Tax 2.61 Note Examples: 1) Combined Group LM consists of Member L and Member M. L owns a 40% interest in Partnership P. M owns a 60% interest in Partnership P. On March 1, 2010, L sells a widget to Partnership P for \$10,000, and this sale is includable in Group LM's combined unitary income. In its computation of apportionment factors for 2010, L must subtract an amount of \$10,000 (= \$10,000 x (40% + 60%)) from the modified sales factor denominator and, if applicable, from its numerator.
Tax 2.61 Note 2) Assume the same facts as Example 1, except that Member L owns a 25% interest and M owns a 50% interest in Partnership P. In its computation of apportionment factors for 2010, L must subtract an amount of \$7,500 (= \$10,000 x (25% + 50%)) from the modified sales factor denominator and, if applicable, from its numerator.
Tax 2.61(7)(e)2. 2. If a sale is made by a pass-through entity to a combined group member and more than 50 percent of the pass-through entity is directly or indirectly owned by members of the combined group as provided in subd. 3., each member with an interest in the pass-through entity shall subtract from its modified sales factor numerator and denominator, as applicable, any amount attributable to the sale. This subdivision applies to the extent the gross receipts of the sale are otherwise includable in combined unitary income.
Tax 2.61 Note Example: Combined Group ST consists of Member S and Member T. S owns a 20% interest in Partnership R. T owns an 80% interest in Partnership R. On October 1, 2010, Partnership R sells a widget to S for \$20,000, and this sale is includable in Group ST's combined unitary income. In its computation of apportionment factors for 2010, S must subtract an amount of \$4,000 (= \$20,000 x 20%) from its sales factor denominator and, if applicable, from its numerator. Similarly, T must subtract an amount of \$16,000 (= \$20,000 x 80%) from its sales factor denominator and, if applicable, from its numerator.
Tax 2.61(7)(e)3. 3. For purposes of subds. 1. and 2., a pass-through entity is owned more than 50 percent by combined group members if the aggregate amount of the combined group members' interests in the pass-through entity, without regard to any agreement to allocate gains or losses on a basis other than their capital interests, is more than 50 percent, or the combined group members taken as a whole have more than 50 percent of the management rights of the pass-through entity, as evidenced by the terms of the agreement under which the pass-through entity was formed, voting rights, provisions of state or federal law, or otherwise.
Tax 2.61(7)(f) (f) Special rules for zeroes and negative numbers in factors. This paragraph applies the special rules in ss. 71.25 (6m) and 71.45 (3e), Stats., to combined group members as follows:
Tax 2.61(7)(f)1. 1. If both the numerator and denominator of a member's modified sales factor are zero, none of the combined unitary income shall be apportioned to the member. The member's separate company denominator has no effect on this determination.
Tax 2.61(7)(f)2. 2. If the numerator of a member's modified sales factor is a negative number, none of the combined unitary income shall be apportioned to the member. The member's separate company denominator has no effect on this determination.
Tax 2.61(7)(f)3. 3. If the numerator of a member's modified sales factor is a positive number and the denominator is a negative number or zero, all of the combined unitary income shall be apportioned to the member. The member's separate company denominator has no effect on this determination. If this subdivision would result in apportioning all of the combined unitary income to more than one member, the combined unitary income shall be apportioned to the members having positive modified sales factor numerators in proportion to the amounts of their numerators.
Tax 2.61 Note Example: Combined Group XY consists of Member X and Member Y. In its taxable year 2009, Group XY has combined unitary income of \$50,000. X and Y have the following apportionment factors: - See PDF for table
Tax 2.61 Note The modified sales factor denominator, or sum of the separate company denominators, is (\$5,000). The amount of combined unitary income that would be apportioned to X is \$12,500 (= \$50,000 x (\$5,000 / \$20,000)). The combined unitary income that would be apportioned to Y is \$37,500 (= \$50,000 x (\$15,000 / \$20,000)).
