2014 Tax Practitioner Questions & Answers

​​​​​​SECTIONS

General

  1. Are there CPE credits for Wisconsin Department of Revenue (DOR) tax update presentations?

    DOR did not seek formal CPE approval. DOR supplied certificates of attendance for events it sponsored that many accrediting organizations will accept along with a copy of the agenda. Exception: The IRS does not recognize DOR's sponsored updates for Enrolled Agent CPE credits.

ID Verification & Fraud

  1. What protections are in place regarding the information shared with third party vendors providing the various ID verification services?

    All confidential tax return information is encrypted and password protected when shared with third party vendors. The third party vendors use the same protections. All persons who have access to confidential taxpayer information are subject to penalties provided by law for unauthorized disclosure of such information.

  2. Does the Department of Revenue (DOR) notify the Internal Revenue Service (IRS) when there is refund denied due to ID verification?

    The DOR and IRS have an exchange agreement and do share information. DOR and other states also have exchange agreements and share information.

  3. If a taxpayer did not reply to the ID Verification letter and their refund was denied, what are their options?

    In the notice denying the refund, DOR explains how to appeal. If the taxpayer does not submit an appeal within the required deadline (60 days of notice of denial), the taxpayer is no longer able to submit an amended return for that year.

    If the taxpayer is eligible for a refundable credit (e.g., homestead credit) and did not claim the credit on their original return, the taxpayer may submit a claim for the credit within four years of the unextended due date of their income tax return.

  4. Have there been any new developments in the treatment of Ponzi scheme losses and repayments for WI since DOR's 2009 guidance?

    DOR's guidance has not changed as of the date of this publication.

Processing & Audit Issues

  1. Is there a place where we can look up our client's legal name as it appears in DOR's record?

    A business's legal name is posted in their "My Tax Account." If you do not have access to your client's "My Tax Account," your client can confirm the name by contacting DOR Customer Service.

  2. When I can't file my return on time and want to make an extension payment, what type of payment should I select when paying online?

    Select "Estimated Payment."

  3. Why are estimated payments made with extensions not showing up in the look-up application?

    It is likely that when the extension payment was made, it was designated as a return payment instead of an estimated tax payment. The return payment does not show as an estimated payment; it will remain as a return payment on the taxpayer's account until a return is filed. See Question 6.

  4. Do amended return refunds appear in "Where's My Refund?"

    Yes. "Where's My Refund" shows the most recent refund claimed by a taxpayer.

  5. Can a person e-file for Wisconsin even though rejected for federal?

    Yes, Wisconsin accepts unlinked returns filed via MeF or by Wisconsin eFile. A complete copy of the federal return must be included with Form 1 or 1NPR.

  6. For CP2000's, what year is DOR working on?

    Primarily the 2012 tax year but some 2011 tax year adjustments remain. The IRS sent the last 2011 tax year file to DOR in November 2014.

  7. The IRS adjusted a federal income tax return and sent notice (CP2000) to the taxpayer. The taxpayer appealed and the adjustment was reversed. Does the IRS also send notice to DOR of the adjustment reversal?

    The IRS does not send a CP2000 to DOR until the adjustments are final (after the appeal period). However, if you have a case where the IRS sent a CP2000 to DOR that was not final and DOR adjusted, please contact DOR to resolve.

  8. Can couples e-file Form 1NPR if one spouse is out of the country?

    Yes. DOR does not have any business rules that prohibit e-filing Form 1NPR if a spouse is out of the country. If the software used doesn't support that scenario, use Wisconsin eFile, or submit an unlinked WI return via MeF, including a complete copy of the federal return.

  9. Was there a problem this year with Form W–RAs? Why was I asked to submit documentation that was attached to the Form W–RA I previously submitted?

    Form W–RAs that were submitted on paper were backlogged at times and this delayed the processing of the returns. For electronically filed Form W–RAs, DOR would have to research specific cases.

  10. Does DOR still publish a list of codes for addition and subtraction modifications?

    Yes. See attachment.

    2014 Codes for Other Additionals and Other Subtractions 

  11. Do you have to complete all steps of the One Stop Business (OSB) registration?

    No. A business can register with the Department of Financial Institutions (DFI) and choose not to use OSB to register with DOR and the Department of Workforce Development. However, a business cannot use OSB to register with DOR without first registering with DFI.

  12. Is One Stop Business registration for DOR only for corporations and limited liability companies (LLCs)?

    Only new domestic corporations and LLCs can register with OSB at this time.

  13. Does OSB allow a taxpayer to file returns and make payments for all the agencies at one location?

    No, not at this time.

  14. Why does DOR refund small dollar underpayment interest computed on a practitioner-prepared return when practitioner knows it is due?

    DOR only refunds self-computed underpayment interest if tax liability is less the $500 or a computational error was made.

  15. Why does the Form 1–ES and DOR's website list the due date for the last 2014 estimated tax payment as January 16, 2015, when January 15 is not a federal holiday?

    Wisconsin law provides two holidays for Martin Luther King's birthday -- January 15, which is the actual date of birth, and the third Monday in January, which is the federal celebration of his birth.

    See Wisconsin Tax Bulletin #59, page 16.

Collections

  1. Under what circumstances is a continuous levy issued?

    A continuous levy is issued only when other efforts to achieve compliance have failed.

  2. Can a continuous levy be issued at any agent's discretion?

    No, supervisor approval is required.

  3. Is the taxpayer notified or given a copy of the receipt when funds are received?

    Yes.

  4. Will a continuous levy take funds from an individual account for business debt?

    No. Levies are entity specific.

    Exceptions:

    • individual uses their social security number (SSN) on a bank account for their business
    • individual has been assessed personal liability for the business debt
    • individual is liable for certain tax obligations of a disregarded entity

  5. For a continuous levy, does it apply to all of a taxpayer's accounts at a financial institution or only a single account?

    All accounts of a taxpayer held by a financial institution are subject to a levy, continuous and one–time.

Unclaimed Property (UP)

  1. Will the new unclaimed property system provide information/history about when a person gets an UP check?

    Yes, similar to the current system. Claimants can check the status of their claim on our website using the claim # and zip code.

  2. How can we get names removed from the UP list? Amounts are too small or persons are deceased.

    Currently, property that is less than $5 is not posted to the UP list, and property valued at less than $50 is not advertised in the newspaper. After implementation of the new UP system in March, 2015, at your request to Customer Service, we can flag any property as "Do Not Advertise."

