Illinois Allocation of Income for an S Corporation

[Ephesians3-14]

I have an IL S Corp client (ABC Company) who has operations only in IL. It also is a partner in an Arkansas partnership. 

The Federal Sched K-1 received from the AR partnership has $300,000 of Ord Income and $800,000 of long term capital gain income of which $40K and $101K are apportioned to IL (based on the IL-K-1-P), respectively.

I am preparing the IL S Corp return and wondering if the $1.1MM (Ord Income + LTCG) would be factored into the apportionment formula. The tax form allocates business income based on "sales". Would the term "sales" include the K-1 income? Any help would be greatly appreciated.

[dascpa]

I've posted previously I'm working on a major return with 7 countries and 14 states.  All by K-1.  So far the return is 976 pages long.

K-1's are designed to be business to individual.  No state is set up for K-1's to be business to business and then to individual.

This means that apportionment will not work when you know what the state taxable income is.

Arkansas actually allows for direct accounting for the state under their filing status, but it says prior approval is required.  Too late for that.  So I checked the box anyways, attached a note explaining the K-1 situation, and then also attached the K-1 we received. In my AR1100S I filled in the direct numbers with the first line (gross sales) as being the allocated K-1 profit under the Arkansas column.  I did NOT use the apportionment calculation as it would not yield the correct result.

I know 13 of the 14 states (an Alabama tax agent actually explained how they wanted it presented) are wrong in presentation, but right in final pass-thru to the end pass-thru owner.

Taxes are soooo much fun when trying to override software.