Tax 2.61(2)(2) Corporations required to use combined reporting. Tax 2.61(2)(a)(a) General. A corporation is required to use combined reporting if it satisfies each of the following three conditions: Tax 2.61(2)(a)1.1. The corporation is a member of a “commonly controlled group” as defined in s. 71.255 (1) (c), Stats. See sub. (3) for rules that apply to identifying a commonly controlled group of corporations. Tax 2.61(2)(a)2.2. The corporation is engaged in a “unitary business,” as defined in s. 71.255 (1) (n), Stats., with one or more other corporations in its commonly controlled group, or the commonly controlled group makes a controlled group election. See s. Tax 2.62 for rules to determine whether corporations are engaged in a unitary business. See s. Tax 2.63 for rules pertaining to the controlled group election. Tax 2.61(2)(a)3.3. The corporation has unitary business income that is subject to combination under the water’s edge rules described in sub. (4). Tax 2.61(2)(b)(b) Effect of controlled group election. If a controlled group election applies as indicated in par. (a) 2., all corporations in the commonly controlled group are deemed to be engaged in the same unitary business, and all of their net income or loss and apportionment factors are deemed to be derived from that unitary business. In general, this means that if the controlled group election applies, all members of the commonly controlled group are included in a combined report. However, despite this election, a corporation may be required to exclude some or all of its net income, loss, and apportionment factors from the unitary combination if so required under the water’s edge rules described in sub. (4). Tax 2.61(2)(c)(c) Corporations treated as pass-through entities. Except as provided in par. (f), corporations that are included in the definition of “pass-through entity” in s. 71.255 (1) (m), Stats., including tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, and financial asset securitization investment trusts, are nonincludable corporations. However, to the extent the net income or loss of these corporations is included in the net income of, or distributed to, a combined group member, the net income or loss is subject to combination to the extent derived from the unitary business and otherwise subject to combination under the water’s edge rules described in sub. (4). The provisions of s. 71.255 (1) (m), Stats., do not affect the taxation of tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, or financial asset securitization investment trusts, other than to exclude them from combined reporting except where their inclusion is required under par. (f). Tax 2.61(2)(d)(d) Tax exempt organizations. A corporation that is exempt from income and franchise taxes under ss. 71.26 (1) or 71.45 (1), Stats., is a nonincludable corporation except to the extent it has unrelated business taxable income as defined in section 512 of the Internal Revenue Code. The net unrelated business taxable income, and any corresponding apportionment factors are subject to combination to the extent the net income or loss is derived from the unitary business and is otherwise subject to combination under the water’s edge rules described in sub. (4). Tax 2.61(2)(e)(e) Disregarded entities. An entity that is disregarded as a separate entity for federal income tax purposes under section 7701 of the Internal Revenue Code is considered a branch or division of its owner for Wisconsin income and franchise tax purposes. A corporation shall include the net income or loss and apportionment factors of any disregarded entity of which it is an owner in the combined report to the extent they would be included if the corporation itself earned the income. The water’s edge rules described in sub. (4) do not apply to disregarded entities except insofar as the rules apply to the owner of the disregarded entity. Tax 2.61(2)(f)(f) Other provisions that may apply. Nothing in ss. Tax 2.60 to 2.67 is intended or should be construed as a waiver of the department’s authority under s. 71.255 (2) (f), Stats., or any other authority granted to the department by law. Section 71.255 (2) (f), Stats., provides the following: Tax 2.61(2)(f)1.1. The department may require that a combined report include the items of any person or entity who is not otherwise a combined group member but who is a member of the unitary business, in order to reflect proper apportionment of income of the entire unitary business. Tax 2.61(2)(f)2.2. If the reported income or loss of a combined group member engaged in a unitary business with a person or entity who is not otherwise a combined group member represents an avoidance or evasion of tax by either party, the department may require all or any part of the income or