Tax 2.61(9)(f) (f) New combined group members. If a new member joins the combined group or is formed within the combined group, the member may use the net business loss carryforwards shared by other combined group members in the same manner as described in this subsection, even if those losses originated before the new member was part of the group.

Tax 2.61(9)(g) (g) Special rules for insurance companies. Under s. 71.45 (4), Stats., the net business loss of an insurance company cannot include the dividends received deduction provided in s. 71.26 (3) (j), Stats. Further, an insurance company may not use net business loss carryforwards in cases where its franchise or income tax liability is limited by two percent of its gross premiums as provided in s. 71.46 (3), Stats. Therefore, the following rules apply:

Tax 2.61(9)(g)1. 1. For purposes of applying s. 71.45 (4), Stats., if a dividend qualified for both the dividends received deduction under s. 71.26 (3) (j), Stats., and the elimination of dividends under sub. (6) (e), the dividend is considered to be eliminated under sub. (6) (e) rather than deducted under s. 71.26 (3) (j), Stats.

Tax 2.61(9)(g)2. 2. If an insurance company is a member of a combined group that is engaged in business both within and outside Wisconsin and has a net business loss, the dividends received deduction that shall be added back to that loss includes the insurance company’s apportioned share of the total dividends received deduction which was deducted from the combined unitary income under s. 71.26 (3) (j), Stats., regardless of whether the insurance company was the combined group member which received the dividend.

Tax 2.61(9)(g)3. 3. If an insurance company is a combined group member and its tax liability measured by its total Wisconsin net income as provided in sub. (5), including any net business loss carryforwards available from other combined group members, exceeds two percent of its gross premiums as defined in s. 76.62, Stats., plus 7.9 percent of the income described in sub. (5) (f), its tax liability shall be limited to two percent of the gross premiums plus 7.9 percent of the income described in sub. (5) (f). If the insurance company’s tax liability is limited in this manner, its business loss carryforwards may not be shared with any other combined group members, and if the group is otherwise sharing loss carryforwards, loss carryforwards may not be assigned to the insurance company.

Tax 2.61(9)(h) (h) Elections.

Tax 2.61(9)(h)1. 1. Although a combined group member is entitled to the benefit of a net business loss carryforward, the member may elect not to use a portion or any of the available net business loss carryforward for a taxable year. This election does not reduce the amount of carryforward available for the following taxable year nor suspend the carryforward period provided in ss. 71.26 (4) and 71.45 (4), Stats.

Tax 2.61(9)(h)2. 2. A combined group member may also elect not to share a portion or any of its sharable net business loss carryforward with other combined group members. However, if the corporation shares any part of its sharable net business loss carryforward, the shared amount shall be divided among all members in the manner prescribed in this subsection, except as otherwise provided in pars. (d), (e) 1., and (g) 3. A combined group member’s election under this subdivision is effective only for the taxable year in which the election is made and shall have no effect on the member’s ability to share net business loss carryforwards in future taxable years.

Tax 2.61(9)(i) (i) Applicability of Internal Revenue Code.

Tax 2.61(9)(i)1. 1. Notwithstanding the provisions of this subsection, the total amount of net business loss carryforward that may be used by a combined group member or shared with other combined group members for a taxable year is limited by section 382 of the Internal Revenue Code as provided in s. 71.26 (3) (n), Stats. Section 382 of the Internal Revenue Code shall be applied without regard to the federal consolidated return regulations under section 1502 of the Internal Revenue Code.

Tax 2.61(9)(i)2. 2. If a combined group member is acquired by another combined group member, section 381 of the Internal Revenue Code controls whether the acquiring corporation may succeed to the target corporation’s net business loss carryforwards. Wisconsin follows section 381 of the Internal Revenue Code, but modifies it in s. 71.26 (3) (n), Stats., so that it applies to Wisconsin net business loss carryforwards instead of federal net operating loss carryovers. If the acquirer succeeds to the target corporation’s net business loss carryforwards, the target corporation’s carryforwards shall be treated as originally incurred by the acquiring corporation and shall maintain their character as sharable or non-sharable.

Tax 2.61(9)(i)3. 3. The separate return limitation year provisions of the federal regulations under section 1502 of the Internal Revenue Code do not apply to net business loss carryforwards. The provisions of this subsection apply in place of these limitations.

Tax 2.61(10) (10) Credits. A credit is an attribute of the separate corporation rather than of the combined group, and credits are computed for each corporation separately. However, s. 71.255 (6) (c), Stats., provides that a combined group member may share all or a portion of its research credits with the other members of the combined group. For purposes of this subsection, the term “research credit” means only the research expense credit under ss. 71.28 (4) or 71.47 (4), Stats., and the research facilities credit under ss. 71.28 (5) or 71.47 (5), Stats. This subsection explains how credits are computed and applied as well as the special rules that apply to research credits.

Tax 2.61(10)(a) (a) Nonrefundable credits other than research credits. A combined group member’s nonrefundable credits other than research credits, including carryforwards of those credits, may only be used by that combined group member to offset the tax liability attributable to its own taxable income as computed under sub. (5).

