Tax 2.61(6)(c)1. 1. For short-term capital gains or losses, long-term capital gains or losses, section 1231 gains or losses, and involuntary conversions, aggregate all combined group members’ amounts within each class of gain or loss. Except as provided in subd. 8., include sharable net capital loss carryovers as described in subd. 2. but not non-sharable net capital loss carryovers.

Tax 2.61(6)(c)2. 2. A combined group member’s sharable net capital loss carryover is any available net capital loss carryover which would be a sharable loss carryforward under sub. (9) (a) if it were a net business loss carryforward. A non-sharable net capital loss carryover is any available net capital loss carryover which would be a non-sharable loss carryforward under sub. (9) (b) if it were a net business loss carryforward. Net capital loss carryovers that are otherwise non-sharable may be included in the aggregation under subd. 1. if they were carryovers of a subgroup as described in sub. (9) (e) 1., but only in an amount not exceeding the net capital gain the subgroup would have if its amounts were not aggregated with those of the other combined group members.

Tax 2.61(6)(c)3. 3. Determine and apply the capital loss limitation under section 1211 of the Internal Revenue Code for the combined group based on the aggregate amounts computed in subd. 1. The provisions of 26 CFR 1.1502-22 and 1.1502-23, and the regulations which they reference, shall apply for this purpose, except that the separate return limitation year provisions are excluded and replaced with the provisions of this paragraph and except to the extent otherwise inconsistent with ss. 71.26 and 71.45, Stats., and the provisions of this section.

Tax 2.61(6)(c)4. 4. If the result is a net capital gain for the group, the net capital gain shall be apportioned to Wisconsin for the members in the same manner as all other combined unitary income as described in sub. (7), except that if the combined group is doing business solely in Wisconsin, the net capital gain is assigned to the members as described in sub. (8) (b). If the result is a net capital loss for the group, the net capital loss shall be assigned to the members that would have a net capital loss from the unitary business if their amounts were not aggregated with those of the other members of the combined group, in proportion to the amount of that net capital loss.

Tax 2.61 Note Examples: 1) Combined Group PQR consists of Member P, Member Q, and Member R. In Group PQR’s unitary combination for 2010, P, Q, and R aggregate their short term capital gains and losses (including sharable capital loss carryovers), long-term capital gains and losses, section 1231 gains and losses, and involuntary conversions, and compute a total of $20,000 in net capital gain for Group PQR. P’s Wisconsin apportionment percentage computed under sub. (7) is 10%; Q’s is 25%; and R’s is 50%. P’s apportioned share of this net capital gain is $2,000 (= $20,000 x 10%), Q’s apportioned share is $5,000 (= $20,000 x 25%) and R’s apportioned share is $10,000 (= $20,000 x 50%).

Tax 2.61 Note 2) Combined Group STU consists of Member S, Member T, and Member U. In the taxable year 2010, S, T, and U have the following capital gains and losses and section 1231 gains and losses attributable to the unitary business and subject to combination:

- See PDF for table

Tax 2.61 Note When S, T, and U aggregate each class of capital gains and losses and section 1231 gains and losses, Group STU has a net capital loss of $10,000. However, if S, T, and U’s capital gains and losses and section 1231 gains and losses were not aggregated with one another, S would have a net capital loss of $12,000 (its section 1231 loss would be treated as ordinary under section 1231(a)(2) of the Internal Revenue Code), T would have a net capital loss of $4,000, and U would have a net capital gain of $6,500. Thus, the amount of Group STU’s net capital loss that would be assigned to S is $7,500 (= ($12,000 / $16,000) x $10,000) and the amount that would be assigned to T is $2,500 (= ($4,000 / $16,000) x $10,000). None of the net capital loss would be assigned to U since it did not contribute to Group STU’s net capital loss.

Tax 2.61(6)(c)5. 5. After applying subd. 4., each member computes its net capital gain or loss from separate entity items without considering capital loss carryover amounts. If the result is a net capital loss, the loss may not be deducted except as provided in subd. 6. If the result is a net capital gain, the member may subtract from that amount, subject to the capital loss limitation, any current year net capital loss from the unitary business as computed in subd. 4. and any available net capital loss carryovers, whether they are sharable or non-sharable. The current year net capital loss from the unitary business shall be considered used before the net capital loss carryovers. Any remaining carryover may be used as provided in subd. 6.

