2016 Tax Practitioner Questions and Answers

SECTIONS

Tax Credits

  1. Can I claim the veterans and surviving spouses credit for the 2016 property taxes paid on my home plus one acre and the farmland preservation credit for the property taxes on the remainder of the parcel used in farming?

    Answer: No. To be eligible for the farmland preservation credit, an individual (and, if applicable, the individual’s spouse) must not claim the veterans and surviving spouses property tax credit based on 2016 property taxes (payable in 2017).

  2. Is there any way for practitioners to look up the 7-digit Certificate of Compliance number required on Schedule FC-A, Farmland Preservation Credit?

    Answer: No. The Department of Agriculture, Trade and Consumer Protection enforces the Certificate of Compliance requirement but has not created an accessible database of the numbers issued by each county.

  3. Does DOR require copy of the property tax bill with Schedule FC-A?

    Answer: A complete, legible copy of the property tax bill or computer printout signed by the county or municipal treasurer is required. The property tax bill or computer printout must show all of the following information: year, owner’s name, parcel numbers and legal description of the property, acreage, assessed value of land and improvements, special assessments, property taxes before and after state aids and credits, including lottery and gaming credit, if applicable; and a space for indicating whether there are unpaid property taxes for prior years.

  4. Our Manitowoc County real estate parcel has a 12-digit number. What 9-digit number is entered on Form MA-M to claim the manufacturing and agriculture credit?

    Answer: The parcel number on the Form MA-M refers to the "Par ID Number." The number is a 9-digit number that will begin with a "P" for personal property or an "R" for real property.

    The number is issued after review and approval of Form PA-780, Questionnaire for Potential Manufacturers. You can look up the number on our website at https://ww2.revenue.wi.gov/RETRWebRolls/application.

  5. Are state taxes an indirect or direct expense when computing the manufacturing and agriculture tax credit?

    Answer: State taxes that are deductible in arriving at Wisconsin taxable income are an indirect expense or direct expense depending on the taxpayer's managerial or accounting records.

  6. Can DOR provide a more expansive list of direct and indirect expenses for the manufacturing and agriculture credit?

    See numbers 25 and 26 of the Manufacturing and Agriculture Credit common questions on DOR's website. In summary, a conclusive list cannot be provided because each business may identify direct and indirect costs differently in its accounting records.

  7. My client was in a nursing home for medical care in 2016. The amount paid is included on federal Schedule A as a medical expense. For Wisconsin, can I use a portion of the nursing home expense attributable to lodging in computing the school property tax credit?

    Answer: Yes, if the nursing home is subject to property taxes or makes payments in place of property taxes to the city or town in which it is located. You may not use that portion of the amount paid to the nursing home for food, housekeeping, medical, or other services. Any amount used in claiming the property tax credit may not be used in computing the itemized deduction credit.

  8. My new client has carryforward of unused credits from 2013 Schedule DI, Wisconsin Dairy and Livestock Farm Investment Credit. The 2013 Schedule DI shows an aggregate amount of unused credits. How do I report the credit carryforward on 2014 Schedule CF, Carryforward of Unused Credits, which requires a breakdown of credit by year?

    Answer: You must obtain the detailed tax information from your client. Taxpayers must keep records to verify every claimed deduction or credit on their tax return. If the taxpayer is using a credit carryforward to offset their tax liability, he or she must be able to verify the carryforward.

  9. Why does a homestead credit claimant have to add back the IRA deduction?

    Answer: It is provided by law. For purposes of computing household income, sec. 71.52 (6), Wis. Stats., provides that income means the sum of Wisconsin adjusted gross income plus contributions to individual retirement accounts under section 219 of the Internal Revenue Code (IRC). There are no "subtractions" in computing household income, other than those allowed in the computation of Wisconsin adjusted gross income.

Other Individual Income Tax

  1. Can I rollover the balance in a 529 college savings plan to an ABLE account?

    Answer: No. Because these accounts are set up under different tax rules, a direct transfer is not possible without first converting the other account to cash and paying any taxes or penalties due prior to making an ABLE contribution.

  2. Although Wisconsin has a subtraction from income for contributions to ABLE accounts, it does not offer ABLE accounts. What states offer ABLE accounts to residents of other states?

