71.34(1k)(b)(b) The items referred to in section 1366 (a) (1) (A) of the internal revenue code shall be included. 71.34(1k)(c)(c) The deduction referred to in sections 212 and 703 (a) (2) (E) of the internal revenue code shall be allowed. 71.34(1k)(d)(d) An addition or subtraction, as appropriate, shall be made for the net amount of state and federal differences including differences arising from the different basis of assets disposed of in a transaction in which gain or loss is recognized for state tax purposes, different depreciation methods or difference in basis of depreciable assets, different elections, or transitional adjustments due to differences in the statutes for taxable years 1986 and 1987 pertaining to the computation of net income of a tax-option corporation. 71.34(1k)(e)(e) An addition shall be made for the amount of credit computed under s. 71.28 (3) and used by the corporation in the current year. 71.34(1k)(f)(f) An addition shall be made for the amount of interest, less related expenses, excluded by reason of section 103 of the internal revenue code (relating to interest received on state and municipal obligations and on volunteer fire department and mass transit obligations) or any other federal law. 71.34(1k)(g)(g) An addition shall be made for credits computed by a tax-option corporation under s. 71.28 (1dm), (1dx), (1dy), (3), (3g), (3h), (3n), (3q), (3t), (3w), (3wm), (3y), (4), (5), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10) and passed through to shareholders. 71.34(1k)(h)(h) Section 162 of the Internal Revenue Code (relating to trade or business expenses) is modified as follows: 71.34(1k)(h)1.1. So that payments for wages, salaries, commissions, and bonuses of employees and officers may be deducted only if the name, address, and amount paid to each resident of this state to whom compensation of $600 or more has been paid during the taxable year is reported or if the department of revenue is satisfied that failure to report has resulted in no revenue loss to this state. 71.34(1k)(h)2.2. So that payments for rent may be deducted only if the amount paid, together with the names and addresses of the parties to whom rent has been paid, is reported as provided under s. 71.70 (2). 71.34(1k)(i)(i) In section 1366 (f) of the Internal Revenue Code, the tax under s. 71.35 is substituted for the taxes under sections 1374 and 1375 of the Internal Revenue Code. 71.34(1k)(j)(j) An addition shall be made for any amount deducted or excluded under the Internal Revenue Code for interest expenses, rental expenses, intangible expenses, and management fees that are directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities. 71.34(1k)(k)(k) A deduction shall be allowed for the amount added to gross income under par. (j), to the extent that the conditions under s. 71.80 (23) are satisfied. 71.34(1k)(L)(L) A deduction shall be allowed for the amount added, pursuant to par. (j) or s. 71.05 (6) (a) 24., 71.26 (2) (a) 7., or 71.45 (2) (a) 16., to the federal income of a related entity that paid interest expenses, rental expenses, intangible expenses, or management fees to the corporation, to the extent that the related entity could not offset such amount with the deduction allowable under par. (k) or s. 71.05 (6) (b) 45., 71.26 (2) (a) 8., or 71.45 (2) (a) 17. 71.34(1k)(m)(m) An addition shall be made for the amount computed under s. 71.28 (5n) in the previous taxable year that is not included in federal ordinary business income. 71.34(1k)(n)1.1. Except as provided in subd. 2., starting with the first taxable year beginning after December 31, 2013, and for each of the next 4 taxable years, a subtraction shall be made in an amount equal to 20 percent of the amount determined by subtracting the combined federal adjusted basis of all depreciated or amortized assets as of the last day of the taxable year beginning in 2013 that are also being depreciated or amortized for Wisconsin from the combined Wisconsin adjusted basis of those assets on the same day. 71.34(1k)(n)2.2. If any taxable year for which the modification under subd. 1. is required is a fractional year under s. 71.24 (6) (c), the difference between the modification allowed for the fractional year and the modification allowed for the 12-month taxable year shall be a modification for the first taxable year beginning after December 31, 2018. 71.34(1k)(o)(o) An addition shall be made for any amount deducted under the Internal Revenue Code as moving expenses, as defined in s. 71.01 (8j), paid or incurred during the taxable year to move the taxpayer’s Wisconsin business operation, in whole or in part, to a location outside the state or to move the taxpayer’s business operations outside the United States. 71.34(1k)(p)1.1. For taxable years beginning after December 31, 2019, a subtraction may be made of the amount of gain excluded from federal gross income in the taxable year due to the application of 26 USC 1400Z-2 (b) (2) (B) (iii) for an investment held in a Wisconsin qualified opportunity fund for at least 5 years or due to the application of 26 USC 1400Z-2 (b) (2) (B) (iv) for an investment held in a Wisconsin qualified opportunity fund for at least 7 years. In this subdivision, “Wisconsin qualified opportunity fund” has the meaning given in s. 71.05 (25m) (a) 2. 