  3. Will DOR let the recipient/claimant know whether stock sold is short or long–term capital gain for tax reporting purposes?

    DOR does not know how long the stock or mutual fund shares were held by the holder. The holder only reports the "last known activity date." However, property must be "dormant" for at least one year (most property must be dormant at least 3 or 5 years) before the holder is required to deliver the property to DOR. Since the stock would have been the property of the owner for longer than one year, it is considered long–term capital gain or loss to the owner.

    DOR will also not know the basis of the property.

    DOR will report the proceeds from any sales on federal Form 1099–B.

  4. When UP is automatically returned to owners, what is DOR going to do to ensure that spouses who have divorced after filing a tax return receive their property?

    When DOR receives UP from a holder, the holder informs DOR of the ownership of the property. If the UP is jointly held, the property is divided based on the person's ownership percentage. For example, when a spouse own a joint savings account, each would receive 50% of the UP. DOR will issue a separate check to each spouse.

    DOR will not know if the property was to be divided differently pursuant to a divorce. In such cases, the individuals should settle any property disputes with each other.

W-2 and Information Return Reporting

  1. Will DOR impose penalties if payers don't follow the W–2 and other information return reporting requirements DOR posted?

    At this time, DOR's goal is to educate and get payers submitting returns correctly. There are statutory penalties that may be imposed in the future if noncompliance persists.

  2. I am not required to withhold on wages paid for my domestic or agriculture employees so I don't have a Wisconsin Employer Identification Number. What do I use as my state employer identification number on the Forms W–2 and 1099 I give to my employee and send to DOR?

    Employers and other payers not required to have a Wisconsin Employer Identification Number should enter 036-8888888888-01 in the box for the State's Employer Identification Number. Employers and other payers required to have a Wisconsin Employer Identification Number should apply for one before sending Forms W–2 and 1099 to DOR.

  3. If an employer has no withholding number and no withholding, does the employer have to file a Form WT–7?

    No.

  4. Should I send Form W–2 for an employee to DOR if the employer has no requirement to withhold taxes from the employee?

    Yes.

  5. Will information about entering 036-8888888888-01 for WI ID # be explained to practitioners in rejected information returns?

    Yes. This information will be included in Publication CO-001 (Annual W-2 Reporting Publication), the Annual Withholding Tax Update, and Publication 117, available on DOR's website.

  6. Is there a waiver for e-filing Form W–2s?

    DOR may waive the requirement to electronically file (50 or more wage statements or 50 or more information returns) if the payer:

    • Requests the waiver in writing, at least 30 days before the due date for filing the returns, using Form EFT-102, Electronic Filing or Electronic Payment Waiver Request, and
    • Clearly indicates why the requirement causes an undue hardship.

  7. There is a one-day delay for withholding payment vouchers using My Tax Account. Are there any plans to make them available on the same day?

    No. System requirements that allow for electronic filing and payment of the deposit in a single transaction prevent the system from presenting the payment voucher until the next day.

  8. What is the reason/purpose for filing Form 1099s with DOR if they are already filed with the IRS?

    The filing requirement is provided by law. DOR has waived this requirement in past years if there was no withholding. DOR now requires all Form 1099/information returns to more systematically compare payee and payer information as income tax returns are filed.

    DOR does not receive federal data in a timely manner to match against income tax returns filed. DOR receives this data from the IRS approximately 12 to 18 months after filing.

  9. Won't the January 31 deadline for information returns with withholding and wage statements increase the number of corrections that have to be submitted by employers?

    There could be corrections after the returns have been submitted. However, the benefit of receiving accurate wage statements prior to most income tax returns being filed outweighs the cost of processing those corrected statements.

  10. Should I amend Form WT-7 if I am submitting additional Form 1099s to DOR by February 28?

    Report on the Form WT-7 any Form 1099s that are being filed as of January 31 (those that have withholding and any others that have been issued). For Form 1099s that are furnished to payees after January 31 and before February 28, it is not necessary to amend the Form WT-7 unless there is withholding associated with the Form 1099s.

Miscellaneous Income/Franchise Tax Topics

  1. Are grantor trusts included on Schedule DE?

    A business entity (including trusts) that elects to be classified as a disregarded entity under sec. 7701, IRC should be included on Schedule DE.

  2. On Schedule DE, are the legal name and FEIN required to match? What if there is a legal name change?

    The legal name and FEIN should match, however the IRS does not require a FEIN for some entities. A return will not be rejected for failure to match the legal name and FEIN.

  3. Why has Wisconsin changed its position on following the federal limitation on itemized deductions?

    Wisconsin law has followed the federal limitations on itemized deductions since 1991 Wisconsin Act 39. DOR has not changed its position.

    Under Wisconsin law (sec. 71.07(5), Wis. Stats.) individuals may claim a credit against income taxes for 5% of certain "amounts allowed as itemized deductions under the internal revenue code." The IRC in effect for Wisconsin for each tax year is defined in sec. 71.01(6), Wis. Stats.

    2006 through 2009 tax years:
    The federal limitation on itemized deductions for higher–income taxpayers was phased–out by Public Law 107–16. This federal law applied for Wisconsin tax purposes.

    2010 through 2012 tax years:
    The federal limitation on itemized deductions for higher–income taxpayers was eliminated by Public Law 107–16. This federal law applied for Wisconsin tax purposes.

    2013 and 2014 tax years:
    The federal limitation on itemized deductions for higher-income taxpayers was reinstated by Public Law 112–240. This federal law applies for Wisconsin tax purposes.

    Since the limitations on the itemized deductions were not effective for federal and Wisconsin tax purposes for the 2010 through 2012 tax years, DOR added the following note to the 2013 Form 1 instructions: "Note: When completing Schedule 1, if your federal itemized deductions were limited due to income level, use the allowable deductions after the limitation is applied."

    In addition, the 2013 Form 1 instructions provided the following guidance for tax-option (S) corporation shareholders: "to compute the Wisconsin itemized deduction credit, you may elect to treat these items as subtraction modifications. Your subtraction is limited to the amount actually deductible for federal purposes."

    On March 10, 2014, DOR provided a worksheet to assist taxpayers in calculating the federal limitations on the Wisconsin itemized deduction credit.

