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 NoteExample: Combined Group FGH consists of Member F, Member G, and Member H. F, G, and H have the following amounts in 2010:

Tax 2.61 NoteAssume 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 NoteAfter 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 NoteExample: 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 HistoryHistory: EmR1001: emerg. cr. eff. 1-15-10; CR 09-064: cr. Register April 2010 No. 652, eff. 5-1-10; CR 12-006: am. (9) (intro.), (a) (intro.), 1., (b) (intro.), r. (9) (b) 1., r. and recr. (9) (c) Register July 2012 No. 679, eff. 8-1-12; CR 13-078: am. (7) (a) 4., (b) 4., (g) (intro.), 1. Register April 2014 No. 700, eff. 5-1-14; CR 16-046: am. (9) (c) 3. (Example) Register January 2018 No. 745, eff. 2-1-18; CR 19-141: am. (4) (b) 1., 4., (6) (a) 3., r. and recr. (7) (h) Register September 2020 No. 777, eff. 10-1-20; correction in (6) (a) 3. made under s. 35.17, Stats., Register September 2020 No. 777.

Tax 2.62(1)(1) Scope. Section 71.255 (2) (a), Stats., provides that a corporation engaged in a unitary business with one or more other corporations in the same commonly controlled group is generally required to determine its share of income from that unitary business using a combined report. Section 71.255 (1) (n), Stats., defines “unitary business.” The purpose of this section is to provide further interpretation of the meaning of “unitary business.”

Tax 2.62(2)(2) General. A unitary business is a single, commonly controlled economic enterprise for which the components of the enterprise are sufficiently interdependent, integrated, and interrelated through their activities to such a degree that if the enterprise is doing business both within and outside a state, the state is permitted under the U. S. Constitution to tax a fairly apportioned share of the total net income of the enterprise.

Tax 2.62(2)(a)(a) Commonly controlled. A unitary business may consist of a single entity or a group of two or more related entities, including corporations, tax-option corporations, partnerships, limited liability companies, sole proprietorships, estates, and trusts. A group of related entities may satisfy the commonly controlled requirement of a unitary business if they are related in any of the following ways:

Tax 2.62(2)(a)1.1. The entities are related under the provisions of section 267 of the Internal Revenue Code which disallow losses on sales between related persons. By reference, this includes the rules in section 707(b) of the Internal Revenue Code, relating to partnerships.

Tax 2.62(2)(a)2.2. The entities are related under section 1563 of the Internal Revenue Code, which defines a “controlled group of corporations” for federal income tax purposes.

Tax 2.62(2)(a)3.3. The entities are corporations in the same “commonly controlled group” for Wisconsin purposes. “Commonly controlled group” has the meaning given in s. 71.255 (1) (c), Stats., as further interpreted by s. Tax 2.61 (3).

Tax 2.62(2)(b)(b) Components of enterprise. The components of a commonly controlled economic enterprise may consist either of divisions of a single entity or of multiple entities, or both. For purposes of this section, the term “participants” is used to describe these components of an economic enterprise.