71.34(1k)(p)2.2. In the form and manner prescribed by the department, a fund shall annually certify to each investor and the department of revenue that it qualifies as a Wisconsin qualified opportunity fund for the fund’s taxable year. A fund shall make the annual certifications under this subdivision no later than the due date, including extensions, of the fund’s corresponding income or franchise tax return under this chapter. 71.34(1m)(a)(a) Notwithstanding sub. (1g), a qualified retirement fund for a taxable year for federal income tax purposes is a qualified retirement fund for the taxable year for purposes of this subchapter. 71.34(1m)(b)(b) Notwithstanding sub. (1g), section 101 of P.L. 109-222, related to extending the increased expense deduction under section 179 of the Internal Revenue Code, applies to property used in farming that is acquired and placed in service in taxable years beginning after December 31, 2007, and before January 1, 2010, and used by a person who is actively engaged in farming. For purposes of this paragraph, “actively engaged in farming” has the meaning given in 7 CFR 1400.201, and “farming” has the meaning given in section 464 (e) (1) of the Internal Revenue Code. 71.34(1p)(1p) “Related entity” means any person related to a taxpayer as provided under section 267 or 1563 of the Internal Revenue Code during all or a portion of the taxpayer’s taxable year and any real estate investment trust under section 856 of the Internal Revenue Code, except a qualified real estate investment trust, if more than 50 percent of any class of the beneficial interests or shares of the real estate investment trust are owned directly, indirectly, or constructively by the taxpayer, or any person related to the taxpayer, during all or a portion of the taxpayer’s taxable year. For purposes of this subsection, the constructive ownership rules of section 318 (a) of the Internal Revenue Code, as modified by section 856 (d) (5) of the Internal Revenue Code, shall apply in determining the ownership of stock, assets, or net profits of any person. 71.34(1r)(1r) For purposes of sub. (1k) (j) and (L), “rental expenses” means the gross amounts that would otherwise be deductible in the computation of Wisconsin adjusted gross income for the use of, or the right to use, real property and tangible personal property in connection with real property, including services furnished or rendered in connection with such property, regardless of how reported for financial accounting purposes and regardless of how computed. 71.34(2)(2) “Tax-option corporation” means a corporation which is treated as an S corporation under subchapter S of the internal revenue code and has not elected out of tax-option corporation status under s. 71.365 (4) (a) for the current taxable year. 71.34(3)(3) “Tax-option item” means an item of income, loss or deduction. 71.34(4)(4) “Wisconsin net income”, for tax-option corporations engaged in business wholly within this state, means net income and, for tax-option corporations engaged in business both within and outside this state, means the amount assigned to this state under s. 71.25. 71.34 HistoryHistory: 1987 a. 312; 1987 a. 411 ss. 18, 23, 146; 1989 a. 31, 336; 1991 a. 39, 269; 1993 a. 16, 437; 1995 a. 27, 380, 428; 1997 a. 27, 37, 237; 1999 a. 9, 194; 2001 a. 16, 109; 2003 a. 33, 99, 135, 255, 326; 2005 a. 25, 49, 74, 361, 479, 483; 2007 a. 20, 96, 226; 2009 a. 2, 28, 161, 183, 265, 269, 295, 332; 2011 a. 32, 212, 232; 2011 a. 260 s. 80; 2013 a. 20; 2015 a. 55, 216; 2017 a. 17, 58, 59, 197, 231; 2019 a. 7, 54, 136, 185; 2021 a. 1, 156; 2023 a. 36, 138, 146; s. 35.17 correction in (1g) (m) 2., (n) 2. 71.3571.35 Imposition of additional tax on tax-option corporations. In addition to the other taxes imposed under this chapter, there is imposed on every tax-option corporation, except a corporation that qualifies for the exception under section 1374 (c) (1) of the internal revenue code and that has not elected to change from tax-option status under s. 71.365 (4) (a) for that taxable year, that has a net recognized built-in gain, as defined in section 1374 (d) (2) of the internal revenue code, during a recognition period, as defined in section 1374 (d) (7) of the internal revenue code as modified by this section, a tax computed under section 1374 of the internal revenue code except that the rate is that under s. 71.27 (2), the net recognized built-in gain is computed using the Wisconsin basis of the assets and the Wisconsin apportionment percentage for the current taxable year, the taxable income is the Wisconsin taxable income and the credit and net operating losses are those under this chapter rather than the federal credits and net operating losses. The tax under this section does not apply if the return is filed pursuant to a federal S corporation election made before January 1, 1987, and the corporation has not elected to change its status under s. 71.365 (4) (a) for any intervening year. If a corporation that elected to change from tax-option status under s. 71.365 (4) (a) subsequently elects to become a tax-option corporation, its recognition period begins with the first day of the first taxable year affected by the subsequent election. 