Instructions For 2009 Schedule Rt-1: Statement Of Disallowed Related Entity Expense
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2Instructions for 2009 Schedule RT-1:
Statement of Disallowed Related Entity Expense
Purpose of Schedule RT-1
even if you failed to meet the Schedule RT disclosure
requirements.
For
additional
information
about
If a taxpayer cannot deduct an expense it paid, ac-
whether the payer’s expense is deductible to the
crued, or incurred to a related entity because the ex-
payer, see the Schedule RT instructions.
pense did not meet one of the conditions described in
Schedule RT, Part II, the related entity may subtract
Special Instructions for Pass-Through Entities
the income that corresponds to the expense that was
disallowed. The related entity uses Schedule RT-1 to
If the payee is a pass-through entity, the pass-
substantiate the subtraction from income.
through entity must file Schedule RT-1 with its Wis-
consin return at the entity level, and must report the
In these instructions, the taxpayer whose expense
Schedule RT-1 information with Schedule 3K-1, 5K-1,
was disallowed is called the “payer” and the related
or 2K-1, as appropriate, using the line on Sched-
entity which is reporting the subtraction from income
ule 3K-1, 5K-1, and 2K-1 designated for “Other items
is called the “payee.”
and amounts“ (or, for Schedule 2K-1, “Other informa-
tion”).
Both the payer and payee must complete the appro-
priate section of the same Schedule RT-1. The payee
On the supporting schedule you provide to the
must file the completed Schedule RT-1 with its Wis-
shareholder, partner, member, or beneficiary, indi-
consin income or franchise tax return on which it is
cate the name and federal employer identification
claiming the subtraction from income.
number (or social security number if an individual) of
the payer of the expense, and the partner’s, mem-
NOTE: If the payee is not doing business in
ber’s, shareholder’s or beneficiary’s allocable share
Wisconsin, neither the payer nor the payee has to
of the subtraction amount.
complete Schedule RT-1.
Specific Instructions for Schedule RT-1
The subtraction from income may apply even if the
disallowed expense was below the filing threshold for
■ Part I. Information for Payer – Part I must be
Schedule RT. However, see the important limitation
completed by the payer. Complete all information re-
of the subtraction below.
quested in items A. through D. After completing
Part I, submit the Schedule RT-1 to the payee. You
do not need to submit Schedule RT-1 to the Depart-
Limitation of Schedule RT-1 Subtraction
ment of Revenue because the payee will do so after
completing Part II.
Even if the payer did not file Schedule RT or failed to
report all expenses it was required to report on
■ Part II. Information for Payee – After receiving the
Schedule RT, the payee cannot claim a subtraction
Schedule RT-1 from the payer with Part I completed,
from income if the payer’s expense meets all three of
the payee completes Part II. In Part II, item A., the
the criteria below:
payee enters the line(s) of its federal income tax re-
•
The primary motivation for the transaction was
turn where it reported the income eligible for the sub-
one or more business purposes other than the
traction (or from its pro forma federal income tax re-
avoidance or reduction of state income or fran-
turn if it’s a member of a federal consolidated group).
chise taxes;
This confirms that the amount to be subtracted was
originally included in the income that was the starting
•
The transaction changed the economic position
point for the Wisconsin income or franchise tax re-
of the taxpayer in a meaningful way apart from
turn.
tax effects; and
•
The payee must then submit the completed Sched-
The expenses were paid, accrued, or incurred
ule RT-1 as an attachment to its Wisconsin income or
using terms that reflect an arm’s length relation-
franchise tax return.
ship.
In other words, you cannot use Schedule RT-1 to
create a subtraction for the payee if the expense is
deductible to the payer using the criteria given above,
IC-176 (2/1/10)
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