Wisconsin Tax Treatment of Tax-Option (S) Corporations and Their Shareholders
C. Withdrawing the Wisconsin “Opt-Out” Election
next 4 taxable years after the taxable year to which the “opt-
out” election first applies.
An “opt-out” election isn’t completed until the corporation
1. Voluntary Revocation
has filed its Wisconsin franchise or income tax return for the
first taxable year affected by the election. Prior to the due
date, or extended due date, for filing that Wisconsin return,
At any time after the 5-taxable-year period, the “opt-out”
the corporation may withdraw its “opt-out” election.
election may be revoked by filing Wisconsin Form 5R,
Revocation of Election by an S Corporation Not to Be a
Tax-Option Corporation.
Example 1: A calendar-year federal S corporation filed a properly
completed Form 5E with the Wisconsin Department of Revenue on
January 15, 1997, for the 1996 taxable year. In February 1997,
Revoking the “opt-out” election requires the consent of
before filing its 1996 Wisconsin return, the corporation decides that
persons who hold more than 50% of the shares of the S
it wishes to withdraw its “opt-out” election. The corporation may
corporation on the day the revocation is made. Form 5R
withdraw the election by sending a letter to the Wisconsin Depart-
must be filed on or before the due date, including exten-
ment of Revenue requesting the withdrawal. The letter must contain
sions, of the Wisconsin franchise or income tax return
the signatures of shareholders who hold more than 50% of the
for the first taxable year affected by the revocation.
shares of the corporation.
2. Automatic Revocation
Example 2: Assume the facts are the same as in Example 1, except
that the corporation filed its 1996 Wisconsin return on February 1,
1997, as a regular (C) corporation and then decides that it wishes to
An “opt-out” election will automatically be revoked for
withdraw the “opt-out” election. The corporation may withdraw the
the taxable year in which a federal S corporation ac-
election if it takes the following actions on or before March 17,
quires a QSSS. In this situation, it is not necessary to file
1997, the due date of its 1996 Wisconsin return:
Form 5R. The corporation and its QSSS must report their
income on Wisconsin Form 5S.
•
Send a letter, signed by shareholders holding more than 50%
of the corporation’s stock, to the Wisconsin Department of
O
Revenue requesting the withdrawal of the election, and
VII. THE TAX-OPTION (S) CORPORATION’S
WISCONSIN FRANCHISE OR INCOME
•
File an amended Wisconsin franchise or income tax return,
TAX RETURN
Form 5S, as a tax-option (S) corporation.
Example 3: Assume the facts are the same as in Example 1, except
A. Selecting the Taxable Year
that the corporation received a federal extension until Septem-
ber 15, 1997, to file its 1996 federal return. This extends the due
For federal income tax purposes, S corporations must use a
date of the corporation’s Wisconsin return to 30 days after the
“permitted year.” A permitted year is a taxable year ending
federal due date. On June 1, 1997, the corporation filed its Wiscon-
December 31 (a calendar year) or any other accounting
sin franchise or income tax return as a regular (C) corporation, but
period for which the corporation establishes a business
it then decides that it wishes to withdraw the “opt-out” election. The
purpose to the satisfaction of the Internal Revenue Service.
corporation may withdraw the election if it takes the following
However, an S corporation may elect, under IRC section 444,
actions on or before October 15, 1997, the extended due date of its
to have a taxable year other than a required taxable year,
Wisconsin return:
provided the corporation makes required tax payments under
IRC section 7519 for each year the election is in effect.
•
Send a letter, signed by shareholders holding more than 50%
of the corporation’s stock, to the Wisconsin Department of
Revenue requesting the withdrawal of the election, and
Tax-option (S) corporations must adopt the same accounting
period for Wisconsin as for federal purposes. Any change in
•
File an amended Wisconsin franchise or income tax return,
accounting period made for federal purposes must also be
Form 5S, as a tax-option (S) corporation.
made for Wisconsin purposes. If a tax-option (S) corporation
elects to have a taxable year other than a required taxable
D. Revoking the Wisconsin “Opt-Out” Election
year, that election also applies for Wisconsin. Unlike for
federal purposes, the tax-option (S) corporation doesn’t have
Except as explained below, once the election not to be a tax-
to make required payments of Wisconsin tax.
option (S) corporation is completed, the corporation and its
successors may not claim Wisconsin tax-option status for the
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