    Answer: Currently, Michigan, Nebraska, Ohio, Oregon, Tennessee and Virginia offer ABLE accounts to residents of other states. See http://www.ablenrc.org/state_compare.

  3. Do credits from Schedule R, Research Credit, and Schedule VC, Venture Capital Credits, passed through from an S corporation affect the shareholder's basis in an S corporation in the same manner?

    Answer: No. An Early Stage Seed Investment Credit computed by an S corporation and passed through to a shareholder reduces the basis in the S corporation's asset (investment paid to a certified fund manager). A Research Expense Credit computed by an S corporation must be included in the S corporation's income which passes through to the shareholder. The shareholder's basis in the S corporation's stock is affected by items of income, loss, gain, or deductions that pass through on the Schedule 5K-1 and are reported on the shareholder's individual income tax return. Therefore, only the Research Expense Credit will have an immediate effect on the shareholder's basis. The Early Stage Seed Investment Credit will affect the shareholder's basis in the S corporation's stock when the S corporation disposes of its investment in the Qualified New Business Venture and passes through the resulting gain/loss to the shareholder on his or her Schedule 5K-1.

  4. Are there any differences in federal and Wisconsin depreciation for 2016?

    Answer: Wisconsin depreciation is computed using the Internal Revenue Code in effect on January 1, 2014. Therefore, the following differences will apply in 2016:

    • Special Depreciation Allowance. The federal special 50% depreciation allowance that applies to certain property placed in service during 2016 (e.g., certain plants bearing fruit and nuts) does not apply for Wisconsin.
    • Film and Television Productions. Federally, for productions commencing before January 1, 2017, a taxpayer may elect to treat the cost of any qualified film or television production as an expense which is not chargeable to a capital account (Public Law 114 113). The federal expensing of a film or television production does not apply for Wisconsin.
    • Qualified Leasehold Improvements and Qualified Restaurant and Retail Improvement Property. The federal 15-year recovery period that applies for qualified leasehold improvement property and qualified restaurant property does not apply for Wisconsin.
    • Cellulosic Fuel Ethanol Plant Property. The federal depreciation deduction for cellulosic fuel ethanol plant property equal to 50% of the adjusted basis of such property placed in service before January 1, 2017 (Public Law 114 113), does not apply for Wisconsin.
    • Race horses. Race horses placed in service before January 1, 2017, are treated as three-year property federally (Public Law 114 113). This provision does not apply for Wisconsin.
    • Indian Reservation Property. The federal provision allowing accelerated depreciation for business property on Indian reservations through December 31. 2016 (Public Law 114 113), does not apply for Wisconsin.
    • Motorsports Racing Track Facility. The federal seven-year cost recovery period for motorsports entertainment complexes extended through December 31, 2016, does not apply for Wisconsin.

  5. Is there any change to the due dates for trust returns?

    Answer: The federal due date for the 2016 Form 1041 is April 15 (no change). The federal extended due date for the 2016 Form 1041 is September 30 (prior tax years were September 15).

    Wisconsin is federalized for the Form 2 due dates under sec. 71.13(1), Wis. Stats. Our instructions and common questions mention that a federal extension applies (without reference to any specific date).

  6. Can a box be added to Form I-804, Claim for Decedent’s Wisconsin Income Tax Refund, for a trustee?

    Answer: No. If an income tax refund or tax credit check is payable to a person who dies, the department must pay the refund or credit to the decedent's personal representative. If there is no personal representative, the department must pay the refund or credit either to a surviving relative, giving preference to relatives in the following order: surviving spouse, child, parent, brother or sister, or to a creditor of the decedent, as determined by the department. Section 71.75(10), Wis. Stats., does not allow for payment to a trustee, unless the trustee is a surviving relative or creditor of the decedent.

  7. For federal itemized deductions, an election may be made on federal Form 4952 to include in investment income qualified dividends from line 4b of Form 4952 and capital gain from the disposition of property held for investment from line 4e. If no election is made for federal purposes, these amounts would be excluded from net investment income. If the taxpayer chooses to claim a greater amount of investment interest expense for the Wisconsin itemized deduction credit, must he or she prepare a pro forma federal return for Wisconsin?