71.35 HistoryHistory: 1987 a. 312; 1989 a. 31. 71.3671.36 Tax-option items. 71.36(1)(1) It is the intent of this section that shareholders of tax-option corporations include in their Wisconsin adjusted gross income their proportionate share of the corporation’s tax-option items unless the corporation elects under s. 71.365 (4) (a) not to be a tax-option corporation or elects under s. 71.365 (4m) (a) to be taxed at the entity level. 71.36(1m)(a)(a) A tax-option corporation may deduct from its net income all amounts included in the Wisconsin adjusted gross income of its shareholders, the capital gain deduction under s. 71.05 (6) (b) 9. and all amounts not taxable to nonresident shareholders under ss. 71.04 (1) and (4) to (9) and 71.362. 71.36(1m)(b)(b) For purposes of this subsection, interest on any of the following obligations is not included in shareholders’ income: 71.36(1m)(b)2.2. Interest on obligations issued under s. 66.0304 by a commission if the bonds or notes are used to fund multifamily affordable housing projects or elderly housing projects in this state, and the Wisconsin Housing and Economic Development Authority has the authority to issue its bonds or notes for the project being funded, or if the bonds or notes are used by a health facility, as defined in s. 231.01 (5), to fund the acquisition of information technology hardware or software, in this state, and the Wisconsin Health and Educational Facilities Authority has the authority to issue its bonds or notes for the project being funded, or if the bonds or notes are issued to fund a redevelopment project in this state or a housing project in this state, and the authority exists for bonds or notes to be issued by an entity described under s. 66.1201, 66.1333, or 66.1335. 71.36(1m)(b)3.3. Interest on obligations issued under s. 66.0621 by a local professional baseball park district, a local professional football stadium district, or a local cultural arts district. 71.36(1m)(b)5.5. Interest on obligations issued under s. 234.65 to fund an economic development loan to finance construction, renovation or development of property that would be exempt under s. 70.11 (36). 71.36(1m)(c)(c) The proportionate share of the net loss of a tax-option corporation shall be attributed and made available to shareholders on a Wisconsin basis but subject to the limitation and carry-over rules as prescribed by section 1366 (d) of the Internal Revenue Code. Net operating losses of the corporation to the extent attributed or made available to a shareholder may not be used by the corporation for further tax benefit. For purposes of computing the Wisconsin adjusted gross income of shareholders, tax-option items shall be reported by the shareholders and those tax-option items, including capital gains and losses, shall retain the character they would have if attributed to the corporation, including their character as business income. In computing the tax liability of a shareholder, no credit against gross tax that would be available to the tax-option corporation if it were a nontax-option corporation may be claimed. 71.36(2)(2) A tax-option corporation shall separately state all tax-option items the separate treatment of which may affect the liability of any shareholder for tax under this chapter. 71.36(3)(a)(a) The tax treatment of all tax-option items shall be determined at the corporate level. 71.36(3)(b)(b) All shareholders of tax-option corporations shall treat tax-option items on their returns under this chapter in a manner consistent with the manner in which those tax-option items are treated on the corporation’s Wisconsin income or franchise tax return or shall notify the department of revenue of any inconsistency and the reason for it. 71.36(4)(4) Every tax-option corporation that is required to file a return under s. 71.24 (1) shall, on or before the due date of the return, including extensions, provide a schedule to each shareholder whose share of income, deductions, credits, or other items of the tax-option corporation may affect the shareholder’s tax liability under this chapter. The schedule shall separately indicate the shareholder’s share of each item. 71.362(1)(1) All tax-option items of nonresident individuals, nonresident estates and nonresident trusts derived from a tax-option corporation not requiring apportionment under sub. (2) shall follow the situs of the business of the corporation from which they are derived, except that all income that is realized from the sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state. 