Tax 2.61 Note Example: Assume the same facts as Example 2 in subd. 4. Assume also that S has a $10,000 long term capital gain from separate entity items in 2010 and a net capital loss carryover of $3,000 which was incurred in 2008. Since the current year net capital loss from the unitary business is considered used before the net capital loss carryover, at the end of 2010 S would have a remaining 2008 net capital loss carryover of $500 (= $10,000 - $7,500 current year net capital loss from unitary business - $3,000 net capital loss carryover).

Tax 2.61(6)(c)6. 6. If a member has a share of net capital gain from the unitary business as computed in subd. 4., the member may use any available net capital loss, including current year net capital loss from separate entity items and net capital loss carryovers, to offset that net capital gain. If the group uses apportionment, the member uses the available net capital loss by claiming a deduction equal to the amount of the available net capital loss that does not exceed the group’s net capital gain from the unitary business, multiplied by the member’s apportionment percentage from the unitary combination. The current year net capital loss from separate entity items shall be considered used before the net capital loss carryovers.

Tax 2.61 Note Example: Assume the same facts as Example 1 in subd. 4. Assume that Q has a $5,000 long term capital gain from separate entity items and a net capital loss carryover of $6,000 which was incurred in 2008. Since the net capital loss carryover was incurred in a taxable year beginning before 2009, it is non-sharable and could not be used in computing the aggregate net capital gain or loss of the unitary business as described in subd. 1. However, Q may use the non-sharable loss carryover to offset its net capital gain from separate entity items. After doing this, Q has a $1,000 available net capital loss (= $5,000 - $6,000) to use against its share of the $20,000 net capital gain from the unitary business. To use the remaining carryover, Q may claim an additional capital loss deduction of $250 (= $1,000 available carryover x 25% apportionment percentage). After claiming this deduction, Q would have no remaining net capital loss carryover.

Tax 2.61(6)(c)7. 7. After each member applies subds. 4. to 6., as applicable, the member may carry back or carry forward any remaining net capital loss carryover as provided in section 1212 of the Internal Revenue Code and may share that carryover to the extent it is a sharable carryover. The sharable carryovers available for use in the aggregation under subd. 1. are determined without regard to when any non-sharable carryovers were incurred and are applied in the order the underlying sharable loss was incurred. The carryovers available to offset the member’s net capital gain under subds. 5. and 6. are applied in the order the underlying loss was incurred. If the carryover available to offset the member’s net capital gain under subds. 5. and 6. consists of both a sharable and non-sharable amount incurred in the same taxable year, the carryover is applied from the sharable and non-sharable amounts on a pro rata basis according to the amount of each type of carryover available from that year.

Tax 2.61 Note Example: Member L is a member of Combined Group LM. Group LM uses a calendar year. At the beginning of 2012, L has the following available net capital loss carryovers:

- See PDF for table

Tax 2.61 Note Since the sharable net capital loss carryovers available for use in the aggregation under subd. 1. are determined without regard to when any non-sharable carryovers were incurred, the total sharable carryover that L may include in Group LM’s computation of aggregate net capital gain or loss for the year 2012 is $14,000 (= $4,000 + $0 + $10,000). Assume $12,000 of this amount is absorbed in the aggregation. Since carryovers are applied in the order incurred, L’s remaining sharable carryover of $2,000 is from its 2011 net capital loss. This carryover is available to L to offset against its net capital gain from separate entity items for 2012.

Tax 2.61 Note Assume L has a net capital gain from separate entity items of $4,000 and applies its available net capital loss carryover to offset this amount. Since carryovers are applied in the order incurred, $2,500 of the amount used is from its 2008 non-sharable carryover and $500 is from its 2010 non-sharable carryover. Since the remaining $1,000 carryover used is from 2011 where L has both a sharable and a non-sharable carryover, the amount of each carryover used is determined on a pro rata basis. Since L has $2,000 in sharable carryover from 2011 and $2,000 in non-sharable carryover from 2011, the remaining $1,000 carryover used is applied equally from the sharable and non-sharable carryovers. Thus, at the end of its 2012 taxable year, L has $1,500 in sharable carryovers and $1,500 in non-sharable carryovers available to carry forward or carry back.

Tax 2.61(6)(c)8. 8. If a member has sharable net capital loss carryovers, that member may choose not to use them in the aggregation under subd. 1. If more than one member includes sharable net capital loss carryovers in the aggregation under subd. 1., the amount of each member’s carryover used shall be computed on a pro rata basis according to the amount of carryover each member included in the aggregation.

