Instructions For 2014 Schedule 4w: Wisconsin Subtractions From Federal Income printable pdf download

Instructions for 2014 Schedule 4W:

Wisconsin Subtractions from Federal Income

Purpose of Schedule 4W

substantially returned to the taxpayer, either di-

rectly or indirectly.

Corporations complete Schedule 4W to report sub-

•

If the transaction was entered on the advice of a

traction modifications that are needed to account for

tax advisor, the advisor’s fee was determined by

differences between taxable income under Wisconsin

reference to the tax savings.

law and under federal law. The corporation files

•

Schedule 4W with its Wisconsin Form 4.

The related entity does not regularly engage in

similar transactions with unrelated parties on

terms substantially similar to those of the subject

Line-by-Line Instructions

transaction.

■ Line 1. Wisconsin Subtraction Modification for

•

The transaction was not entered into at terms

Dividends – Enter the total from line 4 of Sched-

comparable to arm’s length as determined by

ule 4Y. See the Schedule 4Y instructions for an ex-

Treas. Reg. 1.482-1(b).

planation of dividends that are eligible for the subtrac-

•

tion.

There was no realistic expectation of profit from

the transaction apart from the tax benefits.

■ Line 2. Related Entity Expenses – If the corpora-

•

The transaction resulted in improper matching of

tion made an addition modification for related entity

income and expenses.

expenses on Schedule 4V, line 3, this is where you

•

report the amount that qualifies for a deduction. Enter

An expense for the transaction was accrued un-

the amount of the expenses from Schedule 4V, line

der FIN 48.

3, that are deductible using the criteria described in

Conditions for Deducting Related Entity Expenses,

The statutes (sec. 71.80(23)(a)1. and 2., Wis. Stats.)

below.

provide some additional conditions under which a re-

lated entity expense may qualify for a deduction, sub-

For corporations that are partners, members, or ben-

ject to some important exceptions. Those conditions

eficiaries of pass-through entities, also include the

are:

amount of allowable related entity expense reported

•

on line 21b of Schedule 3K-1 and on line 14b of

If the expense was paid to a related entity that is

Schedule 2K-1, as applicable.

merely acting as a conduit between the taxpayer

and an unrelated entity, or

Conditions

for

Deducting

Entity

•

If the related entity was subject to a tax meas-

Expenses. Section 71.80(23)(a)3., Wis. Stats.,

ured by net income or receipts and the net in-

provides that a related entity expense that was added

come or receipts of the transaction were included

back on Schedule 4V, line 3, qualifies for a deduction

in its tax base.

if all of the following conditions are met:

•

More Information on Related Entity Expenses. For

The primary motivation for the transaction was

more information on the deductibility of related entity

one or more business purposes other than the

expenses, see the Schedule RT instructions. Even if

avoidance or reduction of state income or fran-

you weren’t required to file Schedule RT for the ex-

chise taxes;

penses you added back on Schedule 4V, the instruc-

•

The transaction changed the economic position

tions to Schedule RT provide helpful information re-

of the taxpayer in a meaningful way apart from

garding deductibility of related entity expenses.

tax effects; and

■ Line 3. Income from Related Entities Whose

•

The expenses were paid, accrued, or incurred

Expenses Were Disallowed – If the corporation has

using terms that reflect an arm’s length relation-

income from a related entity which paid, accrued, or

ship.

incurred expenses to the corporation, and that related

entity could not deduct those expenses according to

Factors that may indicate that the expense does not

the instructions for line 2, the corporation may sub-

qualify for a deduction include the following:

tract the corresponding income from its taxable in-

•

come.

There was no actual transfer of funds from the

taxpayer to the related entity, or the funds were

IC-024

Instructions For 2014 Schedule 4w: Wisconsin Subtractions From Federal Income

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