Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 7
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30Wisconsin Tax Treatment of Tax-Option (S) Corporations and Their Shareholders
For Wisconsin purposes, the LIFO recapture amount is
“Gross income” of a tax-option (S) corporation includes
also includable in the corporation’s net income for its
gross receipts or sales, gross rents and royalties, interest and
last taxable year as a regular (C) corporation. However,
dividends, and the gross sales price of capital assets and
unlike for federal purposes, the additional tax attribut-
property used in a trade or business. The shareholder’s share
able to the LIFO recapture amount can’t be spread over
of the corporation’s Wisconsin gross income is reported on
4 years. The entire amount is payable by the unextended
Wisconsin Schedule 5K-1, line 22, column d.
due date of the return for the last year as a C corporation.
If any shareholder who is required to file a Wisconsin
3. Corporate Preference Addbacks
income tax return fails to file and include in Wisconsin
taxable income his or her share of tax-option items of
income, loss, and deduction, the department may tax the tax-
If an S corporation was a regular (C) corporation for any
option (S) corporation on that shareholder’s share of the
of the 3 immediately preceding taxable years, federal law
corporation’s net income.
requires the S corporation to adjust certain tax preference
items in computing taxable income. For example, the
amount of capital gain on the disposal of section 1250
A tax-option (S) corporation may file a combined individual
property must be reduced by 20%, the amortizable basis
and fiduciary income tax return on behalf of qualifying
of pollution control facilities must be reduced by 20%,
nonresident shareholders, as explained in Part IX.G.
and the deduction for intangible drilling and mineral
exploration and development costs generally must be
B. Shareholders of S Corporations That Aren’t
reduced by 30%. This same treatment applies for Wis-
Subject to Wisconsin’s Jurisdiction
consin purposes.
Wisconsin resident shareholders of S corporations that aren’t
subject to Wisconsin’s jurisdiction for franchise or income
O
V.
SHAREHOLDERS SUBJECT TO WISCONSIN
tax purposes are also subject to Wisconsin tax-option (S)
TAX-OPTION (S) LAW
law. See Part IX.F for a description of the income or loss
reportable by Wisconsin resident shareholders from these
A. Shareholders of Tax-Option (S) Corporations That
corporations.
Are Subject to Wisconsin’s Tax-Option (S) Law
O
VI. TERMINATION OF TAX-OPTION (S)
Wisconsin’s tax-option (S) corporation law applies to all
TREATMENT
shareholders of a tax-option (S) corporation that is subject to
Wisconsin tax-option (S) law, whether or not the sharehold-
ers are Wisconsin residents. This includes —
Once an S corporation election is made, it continues in effect
as long as the corporation is in existence, unless S corpora-
+
Shareholders of a tax-option (S) corporation which is
tion status is terminated. The corporation’s S status may be
organized under the laws of Wisconsin and engaged in
terminated by revoking the election, by violating the passive
business (1) completely in Wisconsin, (2) in and outside
investment income restrictions, or by ceasing to qualify as an
Wisconsin, or (3) completely outside Wisconsin.
S corporation. Wisconsin tax-option (S) treatment continues
to apply as long as the federal S corporation election is in
effect, unless the corporation elects not to be a tax-option (S)
+
Shareholders of a tax-option (S) corporation which isn’t
corporation for Wisconsin purposes.
organized under the laws of Wisconsin but which is
authorized to transact business in Wisconsin or is en-
gaged in business in Wisconsin and required to file a
A. Termination Under the Internal Revenue Code
Wisconsin franchise or income tax return.
A corporation ceases to qualify for Wisconsin tax-option (S)
Therefore, all shareholders who meet the applicable Wiscon-
treatment for any year for which its S corporation election
sin filing requirements, after taking into account their pro
ceases to apply, regardless of whether the termination is
rata shares of the corporation’s gross income for Wisconsin
voluntary or involuntary, or whether termination is discov-
purposes, must file Wisconsin income tax returns and report
ered as the result of an audit after a return has been filed.
their pro rata shares of the tax-option (S) corporation’s items
of income, loss, and deduction.
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