loss and apportionment factors of either party to be included in or excluded from a combined report, or may require the use of a different apportionment factor or factors. Tax 2.61(3)(3) Commonly controlled group. In general, s. 71.255 (1) (c), Stats., provides that a commonly controlled group exists in cases where there is common ownership or control of stock representing more than 50 percent of the voting power of the corporations in the group. The corporations in a commonly controlled group shall be determined as provided in s. 71.255 (1) (c), Stats., which is further explained in the following paragraphs: Tax 2.61(3)(a)(a) Stock attribution rules. For purposes of s. 71.255 (1) (c) 1. and 2., Stats., a shareholder is considered to have indirect ownership of stock or indirectly own stock if the shareholder has constructive ownership of the stock by operation of section 318 of the Internal Revenue Code, except as provided in subds. 1. and 2. Tax 2.61 NoteExample: Corporation A owns stock representing 40% of the voting power of Corporation B and has a 50% interest in Partnership C. Partnership C owns stock representing 30% of the voting power of Corporation B. By operation of section 318 of the Internal Revenue Code, Corporation A constructively owns stock representing 55% (= 40% + (50% x 30%)) of the voting power of Corporation B. Tax 2.61(3)(a)1.1. In applying section 318(a)(2) of the Internal Revenue Code, if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of an entity, it shall be considered to own all of the stock or other ownership or control interests owned by that entity. Tax 2.61 NoteExample: Corporation D owns stock representing 10% of the voting power of Corporation E and has a 75% interest in Partnership F. Partnership F owns stock representing 45% of the voting power of Corporation E. Corporation D is considered to constructively own stock representing 55% (= 10% + 45%) of the voting power of Corporation E. This is because Corporation D owns more than 50% of Partnership F and is therefore considered to own all of the Corporation E stock owned by Partnership F.
Tax 2.61(3)(a)2.2. If a person has an option to acquire stock or other ownership interests in an entity, the stock or ownership interests are not considered owned by the person unless the department determines it to be necessary to prevent tax avoidance. Tax 2.61(3)(b)(b) Common owner or owners. The common owner or owners need not be combined group members, and the common owner or owners may be persons other than corporations. Tax 2.61(3)(c)(c) Multiple unitary businesses. A commonly controlled group may be engaged in one or more unitary businesses. Therefore, a commonly controlled group may contain more than one combined group. Tax 2.61(3)(d)1.1. A shareholder has ownership or control of stock representing more than 50 percent of the voting power of a corporation only if the shareholder has ownership or control of more than 50 percent of the total combined voting power of all classes of stock of the corporation entitled to vote. Tax 2.61(3)(d)2.2. A group of two or more corporations need not be commonly owned to be commonly controlled. As provided in s. 71.255 (1) (c) 3., Stats., a group of corporations may be a commonly controlled group if stock representing more than 50 percent of the voting power in each corporation are interests that cannot be separately transferred. If a group of 2 or more corporations would be considered stapled entities under section 269B of the Internal Revenue Code and the regulations that interpret it, without regard to whether the corporations are foreign or domestic, the corporations shall be considered part of a commonly controlled group. Tax 2.61(3)(d)3.3. The mere ownership of stock entitled to vote does not by itself mean that the shareholder owning the stock has the voting power of the stock. If there is any agreement, whether express or implied, that any shareholder will not vote its stock or will vote it only in a specified manner, or that shareholders owning stock having 50 percent or less of the total combined voting power will exercise voting power normally possessed by a majority of stockholders, the department may presume that the nominal ownership of the voting power is not determinative of which shareholders actually hold the voting power and may disregard the nominal ownership. This presumption may be rebutted by the taxpayer. Tax 2.61(3)(d)4.4. If a shareholder owns shares of stock of a corporation which has another class of stock outstanding, the voting power of that other class of stock will be deemed owned by any person or persons on whose behalf it is exercised if the facts indicate that the shareholders of that other class of stock do not exercise their voting rights independently