Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 25
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30Wisconsin Tax Treatment of Tax-Option (S) Corporations and Their Shareholders
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Example: A federal S corporation, which is organized under the
The shareholder derives taxable income from Wisconsin
laws of Michigan, isn’t engaged in business in Wisconsin and isn’t
in 1997 other than his or her pro rata share of tax-option
required to file a Wisconsin franchise or income tax return. The
(S) corporation income or loss.
corporation has two equal shareholders, one a Wisconsin resident
and one a Michigan resident, who file returns on a calendar-year
Each qualifying and participating shareholder’s pro rata
basis. The corporation computes $24,000 of ordinary income on its
share of tax-option (S) corporation income or loss for the
1997 federal calendar-year return, but doesn’t claim a deduction for
corporation’s taxable years ending between January 31,
$10,000 of wages paid under the federal work opportunity tax
1997, and December 31, 1997, is reported on a 1997 Form
credit program.
1CNS. The combined return replaces the separate 1997
Wisconsin individual or fiduciary income tax returns that
Each of the shareholders will include $12,000 (one-half share of the
otherwise would be filed by each of the qualifying and
corporation’s 1997 federal ordinary income of $24,000) in 1997
participating nonresident shareholders. The 1997 Form
federal adjusted gross income and will reduce his 1997 federal tax
liability for his pro rata share of the work opportunity tax credit.
1CNS is due on April 15, 1998.
The Wisconsin resident shareholder may make a subtraction
modification for $5,000 (one-half share of the unclaimed $10,000
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deduction for wages) on his 1997 Wisconsin return, leaving net S
X. TAX TREATMENT OF DISTRIBUTIONS
corporation income of $7,000 in Wisconsin taxable income.
The Wisconsin Accumulated Adjustments Account (AAA)
If a federal S corporation has elected out of Wisconsin tax-
is an account of a tax-option (S) corporation that is used in
option status, its Wisconsin resident shareholders must make
taxable years beginning after December 31, 1982, to compute
modifications to their federal adjusted gross income and
the Wisconsin tax effect of distributions from the corporation
Wisconsin itemized deduction credit to exclude all items of
to its shareholders. The Wisconsin AAA will have a zero
S corporation income, loss, and deduction. In addition, these
balance on the first day of the tax-option (S) corporation’s
shareholders must add to their federal adjusted gross income
first taxable year beginning after December 31, 1982.
the amount of any distributions received from the corpora-
tion, since these distributions are taxable as dividends. These
In the case of an existing non-Wisconsin S corporation that
shareholders aren’t eligible for credit for state income taxes
later begins doing business in Wisconsin, the Wisconsin
they paid to other states on the S corporation income.
AAA will have a zero balance on the first day of the first
taxable year in which the corporation becomes subject to
G. Combined Return for Nonresident Shareholders
Wisconsin’s franchise or income tax jurisdiction.
A tax-option (S) corporation that does business in Wisconsin
At the end of the current taxable year, if the corporation
and has two or more nonresident shareholders who derive no
doesn’t have accumulated earnings and profits for
taxable income or deductible loss from Wisconsin other than
Wisconsin purposes, the Wisconsin AAA is increased or
their pro rata shares of the Wisconsin tax-option (S) corpora-
decreased by the following items:
tion income or loss may file a combined individual and
fiduciary income tax return on behalf of those shareholders.
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Increased by
Taxable income and gains, as deter-
The tax-option (S) corporation files this return on Form
mined under Wisconsin law.
1CNS.
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Nontaxable income earned in taxable
A shareholder may not participate in this combined return
year 1987 and thereafter (nontaxable
if —
income earned before 1987 didn’t in-
crease the Wisconsin AAA).
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The shareholder is an estate or trust that has distributable
income in the current year. This includes qualified
Decreased by
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Deductible losses and expenses, as
Subchapter S trusts (QSSTs) and their beneficiaries.
determined under Wisconsin law.
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The shareholder files his or her individual income tax
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Nondeductible expenses, not due to
return on a fiscal year basis.
timing differences (that is, expenses
that are never deductible for Wisconsin
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The shareholder is a Wisconsin resident during any part
purposes).
of 1997.
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