Did a tiered limited partnership need alternative-apportionment permission to use the Illinois amounts on its partnership schedules?

Plain-English summary

Using the lower-tier partnerships' Illinois amounts could be the statutory Section 305 method, not alternative apportionment. A partnership is a nonresident for these rules, and its shares of lower-tier partnership business income and separately allocated items are taken into account under Section 305.

If that was the requested method, no Section 304(f) petition was necessary. If the partnership wanted a different method, IDOR could not approve the request as filed because it neither explained how the statutory formula distorted Illinois activity nor described a fair replacement.

The GIL also stated that Regulation 100.3390(e)(1) then required a petition at least 120 days before the due date, including extensions, of the first return for which permission was sought.

What this means for you

First determine whether your reporting already follows Section 305. A true alternative-method request needs both evidence of distortion and a defined replacement calculation, filed on time.

Common questions

Q: Did IDOR approve alternative apportionment?
A: No.

Q: Was a petition necessarily required?
A: No. Using the Section 305 amounts reported on Illinois Schedules K-1-P did not require Section 304(f) permission.

Citations and references

• 35 ILCS 5/305(a), (b)
• 35 ILCS 5/304(f)
• 35 ILCS 5/1501(a)(14), (16), (20)
• 86 Ill. Adm. Code 100.3390

Subject

Alternative Apportionment

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2013/it-13-0001.pdf

Original ruling text

IT 13-0001-GIL 03/21/2013 ALTERNATIVE APPORTIONMENT
General Information Letter: Request to use alternative apportionment method for
income passed through from a partnership cannot be granted based on information
contained in the petition.
March 21, 2013
Dear:
This is in response to your letter dated March 15, 2013, in which you request permission to include in
the net income of COMPANY only the amounts of business income apportioned to Illinois or
nonbusiness income allocated to Illinois, as shown on the Schedules K-1-P it received from
partnerships with Illinois activities, rather using than the statutorily-mandated apportionment formula
for apportionment of business income derived from partnerships, pursuant to Section 304(f) of the
Illinois Income Tax Act (the "IITA"; 35 ILCS 101 et seq.). The nature of your letter 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.revenue.state.il.us. For the reasons discussed below, your petition cannot be
granted at this time.
In your letter you have stated the following:
COMPANY is a partnership whose sole source of income is from investment in other
partnerships. Each of the partnerships it invests in provide a Federal Form K-1. Those
partnerships that have Illinois activity provide an Illinois K-1. The entity is a Texas
limited partnership.
The standard apportionment method does not fairly or accurately reflect the business
activity in Illinois. There are no sales factors which the entity can use since the only
information it has is the net ordinary income or loss from partnerships.
Therefore the entity requests that it be allowed to apportion to Illinois only the business
income it receives from Illinois K-1s from other partnerships. There really is no other
method for apportionment in this case since there is no sales activity which can be
reported.
The method the partnership would use is to report on Line 43, the business income or
loss for Illinois as reported to it from the various Illinois K-1s it receives. Similarly line 44
will reflect the nonbusiness income or loss reported on the Illinois K-1s it receives from
other partnerships.
Response
Section 305(a) of the IITA provides:
The respective shares of partners other than residents in so much of the business
income of the partnership as is allocated or apportioned to this State in the possession
of the partnership shall be taken into account by such partners pro rata in accordance
with their respective distributive shares of such partnership income for the partnership's
taxable year and allocated to this State.

IT 13-0001-GIL
March 21, 2013
Page 2

Section 305(b) of the IITA provides:
The respective shares of partners other than residents in the items of partnership
income and deduction not taken into account in computing the business income of a
partnership shall be taken into account by such partners pro rata in accordance with
their respective distributive shares of such partnership income for the partnership's
taxable year, and allocated as if such items had been paid, incurred or accrued directly
to such partners in their separate capacities.
A partnership is, by definition, a nonresident, and so would apply this section to income it receives
from another partnership. See Section 1501(a)(14), (16) and (20) of the IITA. From your letter, it
appears that COMPANY is requesting to determine its Illinois net income in accordance with this
section, using the amounts reported to it on the Schedules K-1-P it receives from partnerships with
Illinois activity. If that is the case, no petition under Section 304(f) of the IITA is necessary.
If COMPANY is requesting some other method of apportioning its income from partnerships, we will
need additional information from you. Section 304(f) of the IITA provides:
If the allocation and apportionment provisions of subsections (a) through (e) and of
subsection (h) do not fairly represent the extent of a person's business activity in this
State, the person may petition for, or the Director may require, in respect of all or any
part of the person's business activity, if reasonable:
(1)

Separate accounting;

(2)

The exclusion of any one or more factors;

(3)

The inclusion of one or more additional factors which will fairly represent the
person's business activities in this State; or

(4)

The employment of any other method to effectuate an equitable allocation and
apportionment of the person's business income.

Taxpayers who wish to use an alternative method of apportionment under this provision are required
to file a petition complying with the requirements of 86 Ill. Adm. Code Section 100.3390, which may
be found on the Department's web site at www.revenue.state.il.us.
Your request does not indicate in what manner the apportionment formula required under Section 304
of the IITA fails to fairly represent the extent of the business activities of COMPANY, nor (assuming
the alternative apportionment method requested is not the method prescribed by Section 305 of the
IITA) does it describe the alternative apportionment method that would fairly represent the extent of
its business activity in Illinois.
Please note that 86 Ill. Adm. Code Section 100.3390(e)(1) requires a petition to be filed at least 120
days prior to the due date (including extensions) for the first return for which permission is sought to
use the alternative apportionment method. Your petition was filed March 15, 2013, and will allow the
taxpayer to use the requested method on original returns due on or after July 13, 2013, if ultimately

IT 13-0001-GIL
March 21, 2013
Page 3
granted.
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 still
believe that your petition should be granted, please supplement the petition in accordance with the
provisions of 86 Ill. Adm. Code Section 100.3390. If you have any questions, you may contact me at
(217) 524-3951.
Sincerely,

Paul S. Caselton
Deputy General Counsel -- Income Tax