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Sale of Investment in

Partnerships and Tax‑Option (S) Corporations

You must make a reasonable allocation of gain on the sale of the investment in a business that was not qualified for the entire

investment period. The denominator should include the fair market value (FMV) of all the investments you made in the entity

and the numerator should only include investments you made in the entity that are considered a qualified Wisconsin investment.

Example 1

• Partnership XYZ’s Partners A and B each have a 50% interest.

• The partnership was a qualified Wisconsin business for 2011, 2012, 2013, and 2014.

• On 12-31-2016, Partner A liquidated its partnership interest in XYZ.

Investments Partner A made in XYZ and the gain from the sale of its partnership interest in XYZ are as follows:

(The chart below reflects federal basis and has not been adjusted for Wisconsin)

Date of

FMV of the

Sales Price

Tax Basis of

Gain on Sale

Investment

12-31-2016

Investment

of Investment

5-31-2009

$ 35,000

5-31-2010

$ 20,000

5‑31‑2011

$ 30,000

12‑31‑2011

$ 50,000

12-31-2012

$ 15,000

12-31-2013

$ 10,000

12-31-2014

$ 15,000

12-31-2015

$ 10,000

12-31-2016

$ 15,000

Total

$200,000

$1,000,000

$100,000

$900,000

• Only the investments made on 5-31-2011 and 12-31-2011 are considered a qualified Wisconsin investment.

– The business did not register with the Wisconsin Department of Revenue (DOR) to be a qualified Wisconsin business in

2015 and 2016; therefore, investments in XYZ made in 2009, 2010, 2015, and 2016 do not qualify.

– The investments made in 2012, 2013, and 2014 are not qualified Wisconsin investments because the investments were

not held at least five years.

• In this example, investments made by Partner A in XYZ do not include a deferred long-term capital gain from an asset

previously sold.

• The allocation percentage for non-taxable qualified gain is computed as follows:

$ 80,000

= 40%

$200,000

– $80,000 reflects the FMV of qualified Wisconsin investments made in XYZ ($30,000 + $50,000) by Partner A on 5-31-2011

and 12-31-2011.

– $200,000 reflects the FMV of the total investments made in XYZ by Partner A.

• The non-taxable qualified gain is computed as follows:

$900,000 x 40% = $360,000

$900,000 is the gain on the sale of the investment. (Note If there were differences in Wisconsin tax basis besides deferred

long-term gain, they must be reflected in the Wisconsin tax basis before computing the gain used in the non-taxable qualified

gain allocation. See example 3 on page 7).

• $360,000 is non-taxable qualified gain reported on line 10 of Schedule QI and must be reported on line 15a of Schedule WD.

See example 2 on page 6 for how to report a sale of investment when there is a deferred long-term gain.

- 5 -

I-177 (N. 12-16)

Wisconsin Department of Revenue

Instructions For 2016 Schedule Qi - Sale Of Investment In A Qualified Wisconsin Business Page 5

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