    Answer: When a different election is chosen, an adjustment is necessary when completing the Wisconsin return. There are two methods for making this adjustment. The taxpayer may either:

    • Prepare a pro forma federal return based on the election chosen for Wisconsin. This pro forma return should be attached to the Wisconsin return instead of the federal return filed with the IRS, or

    • Make the election using Wisconsin Schedule I, Adjustments to Convert Federal Adjusted Gross Income and Itemized Deductions to the Amounts Allowable for Wisconsin. In this situation, the adjustment to investment interest does not affect the computation of federal adjusted gross income. Therefore, the taxpayer would complete line 7c of Part II of Schedule I. The amount from line 7c of Column II would then be used to complete the Wisconsin itemized deduction credit. A pro forma federal Form 4952 should be included with the Wisconsin return.

  8. Can I use amounts I paid for books in computing my college tuition subtraction?

    Answer: Tuition includes fees for course-related books only if paid to the institution as a condition of enrollment or attendance.

ID Verification

  1. Does DOR send PIN letters for ID verification before the returns are filed or after?

    Answer: If a person's identity must be verified by PIN, the department will notify the person by letter after his or her return is filed.

  2. In 2016, I received a Notice of Change that my Wisconsin refund was denied because I didn't verify my identity after filing my 2015 Wisconsin individual income tax return. I didn't appeal the Notice of Change I received within 60 days. How do I get my refund?

    Answer: You can send a letter claiming your refund within 4 years of the due date of the return. Mail the letter to:

    Wisconsin Department of Revenue
    Post Office Box 268
    Madison, WI 53790-0001

    The department will refund any overpayment of withholding and estimated taxes. However, the law prohibits refund of credits (e.g., homestead credit) after your refund has been denied and the appeal period has passed.

Refunds

  1. Will the refund inquiry application tell me the department is waiting for me to respond to a letter before my return can be processed?

    Answer: The refund inquiry application will tell you if the department is waiting for you to verify your identity. However, for any other action by the department, the only message you will see until your return is fully processed is "We have received your return and it is being processed."

  2. Does the refund inquiry application tell me if a refund has been denied because I didn't appeal the Notice of Change?

    Answer: No. Once the Notice of Change is mailed, the refund inquiry application indicates your return has been processed and a notice was, or will be, mailed to you.

Electronic Filing and Paying

  1. I am unable to file my Corporation Combined Tax Return (Form 6) electronically. Is it okay to file on paper?

    Answer: Wisconsin law requires that the return be filed electronically. Upon application, a waiver will be granted if your software does not have an e-file option. If your software does allow for electronic filing but your return is being rejected due to errors in your data or software, a waiver will not be granted. You should work with your software provider to correct the errors and resubmit the return electronically.

  2. Why do I have to wait one business day after filing before I can print a withholding tax voucher in My Tax Account (MTA)?

    Answer: In 2011, when My Tax Account was significantly improved, practitioners and employees asked that the withholding return and payment to be made in a single electronic transmission, similar to another application. That method was implemented because it is used by the vast majority of filers. As a result, if a person electronically files a return without a payment, My Tax Account cannot create a voucher until the return has been processed.

  3. I have third party access to my clients' accounts in MTA. Why don't I have a link to request to close their accounts?

    Answer: You can request to close a clients' business tax accounts using MTA if you have "All Access" for the client. You should see a link titled Request to Close Account under "I want to …" in the upper right of the MTA Home Screen. If you have "File Only" or "File and Pay" access, that link is not available. The Master of your client's MTA account can change your Access Type.

  4. Why can't I print my sales and use tax return from the confirmation page? I have to go back to the home screen. If I am not careful, I hit cancel by accident rather than print and the return is gone.

    Answer: We recommend printing the return once it has been processed. However, if you must print the sales and use tax return at the time of filing, first make your payment. Once your payment has been submitted, click on the Home button on the left of your screen. Select the Requests tab and click on the Confirmation Number for the return you submitted. On the upper right of the screen, select the Print tab. Your return should open and you can print.

