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Analysis by the Legislative Reference Bureau
This bill makes various changes related to conducting tax audits of
pass-through entities such as partnerships, limited liability companies, and
tax-option corporations. Under the bill, the Department of Revenue may do all of
the following with regard to an audit of a pass-through entity:
1. Assess and collect additional tax from a pass-through entity on income
otherwise reportable by its pass-through members. Under the bill, a “pass-through
member” is, generally, a partner in a partnership, member of a limited liability
company, shareholder in a tax-option corporation, a beneficiary of an estate or a
trust, or any other person who derives a tax benefit from a pass-through entity.
2. Direct the secretary of the Department of Administration to refund to a
pass-through entity that part of an overpayment paid by the pass-through entity
and not by the entity's pass-through members.
3. Assess an adjustment to reduce a tax credit to a pass-through entity if the
pass-through entity previously computed the credit and reported the credit to its
pass-through members.

4. Assess an adjustment to increase a tax credit to offset additional tax assessed
to a pass-through entity.
5. Assess any pass-through member of a pass-through entity for additional tax
otherwise owed by one or more of the pass-through members.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB794,1 1Section 1. 71.365 (6) of the statutes is amended to read:
SB794,2,82 71.365 (6) Notice to shareholders of appeals and other proceedings. Any
3Except as provided in s. 71.745, any notice of determination by the department of any
4tax-option item may be contested by a tax-option corporation under subch. XIV. A
5tax-option corporation shall timely notify all shareholders of any administrative or
6judicial proceeding about the determination of any tax-option item. Each
7shareholder may participate in any such proceeding and shall be bound by the final
8determination in that proceeding.
SB794,2 9Section 2. 71.738 (3d) of the statutes is created to read:
SB794,2,1210 71.738 (3d) “Pass-through entity” means a partnership, a limited liability
11company, a tax-option corporation, an estate, or a trust that is treated as a
12pass-through entity for federal income tax purposes.
SB794,3 13Section 3. 71.738 (3e) of the statutes is created to read:
SB794,2,1714 71.738 (3e) “Pass-through item” means a tax-option item under s. 71.34 (3)
15or an item of income, gain, loss, deduction, credit, or any other item that originates
16with a pass-through entity and is required to be reported by one or more
17pass-through members under this chapter.
SB794,4 18Section 4. 71.738 (3f) of the statutes is created to read:
SB794,3,6
171.738 (3f) “Pass-through member” means a person who is a partner in a
2partnership, member of a limited liability company, shareholder in a tax-option
3corporation, beneficiary of an estate or a trust, or any other person whose tax liability
4under this chapter is determined in whole or in part by taking into account the
5person's share of pass-through items, directly or indirectly, from a pass-through
6entity.
SB794,5 7Section 5. 71.745 of the statutes is created to read:
SB794,3,18 871.745 Pass-through entity audits, additional assessments and
9refunds at the entity level. (1)
General applicability. Unless specifically
10provided in subs. (2) to (9), additional assessments and refunds of pass-through
11entities and pass-through members shall follow the provisions under this chapter.
12This section shall not apply for taxable years for which a pass-through entity made
13an election under s. 71.21 (6) (a) or 71.365 (4m) (a) that the pass-through entity did
14not revoke under s. 71.21 (6) (c) or 71.365 (4m) (c). The department shall not make
15additional assessments and refunds under this section to an entity treated as a
16disregarded entity described under U.S. Treasury Regulation 301.7701-2 or to a
17grantor trust, of the income of which is reportable under the Internal Revenue Code
18by the grantor of the trust or by any person other than the trust.
SB794,3,21 19(2) Audit assessments and refunds. Except as provided in sub. (9), for the
20purpose performing audit assessments and issuing refunds, the department may do
21all of the following:
SB794,4,422 (a) Assess and collect additional tax from a pass-through entity on income
23otherwise reportable by its pass-through members. In computing the tax to assess
24to a pass-through entity under this paragraph, the department shall apply the
25highest tax rate under s. 71.06 on income otherwise reportable by pass-through

1members that are individuals, estates, or trusts with a direct interest in the
2pass-through entity and apply the highest tax rate under s. 71.27 on income
3otherwise reportable by pass-through members, other than individuals, estates, or
4trusts, with a direct interest in the pass-through entity.
