Could an Illinois resident subtract pension income paid by a foreign employer's retirement plan?

Plain-English summary

The foreign employer pension did not appear to qualify for Illinois's retirement-income subtraction. Illinois taxable income starts with federal adjusted gross income, and Section 203(h) permits a modification only when Section 203 expressly provides one.

Section 203(a)(2)(F) listed particular federal retirement provisions and certain governmental-plan or retired-partner payments. IDOR concluded that none of the listed provisions appeared to apply to the foreign bank's retirement plan, so the pension would not qualify for subtraction.

What this means for you

Foreign source alone does not determine the result. Identify the exact federal provision governing the plan and distribution before claiming the Illinois subtraction.

Common questions

Q: Did Illinois provide a general exemption for foreign pensions?
A: No.

Q: Why was the subtraction unavailable on the stated facts?
A: The foreign employer plan did not appear to fit any retirement category expressly listed in Section 203(a)(2)(F).

Citations and references

• 35 ILCS 5/203(a)(2)(F), (h)
• I.R.C. §§ 401(a), 402, 403, 406–408, 1402

Subject

Subtraction Modifications – Pensions

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-13-0004.pdf

Original ruling text

IT 13-0004-GIL 03/26/2013 SUBTRACTION MODIFICATIONS – PENSIONS
General Information Letter: Pensions received from overseas employment by foreign
corporations most likely do not qualify for subtraction from adjusted gross income.
March 26, 2013
Dear:
This is in response to your undated letter dated, which we received on March 20, 2013. In your letter,
you request a letter ruling. 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:
I am writing to ask for clarification about whether Illinois taxes pensions paid by a
foreign company to an Illinois citizen. The specific situation is a retired person who
worked for the BANK in COUNTRY. He is now retired and a citizen of Illinois and
receiving a pension from the BANK.
Does such a plan meet Illinois’ qualifications for tax exemption of pension income? I am
hoping you can provide a General Information Letter covering this topic. I have
received conflicting information from other tax preparers more familiar with Illinois tax
law than am I.
Response
Under Section 203(a) of the Illinois Income Tax Act (35 ILCS 5/203), the computation of an
individual's "net income" taxed by Illinois begins with the taxpayer's federal adjusted gross income, as
properly computed for the taxable year. Various addition and subtraction modifications are then
made, and the resulting "base income" is then allocated and apportioned to Illinois. Section 203(h)
provides that no modification may be made to adjusted gross income unless expressly provided in
Section 203.
Section 203(a)(2)(F) allows an individual to subtract from his or her adjusted gross income:
An amount equal to all amounts included in such total pursuant to the provisions of
Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the Internal
Revenue Code, or included in such total as distributions under the provisions of any
retirement or disability plan for employees of any governmental agency or unit, or
retirement payments to retired partners, which payments are excluded in computing net
earnings from self employment by Section 1402 of the Internal Revenue Code and
regulations adopted pursuant thereto.
Section 402 of the Internal Revenue Code deals with distributions from employee trusts exempt under
Section 401(a) of the Internal Revenue Code, which provides an exemption for certain employee
trusts “created or organized in the United States.”
Section 403(a) of the Internal Revenue Code deals with annuities described in Section 404(a)(2) of
the Internal Revenue Code, which describes certain annuities purchased by employee trusts exempt

IT 13-0004-GIL
March 26, 2013
Page 2
under Section 401(a) of the Internal Revenue Code.
Section 403(b) of the Internal Revenue Code deals with annuities for employees of exempt
organizations.
Sections 406 and 407 of the Internal Revenue Code deal with employee benefit plans under Section
401 that cover overseas employees of affiliates of the employer that created the plan.
Section 408 of the Internal Revenue Code deals with individual retirement accounts.
None of these provisions would appear to apply to a retirement plan of the BANK, and the pension
income would therefore not qualify for subtraction under Section 203(a)(2)(F).
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