    After this worksheet and article were provided to tax professionals, DOR became aware that some software companies were not properly calculating the Wisconsin itemized deduction credit. Individuals were notified and tax return adjustments were made for those returns on which the federal limitations were not used in calculating the allowable amounts for the 2013 Wisconsin itemized deduction credit. For 2014, a simplified worksheet is included in the 2014 Form 1 and 1NPR instructions.

  4. When is the federal premium assistance credit amount determined for the purposes of computing the medical care insurance subtraction? What if it changes after the return is filed?

    For the Wisconsin medical care insurance subtraction, the medical care insurance must be reduced by the amount of any federal premium assistance credit. The amount of the federal premium assistance credit is adjusted as needed when the 2014 federal tax return is filed. The taxpayer may either be allowed an additional credit (see line 69 of 2014 Form 1040) or may have to repay any excess advance premium assistance credit (see line 46 of 2014 Form 1040).

    These adjustments are considered when completing the worksheet for the Wisconsin medical care insurance subtraction.

    If the amount of the federal premium assistance credit is adjusted after filing the 2014 federal and Wisconsin returns, an amended Wisconsin return should be filed to adjust the amount of the Wisconsin subtraction for medical care insurance.

  5. Why does Wisconsin limit the medical insurance subtraction for individuals if they have self–employment income (e.g., federal Schedule C), even if they have other sources of income subject to tax in Wisconsin?

    The limitation is provided by law and is similar to the limitation for the deduction of health insurance paid by self–employed persons found on the federal return.

  6. What veteran's pensions are not taxable for Wisconsin individual income tax purposes?

    All retirement payments received from the U.S. military employee retirement system are exempt from Wisconsin income tax.

  7. What constitutes an eligible veteran for purposes of the veteran's and surviving spouse's property tax credit?

    "Eligible veteran" means an individual who is certified by the Wisconsin Department of Veterans Affairs as meeting all of the following conditions:

    • Served on active duty under honorable conditions in the U.S. armed forces or in forces incorporated in the U.S. armed forces.
    • Was a resident of Wisconsin at the time of entry into active service or who had been a resident of Wisconsin for any consecutive five–year period after entry into that active duty service.
    • Is currently a resident of Wisconsin for purposes of receiving veteran's benefits under ch. 45, Wis. Stats.
    • Has a service–connected disability rating of 100% under 38 USC 1114 or 1134 or a 100% disability rating based on individual unemployability.

    An eligible veteran or unremarried surviving spouse must have paid the property taxes on the claimant's principal dwelling for the year to claim the credit.

    See Form 1 instructions for more information.

  8. When you sell a business and reinvest in another, do the proceeds from sale have to be held by an intermediary during the 180 days you have to reinvest in a Qualified Wisconsin Business?

    For tax years beginning in 2014, the gain does not have to be deposited in a segregated account at a financial institution.

  9. Can you retroactively register to be a qualifying Wisconsin business?

    No. A business must register with DOR in each calendar year. An exception applies for start-up businesses; they can register in the year following the year of start-up.

  10. When is underpayment interest (UPI) calculated?

    In general, you may owe underpayment interest if you did not pay at least the smaller of 90% of your current year tax liability or 100% of your prior year tax liability and the total tax shown on your return minus the amount of tax you paid through withholding is $500 or more. Additional exceptions apply. See Schedule U instructions for more detail.

  11. Will DOR allow 100% Wisconsin affiliated companies to file separate Form 4s rather than the combined Form 6? If no, why not?

    No. Combined reporting is mandatory when the conditions in sec. Tax 2.61(2)(a), Wis. Adm. Code, are met. Although combined reporting is mandatory, each member of the combined group is a separate corporation. Tax credits and net business losses are attributes of the separate corporations rather than of the combined group, and are computed for each corporation separately.

Net Operating Losses (NOLs)

  1. Do I have to make a formal election for the NOL carryback?

    No. Filing Form X-NOL for the year of carry back is all that is necessary

  2. Is there an election to make on the WI return if we forgo the two year carryback? Is there a form to use?

    No. If Form X-NOL is not filed, it will be assumed that the taxpayer has elected not to use the carryback provision.

  3. Is the carryback required?

    The carryback of an NOL is an election. The taxpayer may instead carry forward the NOLs.

  4. Will Form X-NOL for 2012 and 2013 be attached to the Form 1 return with Form W-RA? Or will Form X-NOL be mailed in separately with supporting documents on Form W-RA?

    Form X-NOL is a stand-alone form and will not be attached to Form 1. If Form X-NOL is filed electronically, Form W-RA must be submitted with any required attachments. If paper filed, Form X-NOL is mailed separately. Form 1 does not need to be attached. Persons who originally filed Form 1NPR should also use Form X-NOL to claim a carryback. The revised tax computation will require a revised Form 1NPR showing the revised tax calculation to be submitted with the Form X-NOL.

  5. Form X-NOL 2012 - Line 1, Column A will be the NOL carried back from the 2014 return?

    Correct.

  6. Form X-NOL 2013 - Line 1, Column A will be the NOL carried forward or unused from the 2012 Form X-NOL?

    Correct.

  7. Are NOLs incurred in prior years eligible for the carry back?

    No. The carryback applies only to NOLs incurred in taxable years beginning in 2014 and thereafter.

  8. Does the NOL carryback provision only apply to Individuals?

    The NOL carryback applies to individuals, estates, and trusts. Corporations do not have a carryback provision.

  9. Can the farm loss carryover be taken if the farmer has zero taxable income?

    A subtraction for the carryover of any farm loss previously limited can be claimed only to the extent of farm income.

Private School Tuition, College Tuition, & College Savings Account Subtractions

  1. Are private schools required to send an information return of tuition paid to parents and students for the private school tuition subtraction?

    No.

  2. What are the "elementary" and "secondary" grades for the private school tuition subtraction?

    Elementary - K-8
    Secondary - 9-12

  3. Is the private school tuition subtraction allowed for tuition paid for 3K or 4K kindergarten?

    No. The law provides that only "kindergarten" is eligible for the private school tuition subtraction. Amounts paid to private schools for pre-kindergarten (3K or 4K) are not eligible for the private school tuition subtraction.

  4. Is there an income limitation for the private school tuition subtraction?

    No.

  5. Can a grandparent claim the private school tuition subtraction if he or she pays private school tuition for a grandchild who is the dependent of the parent?