SB794,4,105 (b) Direct the secretary of administration to refund to a pass-through entity
6that part of an overpayment paid by the pass-through entity and not by the entity's
7pass-through members. Pass-through members may claim overpayments not paid
8by the pass-through entity within one year after the date the determination of the
9overpayment becomes final or before the end of the period specified under s. 71.75,
10whichever is later.
SB794,4,12 11(3) Adjustment of credits. Except as provided in sub. (9), for the purpose
12adjusting credits, the department may do all of the following:
SB794,4,2013 (a) Assess an adjustment to reduce a credit under s. 71.07, 71.28, or 71.47 to
14a pass-through entity if the pass-through entity previously computed the credit and
15reported the credit to its pass-through members. An assessment made under this
16paragraph may be reduced by the tax effect from the modifications described under
17ss. 71.05 (6) (a) 15. and 25., 71.21 (4), 71.26 (2) (a) 4. and 11., 71.34 (1k) (g) and (m),
18and 71.45 (2) (a) 10., if the modification occurs in a taxable year under review, except
19that the modification shall not pass through to nor be claimed by the pass-through
20members.
SB794,4,2521 (b) Assess an adjustment to increase a credit under s. 71.07, 71.28, or 71.47 to
22offset additional tax assessed to a pass-through entity under sub. (2). Any excess
23credit not used to offset additional tax may be claimed by the pass-through members
24within one year from the date the determination of the adjustment becomes final or
25before the end of the period specified under s. 71.75, whichever is later.
SB794,5,4
1(4) Adjustments attributable to members. Adjustments to pass-through
2items under this section are attributable to each pass-through member in a manner,
3and for the taxable year, that is consistent with the treatment of the pass-through
4items if a determination was not made under this section.
SB794,5,8 5(5) Statute of limitations, interest, and penalties. Statute of limitations,
6interest, and penalties under ss. 71.77, 71.82, and 71.83 apply to determinations
7made under this section without regard to the action or inaction of pass-through
8members.
SB794,5,14 9(6) Contested adjustments. (a) Except as provided in par. (b), a determination
10made by the department under this section is final and conclusive upon receipt by
11the pass-through entity. Pass-through members shall concede to the accuracy of
12and shall be bound by a determination made under this section. A pass-through
13entity shall timely notify all pass-through members of any administrative or judicial
14proceeding regarding the determination of any pass-through item.
SB794,5,2015 (b) A pass-through entity aggrieved by a determination made by the
16department under this section may, within 60 days after receipt of the
17determination, petition the department for redetermination. The department shall
18make a redetermination on the petition within 6 months after the date on which the
19petition is filed. If no timely petition for redetermination is filed with the
20department, the department's determination shall be final and conclusive.
SB794,5,25 21(7) Liability may be assessed to more than one person. If the department
22determines that a liability exists under this chapter and that the liability may be
23owed by more than one pass-through member of a pass-through entity, the
24department may assess any pass-through member of the pass-through entity for
25additional tax otherwise due under this chapter.
SB794,6,8
1(8) Election to reduce assessment. Within 60 days after the department's
2determination under this section becomes final, a pass-through entity may elect, in
3a manner prescribed by the department, to have the pass-through entity's
4assessment under this section reduced for pass-through items reported and paid by
5pass-through members within 60 days of the election. A pass-through entity shall
6furnish to the department and its pass-through members the adjustments to the
7each pass-through member's proportionate share of pass-through items for each
8taxable year.
SB794,6,17 9(9) Election to preclude assessment. Within 60 days after the department's
10determination under this section becomes final, a pass-through entity with 25 or
11fewer pass-through members for all years under review may elect, in a manner
12prescribed by the department, to require the department to make an assessment to
13each of its pass-through members. This subsection does not apply to a pass-through
14entity if one or more of its pass-through members is a pass-through entity for any
15year under review. The election under this subsection does not relieve a
16representative designated by the pass-through entity under s. 71.80 (26) (a) of the
17representative's duties under s. 71.80 (26) (b) 2., 3., and 6.
