Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 22
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30Publication 102
come for federal and Wisconsin purposes. For
holder may not recompute her allowable passive activity losses
for Wisconsin by excluding the S corporation income.
example, if the federal work opportunity tax credit
is claimed instead of a federal deduction for the
Example 5: A shareholder, who is a nonresident of Wisconsin,
wages, the entire amount of wages paid may be
must treat his interest in a tax-option corporation as a passive
deducted for Wisconsin purposes.
activity. The corporation does business in and outside Wiscon-
sin. The shareholder is subject to Wisconsin income tax on
c. Modifications to federal adjusted gross income
income derived from property located, business transacted, and
required under sec. 71.05(6) to (12), (19), and (20),
services performed in Wisconsin. The shareholder’s Wisconsin
Wis. Stats. Modifications include the addition to
passive activity loss is limited to the amount that was allowed
federal adjusted gross income of state and local
for federal purposes. He may not recompute the allowable
government bond interest income and the subtrac-
passive activity loss by excluding the income and losses that
tion of the 60% capital gain deduction.
are not taxable by or deductible for Wisconsin purposes.
E. Credits Available for Shareholders
The passive activity loss limits must be recomputed for
differences between federal and Wisconsin income
1.
Research Credits
resulting from Schedule I adjustments or making differ-
ent elections. However, the loss limits aren’t recomputed
For the 1984 and 1985 taxable years, the shareholders of a tax-
for modifications.
option (S) corporation could claim credits for their pro rata
shares of 5% of the corporation’s qualified research expenses
Example 1: A shareholder must treat her interest in a tax-
and 5% of the corporation’s research facility costs. Beginning
option (S) corporation as a passive activity. In 1986, the
with the 1986 taxable year, research credits are no longer
corporation had placed in service residential rental property
available to tax-option (S) corporations and their shareholders.
located in Wisconsin. For federal purposes, the corporation has
However, the shareholders may continue to claim unused
been depreciating the property using the accelerated cost
research credits carried forward from the 1984 and 1985
recovery system (ACRS). However, for Wisconsin purposes,
taxable years for up to 15 years.
the corporation was required to compute depreciation on the
property under the Internal Revenue Code as amended to
2.
Manufacturer’s Sales Tax Credit
December 31, 1980. As a result of the differing depreciation
deductions, the shareholder’s rental loss differs for federal and
For 1986 and prior taxable years, the shareholders of a tax-
Wisconsin purposes. The shareholder must recompute her
option (S) corporation could claim credits for their pro rata
allowable passive activity losses for Wisconsin.
shares of the corporation’s manufacturer’s sales tax credit.
Example 2: A shareholder must treat his interest in a tax-
Beginning with the 1987 taxable year, the manufacturer’s sales
option (S) corporation as a passive activity. For federal
tax credit is no longer available to the shareholders of a tax-
purposes, the corporation elected to claim the work opportu-
option (S) corporation. However, the shareholders may
nity tax credit instead of a deduction for the portion of the
continue to claim unused manufacturer’s sales tax credits car-
wages equal to the credit. For Wisconsin purposes, the
ried forward from taxable years before 1987. The manufac-
corporation deducts the wages paid or incurred that weren’t
turer’s sales tax credit is limited to that portion of the share-
deductible federally. The shareholder must recompute his
holder’s net tax which is measured by the Wisconsin net
allowable passive activity losses for Wisconsin.
income of the tax-option (S) corporation.
Example 3: A shareholder must treat his interest in a tax-
For taxable years beginning on or after January 1, 1998, a tax-
option (S) corporation as a passive activity. The corporation
option (S) corporation will again be allowed to pass the
sold property that had been used in its trade or business for
manufacturer’s sales tax credit through to its shareholders in
more than one year and realized a gain, which is treated as a
proportion to their ownership interests.
long-term capital gain. For Wisconsin purposes, the capital
gain qualifies for Wisconsin’s 60% capital gain deduction. The
3.
Development Zones Credits
shareholder is not required to recompute his allowable passive
activity losses for Wisconsin.
The shareholders of a tax-option (S) corporation may claim
credits for their pro rata shares of the corporation’s credits for
Example 4: A shareholder must treat her interest in a federal
doing business in Wisconsin development or enterprise
S corporation as a passive activity. For Wisconsin purposes,
development zones. These credits include a jobs credit, sales
the corporation elects not to be a tax-option corporation. To
tax credit, investment credit, research credit, location credit,
figure her Wisconsin income, the shareholder subtracts her
day care credit, and environmental remediation credit. The
share of the corporation’s undistributed net income that she
credits are computed at the corporate level on Wisconsin
had included in her federal adjusted gross income. The share-
Schedule DC and then passed through to the shareholders. The
20
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