or fail to exercise their voting rights. If the voting power in that other class of stock is not exercised and the percentage of voting power of that class of stock is substantially greater than its proportionate share of the corporate earnings, the department may presume that the principal purpose of the arrangement was avoid the inclusion of the corporation in the commonly controlled group and may disregard the voting power of the class of stock that was not exercised. This presumption may be rebutted by the taxpayer. Tax 2.61(4)(4) Water’s edge. This subsection describes how a corporation that is otherwise a combined group member must determine and report items that are not subject to combination due to the extent of the corporation’s activities outside the United States, as provided in s. 71.255 (2), Stats. In general, the corporation must consider whether it is a foreign corporation or domestic corporation, whether it qualifies as an “80/20 corporation,” and whether its income is from foreign sources or U.S. sources. The following rules apply: Tax 2.61(4)(a)(a) Qualifying as a “foreign corporation”. For purposes of the water’s edge rules in pars. (d) and (e), a “foreign corporation” means any corporation that is not incorporated, organized, or created in the United States or under the laws of the United States or any state. For purposes of determining whether a corporation is a foreign corporation or a domestic corporation, the following rules apply: Tax 2.61(4)(a)1.1. If, for federal purposes, a corporation is treated as created or organized under the laws of both the U.S. and a foreign jurisdiction, it is a domestic corporation. Tax 2.61(4)(a)2.2. A foreign corporation that domesticates and is treated by a state as organized under the laws of that state is a domestic corporation. Tax 2.61(4)(a)3.3. If an entity is organized in a foreign country and is recognized in that country as a corporation, but the entity’s owner elects to treat that entity as a branch for U.S. taxation purposes or the entity is a disregarded entity, the entity shall be treated as a branch of its owner. Tax 2.61(4)(b)1.1. For purposes of the water’s edge rules in pars. (d) and (e), a corporation is an “80/20 corporation” if 80 percent or more of its worldwide gross income during the testing period is “active foreign business income” as defined in subchapter N of the Internal Revenue Code. Tax 2.61(4)(b)2.2. The testing period for purposes of subd. 1. is the tested corporation’s taxable year that would be included in the combined group’s taxable year, as determined by s. 71.255 (8), Stats. If the tested corporation was not otherwise eligible to be a combined group member for any part of that taxable year (for example, the corporation did not satisfy the conditions in sub. (2) (a) 1. or 2.), the testing period is the portion of that taxable year in which the corporation was otherwise eligible to be a member. Tax 2.61(4)(b)3.3. An 80/20 corporation may be either a foreign corporation or a domestic corporation. Tax 2.61(4)(b)4.4. For purposes of this paragraph, a corporation’s active foreign business income includes gross income attributed from subsidiary corporations as provided in subchapter N of the Internal Revenue Code, but only to the extent the gross income of the subsidiary corporations is derived from the combined group’s unitary business. Tax 2.61(4)(b)5.5. A disregarded entity’s active foreign business income and worldwide gross income shall be combined with those of its owner for purposes of applying the test in subd. 1. Tax 2.61(4)(c)1.1. For purposes of the water’s edge rules in pars. (d) and (e), income is foreign source income if it is from sources without the United States as provided in sections 861 through 865 of the Internal Revenue Code, except as provided in subd. 2. “United States” has the same meaning as in sections 861 through 865 of the Internal Revenue Code. Tax 2.61(4)(c)2.2. For a foreign corporation, foreign source income does not include income that is subject to United States taxation because it is effectively connected with the conduct of a trade or business within the United States under sections 861 through 865 of the Internal Revenue Code, even if the income is otherwise from sources without the United States. However, this subdivision shall be disregarded in applying the test under par. (b) 1. Tax 2.61(4)(c)3.3. All income that is not foreign source income is U.S. source income. Tax 2.61(4)(d)1.1. A domestic corporation that is not an 80/20 corporation shall include in the unitary combination all net income or loss from the unitary business regardless of whether it is foreign source income or U.S. source income, and any apportionment factors related to that net income or loss. Tax 2.61(4)(d)2.2. A