SB794,6 18Section 6. 71.76 (2) of the statutes, as created by 2021 Wisconsin Act 1, is
19renumbered 71.76 (2) (a) and amended to read:
SB794,7,820 71.76 (2) (a) In Except as approved in par. (b), in the case of any partnership
21adjustments, as defined under section 6241 of the Internal Revenue Code and
22including adjustments under section 6225 of the Internal Revenue Code, the
23partnership and its partners shall report such changes or corrections to the
24department within 180 days after the final determination by the internal revenue
25service and shall concede the accuracy of such determination or state how the

1determination is erroneous. The partnership and its partners are not required to
2report such changes or corrections unless the changes or corrections affect the
3amount of net tax payable under this chapter, of a credit calculated under this
4chapter, of a Wisconsin net operating loss carried forward under this chapter, of a
5Wisconsin net business loss carried forward under this chapter, or a capital loss
6carried forward under this chapter.
The partnership and its partners shall submit
7amended returns, as applicable, for each reviewed year, as defined under section
86225 of the Internal Revenue Code, to which such partnership adjustments relate.
SB794,7 9Section 7. 71.76 (2) (b) of the statutes is created to read:
SB794,8,310 71.76 (2) (b) In the case of any partnership adjustments, as defined under
11section 6241 of the Internal Revenue Code and including adjustments under section
126225 of the Internal Revenue Code, the partnership may submit a request to the
13department, in a manner prescribed by the department, within 60 days after the
14final determination by the internal revenue service to amend the partnership
15returns and pay tax on behalf of the partners at the highest tax rate computed under
16s. 71.745 (1) (a) for each reviewed year, as defined under section 6225 of the Internal
17Revenue Code, to which such partnership adjustments relate. The partnership and
18its partners shall report such changes or corrections to the department within 180
19days after the receipt of the notice of approval from the department and shall concede
20the accuracy of such determination or state how the determination is erroneous. The
21partnership and its partners shall report changes and corrections as provided under
22par. (a) within 180 days after the receipt of the notice of denial from the department.
23The partnership and its partners are not required to report such changes or
24corrections unless the changes or corrections affect the amount of net tax payable
25under this chapter, of a credit calculated under this chapter, of a Wisconsin net

1operating loss carried forward under this chapter, of a Wisconsin net business loss
2carried forward under this chapter, or a capital loss carried forward under this
3chapter.
SB794,8 4Section 8. 71.77 (7) (c) of the statutes is created to read:
SB794,8,85 71.77 (7) (c) When an election is made under s. 71.745 (9), with respect to
6assessments of a tax or an assessment to recover all or part of any tax credit under
7this chapter in any calendar year or corresponding fiscal year, if notice of assessment
8is given to pass-through members within one year from the date of the election.
SB794,9 9Section 9. 71.775 (1) (intro.) and (a) of the statutes are consolidated,
10renumbered 71.775 (1) and amended to read:
SB794,8,1411 71.775 (1) Definitions. In this section: (a) “Nonresident" “nonresident”
12includes an individual who is not domiciled in this state; a partnership, limited
13liability company, or corporation whose commercial domicile is outside the state; and
14an estate or a trust that is a nonresident under s. 71.14 (1) to (3m).
SB794,10 15Section 10. 71.775 (1) (b) of the statutes is repealed.
SB794,11 16Section 11. 71.78 (1) of the statutes is amended to read:
SB794,9,1017 71.78 (1) Divulging information. Except as provided in subs. (4), (4m) and,
18(10), and (11), no person may divulge or circulate or offer to obtain, divulge, or
19circulate any information derived from an income, franchise, withholding, fiduciary,
20partnership, or limited liability company tax return or tax credit claim, including
21information which may be furnished by the department as provided in this section.