    No. Only the person who claims the child as a dependent is eligible for the subtraction.

  6. If grandparents pay the tuition to help out the parents but the parents claim the child as a dependent, can the parents claim the private school tuition subtraction?

    No. The parents must have paid the tuition in order to claim the subtraction.

  7. Are amounts paid to third parties (e.g., Amazon) for books eligible for the private school tuition subtraction?

    No. The subtraction is allowed for "tuition" to attend an eligible institution. Amounts paid to a third party are not considered tuition paid to the eligible institution for attendance. Schedule PS requires the name, FEIN, and amount paid to the school in order to claim the subtraction.

  8. Can practitioners get a list of private schools to assist with claiming private school tuition subtractions?

    A list of Wisconsin private schools is provided on the Wisconsin Department of Public Instruction's website.

    Note that the private school tuition subtraction is not limited to private schools in Wisconsin.

  9. Does tuition paid to charter or choice schools (where parent receives a voucher) qualify for the private school tuition subtraction?

    No. Charter schools are public schools and, therefore, no private school tuition is paid. For the Private School Choice Program, the subtraction is only for the amount of tuition paid by the parent in excess of any voucher amount.

  10. Does any expense or fee for home schooling qualify for the private school tuition subtraction?

    No.

  11. What happens when one divorced taxpayer pays tuition for a child but the former spouse claims the child as a dependent?

    Neither spouse may claim the subtraction. The child must be a dependent of the person who paid the tuition.

  12. Is the private school tuition subtraction based on the amount billed or the amount paid during the year?

    The amount paid for tuition is the amount eligible for the tuition subtraction.

  13. Can practitioners get a list of qualifying schools for the college tuition subtraction?

    An all-inclusive list is not available. Qualifying tuition is tuition paid for:

    1. classes in Wisconsin at a school which qualifies as a university college, or technical college, including:
      1. University of Wisconsin
      2. Wisconsin private colleges
      3. Wisconsin technical colleges

        These lists above do not include non-Wisconsin colleges that provide classes in Wisconsin.

    2. classes in Wisconsin at other post-secondary schools that have been approved by the Wisconsin Educational Approval Board
    3. classes in Minnesota at a public vocational school or public institution of higher education in Minnesota under the Minnesota-Wisconsin tuition reciprocity agreement, and
    4. classes outside Wisconsin provided the tuition is paid to a university, college or technical college located in Wisconsin.

  14. Do part-year residents and nonresidents qualify for the college tuition and private school tuition subtractions?

    Yes.

  15. The owner of an Edvest college savings account receives a distribution from the account during a period in which the owner is a nonresident of Wisconsin. The amount is rolled over to a college savings account in another state. Is the nonresident required to file a Wisconsin income tax return to report the amount of the distribution that was previously claimed as a subtraction on a prior year Wisconsin income tax return?

    The requirement to include an amount in Wisconsin income when a distribution from an Edvest college savings account is rolled over to a college savings account in another state does not apply when the distribution is made to a nonresident of Wisconsin. Assuming the nonresident has no other income from Wisconsin sources, the nonresident would not be required to file a Wisconsin income tax return.

  16. Can a person rollover a college savings account from another state into a Wisconsin college savings account (e.g., Edvest) and take a subtraction from Wisconsin income?(This answer updated April 6, 2015.)

    For the 2014 and prior taxable years, the department will allow rollover amounts to be claimed as a subtraction from income (subject to applicable yearly limitations). Taxpayers may amend their 2014 tax returns to claim a subtraction from income for a rollover amount if they have already filed their returns and did not report the amount from the rollover on line 2 of Schedule CS.

    For the 2015 and following taxable years, rollovers into a Wisconsin college savings account are not eligible for the subtraction from income. A rollover is not eligible for the subtraction from income since the amount of the rollover is not included in federal adjusted gross income. Note: This supersedes guidance in Wisconsin Tax Bulletin 128 in January 2002. Rollovers made for the 2014 taxable year on or before April 15, 2015 that were in excess of the amount allowed as a subtraction in 2014 may be carried forward to future years and claimed as a subtraction subject to the yearly limitations.

  17. Does the $3,050 limit for the college savings account subtraction apply to the owner of the account or to the beneficiary?

    The person who makes a contribution to an account is subject to the $3,050 limit on the subtraction from taxable income. See 2014 Schedule CS. A beneficiary may have multiple contributions to their account for the year that may exceed $3,050.

  18. Can you contribute to a college saving account for yourself (i.e., owner is the beneficiary of the account)?

    Yes. Your contributions into a college savings account are eligible for a Wisconsin subtraction even if you are the beneficiary.

  19. Excess contributions to college savings accounts can be carried forward indefinitely. What about pre-2014 excess contributions?

    The carryover provisions do not apply to pre-2014 excess contributions.

  20. Who adds back the distributions when contributions are made after January 1, 2014, that result in a federal penalty because the distribution was not used for qualified higher education expense?

    According to Edvest.com, only the owner of the account can request distributions. Therefore, the owner of the account must add back the amount of distributions received on or after June 1, 2014, that resulted in a federal penalty because the distribution was not used for qualified higher education expenses. The amount to be added to income cannot be more than the total dollar amount contributed to the account for 2014.

  21. As a practitioner, how will I know whether an Edvest account has been transferred to another state? Does the administrator issue an information return?

    According to Edvest.com, the owner of the account will receive quarterly and annual account statements which include withdrawals from the account. Withdrawals include outgoing rollovers into another state's account. In addition, Edvest will annually issue 1099–Q to the owner or beneficiary (depending on who received the withdrawal).

Miscellaneous Income/Franchise Tax Credits

  1. Is income from reversed mortgages included in household income?

    Reverse mortgage payments to a homeowner are considered loan proceeds and are not included in household income for homestead credit purposes.

  2. I sold my farm in 2014. I qualify for the Farmland Preservation Credit and have previously claimed it on Schedule FC-A. I was responsible for the property taxes up to the day of sale. I paid property taxes at time of closing to be held in escrow for payment by the new owner once a property bill has been sent to the new owner by the municipality. Can I use Schedule FC-A to claim the credit in 2014?

    No. You must have paid to or be legally responsible for paying to the taxing authority the 2014 property taxes levied against the parcels sold, as well as have met all other FPC requirements. The entity who owns the land when the tax bills are produced is generally the person authorized to pay the taxes to the municipality. Please provide documentation with your return if there was an error on the property tax bill.

