Pass-Through Entity-Level Tax: Tax-Option (S) Corporation Determining Income and Computing Tax

This is a proposed guidance document. The document has been submitted to the Legislative Reference Bureau for publication in the Administrative Register for public comment as provided by sec. 227.112(1), Wis. Stats.

Effective for taxable years beginning on or after January 1, 2018

  1. How does an electing tax-option (S) corporation determine the situs of income?

  2. What is the entity-level tax rate?

  3. Are long-term capital gains taxed at a different rate?

  4. Can an electing tax-option (S) corporation claim the 30-percent or 60-percent long-term capital gain deduction under sec. 71.36(1m)(a), Wis. Stats.?

  5. Can an electing tax-option (S) corporation claim the capital gain exclusion for the sale of an investment in a qualified Wisconsin business?

  6. Can an electing tax-option (S) corporation register to be a qualified Wisconsin business?

  7. Can an electing tax-option (S) corporation claim a deduction for charitable contributions?

  8. Is an electing tax-option (S) corporation subject to passive activity loss limitations?

  9. How does an electing tax-option (S) corporation determine the characterization of passive income or loss?

  10. Is an electing tax-option (S) corporation subject to the $500 Wisconsin capital loss limitation or the $3,000 federal capital loss limitation?

  11. Is an electing tax-option (S) corporation subject to federal section 179 expense limitations?

  12. Can an electing tax-option (S) corporation claim the federal special depreciation allowance, bonus depreciation, under sec. 168(k), Internal Revenue Code (IRC)?

  13. Can an electing tax-option (S) corporation carry forward suspended capital and passive activity losses?

  14. Can an electing tax-option (S) corporation carry back or carry forward net business losses?

  15. Can an electing tax-option (S) corporation pass through net business losses to its shareholders?

  16. Can an electing tax-option (S) corporation claim credits to offset taxable income at the entity level?

  17. Can an electing tax-option (S) corporation pass through credits to its shareholders?

  18. How is the manufacturing and agriculture (M&A) credit included in Wisconsin income if a tax-option (S) corporation makes an election to pay tax at the entity level in the year the M&A credit is computed and does not make the election to pay tax at the entity level in the following year?

  19. How does an electing tax-option (S) corporation compute the credit for taxes paid to another state?

  20. Can an electing tax-option (S) corporation claim a credit for taxes paid to another state if the taxes paid to the other state are paid by a shareholder on an individual income tax return?

  21. Is withholding tax paid by an electing tax-option (S) corporation in another state (e.g., Illinois) on behalf of its members considered a "composite return" for purposes of the Wisconsin entity-level credit for taxes paid to another state?

  22. Can a tax-option (S) corporation making the election to pay tax at the entity level exclude income at the entity level if the income is attributable to a tax-exempt shareholder (e.g., employee stock ownership plan)?

  23. For Wisconsin purposes, how will the tax-option (S) corporation entity-level tax election affect the deductible amount of a shareholder's interest expense related to a debt-financed acquisition of stock of the electing tax-option (S) corporation?

  24. Where does an electing tax-option (S) corporation report taxable federal, state, and municipal government interest that would have been reported on line 1 of Form 5S if the entity-level tax election was not made?

  25. Can an electing tax-option (S) corporation claim a deduction for health insurance premiums paid on behalf of a greater than 2-percent shareholder?

  26. If a shareholder of an electing tax-option (S) corporation had a suspended loss from a prior year due to basis limitations, can the electing tax-option (S) corporation use the shareholder's suspended loss to reduce its Wisconsin taxable income in the current year?


Applicable Laws and Rules

This document provides statements or interpretations of the following laws and regulations in effect as of February 10, 2020: Sections 71.03, 71.04, 71.05, 71.07, 71.26, 71.34, 71.36, 71.362 and 71.365, Wis. Stats., sec. Tax 2.08, Wis. Adm. Code, 26 U.S. Code §§ 162, 163, 170, 469, 703, 1211 and 1363, and 26 CFR § 163-8T.

Laws enacted and in effect after February 10, 2020, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to February 10, 2020, that is contrary to the information in this document is superseded by this document, pursuant to sec. 73.16(2)(a), Wis. Stats.

FOR QUESTIONS OR COMMENTS CONTACT:

MS 5-77
WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2772
Fax: (608) 267-1030
Email additional questions to DORIncome@wisconsin.gov

Guidance Document Number: 100184

February 10, 2020