22This subsection does not prohibit publication by any newspaper of information
23lawfully derived from such returns or claims for purposes of argument or prohibit
24any public speaker from referring to such information in any address. This
25subsection does not prohibit the department from publishing statistics classified so

1as not to disclose the identity of particular returns, or claims or reports and the items
2thereof. This subsection does not prohibit employees or agents of the department of
3revenue from offering or submitting any return, including joint returns of a spouse
4or former spouse, separate returns of a spouse, individual returns of a spouse or
5former spouse, and combined individual income tax returns, or from offering or
6submitting any claim, schedule, exhibit, writing, or audit report or a copy of, and any
7information derived from, any of those documents as evidence into the record of any
8contested matter involving the department in proceedings or litigation on state tax
9matters if, in the department's judgment, that evidence has reasonable probative
10value.
SB794,12 11Section 12. 71.78 (11) of the statutes is created to read:
SB794,9,1512 71.78 (11) Pass-through entity audits. If the department audits a
13pass-through entity for income or franchise taxes of its pass-through members,
14including when an election is made under s. 71.21 (6) (a) or 71.365 (4m) (a) to pay tax
15at the entity level, the department may disclose the following:
SB794,9,2016 (a) To a pass-through member that the pass-through entity is under audit or
17was audited, if the disclosure is necessary to explain any amounts assessed or
18refunded to the pass-through member or to obtain information necessary to
19determine the proper amount of adjustment to make at the pass-through entity
20level.
SB794,9,2421 (b) To a pass-through entity, the identities of one or more pass-through
22members who have failed to report pass-through items originating with the entity
23on their Wisconsin returns, if the disclosure is necessary to explain any amounts
24assessed or refunded to the pass-through member or to obtain information about a

1pass-through member's return in order to determine the proper amount of
2adjustment to make at the pass-through entity level.
SB794,13 3Section 13. 71.80 (26) of the statutes is created to read:
SB794,10,184 71.80 (26) Pass-through entity representative. (a) Each pass-through entity
5shall designate, in the manner prescribed by the department, a pass-through
6member or other person with substantial presence in the United States as the
7representative of the pass-through entity. In the case in which such designation is
8not in effect, the pass-through entity shall appoint a representative within 60 days
9following a written request by the department. If the pass-through entity fails to
10appoint a representative following a written request by the department, the
11department may designate a representative and notify the pass-through entity, or
12the beneficiaries in the case of a closed estate or trust, in writing of the designation.
13The pass-through entity may at any time provide a written statement to the
14department designating a new representative and the department shall accept the
15designation if the statement is signed by an authorized agent of the pass-through
16entity. The representative designated by a pass-through entity under this
17paragraph may be different than the pass-through entity's federal representative or
18authorized agent.
SB794,10,2019 (b) The representative designated under par. (a) shall have the power and duty
20to do all of the following:
SB794,10,2221 1. Act as the sole authority on behalf of the pass-through entity and its
22pass-through members with respect to a determination under s. 71.745.
SB794,10,2423 2. Provide the department sufficient information to identify each pass-through
24member and the capital, profits, and loss interest of each pass-through member.
SB794,11,2
13. Enter into extension agreements on behalf of the pass-through entity under
2s. 71.77 (5).
SB794,11,33 4. Receive notices of pass-through entity adjustments under this chapter.
SB794,11,74 5. Notify all pass-through members of their share of corrections and
5adjustments made to pass-through items within 60 days after a determination
6under s. 71.745 becomes final or after receipt of notice of approval under s. 71.76 (2)
7(b).
SB794,11,98 6. File appeals of notices of pass-through entity adjustments under this
9chapter.
SB794,11,1110 7. Enter into settlement agreements and bind pass-through members to
11adjustments relating to pass-through items.
SB794,11,1312 (c) The representative designated under par. (a) may delegate the powers and
13duties under par. (b) to an authorized agent of the pass-through entity.