Tax 2.61(7)(g) (g) Multiple factor formulas. If a combined group member is required under s. 71.25 (10), Stats., to use an apportionment formula prescribed in ss. Tax 2.46, 2.465, 2.47, 2.475, 2.48, 2.50, or 2.502, the member's modified sales factor is computed as follows:
Tax 2.61(7)(g)1. 1. The numerator of the modified sales factor is the product of the member's apportionment percentage computed under ss. Tax 2.46, 2.465, 2.47, 2.475, 2.48, 2.50, or 2.502, as applicable, as if the member were not a member of a combined group except as provided in subds. 3. to 5., and the member's separate company denominator determined in subd. 2.
Tax 2.61(7)(g)2. 2. Except as provided in subds. 3. to 5., the member's separate company denominator for purposes of the modified sales factor is the member's total company sales that would be includable in the sales factor computed under s. 71.25 (9), Stats., as if the member were required to use the sales factor and were not a member of a combined group.
Tax 2.61(7)(g)3. 3. Neither the numerator nor denominator shall include amounts that are not included in or directly related to income included in the combined unitary income as computed under sub. (6).
Tax 2.61(7)(g)4. 4. Intercompany transactions shall be excluded or recognized in the numerator and denominator, as applicable, in the manner described in par. (d).
Tax 2.61(7)(g)5. 5. To the extent the computation in this paragraph involves the sales factor as provided in s. 71.25 (9), Stats., the provisions of pars. (c) and (e) apply.
Tax 2.61(7)(h) (h) Alternative apportionment.
Tax 2.61(7)(h)1.1. The provisions of s. Tax 2.395 may apply to combined group members. The determination of whether an alternative apportionment method under s. Tax 2.395 may be used is made for each corporation within the combined group rather than for the combined group itself. If the alternative apportionment method employed under s. Tax 2.395 is a formula that includes multiple factors, that corporation shall compute its modified sales factor in the manner described in par. (g).
Tax 2.61(7)(h)2. 2. Notwithstanding the provisions of s. Tax 2.395, a qualifying combined group may petition the department to use an alternative apportionment method, as provided in s. Tax 2.64.
Tax 2.61(7)(i) (i) Apportionment factors for dual-sourced income. If a corporation is eligible to exclude foreign source income from combined unitary income under sub. (4) (d) to (f) and the Internal Revenue Code requires the corporation to source a transaction both within the United States and without the United States, the corporation shall exclude from its modified sales factor any amounts attributable to the portion of the transaction that constitutes foreign source income under sub. (4) (c). The amounts excluded from the modified sales factor under this paragraph shall be the amounts includable in the modified sales factor as if the transaction was sourced entirely within the United States, multiplied by the percentage of the transaction's gross receipts that constitutes foreign source income under sub. (4) (c).
Tax 2.61(8) (8) Income computation for groups doing business solely in Wisconsin. For combined groups that are engaged in business solely in Wisconsin, and therefore not eligible to use apportionment, each member's net income subject to combination is determined on a separate entity basis and then adjusted to reflect the member's status as a combined group member. These incomes are added together to arrive at the combined unitary income. Therefore, if some combined group members have net income from the unitary business and others in the same group have net loss from the unitary business, the combined group's tax liability is based on the total aggregate net income or loss of the unitary business. When each member computes its share of the combined unitary income, the provisions of sub. (6) apply, except that the modifications in pars. (a) to (d) are required:
Tax 2.61(8)(a) (a) Intercompany transactions. To the extent that sub. (6) (b) does not apply, intercompany transactions that consist of interest or other expenses paid, accrued, or incurred by one member to another are disregarded so that they neither increase nor decrease a member's net income or loss. This paragraph does not apply to intercompany transactions which occurred in taxable years beginning before January 1, 2009 or to intercompany transactions where the income, expense, gain, or loss would not otherwise be subject to combination.
Tax 2.61(8)(b) (b) Capital gains and losses.