  5. Is there an easy way for me to see in MTA what I reported in Step 1 of my sales tax return while I am in Step 3?

    Answer: No. The only way to see what you reported in Step 1 is to go back to the Step 1 screen.

  6. The voucher for paying income tax due on Form 2 (Wisconsin fiduciary income tax for estates or trusts) won't generate using Google Chrome and it is not a problem with my pop-up blocker. What can I do?

    Answer: DOR uses the Adobe LiveCycle platform for maximum compatibility with our users' systems. However, Adobe PDFs currently are not supported by Chrome, Firefox or Microsoft Edge. At this time, our users report successfully opening forms in Internet Explorer. The department has Google Chrome troubleshooting hints posted on its website.

  7. Can MTA show more filing periods on the withholding account screen? There is usually only one period I can select to file and pay.

    Answer: To deter MTA users from filing and paying for the wrong period, only one outstanding period is shown on a tax account screen to file. However, you can select additional filing periods using the File a Return button on the left of the tax account screen. Two additional periods can be selected. If more are needed, you can create additional periods by clicking on the Show Future Periods tab at the top of the screen and entering the required period end date.

Information Return Reporting

  1. If I file Forms 1099 without withholding through the Combined Federal/State Filing Program, must I provide the State/Payer’s State No. (i.e., Wisconsin Tax Account Number)?

    Answer: Yes. It is a state requirement that the Forms 1099 include the payer's Wisconsin Tax Account Number regardless of the method submitted.

  2. How do I file a final Form WT-7 and Forms W-2 for a company who closes early in the calendar year when the current year paper forms are not available?

    Answer: You can file Form WT-7 with Forms W-2 using My Tax Account. The current year's Form WT-7 filing period is generally made available at the beginning of January. If you must file on paper, you can use the prior year's forms and change the year to the current year.

  3. Can I print Forms 1099 that I enter into MTA when filing my annual withholding reconciliation (Form WT-7)?

    Answer: No. You cannot print the Forms 1099 you create in MTA. The application is available only in submitting the information electronically to Wisconsin; not to create printable copies to provide to payees.

  4. Will an electronically filed Form 1099 get rejected if the payer does not include the state amount in Box 18 of 1099-MISC?

    Answer: No.

  5. If a payer's software company does not support electronic filing of Forms 1099 and W-2, can the payer request a waiver of electronic filing using Form EFT-102?

    Answer: Yes.

Sales and Use Taxes

  1. If an exempt organization has a construction project planned where the materials are exempt from sales tax, should it provide an exemption certificate or its Certificate of Exempt Status (CES) number to each contractor working on the project? Should the certificate include a time period for the project?

    Answer: The exempt organization should provide a copy of its CES to the general contractor as proof that it is exempt on purchases of building materials used in real property construction for a qualifying project. It is likely the general contractor will include in its instructions to subcontractors that entity is exempt and the subcontractors may purchase materials used in real property construction for the project exempt from tax. See revenue.wi.gov/Pages/TaxPro/news-2016-160510d.aspx.

    Note that contractors and subcontractors are not required to provide on their exemption certificates to material suppliers the CES number for qualifying entities. While any contractor could claim the exemption, DOR would verify exemptions are being claimed accurately upon audit of the suppliers, contractors, or subcontractors. To deter a purchaser from fraudulently claiming an exemption, a $250 penalty may be imposed on the purchaser for each invoice or bill of sale related to a prohibited or inconsistent use of an exemption certificate.

  2. Does the recent law change relating to sourcing of one-time lease payments apply to a 24-month lease that the lessee choose to pay in a lump sum?

    Answer: The recent law change for the sourcing of one-payment leases of motor vehicles, trailers, semitrailers, and aircraft only applies to lease agreements that require one payment. The law change does not apply to a lease agreement that calls for multiple payments, but the lessee chooses to make one single payment.

Unclaimed Property

  1. Businesses that have closed can escheat unclaimed property to the state before dates provided by law. Can anyone?

    Answer: Yes, a holder may escheat unclaimed property before the property is presumed abandoned, but only after receiving written consent of the department as provided in sec. 177.27(2), Wis. Stats.

January 31, 2017