  3. For the Beginning Farmer and Farm Asset Owner Credit (Schedule FL), if the established farmer's asset lease, which qualified for credit in 2013, extends into 2014 and 2015, does the farmer get that credit in 2014 and 2015?

    The Beginning Farmer and Farm Asset Owner tax credits are available for taxable years that begin on or after January 1, 2011, and end before January 1, 2014. Although the credit eligibility was based on entering into a multi-year lease agreement, the credit itself is not available for the 2014 and 2015 tax years.

  4. Is the 20% Supplement to the Federal Historic Rehabilitation Credit the only historic rehabilitation credit available in Wisconsin?

    No. The State Historic Rehabilitation Credit is 25% of the preservation or rehabilitation costs of an owner-occupied personal residence. This credit is only available to individuals. Both credits are claimed on Schedule HR.

  5. If a taxpayer sells its Wisconsin Supplement to the Federal Historic Rehabilitation credit, does the taxpayer have to reduce the basis of the building by the amount of the credit even if the credit is subsequently sold or transferred?

    The awarding of a credit and the transfer of the credit are independent transactions, each with their own tax consequences.

    The amount of any credit awarded reduces the adjusted basis of the building regardless of the amount of credit the claimant will ultimately be able to use to offset tax liabilities (secs. 71.07(9m)(d), 71.28(6)(d), and 71.47(6)(d), Wis. Stats).

    When a credit is transferred, the transferor is required to recognize a capital gain on the sale of the credit equal to the difference between the basis of the tax credit, which is zero unless the transferor previously purchased the tax credit for consideration, and the fair market value of consideration received for the credit. The character of the capital gain as either short-term or long-term is determined based on the amount of time between the date the seller made the qualifying expenditure and the date the credit is transferred. If the time period is more than one year, it is a long-term capital gain; if the time period is one year or less, it is a short-term capital gain.

  6. Does the historic rehabilitation property have to be sold in order to sell/transfer the supplement to the federal historic rehabilitation credit?

    No.

  7. Is there a list of the Code Numbers that will be used to report the carry forward of unused credits?

    Current listing:

    01- Community development finance
    02- Community rehabilitation program
    03- Dairy and livestock farm investment
    04- Development zones
    11- Early stage seed investment
    12- Economic development
    13- Ethanol and biodiesel fuel pump
    14- Film production company investment
    15- Film production services
    16- Health insurance risk-sharing assessments
    17- Internet equipment
    18- Biodiesel fuel production
    20- Manufacturing investment
    21- Postsecondary education
    22- Research expense
    23- Research expense-energy efficient products
    24- Research expense-internal combustion engines
    25- Research facilities
    26- Research facilities-energy efficient products
    27- Research facilities-internal combustion engines
    28- Super research and development
    29- Supplement to federal historic rehabilitation
    30- Technology zone
    31- Water consumption
    32- Electronic medical records
    33- Veteran employment
    34- Manufacturing (Schedule MA-M)
    35- Development opportunity zone investment
    36- Agriculture (Schedule MA-A)
    40- State historic rehabilitation
    41- Angel investment

  8. Can I still claim the job creation credit/deduction?

    Yes. The jobs tax credit is certified by WEDC and claimed on Schedule JT. The jobs creation deduction is claimed on Schedule JC.

  9. Most credits are required to be added to income. For partnerships and S corporations, the addition to income occurs on Schedule 3K or 5K in the (c) Adjustment column. Partners and shareholders that receive credits passed through from a partnership or S corporation are required to file a copy of their Schedule 3K-1 or 5K-1 with their tax return, however they do not know whether a credit amount is included in income on the partner or shareholder's amount in the (c) Adjustment column. Can something be added to the K-1 to make it clear what items have been added to income for the individual and DOR?

    The following instruction is provided for partnerships and S corporations when completing Schedules 3K-1 and 5K-1 for its partners and shareholders: On a separate schedule you submit with Schedule 5K-1, explain the reason for any adjustment in column c.

    Partnerships and S corporations should provide their partners or shareholders with this information to support the amounts in the (c) Adjustment column of Schedules 3K-1 and 5K-1. Most software companies that provide e-filing of Wisconsin returns have this supporting schedule attached to the Schedules 3K-1 and 5K-1.

    DOR will consider this suggestion when modifying the 2015 tax forms.

Manufacturing and Agriculture (MA) Credit

  1. I was told that all MA credits were reviewed for 2013? Is that completed?

    Some 2013 income tax returns are still being processed. Most MA credits are being reviewed in processing. Adjustments may occur during processing.

  2. Should the MA credit be included in income in the year following the year of computation even though the credit is not used and is carried forward?

    Yes, the credit computed must be included in income following the year in which it is computed regardless of whether or not the taxpayer uses the credit.

  3. Is the MA credit reported as income on the 2014 return considered qualified production income?

    No. Qualified production activities income is only income that results from the sale of tangible personal property.

  4. Is the manufacturing credit added to income on the pass-through entity's return where the credit was originally calculated, or at the individual level where the credit was claimed?

    The entire credit must be added to the pass-through entity's income for the year following the year in which the credit was computed to the extent not included in federal ordinary business income, regardless of whether the partner, member, or shareholder was able to use the entire amount.

  5. What amount of depreciation expense can be used? The amount for federal or Wisconsin?

    Depreciation expense is based on federal depreciation laws in effect for Wisconsin.

    Note: For taxable years beginning in 2014, the 50% bonus depreciation provided by the federal Tax Increase Prevention Act of 2014 (enacted December 19, 2014) does not apply for Wisconsin.

  6. Is the five-year subtraction modification for the difference in basis of assets considered a depreciation expense for the MA credit?

    No. The subtraction modification is not considered a direct or indirect expense in computing the MA credit. Only amounts that are currently deductible under the IRC in effect for Wisconsin are a direct or indirect expense. The Wisconsin subtraction modification is not an expense under the internal revenue code. For taxable years beginning on or after January 1, 2014, Wisconsin depreciation is computed using the IRC in effect on January 1, 2014.

    Note: For taxable years beginning in 2014, the 50% bonus depreciation provided by the federal Tax Increase Prevention Act of 2014 (enacted December 19, 2014) does not apply for Wisconsin.