Tax 2.61(8)(b)1.1. The net capital gain or loss, after applying any sharable net capital loss carryover, is first determined for the combined group as a whole in the manner described in sub. (6) (c) 1. to 3. If the result is a net capital gain for the group, the net capital gain is assigned to the members that would have a net capital gain from the unitary business if they were not members of the combined group, in proportion to the amount of that net capital gain. If the result is a net capital loss for the group, the net capital loss is assigned to the members that would have a net capital loss from the unitary business if they were not members of the combined group, in proportion to the amount of that net capital loss.
Tax 2.61 Note Note: See Example 2 under sub. (6) (c) 4. for an example of this assignment method.
Tax 2.61(8)(b)2. 2. After applying subd. 1., each member computes its net capital gain or loss from separate entity items and applies the provisions of sub. (6) (c) 5. to 7., except that in applying the provisions of sub. (6) (c) 6., the applicable apportionment percentage is one hundred percent.
Tax 2.61(8)(c) (c) Basis adjustments . A combined group member's basis in stock of a subsidiary that is a member of the same combined group shall be adjusted in the manner prescribed in sub. (6) (f). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member's income for the taxable year as provided in par. (a).
Tax 2.61(8)(d) (d) Earnings and profits. A combined group member's earnings and profits shall be adjusted to reflect the undistributed earnings and profits of a subsidiary that is a member of the same combined group in the manner prescribed in sub. (6) (g). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member's income for the taxable year as provided in par. (a).
Tax 2.61(9) (9) Net business losses. A combined group member may carry forward its net business loss as provided in ss. 71.26 (4) and 71.45 (4), Stats. A net business loss carryforward is an attribute of the separate corporation rather than of the combined group. However, s. 71.255 (6) (b) and (bm), Stats., provides that a combined group member may share all or a portion of its net business loss carryforward with the other members of its combined group if certain conditions are met. This subsection explains which net business loss carryforwards are sharable, how to compute the sharable amount, and how to apply the shared losses. The following rules apply:
Tax 2.61(9)(a) (a) Sharable loss carryforwards. A combined group member may share its net business loss carryforward incurred in a taxable year beginning on or after January 1, 2009 with other combined group members to the extent that all of the following conditions are met:
Tax 2.61(9)(a)1. 1. The net business loss is attributable to combined unitary income included in a combined report.
Tax 2.61(9)(a)2. 2. The member originally computed the net business loss in the combined report for the same combined group as the combined group that will use the shared loss carryforward, regardless of whether corporations have joined or left the combined group in the intervening years.
Tax 2.61(9)(a)3. 3. The member is still a member of the combined group described in subd. 2. for the year the loss carryforward will be shared.
Tax 2.61(9)(b) (b) Non-sharable loss carryforwards. A combined group member's net business loss carryforward incurred in a taxable year beginning on or after January 1, 2009 that cannot be shared with other combined group members includes amounts attributable to the following:
Tax 2.61(9)(b)2. 2. Net business losses attributable to separate entity items.
Tax 2.61(9)(b)3. 3. Net business losses attributable to a different unitary business.
Tax 2.61(9)(c) (c) Order of carryforwards. A combined group member shall apply net business loss carryforwards in the following order:
Tax 2.61(9)(c)1. 1. Net business loss carryforwards incurred by that same member in taxable years beginning before January 1, 2009, in the order that the underlying net business losses were incurred.
Tax 2.61(9)(c)2. 2. Sharable and non-sharable net business loss carryforwards under par. (d) incurred in taxable years beginning on or after January 1, 2009, in the order that the underlying net business losses were incurred. If the net business loss carryforward to be used consists of both a sharable amount and a non-sharable amount incurred in the same taxable year, the amount of sharable and non-sharable carryforward used shall be determined on a pro rata basis according to the amount of each type of carryforward available from that year.
Tax 2.61(9)(c)3. 3. For loss carryforwards shared in a taxable year that begins after December 31, 2011, pre-2009 net business loss carryforwards under par. (dm).
