Pass-Through Entity-Level Tax: Tax-Option (S) Corporation Shareholder Reporting Questions

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

  1. How will making the election impact a shareholder's adjusted basis in their stock and indebtedness of the tax-option (S) corporation?

  2. Can shareholders use the Wisconsin manufacturing and agriculture credit from an electing tax-option (S) corporation to offset their Wisconsin individual income tax liability for the same taxable year?

  3. If a tax-option (S) corporation elects to pay tax at the entity level, can an individual Wisconsin resident shareholder claim a credit for taxes paid to another state on the income from the electing tax-option (S) corporation?

  4. If a tax-option (S) corporation elects to pay tax at the entity level, are individual shareholders required to file a Wisconsin individual income tax return if they have no income reportable to Wisconsin?

  5. Are shareholders of an electing tax-option (S) corporation required to attach their Schedule 5K-1 to their Wisconsin individual income tax returns?

  6. If a nonresident of Wisconsin is a shareholder of two tax-option (S) corporations and only one makes the election to pay tax at the entity level, can the nonresident shareholder participate in the Wisconsin composite return, Form 1CNS, of the non-electing tax-option (S) corporation?

  7. What items reported on a Schedule 5K-1 from an electing tax-option (S) corporation can a shareholder claim on his or her income tax return?

  8. What items reported on a Schedule 5K-1 from an electing tax-option (S) corporation are not allowed to be claimed by a shareholder on their income tax return?

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

  10. If the election is made, how should a shareholder filing a Wisconsin tax return remove their proportionate share of the electing tax-option (S) corporation's income that is taxed at the entity level?

  11. Can the removal of an electing tax-option (S) corporation's income from the shareholder's individual income tax return create a Wisconsin net operating loss (NOL) if the shareholder does not have a federal NOL?

  12. When an individual shareholder is determining household income for purposes of claiming the homestead credit, must the individual shareholder include income from a tax-option (S) corporation making the entity-level election?


Applicable Laws and Rules

This document provides statements or interpretations of the following laws and regulations enacted as of February 11, 2020: Sections 71.01, 71.03, 71.07, 71.21, 71.28, 71.36, 71.365, 71.52 and 71.775, Wis. Stats., sec. Tax 2.08, Wis. Adm. Code, and 26 U.S. Code § 162.

Laws enacted and in effect after February 11, 2020, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to February 11, 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: 100187

February 11, 2020