  7. For 2014, I have $25,000 in federal depreciation and $25,000 in section 179 expense. For Wisconsin, I do not elect to take section 179 expense on the new asset. Therefore, I have $27,500 in depreciation for Wisconsin and no section 179 expense. I also have a $10,000 subtraction modification for the difference in basis of assets. What is my depreciation expense on Schedule MA-A for 2014?

    $27,500, assuming all of the depreciation is a direct expense associated with the qualified production gross receipts. The subtraction modification is neither a direct or indirect expense for purposes of computing the manufacturing and agriculture credits.

  8. If a taxpayers puts in tiling or fencing that is an improvement to the land, are the January 1 cost and December 31 cost (which includes the improvements) both used to compute the average value of the agriculture property factor?

    Yes. The property factor uses an average value of the original cost of property determined at the beginning and end of the tax year. Note that depreciation expense is not used in computing the average value of property.

  9. Are amounts paid to me for custom labor included in my qualified production gross receipts (e.g., fees received to custom bale hay)?

    Custom labor is not included on line 1 or 7 because the custom labor is not a production gross receipt (i.e., receipts from the lease, sale, exchange, or disposition of tangible personal property produced, grown, or extracted on property assessed as agricultural in Wisconsin).

    The amount the farmer paid you for baling hay is a direct expense if it is associated with the production gross receipts of that person. The sale of hay or the sale of livestock would be production gross receipts if the tangible personal property is produced, grown, or extracted on property assessed as agriculture in Wisconsin.

  10. Do gross receipts on Line 8 (denominator of the production gross receipts factor) include wages, interest, dividends, gross rental income from residential property, gambling winnings, etc., received by the farmer or farm business?

    "Gross receipts" is all gross income from whatever source, except for those items specifically excluded under the IRC as adopted by Wisconsin and otherwise excluded under Wisconsin law. Include gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital assets and business assets, gross income from pass-through entities, and all other gross receipts that are included in income, before apportionment.

    Note: For individuals, do not include gross receipts or income from sources not related to the farm business. For example, do not include your spouse's wages paid by a third-party employer or rental income from a residential apartment building reported on Schedule E.

  11. In determining the amounts on Lines 1, 7 and 8, do we use the gross receipts determined under federal law?

    The gross receipts are based on the IRC in effect for Wisconsin.

  12. If the farmer pays his spouse or dependent child a wage that is reported on a W-2 from the farm, is it included on Line 8 of the Production Gross Receipts Factor?

    No. These are expenses of the farming operation, not gross receipts.

  13. For 2014, the amount of credit an individual can use is limited to the amount of tax generated from the business operations. How does this work?

    See page 2 of Schedules MA-A and MA-M.

  14. When a sole proprietor pays his/her spouse wages, the wage expense reduces the amount of the credit. Can the sole proprietor use the credit to offset income tax resulting from the spouse's wage income since the wages were income from the business operations?

    No. The wages are not income from business operations. They are an expense as the result of the business operations. If the wages are not included in the gross receipts from the business, they are not income from business operations.

  15. When a subchapter S corporation pays the owner a wage as officer compensation, the wage expense reduces the amount of the credit. Can the owner use the credit to offset income tax resulting from the owner's wage income since the wages were income from the business operations?

    No. The wages are not income from business operations. They are an expense as the result of the business operations. If the wages are not included in the gross receipts from the business, they are not income from business operations.

  16. Does income I receive for cows I sell qualify as qualified production income for the MA credit if I didn't raise the cows from birth (i.e., I purchased them at one year old and raised them until full grown).

    In order for the gross proceeds from the sale of a cow to be included in production gross receipts for the computation of the MA credit, a taxpayer must show that the cow was "produced or grown" or raised on property assessed as agriculture property in Wisconsin. There is no requirement that the cow must have been born on the property. DOR considers a cow that has been kept for more than a year to have been raised by the farmer.

  17. Are amounts received for crop insurance, milk income loss contract payments, etc., included on Line 8 of the Production Gross Receipts Factor?

    Yes. Line 8 includes all gross income from whatever source.

  18. Are amounts received for Crop Revenue Coverage (CRC) insurance included on Line 1 (production gross receipts)?

    No. Income that results from insurance or other services is not qualified production activities income. Even if the amounts received under a contract for insurance or services is contingent on the sales price of the crops, the amounts received are not income derived from the sale of the tangible personal property.

  19. When a partnership pays the partner for services as a guaranteed payment, the guaranteed payment may reduce the amount of the credit. Can the partner use the credit to offset income tax resulting from the guaranteed payments since the guaranteed payments were income from the business operations?

    No. Any guaranteed payments to partners for services or for the use of capital that are made without regard to partnership income are treated as if paid to a non-partner for purposes of computing partnership income. That is, a guaranteed payment for services is deductible by the partnership in computing partnership gross income. As such, the guaranteed payment is considered an expense of the partnership and is not considered income received by the partner from business operations of the partnership.

    A guaranteed amount of profits paid to a partner that is not for services or for the use of capital and that is not otherwise an ordinary and necessary business expense of the partnership, is included in the computation of partnership gross income that flows through to the partner. Such amount is an allocation of profits from the partnership and is considered income received by the partner from business operations of the partnership.

  20. Does a farmer deduct crop damage insurance premiums as a direct or indirect expense on Schedule MA-A?

    Crop damage insurance is an indirect expense of the farming operation and a portion of it is used in computing the credit because the indirect expenses are multiplied by the production gross receipts factor.

  21. Is the farmland preservation credit, or any other Wisconsin income tax credit, included in qualified production activities income?

    None of the Wisconsin income tax credits are included in production gross receipts because the income is not from the sale of tangible personal property. However, a Wisconsin income tax credit reduces the amount of direct or indirect expense in computing the MA credit if 1) the credit is a recovery of a deduction previously taken on a federal tax return, and 2) the credit is a reduction to the current year's deduction on the federal income tax return.

Depreciation & Basis Modification

  1. Can you have a different federal and Wisconsin basis in a depreciable asset starting in 2014?

    At the start of the 2014 tax year, the Wisconsin basis of depreciable and amortizable assets is the same as federal. There are limited circumstances where a depreciable asset will have different Wisconsin and federal bases on the first day of the 2014 tax year (for example, certain partnership distributions where the partner receives a basis in the depreciable property equal to the basis the partner had in his/her partnership interest).