Tax 2.61 Note Example: Combined Group EFG consists of Member E, Member F, and Member G. E has the following loss carryforwards: - See PDF for table
Tax 2.61 Note In 2010, E's share of combined unitary income plus its separate entity items equal \$14,000. After using its carryforwards to offset this income, E has \$4,000 of remaining net business loss carryforward (= (\$10,000) + (\$6,000) + (\$2,000) + \$14,000). Of this amount, a portion is a sharable carryforward that may be applied against F and G's shares of combined unitary income in the manner described in par. (d). Since loss carryforwards are applied in the order incurred, the \$10,000 carryforward from 2008 is used in its entirety, and \$4,000 of the 2009 carryforward is used. The portion of E's remaining carryforward from 2009 that is sharable is \$3,000 (= \$4,000 x [\$6,000 / \$8,000]) and the portion that is non-sharable is \$1,000 (= 4,000 x [\$2,000 / \$8,000]).
Tax 2.61 Note In 2012, E has the following loss carryforwards: - See PDF for table
Tax 2.61 Note In addition, in 2012 E received a pre-2009 net business loss carryforward of \$3,000 (\$60,000 x 5%) from Member F. E's share of combined unitary income plus its separate entity items for 2012 equal \$16,000. After using its carryforwards to offset this income, E has \$1,000 of remaining net business loss carryforward (= (\$3,000) + (\$1,000) + (\$4,000) + (\$6,000) + (\$3,000) + \$16,000). Since the loss carryforwards are first applied to the net business loss carryforwards incurred in 2009 and after, the \$4,000 carryforward from 2009 and the \$10,000 carryforward from 2011 are used in their entirety. The remaining \$2,000 of loss carryforwards are applied to the pre-2009 net business loss carryforward. The remaining pre-2009 net business loss carryforward is \$1,000.
Tax 2.61(9)(d) (d) Method of sharing. The amount of net business loss carryforward under par. (c) 2. eligible for sharing shall be computed and assigned as follows:
Tax 2.61(9)(d)1. 1. Each combined group member shall first apply its total available net business loss carryforward against its total Wisconsin income as computed under sub. (5) (a) to (g), including net income or loss attributable to separate entity items. A combined group member's net business loss carryforward shall be considered used against its net income from separate entity items before its share of combined unitary income.
Tax 2.61(9)(d)2. 2. Each member shall then separate any remaining net business loss carryforward into the sharable amount and the non-sharable amount, as applicable, using the ordering rules in par. (c). The sharable net business loss carryforward amounts for each combined group member shall then be aggregated, except that any combined group member that elects not to share its sharable amount as provided in par. (h) may exclude some or all of its sharable amount from the aggregate sharable amount.
Tax 2.61(9)(d)3. 3. Except as provided in par. (g), relating to insurance companies, the aggregate sharable amount shall be assigned to each combined group member in proportion to its share of combined unitary income as computed in subs. (6) to (8), net of any losses from separate entity items or loss carryforwards already applied. The sharable amount may only be assigned to a member to the extent the member's share of combined unitary income has not already been offset by losses taken into account under subd. 1. An amount may not be assigned to a combined group member whose share of combined unitary income, net of any losses already applied by the member under subd. 1., is zero or less.
Tax 2.61(9)(d)4. 4. Any remaining sharable amount remains an attribute of the corporation that originally incurred the loss. The aggregate sharable amount used under subd. 3. shall be considered used proportionately from the sharable net business loss carryforwards of the corporations which contributed to the aggregate sharable amount.
Tax 2.61 Note Example: Combined Group ABCD consists of Member A, Member B, Member C, and Member D. The corporations have the following net business loss carryforwards and net income amounts in 2010: - See PDF for table
Tax 2.61 Note Assume all of A and B's net business loss carryforwards are sharable. The aggregate sharable amount is \$40,000 (= \$24,000 + \$16,000). This amount may be allocated to C and D based upon their respective shares of combined unitary income after applying any losses from separate entity items. C's adjusted share of combined unitary income is \$20,000 (its \$1,000 carryforward is considered used against its \$3,000 net income from separate entity items before its share of combined unitary income) and D's adjusted share of combined unitary income is \$5,000 (= \$20,000 - \$15,000). The aggregate sharable amount exceeds the sum of C and D's adjusted shares of the combined unitary income, which is \$25,000 (= \$20,000 + \$5,000). Thus, C and D's adjusted shares of combined unitary income are fully offset by the aggregate sharable amount.