71.362(2)(2) Nonresident individuals, nonresident estates and nonresident trusts deriving income from a tax-option corporation which is engaged in business within and without this state shall be taxed only on the income of the corporation derived from business transacted and property located in this state and losses and other items of the corporation deductible by such shareholders shall be limited to their proportionate share of the Wisconsin loss or other item, except that all income that is realized from the sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state. For purposes of this subsection, all intangible income of tax-option corporations passed through to shareholders is business income that follows the situs of the business, except that all income that is realized from the sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state. 71.362 HistoryHistory: 1987 a. 312; 1999 a. 9. 71.36571.365 General provisions. 71.365(1)(1) Adjusted basis of shareholders’ stock in tax-option corporation. 71.365(1)(a)(a) For purposes of this chapter, the adjusted basis of a shareholder in the stock and indebtedness of a tax-option corporation shall be determined in the manner prescribed by the internal revenue code for a shareholder of an S corporation, except that the nature and amount of items affecting that basis shall be determined under this chapter. This paragraph does not apply to 1978 and earlier taxable years of corporations which were S corporations for federal income tax purposes or to taxable years of corporations for which an election has been made under sub. (4) (a). 71.365(1)(b)(b) The adjusted basis of a shareholder in the stock and indebtedness of a tax-option corporation that has made an election under sub. (4m) (a) is determined as if the election was not made. 71.365(1m)(1m) Tax-option corporations; depreciation. For taxable years beginning before January 1, 2014, a tax-option corporation shall compute amortization and depreciation under the federal Internal Revenue Code as amended to December 31, 2000, except that property first placed in service by the taxpayer on or after January 1, 1983, but before January 1, 1987, that, under s. 71.04 (15) (b) and (br), 1985 stats., is required to be depreciated under the Internal Revenue Code as amended to December 31, 1980, and property first placed in service in taxable year 1981 or thereafter but before January 1, 1987, that, under s. 71.04 (15) (bm), 1985 stats., is required to be depreciated under the Internal Revenue Code as amended to December 31, 1980, shall continue to be depreciated under the Internal Revenue Code as amended to December 31, 1980. Any difference between the adjusted basis for federal income tax purposes and the adjusted basis under this chapter shall be taken into account in determining net income or loss in the year or years for which the gain or loss is reportable under this chapter. If that property was placed in service by the taxpayer during taxable year 1986 and thereafter but before the property is used in the production of income subject to taxation under this chapter, the property’s adjusted basis and the depreciation or other deduction schedule are not required to be changed from the amount allowable on the owner’s federal income tax returns for any year because the property is used in the production of income subject to taxation under this chapter. If that property was acquired in a transaction in taxable year 1986 or thereafter in which the adjusted basis of the property in the hands of the transferee is the same as the adjusted basis of the property in the hands of the transferor, the Wisconsin adjusted basis of that property on the date of transfer is the adjusted basis allowable under the Internal Revenue Code as defined for Wisconsin purposes for the property in the hands of the transferor. 71.365(2)(2) Corporation business loss carry-forward prohibition. The corporation net business loss carry-forward provided by s. 71.26 (4) may not be claimed by a tax-option corporation. 71.365(3)(3) Credits not allowed. The credits under s. 71.28 (4m) may not be claimed by a tax-option corporation or shareholders of a tax-option corporation. 71.365(4)(4) Election to change from tax-option status. 71.365(4)(a)(a) If persons who hold more than 50 percent of the shares on the day on which this election is made consent, a corporation that is an S corporation for federal income tax purposes and that does not have a qualified subchapter S subsidiary may elect, on or before the due date or extended due date of its return under this chapter, not to be a tax-option corporation for that taxable year and for later taxable years until its status is again changed. 71.365(4)(b)(b) If persons who, on the day on which the election occurs, hold more than 50 percent of the shares of a corporation that has elected out under par. (a) consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to be a tax-option corporation for that taxable year, except that no corporation electing under par. (a) and no successor of such a corporation may be a tax-option corporation for any of the next 4 taxable years after the taxable year to which its election under par. (a) first applies. 71.365(4m)(4m) Tax-option corporation election to pay franchise or income tax at the entity level. 