domestic corporation that is an 80/20 corporation is a consolidated foreign operating corporation. A consolidated foreign operating corporation shall include in the unitary combination its net income or loss from the unitary business to the extent it is both U.S. source income and is income described in s. 71.255 (2) (d), Stats., and any apportionment factors related to that net income or loss. The consolidated foreign operating corporation may not include in the unitary combination any foreign source income, income not described in s. 71.255 (2) (d), Stats., expenses or deductions related to the excluded income as provided in sub. (6) (h), or apportionment factors related to the excluded income. However, the excluded income may still be taxable as described in par. (h). The income described in s. 71.255 (2) (d), Stats., is explained further in par. (f). Tax 2.61(4)(e)1.1. A foreign corporation that is not an 80/20 corporation shall include in the unitary combination its net income or loss from the unitary business to the extent it is U.S. source income, and any apportionment factors related to that net income or loss. The corporation may not include in the unitary combination any foreign source income, expenses or deductions related to the excluded income as provided in sub. (6) (h), or apportionment factors related to the excluded income. However, this foreign source income may still be taxable as described in par. (h). Tax 2.61(4)(e)2.2. Except as provided in subd. 3., a foreign corporation that is an 80/20 corporation may not include any income, expenses, or apportionment factors in the unitary combination, but may still have taxable income as described in par. (h). Tax 2.61(4)(e)3.3. A foreign corporation that is an 80/20 corporation but elects to be included in a federal consolidated return for the taxable year shall be treated as if it is a domestic corporation, in which case the rules of par. (d) 2. apply to the corporation. This subdivision applies regardless of whether the combined group has made the controlled group election. Tax 2.61(4)(f)(f) Includable income of consolidated foreign operating corporations. The net income that a consolidated foreign operating corporation shall include in a unitary combination, as described in par. (d) 2., includes the items described in subds. 1. to 5. to the extent the income is U.S. source income and from the unitary business, regardless of whether earned or incurred directly by that corporation or by a pass-through entity in which the corporation has an interest: Tax 2.61(4)(f)1.1. Interest income or income generated from intangible property, whether or not the income is derived from persons or entities related to the consolidated foreign operating corporation. Income generated from intangible property includes income related to the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, or any other disposition of intangible property; income from factoring transactions or discounting transactions; royalty, patent, technical, and copyright fees; and licensing fees. For purposes of this subdivision, “intangible property” has the meaning given in s. 71.22 (3h), Stats. Tax 2.61(4)(f)2.2. Income derived from interest expenses or intangible expenses that were paid, accrued, or incurred by combined group members to or for the benefit of the consolidated foreign operating corporation; to the extent those amounts were not already included under subd. 1. For purposes of this subdivision, “interest expenses” has the meaning given in s. 71.22 (3m), Stats., and “intangible expenses” has the meaning given in s. 71.22 (3g), Stats. Tax 2.61(4)(f)3.3. Dividend income received from a real estate investment trust that is not a qualified real estate investment trust as defined in s. 71.22 (9ad), Stats. Tax 2.61(4)(f)4.4. Gains or losses derived from the sale or lease of real or personal property located in the United States. Tax 2.61(4)(f)5.5. Expenses or deductions related to the income, gains, and losses described in subds. 1. to 4., determined in the manner provided in sub. (6) (h). Tax 2.61(4)(g)(g) Applicability of federal treaties. If a corporation’s income is not included in gross income for federal income tax purposes under the provisions of a federal treaty, the income is not included in gross income for Wisconsin purposes and shall not be included in combined unitary income. Tax 2.61(4)(h)(h) Taxation of income not subject to combination under water’s edge. Any income, expenses, and apportionment factors that are excluded from the unitary combination under pars. (d) and (e) shall be taken into account by the separate corporation that earned the income. The following rules apply to determining and reporting Wisconsin net income or loss not subject to combination under