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What is the timeframe for certifying a transfer?
Allow
at least 30 days for the transfer request to be processed.
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Does the department impose any fees associated with the transfer of a credit?
No. The department does not have authority to impose such fees.
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What are the 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.
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May only a portion of a credit be transferred?
Yes. A credit may be transferred in whole or in part.
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Is there any restriction on who a credit may be transferred to?
Yes. A credit may only be transferred to a person who is subject to income or franchise tax under secs. 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.
Not-for-profit entities may be eligible for an exemption to this requirement.
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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.
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What, if any, notification is required when a transfer is completed?
Instructions on how to report the credit on the tax returns is given to both the transferor and transferee on the Notice of Certification.
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May a credit be transferred more than once?
Yes. There is no limitation on the number of times a credit may be transferred.
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May a 2022 credit be transferred in 2023 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 2022 credit by December 31, 2037.
Note: A calendar year 2022 credit that is transferred in 2036 must be used by the transferee in 2037. Any portion not used in 2037 will be lost.
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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.
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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.
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What are the Wisconsin tax consequences for the transferee of claiming a credit that has been acquired by transfer?
The transferee will recognize 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 or transferee'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 or transferee acquired the tax credit and the date the credit is used to offset the purchasers or transferees 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.
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If a 2022 credit is purchased or transferred in 2023 or later, may the purchaser's or transferee's 2022 return be amended to claim the credit?
No. The credit is first available to be claimed by the purchaser or transferee for the taxable year in which it is purchased or transferred.
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If the historic tax credit purchase/sale/transfer agreement is entered into during 2022, the Notice of Certification letter from the Department of Revenue is issued in 2023, and the purchase or transfer of the credit occurs in 2023, can the credit be used by the purchaser or transferee in 2022?
No. The purchase or transfer of the credit is not considered to take place until the date listed on the Notice of Certification letter. As such, the purchaser or transferee doesn't have a right to use the credits until the time the purchase or transfer is complete, which is during 2023.
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If a purchased/transferred credit is not claimed in full in the year of purchase/transfer, 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 2020 credit purchased/transferred in 2022 may be carried forward for 13 years and a 2020 credit purchased/transferred in 2035 may not be carried forward.
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May a Form HR-T be submitted designating a partnership, tax-option (S) corporation, or limited liability company (LLC) classified as a partnership or tax-option (S) corporation as the transferor?
No. Partnerships, limited liability companies, and tax-option corporations may not claim the credit and therefore are not eligible transferors. However, the eligibility for, and the amount of, the credit is determined on the basis of the entity's economic activity, not that of the shareholders, partners, or members. If a pass-through entity contracts to transfer the credit, each owner eligible to claim the credit completes a separate Form HR-T.
Part A of each Form HR-T should identify the partner, shareholder, or member as the transferor; line 4 of Part D should identify the partnership, tax-option (S) corporation, or LLC as the pass-through entity and the partner's, shareholder's, or member's share of the credit. The partner, shareholder, or member should check the certification box in Part E and sign Form HR-T.
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The Wisconsin Economic Development Corporation (WEDC) and Company A entered into a contract regarding the rehabilitation of a certified historic project. Upon completion of the contract Company A is eligible 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.
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Are there minimum and maximum expenditure amounts required to be awarded the supplement to the federal historic tax credit?
Yes. The Wisconsin Economic Development Corporation will not certify a project with less than $50,000 qualified rehabilitation expenditures. Beginning July 1, 2018, the Wisconsin Economic Development Corporation may not certify a person to claim more than a total of $3.5 million in supplement to the federal historic rehabilitation tax credits for all projects undertaken on the same parcel.
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How are disproportionate allocations of credits by partnerships treated under sec. 704(b), IRC?
Although
sec. 71.07(9m)(f), Wis. Stats., provides that supplement to federal historic rehabilitation credits computed by a partnership may be allocated to partners as provided in a written agreement among the partners, the determination of income, gain, loss, or deduction of each of the partners must respect sec. 704(b), IRC. Therefore, to the extent an allocation of the state tax credit does not have substantial economic effect and results in an sec. 704(b), IRC, adjustment on the partners' federal tax returns, such adjustment also applies to the partners' Wisconsin tax returns. A request for ruling on whether an allocation of a partnership item has substantial economic effect under sec. 704(b), IRC, should be submitted to the Internal Revenue Service.
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For taxable years beginning on or after January 1, 2018, the federal Tax Cuts and Jobs Act (TCJA) requires the federal historic rehabilitation credit to be claimed ratably over a five-year period. Does Wisconsin require the same for the supplement to the federal historic rehabilitation credit?
Yes. Sections 71.07(9m)(cm), 71.28(6)(cm), and 71.47(6)(cm), Wis. Stats., provide that the Wisconsin supplement to the federal historic rehabilitation credit shall be claimed at the same time as for federal purposes. As a result, only one-fifth of the credit may be claimed and transferred each year unless the transition rule applies, see Exception below.
Exception: The transfer of a credit required to be spread over a five-year period can be done in one of two ways. The transferor either claims and transfers one-fifth of the credit in each of the five years, or claims and transfers the entire credit (all five years' worth) in a single year. If a claimant wants to transfer the entire credit prior to claiming the credit on each tax return, the claimant must claim the entire credit by submitting Schedule HR-5, Wisconsin Supplement to the Federal Historic Rehabilitation Tax Credit – Five-Year Credit Claim. Upon receipt and approval of Schedule HR-5 and Schedule HR-T, Transfer of Supplement to the Federal Historic Rehabilitation Credit, the department will issue a Notice of Certification letter indicating the total amount of credit transferred and the total amount eligible to be used by the transferee for each taxable year.
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Is a purchaser or transferee of a supplement to the federal historic rehabilitation credit restricted to using the credit ratably over a five-year period?
The purchaser or transferee may use the amount of historic tax credit listed on the Notice of Certification for each taxable year.
For example, a transferee purchases or is transferred $500,000 of historic tax credits in 2021 from a claimant that is required to claim the credit ratably over a five-year period. Upon approval of the transfer, the department issues a Notice of Certification listing the amount of credits that may be used by the transferor each year as follows: $100,000 for tax year 2021, $100,000 for tax year 2022, $100,000 for tax year 2023, $100,000 for tax year 2024, and $100,000 for tax year 2025. For the 2021 tax year, the transferee may use up to $100,000 of tax credits because the one-fifth limitation was already applied to the total amount of credits transferred.
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When does a taxpayer use Schedule HR-5, Wisconsin Supplement to the Federal Historic Rehabilitation Tax Credit – Five-Year Credit Claim?
Schedule HR-5 is used when a historic tax credit required to be claimed ratably over a five-year period is transferred. The form eliminates the need for the transferor to file a Schedule HR with each tax return after the transfer. The transferor should submit Schedule HR-5 along with Form HR-T when requesting transfer of the credit.
This document provides statements or interpretations of the following provisions of Wisconsin Statutes enacted as of December 5, 2023: secs. 71.07(9m), 71.28(6), and 71.47(6),
Wis. Stats.
Laws enacted and in effect after this date, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to this date, that is contrary to the information in this document is superseded by this document, according to sec. 73.16(2)(a), Wis. Stats.