    Note: A taxpayer can make a different depreciation election (e.g., section 179 expense) for federal and Wisconsin purposes. If this is done on assets placed in service during the 2014 tax year or thereafter, the taxpayer will have a different depreciable basis in the assets for federal and Wisconsin purposes and will continue to keep separate depreciation schedules for tax purposes. Also, for assets placed in service in 2014, the federal Tax Increase Prevention Act of 2014 provided for 50% bonus depreciation. This bonus depreciation does not apply for Wisconsin. This will also result in a different depreciable basis in the assets for federal and Wisconsin purposes and separate depreciation schedules will be needed.

  2. How does federal bonus depreciation affect the new subtraction modification for the difference in federal and Wisconsin basis of assets?

    The difference between federal and Wisconsin basis of depreciable assets as of the end of the 2013 tax year is amortized over five years. That difference may include bonus depreciation previously claimed for federal tax purposes.

    Note: For the 2014 tax year, Congress has extended the federal bonus depreciation. The 50% bonus depreciation was extended by the Tax Increase Prevention Act of 2014 and does not apply for Wisconsin. Wisconsin and federal depreciation may be different for assets placed into service in 2014 - which would require separate depreciation schedules for federal and Wisconsin tax purposes.

  3. For federal purposes, bonus depreciation is allowed in 2014 for certain assets (e.g., self-constructed long-lived assets) placed in service in 2014. Since Wisconsin adopted federal depreciation provisions as of January 1, 2014, does the bonus depreciation for these certain assets apply for Wisconsin?

    Yes. For taxable years beginning after December 31, 2013, sec. 71.98(3), Wis. Stats., provides that for purposes of computing depreciation and amortization, the Internal Revenue Code means the federal Internal Revenue Code in effect on January 1, 2014.

    Section 168(k), IRC, generally provides that bonus depreciation does not apply to assets acquired after January 1, 2014. However, there is an exception (sec. 168(k)(2)(A)(iv)) for certain property having longer production periods and certain aircraft. Bonus depreciation applies to such property if placed in service before January 1, 2015. Because this exception is part of the IRC as of January 1, 2014, bonus depreciation would apply for federal and Wisconsin purposes for such property having longer production periods and certain aircraft placed in service in before January 1, 2015.

  4. Does the five-year basis amortization apply to pass-through entities and corporations?

    Yes. All taxpayers are required to adjust their basis of depreciable and amortizable assets for the new subtraction modification for 2014.

  5. Does this five-year basis amortization apply to rental property reported on Schedule E?

    Yes. All depreciable and amortizable assets must be considered for the new subtraction modification for 2014.

  6. The new subtraction modification for the difference in basis of assets is amortized over five years. What if the asset class is 3, 7, 10 or 15 year property?

    The asset class is not used in determining the subtraction modification. All depreciable and amortizable property, regardless of whether the asset class is more or less than five years and regardless of the remaining depreciable life of the asset, are used in the computation of the five-year subtraction modification.

  7. If I sell an asset in 2014, is the gain/loss amortized over five years as part of the subtraction modification?

    The gain/loss is not amortized; it is fully recognized in 2014.

  8. If a taxpayer dies in 2015 and had a gain from the sale of an asset in 2014, would the unamortized amount be claimed on his 2015 return as a subtraction modification?

    The gain is recognized in 2014. The taxpayer would not receive the remaining subtraction modification for taxable years after the year of death.

  9. In 2014, a farmer sells a depreciable asset for $130,000 that was bought in a prior year for $120,000. On December 31, 2013, the federal adjusted basis of the asset is $0 and the WI adjusted basis of the asset is $60,000. What is the difference in basis of the asset for purposes of the new subtraction modification and what is the amount of gain the farmer reports for Wisconsin?

    The federal and Wisconsin basis of the asset will be the same on January 1, 2014 ($0). The $60,000 difference in basis will be allowed as a subtraction (amortized) from 2014-2018 ($12,000 per year).

    The federal and Wisconsin depreciation expense for 2014 is $0 since there is no basis in the asset. The result is an ordinary gain of $120,000 and a long-term capital gain of $10,000 for both federal and Wisconsin income tax purposes. The farmer can exclude 60% of the $10,000 long-term capital gain on his Wisconsin individual income tax return.

  10. Is the five-year amortization reported on Schedule I or as a subtraction/addition?

    It is a subtraction or addition.

  11. How does the subtraction modification affect the computation of the deduction for 1/2 of self-employment tax, retirement contributions, medical insurance subtraction, child and dependent care subtraction, itemized deductions credit and NOLs? Does the new subtraction modification require the income limitations for these items to be recomputed under Wisconsin law?

    The Wisconsin subtraction modification does not affect the computation of federal adjusted gross income. Therefore, any income limitation that requires a computation of federal adjusted gross income is not affected by the Wisconsin subtraction modification and does not require a taxpayer to recompute the federal adjusted gross income in effect under Wisconsin law. Examples are:

    • federal deduction for ½ self-employment tax
    • federal retirement contributions
    • federal itemized deductions for medical expenses and donations to charity
    • federal net operating loss

    Exception: Due to federal depreciation provisions (e.g., 50% bonus depreciation) and other provisions extended under the Tax Increase Prevention Act of 2014, taxpayers may need to recompute the income limitation as a result of different deduction amounts allowed under federal and Wisconsin law.

    The Wisconsin subtraction modification does affect the computation of Wisconsin income. Therefore, any income limitation that requires a computation of Wisconsin income is affected by the Wisconsin subtraction modification. Examples are:

    • Wisconsin net operating loss
    • Wisconsin subtraction for medical care insurance
    • Wisconsin itemized deduction credit (standard deduction limitation)

  12. What happens to the unused subtractions when a business is sold or liquidated?

    If a corporation is required to file a final return as a result of a sale or required liquidation under the IRC, the unused subtraction is recognized on the final return. If a shareholder sells his/her stock in a corporation, and the corporation continues to exist, the corporation continues to use the unused subtraction modification over its useful life on the corporate tax returns. The modification does not affect the shareholder’s return (other than the amount included in an S corporation’s income that passes through to a tax-option "S" corporation shareholder on Schedule 5K-1).