Tax 2.61(10)(b) (b) Refundable credits. Any refundable credits computed by a combined group member shall be claimed on the combined return and refunded to the designated agent to the extent not used to offset the total tax liability reported on the combined return.

Tax 2.61(10)(c) (c) Sharing of research credits. If a combined group member computes a research credit, or has a carryforward of a research credit, the member may share a portion or all of the credit with the other members. For purposes of determining the sharable amount, the provisions of sub. (9) (e) and (f) apply to available research credits in the same manner as they apply to net business loss carryforwards. Research credit carryforwards incurred in taxable years beginning before January 1, 2009 are sharable to the extent the corporation with the credits would have been a member of the combined group had s. 71.255, Stats., been in effect and required combined reporting in those years. The method of sharing these credits is as follows:

Tax 2.61(10)(c)1. 1. Each combined group member shall first apply its total available credits, including its research credits, against its gross tax liability, if any, including its tax liability attributable to separate entity items. A combined group member’s available credits shall be considered used against its tax liability from separate entity items before its tax liability from its share of combined unitary income. Available credits shall be used in the order specified in s. 71.30 (3), Stats. A combined group member may elect to apply a carryforward of a research credit before applying the research credit computed for the current taxable year.

Tax 2.61(10)(c)2. 2. Each member shall then separate any remaining available research credit into the sharable and non-sharable amount, as applicable. The ordering rules provided in sub. (9) (c), relating to net business loss carryforwards, also apply to research credit carryforwards. The sharable research credits for each combined group member shall then be aggregated, except that any combined group member that elects not to share its sharable amount may exclude some or all of its sharable amount from the aggregate sharable amount.

Tax 2.61(10)(c)3. 3. The sharable amount shall be assigned to each combined group member in proportion to its tax liability from its share of combined unitary income. The sharable amount may only be assigned to a member to the extent the member’s tax liability from combined unitary income has not already been offset by other credits and carryforwards applied by that member under subd. 1. An amount may not be assigned to a combined group member whose tax liability from combined unitary income has been fully offset by other credits.

Tax 2.61(10)(c)4. 4. Any remaining sharable amount remains an attribute of the corporation that originally generated the credit. The aggregate sharable amount used under subd. 3. shall be considered used proportionately from the sharable research credits of the corporations which contributed to the aggregate sharable amount.

Tax 2.61 Note Example: Combined Group FGH consists of Member F, Member G, and Member H. F, G, and H have the following amounts in 2010:

- See PDF for table

Tax 2.61 Note Assume all of the research expense credit carryforward is sharable. The aggregate sharable amount is $25,000 (= $15,000 + $10,000). This amount may be assigned to H to the extent of its tax liability from its share of the combined unitary income after applying its own credits. After H applies its own credits, the remaining tax liability from combined unitary income is $5,000 (= ($17,000) + $2,000 + $20,000; its $17,000 economic development credit is applied against tax liability from separate entity items before tax liability from combined unitary items). Since this amount is less than the aggregate sharable amount, the entire remainder of H’s tax liability from combined unitary income ($5,000) is offset by the aggregate sharable amount.

Tax 2.61 Note After the aggregate sharable amount is applied, the remaining aggregate sharable amount is $20,000 (= $25,000 - $5,000). Since the remaining sharable amount remains an attribute of the corporation that originally generated the credit, at the end of 2010, F would have $12,000 (= $20,000 x ($15,000 / $25,000)) in remaining research credit carryforward, and G would have $8,000 (= $20,000 x ($10,000 / $25,000)) in remaining research credit carryforward.

Tax 2.61(10)(c)5. 5. The provisions of sub. (9) (h), as they relate to elections applicable to net business loss carryforwards, apply also to available research credits under this paragraph.

Tax 2.61(10)(d) (d) Exception for funded research. If a combined group member incurs expenses that are otherwise qualified research expenses under section 41(d) of the Internal Revenue Code but for the fact that the research is funded by another combined group member, the expenses shall be considered qualified research expenses of the combined group member performing the research, and the reimbursement from the combined group member funding the research may not be considered a qualified research expense of the funding member. Regardless of where the funding member is located, the research must be performed in this state to qualify for the research credit for Wisconsin purposes.

Tax 2.61 Note Example: Combined Group AB consists of Member A and Member B. In Year 1, B performs research that would be “qualified research” under section 41(d) of the Internal Revenue Code, except for the fact that A and B have entered into a contract where A provides funding for all of B’s research at a markup of 10%. Neither A nor B perform any other research. During Year 1, A paid B $220,000 for research services, all of which would be “qualified research” for B if the research were not funded by A. On AB’s Year 1 combined return, B may include $200,000 of qualified research expenses (= $220,000 - $20,000 markup) in its computation of the research credit. However, A may not compute any research credit. Since A and B are members of the same combined group, the funding arrangement between A and B is ignored for purposes of computing the research credit.

Tax 2.61(10)(e) (e) Applicability of Internal Revenue Code. The provisions of sub. (9) (i), as they relate to net business loss carryforwards, also apply to carryforwards of credits under this subsection.

Tax 2.61 Note Note: Section Tax 2.61 interprets s. 71.255, Stats.