GILTI Inclusion

Effective for the 2025 calendar tax year, Illinois reduced the dividends-received deduction allowed for GILTI from 100% to 50%.¹ Under existing Illinois law, any GILTI inclusion is not included in the sales factor, which can result in Illinois taxing a disproportionate share of a taxpayer’s GILTI inclusion.² Any taxpayer facing increased Illinois tax as a result of the GILTI inclusion should consider whether they are entitled to factor representation as a form of alternative apportionment relief.

Alternative Apportionment Deadline — July 17, 2026

Taxpayers seeking to mitigate the effect of the GILTI inclusion through factor representation on their originally filed Illinois returns must file a petition for alternative apportionment with the Department 120 days before the extended return due date.³ For calendar-year taxpayers, this means the deadline to mitigate Illinois’ GILTI inclusion on an originally filed Illinois return for the 2025 tax year return is July 17. ⁴ The Department has rejected petitions solely for missing this deadline. Moreover, Department regulations prohibit taxpayers from claiming alternative apportionment on an originally filed return without first filing an alternative apportionment petition and being granted permission to use an alternative method. Thus, taxpayers must decide before July 17 whether to seek to mitigate GILTI on an originally filed return, or to pay the tax and pursue relief through a refund claim.

Proactive Petition vs. Refund Claim

A. Filing a Petition for Alternative Apportionment
Pursuing factor representation through a pre-filing petition for alternative apportionment has several advantages:

1. Preserves cash flow if approved.
2. Positions early filers advantageously to reach a resolution while the Department formulates its own strategy on how to address claims for factor representation for the GILTI inclusion.
3. A well-considered petition signals good faith and cooperation, which could foster a resolution.
4. If the Department denies or declines to rule on a taxpayer’s petition, the taxpayer may file its return using the statutory method, then file a refund claim within the ordinary statute of limitations for refunds.

B. Pursuing Alternative Apportionment Through a Refund Claim
Pursuing factor representation through a post-filing refund claim also has some advantages:

1. Maintains strategic flexibility—taxpayer controls timing and disclosure.
2. Allows the legal landscape to develop further before requesting alternative apportionment.

However, these advantages are coupled with some disadvantages, including:

1. The cash payment of the additional tax will be tied up, potentially for years.
2. Taxpayers tend to have less negotiating leverage when seeking a refund.
3. Resolving the refund claim through settlement may be more difficult once the Department has formulated its alternative apportionment position and strategy.

Recommendation:

Taxpayers with significant Illinois tax exposure due to GILTI should seriously consider filing an alternative apportionment petition seeking pre-approval of an apportionment method allowing factor representation for the GILTI inclusion. With the right strategy, a petition for pre-approval could be granted, or a settlement could be reached with the Department.

We would be happy to discuss whether your facts are favorable for a petition for pre-approval of alternative apportionment. We can also discuss GILTI mitigation strategies beyond alternative apportionment.

1. 35 ILCS 5/203(b)(2)(O) (as amended by Ill. Public Act 104-0006). In prior years, GILTI was generally fully deductible for at least 80%-owned foreign corporations. 35 ILCS 5/203(b)(2)(O) (prior to amendment by Ill. Public Act 104-0006). Amounts included under IRC § 951A were referred to as global intangible low-taxed income (“GILTI”). For tax years beginning after December 31, 2025, the inclusion was renamed by Congress as “net CFC [controlled foreign corporation] tested income,” or “NCTI”. P.L. 119-21 (Jul. 4, 2025), § 70323. Illinois applies the 50% deduction rule to both GILTI and NCTI. 35 ILCS 5/203(b)(2)(O) (as amended by Ill. Public Act 104-0453).2. 35 ILCS 5/304(a)(3)(D); Ill. 1120 Instructions (2025) at 18.3. 86 Ill. Adm. Code § 100.3390(e)(1).4. 120 days before the return due date falls on a weekend for calendar-year taxpayers. Thus, taxpayers should use July 17 as a conservative practical deadline.

Client Alert 2026-133