the water’s edge rules: Tax 2.61(4)(h)1.1. The net income or loss is presumed to be from a unitary business and therefore apportionable. Tax 2.61(4)(h)2.2. The corporation’s nexus depends on whether the corporation is a “combined group member” as defined in s. Tax 2.60 (2) (b). If the corporation is a combined group member, the provisions of subd. 3. apply. If the corporation is not a combined group member, the provisions of subd. 4. apply. Tax 2.61(4)(h)3.3. Under s. 71.255 (5) (a), Stats., a corporation that is a combined group member is doing business in this state if any member of the combined group is doing business in this state relating to the unitary business. If the corporation is a combined group member because of the controlled group election, that corporation is doing business in this state if any member of the combined group is doing business in this state. In either case, an apportioned share of the corporation’s net income or loss that is not subject to combination under the water’s edge rules may be taxed by Wisconsin. “Doing business in this state” is defined in s. 71.22 (1r), Stats., and further explained in s. Tax 2.82. Tax 2.61(4)(h)4.4. If the corporation is not a combined group member, s. 71.255 (5) (a), Stats., does not apply. Instead, the corporation is doing business in this state if, when considered as a separate entity, it is “doing business in this state” as defined in s. 71.22 (1r), Stats., and further explained in s. Tax 2.82. For example, and without limitation, the corporation may have nexus in this state if any agent of the corporation, including a member of the combined group, acts on the corporation’s behalf in this state in a manner that would create nexus under s. 71.22 (1r), Stats., s. Tax 2.82, or otherwise. Tax 2.61(4)(h)5.5. The provisions of ss. 71.26 (2) (a) 7. and 71.45 (2) (a) 16., Stats., requiring an addition modification for interest expenses, rent expenses, intangible expenses, and management fees paid, accrued, or incurred to a related entity, apply to any amounts not subject to combination which were paid, accrued, or incurred by the corporation to any related entity, even if the related entity was a combined group member. Tax 2.61(4)(h)6.6. The numerator and denominator of the apportionment ratio shall include only that corporation’s apportionment factors attributable to unitary business income that is not subject to combination. Intercompany transactions may not be eliminated from the apportionment factors unless the department determines those transactions have no economic substance as determined under the provisions of ss. 71.30 (2m) or 71.80 (1m), Stats., as applicable, or if the department determines that those transactions have no business purpose other than tax avoidance. If the corporation is a combined group member, it must apply the provisions of sub. (7) (c) in computing the amount of throwback sales includable in the numerator. Tax 2.61(4)(h)7.7. Income separately apportioned as described in this paragraph may be reported on a designated line of the combined return, supported by a department-prescribed schedule, instead of reporting that income on a separate return. This separately apportioned income shall be considered a separate entity item. See s. Tax 2.67 (2) (d) for filing requirements relating to separate entity items. Tax 2.61 NoteExamples: 1) A, B, and C are corporations in a commonly controlled group and engaged in a unitary business. All of the income of the corporations is derived from the unitary business. A and B are incorporated in Delaware. C is incorporated in France. The income of A and B is derived exclusively from U.S. sources. Ninety percent of C’s worldwide gross income is active foreign business income. The remaining 10% of C’s worldwide gross income is U.S. source income, some of which has situs in Wisconsin. C has agents acting on its behalf in Wisconsin which create nexus because their activities exceed the protection of P.L. 86-272. Since C is a foreign 80/20 corporation, none of its net income, expenses, or apportionment factors may be included in the unitary combination. Thus, C is not a combined group member.
Tax 2.61 NoteHowever, C is subject to tax on an apportioned share of its worldwide net income, to the extent the income is not exempt by federal treaty. In determining the apportioned share, the numerator and denominator of C’s apportionment factors are its numerator and denominator computed for C on a separate entity basis. Since C is not a combined group member, it cannot consider the activities of A or B when it computes its throwback sales for purposes of the numerator. C is required to report this income to Wisconsin as a separate entity item.
