In order to transfer a credit, I am required to notify the department. How do I provide notification?
Prior to the transfer, a completed transfer application (Form HR-T) must be submitted along with a copy of the certification agreement with the Wisconsin Economic Development Corporation and proposed transfer documents. The department will review the information and, if appropriate, certify the transferor's ownership of the amount of credit to be transferred.
What is the timeframe for certifying a transfer?
at least 30 days for the transfer request to be processed.
Does the department impose any fees associated with the transfer of a credit?
No. The department does not have authority to impose such fees.
What are the federal and Wisconsin tax consequences for the transferor of transferring a credit?
The transferor is required to recognize a capital gain on the sale of the credit equal to the difference between the basis of the tax credit, which is zero unless the transferor previously purchased the tax credit for consideration, and the fair market value of consideration received for the credit. The character of the capital gain as either short-term or long-term is determined based on the amount of time between the date the seller made the qualifying expenditure and the date the credit is transferred. If the time period is more than one year, it is a long-term capital gain; if the time period is one year or less, it is a short-term capital gain.
May only a portion of a credit be transferred?
Yes. A credit may be transferred in whole or in part.
Is there any restriction on who a credit may be transferred to?
Yes. A credit must be transferred to a person who is subject to income or franchise tax under s. 71.02, 71.08, 71.23, or 71.43, Wis. Stats. This includes an individual, estate, trust, regular "C" corporation, tax-option (S) corporation, limited liability company treated as a corporation, or domestic insurance company.
A partnership, other than a publicly traded partnership treated as a corporation, is not subject to Wisconsin income or franchise tax and therefore cannot be transferred a credit. However, a credit can be transferred directly to a partner if the partner is otherwise subject to Wisconsin income or franchise tax.
I have entered into a certification agreement with the Wisconsin Economic Development Corporation (WEDC), which certifies eligibility for a credit of up to $100,000. May a credit based on the amount certified by WEDC be transferred?
No. Only a credit based on qualifying expenditures or a completed project may be transferred. The transferor must designate on the transfer application (Form HR-T) whether the credit to be transferred is based on expenditures as the expenditures are paid or when the rehabilitation project is completed.
If the credit is based on expenditures as they are paid, how often may a transfer application (Form HR-T) be submitted?
The department will review transfer applications submitted as frequently as quarterly during a tax year. For example, a calendar year taxpayer may submit a separate transfer application based on expenditures paid from January 1 to March 31, April 1 to June 30, July 1 to September 30, and October 1 to December 31.
What, if any, notification is required when a transfer is completed?
Both the transferor and transferee must use Schedule HR to report the transfer on the Wisconsin income or franchise tax return filed for the taxable year in which the transfer is completed.
May a credit be transferred more than once?
Yes. There is no limitation on the number of times a credit may be transferred.
May a 2015 credit be transferred in 2016 or a later year?
Yes. However, a transfer must take place within the 15-year credit carry-forward period. For example, a calendar year taxpayer must transfer a 2015 credit by December 31, 2030.
Note: A calendar year 2015 credit that is transferred in 2030 must be used by the transferee in 2030. Any portion not used in 2030 will be lost. See Questions 14 and 15.
If a transferred credit is later adjusted or disallowed, will the transferee be liable for repayment?
No. Only the person who originally transfers a credit to another person is liable to repay an adjusted or disallowed amount of credit.
The transferee may continue to utilize the credit as if the adjustment or disallowance did not take place.
A $50,000 credit is purchased for $43,000. How much credit is the purchaser entitled to claim?
The full amount of credit, $50,000, may be claimed by the purchaser.
What are the federal and Wisconsin tax consequences for the transferee of claiming a credit that has been acquired by transfer?
The transferee will recognize federal and Wisconsin capital gain income when the credit is used to offset a Wisconsin income tax liability. The capital gain recognized is equal to the difference between the purchaser's basis in the tax credit, which is the fair market value of consideration paid for the tax credit and any transaction costs incurred to acquire the tax credit, and the amount of Wisconsin income tax liability satisfied by use of the tax credit. The character of the capital gain as either short-term or long-term is determined based on the amount of time between the date the purchaser acquired the tax credit and the date the credit is used to offset the purchasers Wisconsin income tax liability. If the time period is more than one year, it is a long-term capital gain; if the time period is one year or less, it is a short-term capital gain.
If a 2015 credit is purchased in 2016 or later, may the purchaser's 2015 return be amended to claim the credit?
No. The credit is first available to be claimed by the purchaser for the taxable year in which it is purchased.
If the historic tax credit purchase/sale agreement is entered into during 2015, the Notice of Certification letter from the Department of Revenue is issued in 2016, and the purchase of the credit occurs in 2016 when consideration is paid, can the credit be used by the purchaser in 2015?
No. The purchase of the credit is not considered to take place until the consideration is paid. As such, the purchaser doesn't have a right to use the credits until the time the purchase is complete, which is during 2016.
If a purchased credit is not claimed in full in the year of purchase, may it be carried forward?
The credit may be carried forward for 15 years from the taxable year for which it is
computed. For example, a 2015 credit purchased in 2017 may be carried forward for 13 years and a 2015 credit purchased in 2030 may not be carried over.
I represent a partnership that will be transferring a credit. May a Form HR-T be submitted designating the partnership as transferor?
No. A partnership may not claim a credit, but must determine the amount of credit that may be claimed by each partner or member. To reflect the Wisconsin income tax treatment of the transaction, a separate Form HR-T must be completed for each partner or member eligible to claim a credit.
Part A of each Form HR-T should identify the partner as the transferor; line 5 of Part C should identify the partnership as the pass-through entity and the partner's share of the credit; and the partner should check the certification box in Part D and sign Form HR-T.
The Wisconsin Economic Development Corporation (WEDC) certified Company A for the supplement to the federal historic rehabilitation tax credit. Prior to rehabilitation work beginning, Company A sold the property to Company B. Company B performed and paid for the qualified rehabilitation work. Company A computes the supplement to the federal historic rehabilitation tax credit on Schedule HR and assigns the credit to Company B, who then files Form HR-T to transfer the credit to Company C.
Is Company A allowed to compute the credit on Schedule HR?
No. Company A did not perform the qualified rehabilitation work, so it may not compute the credit.
Is Company B allowed to compute the credit on Schedule HR?
No. WEDC did not certify Company B, so it is not eligible to compute the credit. If Company B was certified by WEDC, it could compute the credit because Company B performed and paid for the qualified rehabilitation work. Company B should have contacted WEDC to obtain a new certification agreement.
Is Company A allowed to assign the credit to Company B?
No. Tax credits are not assignable.
FOR MORE INFORMATION PLEASE CONTACT:
WISCONSIN DEPARTMENT OF REVENUE
Technical Services Section
PO Box 8933
Madison, WI 53708-8933
Phone: (608) 266-8253
Fax: (608) 261-6240
Email additional questions to DORISETechnicalServices@wisconsin.gov