014-GIL
July 12, 2011
Page 2

the credit provided under this paragraph for tax paid to other states shall not exceed
that amount which bears the same ratio to the tax imposed by subsections 201(a) and
(b) otherwise due under this Act as the amount of the taxpayer's base income that
would be allocated or apportioned to other states if all other states had adopted the
provisions in Article 3 of this Act bears to the taxpayer's total base income subject to tax
by this State for the taxable year.
In Lunding v. N.Y. Tax Appeals Tribunal, 522 U.S. 287 (1998), the United States Supreme Court held
that states could not discriminate against nonresidents by denying them the same deduction for
alimony paid that would be allowed to residents. Accordingly, Illinois allows nonresidents to allocate
the full amount of the federal deduction for alimony paid to Illinois in determining their Illinois net
income. See the instructions to Line 30 of the Schedule NR, Nonresident and Part-Year Resident
Computation of Illinois Tax. Consistent with this allocation, the limit on the credit for taxes paid to
other states in Section 601(b)(3) must be computed by allocating the deduction for alimony paid to
other states as if they followed the same allocation principles as Illinois.
The instructions to the Schedule CR, Credit for Taxes Paid to Other States, correctly apply the
statute.
As stated above, this is a general information letter which 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 are
not under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have
any further questions, you may contact me at (217) 782-7055.
Sincerely,

Paul S. Caselton
Deputy General Counsel – Income Tax