Tax 2.61 Note After the aggregate sharable amount is applied, the remaining aggregate sharable amount is \$15,000 (= \$40,000 - \$25,000). Since the remaining sharable amount remains an attribute of the corporation that originally incurred the loss, at the end of 2010, A would have \$9,000 (= \$15,000 x (\$24,000 / \$40,000)) in remaining net business loss carryforward, and B would have \$6,000 (= \$15,000 x (\$16,000 / \$40,000)) in remaining net business loss carryforward.
Tax 2.61(9)(dm) (dm) Pre-2009 net business loss carryforwards.
Tax 2.61(9)(dm)1. 1. For a combined group member's first taxable year beginning after December 31, 2011, the member may, after using the pre-2009 net business loss carryforward to offset its own income for the taxable year, and after using sharable losses to offset its own income for the taxable year, use 5 percent of the pre-2009 net business loss carryforward to offset the income of all other members of the combined group for the taxable year and for each of the 19 subsequent taxable years.
Tax 2.61 Note Example: Member A of Wisconsin Combined Group ABC has pre-2009 net business loss carryforwards of \$100 million as of December 31, 2008. A's share of the combined group's income is \$2 million in 2009, \$3 million in 2010, and \$5 million in 2011. A's one-time calculation of the annual 5% sharable amount is \$4.5 million, computed as follows: [\$100 million pre-2009 net business loss carryforward less the taxable income offset by the net business loss carryforward (\$2 million in 2009, \$3 million in 2010, and \$5 million in 2011) multiplied by 5 percent].
Tax 2.61 Note In 2012 Member A's share of the combined group's Wisconsin income is \$1 million. Member A first applies its pre-2009 net business loss carry-forward against its \$1 million share of the combined group's Wisconsin income. The remaining members of the group may use the \$4.5 million sharable loss to offset the remaining group income on a proportionate basis. Assuming the combined group has enough income in 2012 to fully use the entire \$4.5 million in pre-2009 net business loss carryforward, the pre-2009 net business loss carryforward available in 2013 is \$84.5 million (\$90 million total sharable loss less \$1 million of Member A's income offset by the net business loss carry-forward, less \$4.5 million sharable loss utilized by the corporation in 2012). If Member A's share of the combined group's income is \$0 for all the remaining years of the pre-2009 carry-forward, and the remaining members of the combined group were eligible to share the full \$4.5 million net business loss carry-forward each year, the sharable pre-2009 net business loss available in 2031 will be \$3.5 million (\$4.5 million annual sharable loss computed in 2012 less \$1 million loss used by Member A in 2012).
Tax 2.61(9)(dm)2. 2. Except as provided in par. (g), relating to insurance companies, the sharable pre-2009 net business loss carryforward under subd. 1. shall be assigned to each combined group member in proportion to its share of combined unitary income as computed in subs. (6) to (8), net of any losses from separate entity items or loss carryforwards already applied. An amount may not be assigned to a combined group member whose share of combined unitary income is zero or less. Any remaining sharable amount becomes part of the combined group's pre-2009 net business loss carryforward that may be shared by all combined group members in subsequent years.
Tax 2.61 Note Example: Member D of Combined Group DEF has a pre-2009 net business loss carry-forward of \$2 million as of January 1, 2012. The 5% sharable amount allowed to members E and F in each year for taxable years 2012 through 2031 is \$100,000 (\$2 million net business loss carryforward multiplied by 5%). Member E's proportional share of the \$100,000 sharable net business loss in 2012 is \$30,000. After using all other allowable losses, Member E has \$20,000 in income remaining to offset against its share of the pre-2009 net business loss carryforward. The remaining \$10,000 net business loss carryforward not used by Member E in 2012 becomes part of the combined group's pre-2009 net business loss carryforward that may be shared by all combined group members in 2013 and is in addition to the 5% net business loss carryforward previously computed. As a result, the net business loss carryforward available in 2013 is \$110,000 (\$100,000 combined group yearly sharable loss plus Member E's \$10,000 proportional share of the \$100,000 loss in 2012 that was not fully utilized by Member E in 2012).
