Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 26
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30Publication 102
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Property distributions, including cash,
If a tax-option (S) corporation is the beneficiary of a life
made by the corporation that are appli-
insurance contract payable by reason of the death of an
cable to the Wisconsin AAA.
officer of the corporation, the following treatment applies:
+
The amount of the supplement to the
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The proceeds of the officer’s life insurance policy are
federal historic rehabilitation tax credit
nontaxable income of the corporation. The proceeds of
computed.
life insurance policies paid to the beneficiary are exclud-
able from gross income under IRC section 101.
At the end of the current taxable year, if the corporation has
If the corporation does not have accumulated earnings
accumulated earnings and profits for Wisconsin pur-
and profits, the corporation must add the officer’s life
poses, the Wisconsin AAA isn’t increased by nontaxable
insurance proceeds to its Wisconsin AAA. If the corpo-
income nor decreased by nondeductible expenses related to
ration has accumulated earnings and profits, the corpora-
nontaxable income. Instead, adjustments for nontaxable
tion must add the officer’s life insurance proceeds to its
income and related expenses are made to the Wisconsin
Wisconsin OAA.
Other Adjustments Account as explained below. If the tax-
option (S) corporation is subject to a Wisconsin franchise tax
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The corporation may not add the increase in the cash
measured by certain federal, state, and municipal government
surrender value of the officer’s life insurance policy to
interest, that interest is treated as taxable income which
its Wisconsin AAA or OAA.
increases the Wisconsin AAA.
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Officer’s life insurance premiums paid by the corpora-
Note: For purposes of the Wisconsin AAA, taxable income
tion are nondeductible expenses. Premium payments are
and deductible losses and expenses are the total company
nondeductible under IRC section 264 and Treasury
amounts as determined under Wisconsin law. The total
Regulation §1.264-1(b). Since this expense is related to
company amounts are those before application of either
nontaxable income report it in the same account where
apportionment or separate accounting to compute a
the nontaxable income would be reported.
multistate corporation’s income, loss, and deductions
attributable to Wisconsin.
If the corporation does not have accumulated earnings
and profits, the corporation must subtract the premium
As with the federal AAA, the Wisconsin AAA may have a
payments from its Wisconsin AAA. If the corporation
negative balance. Due to past and current differences in the
has accumulated earnings and profits, the corporation
computation of income, loss, and deductions, the federal
must subtract the premium payments from its Wisconsin
AAA and Wisconsin AAA may not have the same balance.
OAA.
This may create a difference between the federal and Wis-
consin treatment of all or a part of any corporate distributions
at the shareholder level.
The Wisconsin AAA and OAA are reconciled for the year on
Form 5S, Schedule 5M. Due to differences in the computa-
tion of Wisconsin, federal, and book net income or loss, the
The Wisconsin Other Adjustments Account (OAA) is
Wisconsin AAA and OAA may not agree with either the
maintained only by corporations that have accumulated
federal AAA and OAA or book balance sheet retained
earnings and profits at year-end. Since 1987 was the first
earnings (on Form 1120S, Schedule L).
year for which a Wisconsin OAA may be used, the Wiscon-
sin OAA will have a zero balance at the beginning of the
Unless the corporation makes one of the elections described
corporation’s 1987 taxable year. The account is increased by
below, property distributions, including cash, are treated as
nontaxable income and decreased by related expenses. The
follows for taxable years beginning on or after January 1,
account is also decreased by any distributions during the
1997:
taxable year which are applicable to the Wisconsin OAA.
a. A nontaxable distribution of net income to the extent of
If a tax-option (S) corporation is subject to a franchise tax
the Wisconsin AAA determined without regard to any
measured by certain federal, state, and municipal government
net negative adjustment for the taxable year, but not in
interest, that interest is treated as taxable income which in-
excess of the shareholder’s Wisconsin stock basis.
creases the Wisconsin AAA, not the Wisconsin OAA.
However, interest income that is exempt from Wisconsin
taxation, such as interest on bonds issued by the government
A net negative adjustment is the excess, if any, of
of Puerto Rico, increases the Wisconsin OAA.
reductions in the AAA for the taxable year, other than
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