Tax 2.61 Note2) Combined Group DE consists of Member D and Member E. Both D and E are Delaware corporations. All of the income of D and E is derived from the unitary business. All of D’s income is from sources within the U.S. However, 85% of E’s worldwide gross income is active foreign business income, making E a domestic 80/20 corporation. E has total of $150,000 of income from the unitary business, net of expenses. Of this amount, $100,000 is derived from intangible property and $50,000 is derived from service fees. D and E must include in the unitary combination all of D’s income, expenses, and apportionment factors and E’s income, expenses, and apportionment factors only to the extent related to its income derived from intangible property. Since E is a domestic 80/20 corporation and service fees are not one of the types of income subject to combination for a domestic 80/20 corporation, E’s service fee income, and expenses and apportionment factors relating to that income, must be excluded from the unitary combination.
Tax 2.61 NoteHowever, E is subject to tax on an apportioned share of its service fee income. E has nexus in Wisconsin because it is a member of Group DE, which is doing business in Wisconsin. In determining the apportioned share, the numerator and denominator of E’s apportionment factors are its numerator and denominator including only the factors relating to its service fee income and computed for E on a separate entity basis. However, since E is a combined group member, it may consider the activities of D when it computes its throwback sales for purposes of the numerator. E is required to report this income to Wisconsin as a separate entity item.
Tax 2.61(5)(5) Taxable income of a combined group member. The taxable income of a combined group member consists of the components listed in this subsection. For purposes of pars. (c) and (d), a “distinct business activity” means a business activity that is not unitary with the combined group’s unitary business. For purposes of determining the expenses and deductions attributable to each component, the provisions of sub. (6) (h) apply. A combined group member’s taxable income is the total of all of the following: Tax 2.61(5)(a)(a) Its apportioned share of the combined unitary income, as computed under subs. (6) and (7), or, in the case of a combined group where all members are doing businesses solely within Wisconsin, its unitary business income subject to combination as computed under subs. (6) and (8). A corporation may have a share of combined unitary income or unitary business income from more than one combined group, in which case s. Tax 2.67 (2) (d) 4. applies. Tax 2.61(5)(b)(b) An apportioned share of the unitary business income not subject to combination under the water’s edge rules of sub. (4), or in the case of a combined group where all members are doing business solely within Wisconsin, its total unitary business income not subject to combination under the water’s edge rules of sub. (4). Tax 2.61(5)(c)(c) An apportioned share of income from a distinct business activity conducted within and outside this state wholly by the member. Tax 2.61(5)(d)(d) Its income from a distinct business activity conducted entirely within this state wholly by the member. Tax 2.61(5)(e)(e) Its nonbusiness income or loss allocable to this state. Tax 2.61(5)(f)(f) Its income realized from the purchase and subsequent sale or redemption of lottery prizes, if the winning tickets were originally bought in this state. Tax 2.61(5)(g)(g) To the extent not included in combined unitary income under par. (a), any income, loss, or deduction allocated or apportioned in an earlier year which is taken into account as Wisconsin source income or loss during the taxable year, other than a net business loss carryforward. Under this paragraph, non-sharable net capital loss carryovers may be used to offset the taxable income of a combined group member, as described in sub. (6) (c). Tax 2.61(5)(h)(h) Its net business loss carryforward, including any other combined group members’ net business loss carryforwards which may offset the member’s share of combined unitary income under the provisions of sub. (9). Tax 2.61(6)(6) Computation of combined unitary income. This subsection interprets s. 71.255 (4), Stats., relating to a combined group’s computation of business income subject to combination, which is called “combined unitary income” for purposes of this section. The steps to compute combined unitary income are as follows: Tax 2.61(6)(a)1.1. Compute the sum of each combined group member’s net income determined under the Internal Revenue Code before Wisconsin modifications, without regard to net capital gain or loss, net gain or loss under section 1231 of the Internal Revenue Code, net gain or loss from involuntary conversions, or