Tax 2.61 Note Example: Combined Group QR consists of Member Q and Member R. Group QR is on a calendar year. For 2010, Q and R have the following amounts:

- See PDF for table

Tax 2.61 Note Assume the long term capital gains and section 1231 gains and losses are derived from Group QR’s unitary business and are subject to combination. Before applying the carryovers, Group QR has an aggregate net capital gain of $9,000 (= $6,000 + $2,000 + ($3,000 - $2,000)). Both Q and R use their sharable net capital loss carryovers to offset this amount. The amount used from Q’s sharable carryover is $6,000 (= $9,000 x ($10,000 / $15,000)) and the amount used from R’s sharable carryover is $3,000 (= $9,000 x ($5,000 / $15,000)). After applying these carryovers, Q’s remaining sharable carryover is $4,000 (= $10,000 - $6,000) and R’s remaining sharable carryover is $2,000 (= $5,000 - $3,000).

Tax 2.61(6)(d) (d) Charitable contributions. Compute the charitable contributions deduction limitation so that it applies to the combined group as a whole. Rules to determine the charitable contributions deduction limitation are as follows:

Tax 2.61(6)(d)1. 1. Compute the aggregate total deductions for charitable contributions for the taxable year, and any carryforwards of those deductions, for all combined group members.

Tax 2.61(6)(d)2. 2. Determine and apply the charitable contributions deduction under Internal Revenue Code section 170, before any Wisconsin modifications under ss. 71.26 or 71.45, Stats., as if the combined group were a consolidated group for federal purposes. The provisions of 26 CFR 1.1502-24, and the regulations which it references, shall apply for this purpose, except to the extent otherwise inconsistent with ss. 71.26 and 71.45, Stats., and the provisions of this section.

Tax 2.61 Note Example: Combined Group GH consists of Member G and Member H. G incurred $5,000 in charitable contribution deductions relating to the unitary business in Year 1, while H incurred $15,000 in charitable contribution deductions. Assume the federal taxable income upon which the charitable contribution limitation (10% of adjusted taxable income) would be based is $50,000 for G and $30,000 for H. Applying 26 CFR 1.1502-24 to Group GH in the manner described in this paragraph, Group GH would include a charitable contribution deduction of $8,000 (= lesser of ($5,000 + $15,000) or (($50,000 + $30,000) x 10%)) in its combined unitary income.

Tax 2.61(6)(d)3. 3. Any unused charitable contribution deduction after applying subd. 2. is assigned to the member that incurred the expense and is available to that member to offset its net income, if any, from separate entity items, subject to the limitation of section 170 of the Internal Revenue Code. Any of a member’s remaining unused charitable contribution may be carried over by that member and used in subsequent years, subject to the carryover period provided in section 170 of the Internal Revenue Code. The unused carryover may either be shared in a subsequent combined report in the manner described in subd. 2. or may be used by that member specifically.

Tax 2.61 Note Example: Assume the same facts as in the example for subd. 2. After the computation of Group GH’s combined unitary income for Year 1, the amount of unused charitable contribution deduction available to G would be $3,000 (= $12,000 unused deduction x ($5,000 / $20,000)) and the amount available to H would be $9,000 (= $12,000 x ($15,000 / $20,000)). Assume G has separate entity items in Year 1 and the adjusted federal taxable income from those items is $20,000. G may deduct $2,000 (= $20,000 x 10%) of its unused deduction against its income from separate entity items. Assume H does not have separate entity items in Year 1 and both G and H are in Group GH in Year 2. In Year 2, Group GH could include $10,000 of charitable contribution deduction carryover from Year 1 ($1,000 from G and $9,000 from H) in its combined unitary income, subject to the limitations of section 170 of the Internal Revenue Code.

Tax 2.61(6)(e) (e) Dividends. Eliminate dividends paid between members of the same combined group, but only if the dividends were paid from earnings and profits attributable to net income or loss that was includable in that group’s combined unitary income in the current taxable year or a prior taxable year, and only to the extent the dividend does not exceed the payee’s basis in the payer’s stock. The following rules apply in determining the dividends that may be eliminated under this paragraph:

Tax 2.61(6)(e)1. 1. The elimination of dividends applies only to the extent that the dividends received deduction provided in ss. 71.26 (3) (j) or 71.45 (2) (a) 8., Stats., does not apply.