    If a partnership is required to file a final return as a result of a sale or required liquidation under the IRC, the subtraction modification used in computing partnership gross income is the same as what would be used on a return for a taxable year of 12 months. The partners report their share of the partnership's gross income for the year which includes 1/5 of the basis difference allowed for the partnership for the year. The partnership reports to each partner on Schedule 3K-1 each partner's share of the unused subtraction modification. The partners will report their share of the modification on their income tax returns for the remaining periods available. If the partner is a nonresident and is no longer required to file a Wisconsin return upon exiting the partnership, the partner will have no further benefit from the subtraction modification (Note: The partner will no longer have a Wisconsin tax liability for which a subtraction modification is beneficial.)

    If a sole proprietor ceases doing business, the individual may continue to use the unamortized modification over its useful life on the individual’s tax return.

    If the business assets are sold, the unused modification does not transfer to the purchaser. It remains with the person who sold the asset (i.e., held the asset at the end of the 2013 tax year).

  13. An LLC, taxed as a partnership, is filing a final return due to technical termination. As described in Revenue Ruling 99-6 Situation 2, the IRS will treat the sale as a sale of membership interest by the original members and as an asset purchase by the buyer. How is the subtraction modification reported?

    At the beginning of the 2014 tax year, the partnership's Wisconsin bases in the depreciable assets will be the same as federal. The partnership will have a modification for Wisconsin tax purposes equal to the difference between federal and Wisconsin basis of assets as of the end of the 2013 tax year. This tax modification will be amortized over five years and reflected on the partnership's tax returns. If the partnership is required to file a final return, the partnership will report each partner's proportionate share of the unamortized balance of the remaining Wisconsin-federal basis difference on each partner's Schedule 3K-1. The partners report their share of the modification on their income tax returns for the remaining periods available.

  14. Can I elect not to deduct section 179 expense for Wisconsin that was deducted for federal purposes? Or vice versa? Can I elect a different amount of section 179 expense for federal and Wisconsin purposes?

    Yes, different section 179 elections can be made for Wisconsin and federal purposes, except that the amount of section 179 expense for Wisconsin is limited to the amount that is otherwise allowable under the federal law in effect for Wisconsin for the tax year. Currently, for tax years beginning on or after 2014, the federal and Wisconsin limit on section 179 expense is $500,000.

    Note: If a taxpayer claims a different section 179 expense for federal and Wisconsin purposes, the taxpayer will have a different depreciable basis in the assets for federal and Wisconsin purposes and must keep separate depreciation schedules for tax purposes.

  15. I thought a taxpayer couldn't make different elections for purposes of computing federal and Wisconsin taxable income?

    In computing net income, the method of accounting must be the same method used in computing federal net income. A change in accounting method made for federal purposes must also be made for Wisconsin purposes, unless the change isn't authorized under the Internal Revenue Code in effect for Wisconsin. Likewise, a taxpayer can't make different elections for federal and Wisconsin purposes with respect to accounting periods and accounting methods, unless the federal method isn't permitted under the Internal Revenue Code in effect for Wisconsin. In situations where a taxpayer has an option under the Internal Revenue Code and the IRS doesn't consider that option to be a method of accounting, a different election may be made for Wisconsin than for federal purposes. If federal law specifies the manner or time period in which an election must be made, those requirements also apply for Wisconsin purposes.

  16. What happens when I have different bases for assets placed in service in 2014 or later, such as when I elect different section 179 expense for federal and Wisconsin?

    Any difference in federal and Wisconsin bases of assets after the end of the 2013 tax year will have to be dealt with similar to prior years. You must keep separate depreciation schedules to determine federal and Wisconsin depreciation expense allowed. Any differences that occur after the end of the 2013 tax year do not become a new subtraction modification subject to five-year amortization.

    Note: An individual who elects to claim a different amount of Internal Revenue Code sec. 179 expense deduction for Wisconsin than for federal tax purpose may use Schedule I to report that election. For further information on reporting this election, see the article Individuals Claiming a Different Section 179 Expense for Wisconsin.

  17. How do I account for a difference in the section 179 expense carryover for federal and Wisconsin?

    The Wisconsin carryover for taxable years beginning on or after January 1, 2014, is the same as the federal carryover.

    The basis of the asset must be adjusted to the federal basis of the asset as of the beginning of the 2014 tax year. Therefore the basis of the asset takes into consideration the previously allowed amount of section 179 expense claimed for federal purposes.

  18. Is the difference in basis calculated at the end of the 2013 tax year considered an asset subject to section 179 expense?

    No. It is a Wisconsin tax modification that is required to be used over five years.

  19. How do the depreciation changes impact the computation of the manufacturing and agricultural credit?

    The depreciation expense claimed on the Wisconsin tax return is either a direct or indirect expense in the computation of the manufacturing and agriculture credit if the expense is associated with the production gross receipts. The amount of depreciation expense is based on federal depreciation laws in effect for Wisconsin. Note: For taxable years beginning in 2014, the 50% bonus depreciation provided by the federal Tax Increase Prevention Act of 2014 (enacted December 19, 2014) does not apply for Wisconsin.

    The subtraction modification for the difference in federal and Wisconsin bases of assets for taxable years beginning after December 31, 2013, is not a direct or indirect expense for purposes of the credit.

  20. How do I report the subtraction modification in a short taxable year?

    The subtraction is prorated based on the number of months in the short taxable year and claimed against the Wisconsin income for the short taxable year prior to annualization. The short taxable year is considered a full year of the five-year amortization period.

    Example: A calendar-year filer changes its accounting period to a fiscal year beginning July 1 and ending June 30. A Wisconsin return is filed for the short taxable year January 1, 2014, to June 30, 2014. One half (6/12) of the subtraction for 20% of the difference in basis of depreciable assets as of December 31, 2013, is subtracted from the Wisconsin income of the short taxable year. A 20% subtraction of the basis difference will be claimed on the returns for the next four taxable years beginning July 1, 2014, July 1, 2015, July 1, 2016, and July 1, 2017. No subtraction is allowed for the taxable year beginning July 1, 2018.

    The tax for a short taxable year that occurs because the taxpayer was not in existence for the entire taxable year (for example, a corporate or partnership liquidation or the death of an individual) is not computed on an annualized basis. As such, the subtraction for the short taxable year is same as what would be allowed on a return for a 12 month taxable year, except that a corporation may subtract the remaining unamortized balance of the modification on its final return. See Q&A #120.

March 4, 2015​