71.365(4m)(a)(a) If persons who hold more than 50 percent of the shares on the day on which an election under this paragraph is made consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to be taxed at the entity level at a rate of 7.9 percent of net income reportable to this state as described in par. (d) 1. for that taxable year. 71.365(4m)(b)(b) It is the intent of the election under par. (a) that shareholders of a tax-option corporation may not include in their Wisconsin adjusted gross income their proportionate share of all items of income, gain, loss, or deduction of the tax-option corporation. It is also the intent that the tax-option corporation shall pay tax on items that would otherwise be taxed if this election was not made. 71.365(4m)(c)(c) If persons who, on the day on which the election under this paragraph is made, hold more than 50 percent of the shares of a corporation that has elected to be taxed at the entity level under par. (a) consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to revoke for that taxable year its election under par. (a). 71.365(4m)(d)(d) If an election is made under par. (a), all of the following apply: 71.365(4m)(d)1.1. The net income of the tax-option corporation is computed under s. 71.34 (1k), with the following modifications, and the situs of income shall be determined as if the election was not made: 71.365(4m)(d)1.a.a. For taxable years beginning after December 31, 2019, and before January 1, 2023, an adjustment shall be made so that the net capital loss, after netting capital gains and capital losses to arrive at total capital gain or loss, is offset against income only to the extent of $500. Losses in excess of $500 shall be carried forward to the next taxable year for which an election is made under par. (a) and offset against income up to the limit under this subd. 1. a. Losses shall be used in the order in which they accrue. 71.365(4m)(d)1.am.am. For taxable years beginning after December 31, 2022, an adjustment shall be made so that the net capital loss, after netting capital gains and capital losses to arrive at total capital gain or loss, is offset against income only to the extent of $3,000. Losses in excess of $3,000 shall be carried forward to the next taxable year for which an election is made under par. (a) and offset against income up to the limit under this subd. 1. am. Losses shall be used in the order in which they accrue. 71.365(4m)(d)4.4. The provisions of ss. 71.29 and 71.84 relating to estimated payments and underpayment interest shall apply to the tax-option corporation for the taxable year beginning in 2019 and later years. 71.365(4m)(d)5.5. If the tax-option corporation fails to pay the amount owed to the department with respect to income as a result of the election under par. (a), the department may collect such amount from the shareholders based on their proportionate share of such income. 71.365(4m)(e)(e) The department may promulgate rules to implement this subsection. 71.365(5)(5) Federal return copy. A tax-option corporation shall file with its state franchise or income tax return an exact copy of its federal income tax return for the same year and shall file any other return or statement filed with or made to, or any document received from, the U.S. internal revenue service, and any form required of that corporation and prescribed by the department of revenue, affecting the taxation of its shareholders. 71.365(6)(6) Notice to shareholders of appeals and other proceedings. Except as provided in s. 71.745, any notice of determination by the department of any tax-option item may be contested by a tax-option corporation under subch. XIV. A tax-option corporation shall timely notify all shareholders of any administrative or judicial proceeding about the determination of any tax-option item. Each shareholder may participate in any such proceeding and shall be bound by the final determination in that proceeding. 71.365(7)(7) Qualified subchapter S subsidiaries. If a tax-option corporation elects to treat a subsidiary as a qualified subchapter S subsidiary for federal purposes, that election also applies for this chapter. If this state has jurisdiction to impose the taxes under this chapter on the qualified subchapter S subsidiary, this state has the jurisdiction to impose the taxes under this chapter on the tax-option corporation. 71.365(9)(9) Adjustment under rules. A corporation that elects under sub. (4) (a) not to be a tax-option corporation and a corporation that elects to become a tax-option corporation shall adjust its income, under rules promulgated by the department of revenue, for the taxable year for which that election is first effective to avoid the omission or double inclusion of any item of income, loss or deduction. 71.365 HistoryHistory: 1987 a. 312; 1987 a. 411 ss. 40, 50, 147; 1989 a. 31, 336; 1991 a. 39, 269; 1993 a. 16, 437; 1995 a. 27, 380; 1997 a. 27, 37, 237; 1999 a. 9, 194; 2001 a. 109; 2005 a. 362; 2009 a. 28; 2013 a. 20; 2017 a. 368; 2021 a. 2, 157, 262; 2023 a. 146. 71.365 Cross-referenceCross-reference: See also s. Tax 2.03, Wis. adm. code.
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Chs. 70-79, Taxation
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