Tax 2.61(9)(dm)3. 3. Notwithstanding the provisions of ss. 71.26 (4) (a) and 71.45 (4) (a), Stats., under ss. 71.26 (4) (b) and 71.45 (4) (b), Stats., any unused pre-2009 net business loss carryforward under subd. 1. may be offset against the income of the members of the combined group for the 20 taxable years that begin after December 31, 2011.
Tax 2.61 Note Example: As of December 31, 2008, Member G of Combined Group GHI has a loss carryforward of \$30,000 that is in the 14th year of the 15 year carryforward period under s. 71.26 (4) (a), Stats. Member G does not have any income to offset the \$30,000 loss carryforward in its taxable years beginning in 2009, 2010, or 2011. For taxable years beginning on or after January 1, 2012, Member G is allowed to use the \$30,000 pre-2009 net business loss carryforward to offset any of its own income first, then offset its proportional share of Combined Group GHI's income, and finally, any remaining loss may be shared proportionately among the other members of Combined Group GHI. Under s. 71.26 (4) (b), Stats., Member G's pre-2009 net business loss carryforward of \$30,000 begins a new carryforward period of 20 years from its taxable year beginning in 2012.
Tax 2.61(9)(e) (e) Departing combined group members. Except as provided in subds. 1. and 2., if a corporation leaves a combined group or is no longer eligible to be a combined group member, the corporation's remaining net business loss carryforward may not be shared with any other combined groups but shall be available only to that corporation. The following exceptions apply:
Tax 2.61(9)(e)1. 1. If a subgroup of two or more corporations leaves a combined group on the same date and immediately thereafter the corporations become a separate combined group or together become members of a new combined group, those corporations may share their remaining sharable net business loss carryforwards attributable to the former combined group with one another. For purposes of the computations in par. (d), the new combined group's combined unitary income shall be used in place of the former combined group's combined unitary income. This subdivision also applies to combined groups that merge to become a new combined group by operation of the controlled group election as described in s. Tax 2.63 (2) (c).
Tax 2.61(9)(e)2. 2. If a corporation leaves a combined group or is no longer eligible to be a combined group member, but subsequently rejoins the combined group, the corporation may share its net business loss carryforward with that combined group to the extent the carryforward otherwise qualifies as a sharable loss carryforward under par. (a).
Tax 2.61(9)(f) (f) New combined group members. If a new member joins the combined group or is formed within the combined group, the member may use the net business loss carryforwards shared by other combined group members in the same manner as described in this subsection, even if those losses originated before the new member was part of the group.
Tax 2.61(9)(g) (g) Special rules for insurance companies. Under s. 71.45 (4), Stats., the net business loss of an insurance company cannot include the dividends received deduction provided in s. 71.26 (3) (j), Stats. Further, an insurance company may not use net business loss carryforwards in cases where its franchise or income tax liability is limited by two percent of its gross premiums as provided in s. 71.46 (3), Stats. Therefore, the following rules apply:
Tax 2.61(9)(g)1. 1. For purposes of applying s. 71.45 (4), Stats., if a dividend qualified for both the dividends received deduction under s. 71.26 (3) (j), Stats., and the elimination of dividends under sub. (6) (e), the dividend is considered to be eliminated under sub. (6) (e) rather than deducted under s. 71.26 (3) (j), Stats.
Tax 2.61(9)(g)2. 2. If an insurance company is a member of a combined group that is engaged in business both within and outside Wisconsin and has a net business loss, the dividends received deduction that shall be added back to that loss includes the insurance company's apportioned share of the total dividends received deduction which was deducted from the combined unitary income under s. 71.26 (3) (j), Stats., regardless of whether the insurance company was the combined group member which received the dividend.
