Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 29
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30Wisconsin Tax Treatment of Tax-Option (S) Corporations and Their Shareholders
Note: A shareholder may elect to decrease his or her
$5,000 of ordinary income and $1,000 of tax-exempt income). The
individual shareholder’s Wisconsin basis of the stock at that date is
stock basis by deductible losses and deductions prior to
increased by $3,000 (his or her one-half share of the $5,000 of
decreasing the basis by nondeductible expenses. If a
ordinary income and $1,000 of municipal bond interest).
shareholder makes this election, any nondeductible
expenses that exceed the basis of the stock and debt
If one shareholder sells for a profit all of his or her stock in the
owed to the shareholder by the corporation are treated as
corporation on January 1, 1998, the shareholder’s gain will be the
nondeductible expenses for the following taxable year.
same for Wisconsin and federal purposes, if there are no other
To make the election, the shareholder must attach a
differences in basis. For federal purposes, the shareholder’s share
statement to his or her timely-filed original or amended
of exempt income flows through to the shareholder. Beginning with
return, as provided in the federal regulations. Once
the 1987 taxable year, the Wisconsin basis of the shareholder’s
made, the election applies to the year for which it is
capital stock is increased by the amount of any income which is
made and all future taxable years for the corporation,
exempt for Wisconsin tax purposes.
unless the department agrees to the revocation of the
Example 2: A tax-option (S) corporation’s 1997 Wisconsin net
election.
income differs from its 1997 federal S corporation income as fol-
lows:
+
Distributions received of post-1978 taxable income.
Federal S corporation income
$
10,000
•
The shareholder’s share of the supplement to the federal
1.
Excess of Wisconsin over
historic rehabilitation tax credit computed.
federal amortization of certain
deductible costs
(600)
When figuring the Wisconsin basis in stock of a multistate
2.
Excess of Wisconsin over
corporation, use the shareholder’s pro rata share of the total
federal gain on disposition
company income or loss as computed under Wisconsin law.
of assets
6,000
This is the shareholder’s income or loss before application of
3.
Nondeductible temporary
either apportionment or separate accounting to arrive at the
recycling surcharge
100
amount attributable to Wisconsin activities.
Wisconsin income
$
15,500
If an existing non-Wisconsin S corporation subsequently
The corporation and its two Wisconsin resident shareholders report
on a calendar-year basis. Each shareholder’s Wisconsin basis of the
begins doing business in Wisconsin, a shareholder’s
corporation’s capital stock was $12,000 on January 1, 1997.
Wisconsin stock basis equals his or her federal adjusted basis
on the first day of the taxable year in which the corporation
Each shareholder will report $5,000 of S corporation income on his
becomes subject to Wisconsin’s franchise or income tax
or her 1997 federal income tax return and $7,750 of tax-option (S)
jurisdiction. At the end of that taxable year, the shareholder’s
corporation income on his or her Wisconsin return.
Wisconsin basis is adjusted for the items of income, loss, and
deduction, as computed under Wisconsin law. The initial
If the corporation distributes $10,000 ($5,000 to each shareholder)
Wisconsin stock basis is figured the same way for both
on December 31, 1997, no part of this distribution is taxable for
residents and nonresidents of Wisconsin.
either federal or Wisconsin purposes. In this situation, each
shareholder’s Wisconsin stock basis is computed as follows:
In order to be certain that no item of income, allowable
deduction, or basis is included in the computation of the
Basis at January 1, 1997
$
12,000
shareholder’s net income more than once or is omitted from
Add: ½ of Wisconsin income
7,750
the computation, it is necessary to maintain a separate
Subtract: ½ of nondeductible
schedule for computing the Wisconsin basis of the tax-option
expenses
(50)
December 31, 1997,
(S) corporation stock.
distribution
(5,000)
Wisconsin stock basis,
Example 1: A corporation with two equal Wisconsin resident
December 31, 1997
$
14,700
shareholders has federal S corporation ordinary income for its year
ended December 31, 1997, of $5,000, while its Wisconsin net
Example 3: Assume the same facts as in Example 2, except that the
income for the year is $6,000, $5,000 of ordinary income and
S corporation had accumulated earnings and profits of $10,000 on
$1,000 of municipal bond interest. No distributions of income for
January 1, 1997. Its federal Accumulated Adjustments Account
the year are made before December 31, 1997.
(AAA) and its Wisconsin AAA both had a zero balance on January
1, 1997. The corporation distributes $20,000 ($10,000 to each
Each shareholder’s federal basis of corporate stock at December 31,
shareholder) on December 31, 1997.
1997, is increased by $3,000 (his or her one-half share of the
27
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