Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 30
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30Publication 102
Each shareholder will still report $5,000 of S corporation income
Shareholder A will deduct $4,000 (50% x $8,000) of tax-option (S)
on his or her 1997 federal income tax return and $7,750 of tax-
corporation net loss on her 1996 Wisconsin return, and she will
option (S) corporation income on his or her Wisconsin return.
report $7,000 (50% x $14,000) of ordinary income on her 1997
Wisconsin return. The $1,000 distribution Shareholder A receives
on December 31, 1997, is nontaxable since it doesn’t exceed the
The federal AAA will increase to $10,000 while the Wisconsin
Wisconsin AAA balance or her Wisconsin stock basis.
AAA will increase to $15,400 ($15,500 of income minus $100 of
nondeductible expenses).
Shareholder B will deduct $1,800 (50% x 45% x $8,000) of tax-
option (S) corporation net loss on her 1996 Wisconsin return, and
Of the $10,000 distribution received by each shareholder, $5,000
she will report $2,800 (50% x 40% x $14,000) of ordinary income
is treated as a nontaxable distribution (decreasing the federal AAA
on her 1997 Wisconsin return. The $1,000 distribution she receives
to zero) and $5,000 is a taxable dividend for federal tax purposes.
is nontaxable by Wisconsin since it doesn’t exceed the Wisconsin
For Wisconsin, $7,700 is a nontaxable distribution, which decreases
AAA balance or her Wisconsin stock basis and since she is a
the Wisconsin AAA to zero, and $2,300 is a taxable dividend.
nonresident.
The federal accumulated earnings and profits are reduced to zero,
Each shareholder’s Wisconsin stock basis is computed as follows:
and the Wisconsin accumulated earnings and profits are decreased
by $4,600 to $5,400.
A
B
In this situation, each shareholder’s Wisconsin basis is computed as
Basis at January 1, 1996
$ 10,000
$ 10,000
follows:
Subtract: ½ of 1996 loss
(4,000 )
(4,000 )
Wisconsin stock basis,
Basis at January 1, 1997
$
12,000
December 31, 1996
$
6,000
$
6,000
Add: ½ of Wisconsin income
7,750
Add: ½ of 1997 income
7,000
7,000
Subtract: ½ of nondeductible
Subtract: December 31, 1997,
expenses
(50)
distribution
(1,000 )
(1,000 )
December 31, 1997,
Wisconsin stock basis,
distribution
(7,700)
December 31, 1997
$ 12,000
$ 12,000
Wisconsin stock basis,
December 31, 1997
$
12,000
If Shareholder B becomes a Wisconsin resident on January 1, 1998,
her Wisconsin stock basis on that date will be $12,000.
Example 4: A corporation was incorporated on January 1, 1996,
and its two shareholders each invested $10,000 in exchange for
O
equal shares of capital stock. The corporation elected to be taxed
XII. ADDITIONAL INFORMATION OR FORMS
under federal Subchapter S beginning with its 1996 calendar year,
and that election applies for Wisconsin purposes. The corporation
If, after reading this publication, you have any questions
does business in and outside Wisconsin. Shareholder A is a full-
about the Wisconsin tax law relating to tax-option (S)
year Wisconsin resident and Shareholder B is a nonresident of
Wisconsin.
corporations, please write to the Audit Technical Services
Staff, Wisconsin Department of Revenue, P.O. Box 8906,
For 1996, the corporation computes a net loss of $8,000, of which
Madison, WI 53708-8906 or call (608) 266-2772.
45% is attributable to Wisconsin. The loss reduces the Wisconsin
Accumulated Adjustment Account (AAA) to negative $8,000.
If you need forms, call (608) 266-1961 or write to the Forms
Request Office, Wisconsin Department of Revenue, P.O. Box
For 1997, the corporation computes ordinary income of $14,000,
8903, Madison, WI 53708-8903. To receive forms by FAX,
of which 40% is attributable to Wisconsin. The income increases
use your fax telephone to call the department’s Fax-A-Form
the Wisconsin AAA by $14,000 to $6,000. The corporation
Retrieval System at (608) 261-6229. You may download
distributes $1,000 to each of its shareholders on December 31,
forms from the department’s Internet website at
1997. The distributions reduce the Wisconsin AAA to $4,000.
dor.state.wi.us.
28
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