Tax 2.61(9)(g)3. 3. If an insurance company is a combined group member and its tax liability measured by its total Wisconsin net income as provided in sub. (5), including any net business loss carryforwards available from other combined group members, exceeds two percent of its gross premiums as defined in s. 76.62, Stats., plus 7.9 percent of the income described in sub. (5) (f), its tax liability shall be limited to two percent of the gross premiums plus 7.9 percent of the income described in sub. (5) (f). If the insurance company's tax liability is limited in this manner, its business loss carryforwards may not be shared with any other combined group members, and if the group is otherwise sharing loss carryforwards, loss carryforwards may not be assigned to the insurance company.
Tax 2.61(9)(h) (h) Elections.
Tax 2.61(9)(h)1.1. Although a combined group member is entitled to the benefit of a net business loss carryforward, the member may elect not to use a portion or any of the available net business loss carryforward for a taxable year. This election does not reduce the amount of carryforward available for the following taxable year nor suspend the carryforward period provided in ss. 71.26 (4) and 71.45 (4), Stats.
Tax 2.61(9)(h)2. 2. A combined group member may also elect not to share a portion or any of its sharable net business loss carryforward with other combined group members. However, if the corporation shares any part of its sharable net business loss carryforward, the shared amount shall be divided among all members in the manner prescribed in this subsection, except as otherwise provided in pars. (d), (e) 1., and (g) 3. A combined group member's election under this subdivision is effective only for the taxable year in which the election is made and shall have no effect on the member's ability to share net business loss carryforwards in future taxable years.
Tax 2.61(9)(i) (i) Applicability of Internal Revenue Code.
Tax 2.61(9)(i)1.1. Notwithstanding the provisions of this subsection, the total amount of net business loss carryforward that may be used by a combined group member or shared with other combined group members for a taxable year is limited by section 382 of the Internal Revenue Code as provided in s. 71.26 (3) (n), Stats. Section 382 of the Internal Revenue Code shall be applied without regard to the federal consolidated return regulations under section 1502 of the Internal Revenue Code.
Tax 2.61(9)(i)2. 2. If a combined group member is acquired by another combined group member, section 381 of the Internal Revenue Code controls whether the acquiring corporation may succeed to the target corporation's net business loss carryforwards. Wisconsin follows section 381 of the Internal Revenue Code, but modifies it in s. 71.26 (3) (n), Stats., so that it applies to Wisconsin net business loss carryforwards instead of federal net operating loss carryovers. If the acquirer succeeds to the target corporation's net business loss carryforwards, the target corporation's carryforwards shall be treated as originally incurred by the acquiring corporation and shall maintain their character as sharable or non-sharable.
Tax 2.61(9)(i)3. 3. The separate return limitation year provisions of the federal regulations under section 1502 of the Internal Revenue Code do not apply to net business loss carryforwards. The provisions of this subsection apply in place of these limitations.
Tax 2.61(10) (10) Credits. A credit is an attribute of the separate corporation rather than of the combined group, and credits are computed for each corporation separately. However, s. 71.255 (6) (c), Stats., provides that a combined group member may share all or a portion of its research credits with the other members of the combined group. For purposes of this subsection, the term “research credit" means only the research expense credit under ss. 71.28 (4) or 71.47 (4), Stats., and the research facilities credit under ss. 71.28 (5) or 71.47 (5), Stats. This subsection explains how credits are computed and applied as well as the special rules that apply to research credits.
Tax 2.61(10)(a) (a) Nonrefundable credits other than research credits. A combined group member's nonrefundable credits other than research credits, including carryforwards of those credits, may only be used by that combined group member to offset the tax liability attributable to its own taxable income as computed under sub. (5).
Tax 2.61(10)(b) (b) Refundable credits. Any refundable credits computed by a combined group member shall be claimed on the combined return and refunded to the designated agent to the extent not used to offset the total tax liability reported on the combined return.
