Tax 2.60(2)(e)(e) “Combined unitary income” means the combined group’s net income or loss attributable to the unitary business which is subject to combination under s. 71.255, Stats., before apportionment and net business loss carryforwards. Combined unitary income excludes any amounts that are not subject to combination because of the water’s edge rules. Tax 2.60(2)(f)(f) “Controlled group election” means an election to include every member of the commonly controlled group in the combined group as provided by s. 71.255 (2m), Stats., and further described in s. Tax 2.63. Tax 2.60(2)(g)(g) “Corporation” includes corporations, publicly traded partnerships treated as corporations in section 7704 of the Internal Revenue Code, limited liability corporations treated as corporations under the Internal Revenue Code, joint stock companies, associations, common law trusts and all other entities treated as corporations under section 7701 of the Internal Revenue Code, unless the context requires otherwise in this chapter or in ch. 71, Stats. Tax 2.60(2)(h)(h) “Designated agent” means the corporation in the combined group responsible for acting on behalf of the group for matters relating to the combined return, as further described in s. Tax 2.65. Tax 2.60(2)(i)(i) “Income” and “net income” include net losses, unless the context requires otherwise. Tax 2.60(2)(j)(j) “Intercompany transaction” means a transaction between two members of the same combined group. Tax 2.60(2)(L)(L) “Nonincludable corporation” means a corporation that is not required to use combined reporting even if it satisfies all three conditions described in s. Tax 2.61 (2) (a). A nonincludable corporation cannot be a combined group member even if the nonincludable corporation is a member of a commonly controlled group which has made the controlled group election. Tax 2.60(2)(m)(m) “Separate entity item” means a combined group member’s item of net income or loss or apportionment factor amount which is not subject to combination but instead must be accounted for on a separate entity basis. Separate entity items may include those listed in s. Tax 2.61 (5) (b) to (g). Net business loss carryforwards may be separate entity items if they are non-sharable loss carryforwards as provided in s. Tax 2.61 (9). Tax 2.60(2)(n)(n) “State” means a state of the United States, the District of Columbia, the commonwealth of Puerto Rico, or any territory or possession of the United States. Tax 2.60(2)(o)(o) “Unitary business income” means the net income or loss derived from the unitary business, whether or not the income or loss is subject to combination. “Unitary business” is explained further in s. Tax 2.62. Tax 2.60(2)(p)(p) “Unitary combination” means the computation of combined unitary income and of each member’s share of the combined unitary income. Tax 2.60(2)(q)(q) “Water’s edge rules” means the rules provided under s. Tax 2.61 (4) under which some or all of a corporation’s items attributable to a unitary business are not subject to combination because of the degree of the corporation’s activity outside the United States. Tax 2.60 HistoryHistory: EmR1001: emerg. cr. eff. 1-15-10; CR 09-064: cr. Register April 2010 No. 652, eff. 5-1-10; CR 12-006: cr. (2) (Lm) Register July 2012 No. 679, eff. 8-1-12; CR 12-011: am. 2.60 (2) (d) Register July 2012 No. 679, eff. 8-1-12. Tax 2.61(1)(1) Scope. Section 71.255, Stats., generally requires corporations that are commonly controlled and engaged in a unitary business to compute their net income on a combined basis. This section explains when combined reporting is required and how to compute a corporation’s net income and tax liability under combined reporting. Subsections (2) to (4) describe who must use combined reporting and what income is subject to combination. Subsections (5) to (9) explain how to compute the taxable income of a combined group member, including net business loss carryforwards. Subsection (10) provides rules relating to credits and credit carryforwards. Tax 2.61(2)(2) Corporations required to use combined reporting. Tax 2.61(2)(a)(a) General. A corporation is required to use combined reporting if it satisfies each of the following three conditions: Tax 2.61(2)(a)1.1. The corporation is a member of a “commonly controlled group” as defined in s. 71.255 (1) (c), Stats. See sub. (3) for rules that apply to identifying a commonly controlled group of corporations. Tax 2.61(2)(a)2.2. The corporation is engaged in a “unitary business,” as defined in s. 71.255 (1) (n), Stats., with one or more other corporations in its commonly controlled group, or the commonly controlled group makes a controlled group election. See s. Tax 2.62 for rules to determine whether corporations are engaged in a unitary business. See s. Tax 2.63 for rules pertaining to the controlled group election. Tax 2.61(2)(a)3.3. The corporation has unitary business income that is subject to combination under the water’s edge rules described in sub. (4). Tax 2.61(2)(b)(b) Effect of controlled group election. If a controlled group election applies as indicated in par. (a) 2., all corporations in the commonly controlled group are deemed to be engaged in the same unitary business, and all of their net income or loss and apportionment factors are deemed to be derived from that unitary business. In general, this means that if the controlled group election applies, all members of the commonly controlled group are included in a combined report. However, despite this election, a corporation may be required to exclude some or all of its net income, loss, and apportionment factors from the unitary combination if so required under the water’s edge rules described in sub. (4). Tax 2.61(2)(c)(c) Corporations treated as pass-through entities. Except as provided in par. (f), corporations that are included in the definition of “pass-through entity” in s. 71.255 (1) (m), Stats., including tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, and financial asset securitization investment trusts, are nonincludable corporations. However, to the extent the net income or loss of these corporations is included in the net income of, or distributed to, a combined group member, the net income or loss is subject to combination to the extent derived from the unitary business and otherwise subject to combination under the water’s edge rules described in sub. (4). The provisions of s. 71.255 (1) (m), Stats., do not affect the taxation of tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, or financial asset securitization investment trusts, other than to exclude them from combined reporting except where their inclusion is required under par. (f). Tax 2.61(2)(d)(d) Tax exempt organizations. A corporation that is exempt from income and franchise taxes under ss. 71.26 (1) or 71.45 (1), Stats., is a nonincludable corporation except to the extent it has unrelated business taxable income as defined in section 512 of the Internal Revenue Code. The net unrelated business taxable income, and any corresponding apportionment factors are subject to combination to the extent the net income or loss is derived from the unitary business and is otherwise subject to combination under the water’s edge rules described in sub. (4). Tax 2.61(2)(e)(e) Disregarded entities. An entity that is disregarded as a separate entity for federal income tax purposes under section 7701 of the Internal Revenue Code is considered a branch or division of its owner for Wisconsin income and franchise tax purposes. A corporation shall include the net income or loss and apportionment factors of any disregarded entity of which it is an owner in the combined report to the extent they would be included if the corporation itself earned the income. The water’s edge rules described in sub. (4) do not apply to disregarded entities except insofar as the rules apply to the owner of the disregarded entity. Tax 2.61(2)(f)(f) Other provisions that may apply. Nothing in ss. Tax 2.60 to 2.67 is intended or should be construed as a waiver of the department’s authority under s. 71.255 (2) (f), Stats., or any other authority granted to the department by law. Section 71.255 (2) (f), Stats., provides the following: Tax 2.61(2)(f)1.1. The department may require that a combined report include the items of any person or entity who is not otherwise a combined group member but who is a member of the unitary business, in order to reflect proper apportionment of income of the entire unitary business.