SB794,14 14Section 14. 71.83 (1) (a) 12. of the statutes is created to read:
SB794,11,2115 71.83 (1) (a) 12. `Incomplete or incorrect pass-through entity return' If any
16pass-through entity, as defined in s. 71.738 (3d), required to file a return under this
17chapter files an incomplete or incorrect return, the department, upon a showing by
18the department under s. 73.16 (4), may assess the pass-through entity an amount
19equal to 25 percent of the amount of the tax assessed under s. 71.745. The amount
20shall be assessed, levied, and collected in the same manner as additional normal
21income or franchise taxes.
SB794,15 22Section 15. 71.88 of the statutes is amended to read:
SB794,12,9 2371.88 Time for filing an appeal. (1) Appeal to the department of revenue.
24(a) Contested assessments and claims for refund. Except for refunds set off under
25s. 71.93 in respect to which appeal is to the agency to which the debt is owed, except

1for refunds set off under s. 71.935 in respect to which an appeal is held under
2procedures that the department of revenue establishes and except for refunds set off
3under s. 49.855 in respect to which a hearing is held before the circuit court, and
4except as provided in s. 71.745 (6),
any person feeling aggrieved by a notice of
5additional assessment, refund, or notice of denial of refund may, within 60 days after
6receipt of the notice, petition the department of revenue for redetermination. A
7petition or an appeal by one spouse is a petition or an appeal by both spouses. The
8department shall make a redetermination on the petition within 6 months after it
9is filed.
SB794,12,1610 (b) Contested adjustments to credits. Any Except as provided in s. 71.745 (6),
11any
person feeling aggrieved by the determination made by the department to adjust
12a credit claimed under s. 71.07, 71.28 or 71.47 or subch. VIII or IX may, within 60 days
13after receipt, petition the department for redetermination. The department shall
14make a redetermination on the petition within 6 months after it is filed and notify
15the claimant under s. 71.74 (11). If no timely petition for redetermination is filed
16with the department, its determination shall be final and conclusive.
SB794,12,25 17(2) Appeal to the Wisconsin tax appeals commission. (a) Appeal of the
18department's redetermination of assessments and claims for refund.
A person feeling
19aggrieved by the department's redetermination, including a pass-through entity
20that has been issued a redetermination under s. 71.745 (6) (b),
may appeal to the tax
21appeals commission by filing a petition with the clerk of the commission as provided
22by law and the rules of practice promulgated by the commission. If a petition is not
23filed with the commission within the time provided in s. 73.01 or, except as provided
24in s. 71.75 (5), if no petition for redetermination is made within the time provided the
25assessment, refund, or denial of refund shall be final and conclusive.
SB794,13,11
1(b) Appeal of department's redetermination of credits. Any person aggrieved by
2the department of revenue's redetermination, including a pass-through entity that
3has been issued a redetermination under s. 71.745 (6) (b),
of a credit under s. 71.07
4(3m), (6), or (9e), 71.28 (1) or (2m) or 71.47 (1) or (2m) or subch. VIII or IX, except when
5the denial is based upon late filing of claim for credit or is based upon a
6redetermination under s. 71.55 (8) of rent constituting property taxes accrued as at
7arm's length, may appeal the redetermination to the tax appeals commission by
8filing a petition with the commission within 60 days after the redetermination, as
9provided under s. 73.01 (5) with respect to income or franchise tax cases, and review
10of the commission's decision may be had under s. 73.015. For appeals brought under
11this paragraph, the filing fee required under s. 73.01 (5) (a) does not apply.
SB794,16 12Section 16. 73.16 (4) of the statutes is amended to read:
SB794,13,1813 73.16 (4) Negligence determinations. The department shall not impose a
14penalty on a taxpayer under ss. 71.09 (11) (d), 71.83 (1) (a) 1. to 4. and 12. and (3) (a),
1576.05 (2), 76.14, 76.28 (6) (b), 76.39 (3), 76.645 (2), 77.60 (2) (intro.), (3), and (4), 78.68
16(3) and (4), and 139.25 (3) and (4), unless the department shows that the taxpayer's
17action or inaction was due to the taxpayer's willful neglect and not to reasonable
18cause.
SB794,13,1919 (End)
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