Tax 2.61(8)(b)2. 2. After applying subd. 1., each member computes its net capital gain or loss from separate entity items and applies the provisions of sub. (6) (c) 5. to 7., except that in applying the provisions of sub. (6) (c) 6., the applicable apportionment percentage is one hundred percent.

Tax 2.61(8)(c) (c) Basis adjustments. A combined group member’s basis in stock of a subsidiary that is a member of the same combined group shall be adjusted in the manner prescribed in sub. (6) (f). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member’s income for the taxable year as provided in par. (a).

Tax 2.61(8)(d) (d) Earnings and profits. A combined group member’s earnings and profits shall be adjusted to reflect the undistributed earnings and profits of a subsidiary that is a member of the same combined group in the manner prescribed in sub. (6) (g). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member’s income for the taxable year as provided in par. (a).

Tax 2.61(9) (9) Net business losses. A combined group member may carry forward its net business loss as provided in ss. 71.26 (4) and 71.45 (4), Stats. A net business loss carryforward is an attribute of the separate corporation rather than of the combined group. However, s. 71.255 (6) (b) and (bm), Stats., provides that a combined group member may share all or a portion of its net business loss carryforward with the other members of its combined group if certain conditions are met. This subsection explains which net business loss carryforwards are sharable, how to compute the sharable amount, and how to apply the shared losses. The following rules apply:

Tax 2.61(9)(a) (a) Sharable loss carryforwards. A combined group member may share its net business loss carryforward incurred in a taxable year beginning on or after January 1, 2009 with other combined group members to the extent that all of the following conditions are met:

Tax 2.61(9)(a)1. 1. The net business loss is attributable to combined unitary income included in a combined report.

Tax 2.61(9)(a)2. 2. The member originally computed the net business loss in the combined report for the same combined group as the combined group that will use the shared loss carryforward, regardless of whether corporations have joined or left the combined group in the intervening years.

Tax 2.61(9)(a)3. 3. The member is still a member of the combined group described in subd. 2. for the year the loss carryforward will be shared.

Tax 2.61(9)(b) (b) Non-sharable loss carryforwards. A combined group member’s net business loss carryforward incurred in a taxable year beginning on or after January 1, 2009 that cannot be shared with other combined group members includes amounts attributable to the following:

Tax 2.61(9)(b)2. 2. Net business losses attributable to separate entity items.

Tax 2.61(9)(b)3. 3. Net business losses attributable to a different unitary business.

Tax 2.61(9)(c) (c) Order of carryforwards. A combined group member shall apply net business loss carryforwards in the following order:

Tax 2.61(9)(c)1. 1. Net business loss carryforwards incurred by that same member in taxable years beginning before January 1, 2009, in the order that the underlying net business losses were incurred.

Tax 2.61(9)(c)2. 2. Sharable and non-sharable net business loss carryforwards under par. (d) incurred in taxable years beginning on or after January 1, 2009, in the order that the underlying net business losses were incurred. If the net business loss carryforward to be used consists of both a sharable amount and a non-sharable amount incurred in the same taxable year, the amount of sharable and non-sharable carryforward used shall be determined on a pro rata basis according to the amount of each type of carryforward available from that year.

Tax 2.61(9)(c)3. 3. For loss carryforwards shared in a taxable year that begins after December 31, 2011, pre-2009 net business loss carryforwards under par. (dm).

Tax 2.61 Note Example: Combined Group EFG consists of Member E, Member F, and Member G. E has the following loss carryforwards:

- See PDF for table

Tax 2.61 Note In 2010, E’s share of combined unitary income plus its separate entity items equal $14,000. After using its carryforwards to offset this income, E has $4,000 of remaining net business loss carryforward (= ($10,000) + ($6,000) + ($2,000) + $14,000). Of this amount, a portion is a sharable carryforward that may be applied against F and G’s shares of combined unitary income in the manner described in par. (d). Since loss carryforwards are applied in the order incurred, the $10,000 carryforward from 2008 is used in its entirety, and $4,000 of the 2009 carryforward is used. The portion of E’s remaining carryforward from 2009 that is sharable is $3,000 (= $4,000 x [$6,000 / $8,000]) and the portion that is non-sharable is $1,000 (= 4,000 x [$2,000 / $8,000]).