deductions for charitable contributions. Compute this income as if the member were not consolidated for federal purposes. Tax 2.61(6)(a)2.2. Defer or recognize any intercompany income, expense, gain, or loss between combined group members as described in par. (b), except to the extent the income, expense, gain, or loss is excluded from the combined unitary income because it does not relate to the unitary business or is not subject to combination under the water’s edge rules of sub. (4). Tax 2.61(6)(a)3.3. Add net capital gain includable in the combined unitary income, applying the loss limitation as described in par. (c) and using the federal basis of assets. Any differences between the federal and Wisconsin basis of assets, including basis differences that arise from the application of par. (f), are accounted for as Wisconsin modifications under subd. 6. The Wisconsin basis of a corporation’s depreciable property for the first year the corporation becomes taxable in Wisconsin equals its federal basis as of the beginning of the taxable year in which the corporation becomes taxable in Wisconsin, as required under s. 71.265, Stats. The federal basis shall be computed under the Internal Revenue Code in effect for federal purposes as required under ss. 71.22 (4) and (4m), 71.26 (3) (y), 71.42 (2), and 71.98 (3), Stats. Tax 2.61 NoteNote: Under ss. 71.22 (4) and (4m), 71.26 (3) (y), and 71.42 (2), Stats., the federal bonus depreciation provisions in section 168(k) of the Internal Revenue Code are excluded from the Internal Revenue Code in effect for Wisconsin purposes. Therefore, the federal basis computed under subd. 3. must be computed without regard to any bonus depreciation claimed for federal purposes. Tax 2.61(6)(a)4.4. Subtract any net section 1231 loss or net loss from involuntary conversions that results from the aggregation in par. (c) 1. Tax 2.61(6)(a)5.5. Subtract the charitable contributions deduction includable in the combined unitary income, computed as described in par. (d). Tax 2.61(6)(a)6.6. Apply Wisconsin addition and subtraction modifications provided in ss. 71.26 and 71.45, Stats., as applicable. For interest expenses, rent expenses, intangible expenses, and management fees paid, accrued, or incurred between combined group members, including pass-through entities owned by those members to the extent of their distributive shares of income, the addition modifications for related entity expenses under ss. 71.26 (2) (a) 7. and 71.45 (2) (a) 16., Stats., are not required to the extent the recipient of the income includes the income in the combined unitary income. Tax 2.61(6)(a)7.7. Subtract any dividends that qualify for elimination under par. (e) to the extent the dividends did not qualify for a subtraction modification under subd. 6. Tax 2.61(6)(a)8.8. If a combined group member is an insurance company, subtract the portion of net income attributable to the insurance company’s life insurance operations as determined using s. 71.45 (2) (b), Stats. Tax 2.61(6)(a)9.9. Subtract the income, as modified by subds. 6. to 8., which is not includable in combined unitary income because it is not derived from the unitary business or is not subject to combination under the water’s edge rules of sub. (4). The income subtracted under this subdivision shall be net of any directly or indirectly related expenses as provided in par. (h). The amount subtracted under this subdivision may not duplicate any amounts already subtracted. Tax 2.61(6)(b)(b) Intercompany transactions. Defer or recognize any intercompany income, expense, gain, or loss between combined group members that would be deferred or recognized between those members under 26 CFR 1.1502-13 as if the combined group were a federal consolidated group, except that the provisions for intercompany dividends are excluded and replaced with par. (e). This paragraph does not apply to intercompany transactions which occurred in taxable years beginning before January 1, 2009 or to intercompany transactions where the income, expense, gain, or loss would not otherwise be subject to combination. For modifications to 26 CFR 1.1502-13 that are necessary in the case of a combined group doing business solely in this state, see sub. (8). Any deferred intercompany income, expense, gain, or loss that is recognized under this paragraph shall be recognized by the same combined group member that deferred the income, expense, gain, or loss. The deferred income, expense, gain, or loss shall be recognized when required under 26 CFR 1.1502-13 as if the combined group were a federal consolidated group, or when any of the following apply: Tax 2.61(6)(b)1.1. The buyer resells the object of the deferred intercompany transaction to an entity that is not a member of the combined group.