Tax 2.61(10)(c) (c) Sharing of research credits. If a combined group member computes a research credit, or has a carryforward of a research credit, the member may share a portion or all of the credit with the other members. For purposes of determining the sharable amount, the provisions of sub. (9) (e) and (f) apply to available research credits in the same manner as they apply to net business loss carryforwards. Research credit carryforwards incurred in taxable years beginning before January 1, 2009 are sharable to the extent the corporation with the credits would have been a member of the combined group had s. 71.255, Stats., been in effect and required combined reporting in those years. The method of sharing these credits is as follows:
Tax 2.61(10)(c)1. 1. Each combined group member shall first apply its total available credits, including its research credits, against its gross tax liability, if any, including its tax liability attributable to separate entity items. A combined group member's available credits shall be considered used against its tax liability from separate entity items before its tax liability from its share of combined unitary income. Available credits shall be used in the order specified in s. 71.30 (3), Stats. A combined group member may elect to apply a carryforward of a research credit before applying the research credit computed for the current taxable year.
Tax 2.61(10)(c)2. 2. Each member shall then separate any remaining available research credit into the sharable and non-sharable amount, as applicable. The ordering rules provided in sub. (9) (c), relating to net business loss carryforwards, also apply to research credit carryforwards. The sharable research credits for each combined group member shall then be aggregated, except that any combined group member that elects not to share its sharable amount may exclude some or all of its sharable amount from the aggregate sharable amount.
Tax 2.61(10)(c)3. 3. The sharable amount shall be assigned to each combined group member in proportion to its tax liability from its share of combined unitary income. The sharable amount may only be assigned to a member to the extent the member's tax liability from combined unitary income has not already been offset by other credits and carryforwards applied by that member under subd. 1. An amount may not be assigned to a combined group member whose tax liability from combined unitary income has been fully offset by other credits.
Tax 2.61(10)(c)4. 4. Any remaining sharable amount remains an attribute of the corporation that originally generated the credit. The aggregate sharable amount used under subd. 3. shall be considered used proportionately from the sharable research credits of the corporations which contributed to the aggregate sharable amount.
Tax 2.61 Note Example: Combined Group FGH consists of Member F, Member G, and Member H. F, G, and H have the following amounts in 2010: - See PDF for table
Tax 2.61 Note Assume all of the research expense credit carryforward is sharable. The aggregate sharable amount is \$25,000 (= \$15,000 + \$10,000). This amount may be assigned to H to the extent of its tax liability from its share of the combined unitary income after applying its own credits. After H applies its own credits, the remaining tax liability from combined unitary income is \$5,000 (= (\$17,000) + \$2,000 + \$20,000; its \$17,000 economic development credit is applied against tax liability from separate entity items before tax liability from combined unitary items). Since this amount is less than the aggregate sharable amount, the entire remainder of H's tax liability from combined unitary income (\$5,000) is offset by the aggregate sharable amount.
Tax 2.61 Note After the aggregate sharable amount is applied, the remaining aggregate sharable amount is \$20,000 (= \$25,000 - \$5,000). Since the remaining sharable amount remains an attribute of the corporation that originally generated the credit, at the end of 2010, F would have \$12,000 (= \$20,000 x (\$15,000 / \$25,000)) in remaining research credit carryforward, and G would have \$8,000 (= \$20,000 x (\$10,000 / \$25,000)) in remaining research credit carryforward.
Tax 2.61(10)(c)5. 5. The provisions of sub. (9) (h), as they relate to elections applicable to net business loss carryforwards, apply also to available research credits under this paragraph.
Tax 2.61(10)(d) (d) Exception for funded research. If a combined group member incurs expenses that are otherwise qualified research expenses under section 41(d) of the Internal Revenue Code but for the fact that the research is funded by another combined group member, the expenses shall be considered qualified research expenses of the combined group member performing the research, and the reimbursement from the combined group member funding the research may not be considered a qualified research expense of the funding member. Regardless of where the funding member is located, the research must be performed in this state to qualify for the research credit for Wisconsin purposes.
Published under s. 35.93, Stats. Updated on the first day of each month. Entire code is always current. The Register date on each page is the date the chapter was last published.