Tax 2.61 Note In 2012, E has the following loss carryforwards:

- See PDF for table

Tax 2.61 Note In addition, in 2012 E received a pre-2009 net business loss carryforward of $3,000 ($60,000 x 5%) from Member F. E’s share of combined unitary income plus its separate entity items for 2012 equal $16,000. After using its carryforwards to offset this income, E has $1,000 of remaining net business loss carryforward (= ($3,000) + ($1,000) + ($4,000) + ($6,000) + ($3,000) + $16,000). Since the loss carryforwards are first applied to the net business loss carryforwards incurred in 2009 and after, the $4,000 carryforward from 2009 and the $10,000 carryforward from 2011 are used in their entirety. The remaining $2,000 of loss carryforwards are applied to the pre-2009 net business loss carryforward. The remaining pre-2009 net business loss carryforward is $1,000.

Tax 2.61(9)(d) (d) Method of sharing. The amount of net business loss carryforward under par. (c) 2. eligible for sharing shall be computed and assigned as follows:

Tax 2.61(9)(d)1. 1. Each combined group member shall first apply its total available net business loss carryforward against its total Wisconsin income as computed under sub. (5) (a) to (g), including net income or loss attributable to separate entity items. A combined group member’s net business loss carryforward shall be considered used against its net income from separate entity items before its share of combined unitary income.

Tax 2.61(9)(d)2. 2. Each member shall then separate any remaining net business loss carryforward into the sharable amount and the non-sharable amount, as applicable, using the ordering rules in par. (c). The sharable net business loss carryforward amounts for each combined group member shall then be aggregated, except that any combined group member that elects not to share its sharable amount as provided in par. (h) may exclude some or all of its sharable amount from the aggregate sharable amount.

Tax 2.61(9)(d)3. 3. Except as provided in par. (g), relating to insurance companies, the aggregate sharable amount shall be assigned to each combined group member in proportion to its share of combined unitary income as computed in subs. (6) to (8), net of any losses from separate entity items or loss carryforwards already applied. The sharable amount may only be assigned to a member to the extent the member’s share of combined unitary income has not already been offset by losses taken into account under subd. 1. An amount may not be assigned to a combined group member whose share of combined unitary income, net of any losses already applied by the member under subd. 1., is zero or less.

Tax 2.61(9)(d)4. 4. Any remaining sharable amount remains an attribute of the corporation that originally incurred the loss. The aggregate sharable amount used under subd. 3. shall be considered used proportionately from the sharable net business loss carryforwards of the corporations which contributed to the aggregate sharable amount.

Tax 2.61 Note Example: Combined Group ABCD consists of Member A, Member B, Member C, and Member D. The corporations have the following net business loss carryforwards and net income amounts in 2010:

- See PDF for table

Tax 2.61 Note Assume all of A and B’s net business loss carryforwards are sharable. The aggregate sharable amount is $40,000 (= $24,000 + $16,000). This amount may be allocated to C and D based upon their respective shares of combined unitary income after applying any losses from separate entity items. C’s adjusted share of combined unitary income is $20,000 (its $1,000 carryforward is considered used against its $3,000 net income from separate entity items before its share of combined unitary income) and D’s adjusted share of combined unitary income is $5,000 (= $20,000 - $15,000). The aggregate sharable amount exceeds the sum of C and D’s adjusted shares of the combined unitary income, which is $25,000 (= $20,000 + $5,000). Thus, C and D’s adjusted shares of combined unitary income are fully offset by the aggregate sharable amount.