(1) ADJUSTED BASIS OF SHAREHOLDERS’ STOCK IN TAX-OPTION CORPORATION. (a) For purposes of this chapter, the adjusted basis of a shareholder in the stock and indebtedness of a tax-option corporation shall be determined in the manner prescribed by the internal revenue code for a shareholder of an S corporation, except that the nature and amount of items affecting that basis shall be determined under this chapter. This paragraph does not apply to 1978 and earlier taxable years of corporations which were S corporations for federal income tax purposes or to taxable years of corporations for which an election has been made under sub. (4) (a). (b) The adjusted basis of a shareholder in the stock and indebtedness of a tax-option corporation that has made an election under sub. (4m) (a) is determined as if the election was not made. (1m) TAX-OPTION CORPORATIONS; DEPRECIATION. For taxable years beginning before January 1, 2014, a tax-option corporation shall compute amortization and depreciation under the federal Internal Revenue Code as amended to December 31, 2000, except that property first placed in service by the taxpayer on or after January 1, 1983, but before January 1, 1987, that, under s. 71.04 (15) (b) and (br), 1985 stats., is required to be depreciated under the Internal Revenue Code as amended to December 31, 1980, and property first placed in service in taxable year 1981 or thereafter but before January 1, 1987, that, under s. 71.04 (15) (bm), 1985 stats., is required to be depreciated under the Internal Revenue Code as amended to December 31, 1980, shall continue to be depreciated under the Internal Revenue Code as amended to December 31, 1980. Any difference between the adjusted basis for federal income tax purposes and the adjusted basis under this chapter shall be taken into account in determining net income or loss in the year or years for which the gain or loss is reportable under this chapter. If that property was placed in service by the taxpayer during taxable year 1986 and thereafter but before the property is used in the production of income subject to taxation under this chapter, the property’s adjusted basis and the depreciation or other deduction schedule are not required to be changed from the amount allowable on the owner’s federal income tax returns for any year because the property is used in the production of income subject to taxation under this chapter. If that property was acquired in a transaction in taxable year 1986 or thereafter in which the adjusted basis of the property in the hands of the transferee is the same as the adjusted basis of the property in the hands of the transferor, the Wisconsin adjusted basis of that property on the date of transfer is the adjusted basis allowable under the Internal Revenue Code as defined for Wisconsin purposes for the property in the hands of the transferor. (2) CORPORATION BUSINESS LOSS CARRY-FORWARD PROHIBITION. The corporation net business loss carry-forward provided by s. 71.26 (4) may not be claimed by a tax-option corporation. (4) ELECTION TO CHANGE FROM TAX-OPTION STATUS. (a) If persons who hold more than 50 percent of the shares on the day on which this election is made consent, a corporation that is an S corporation for federal income tax purposes and that does not have a qualified subchapter S subsidiary may elect, on or before the due date or extended due date of its return under this chapter, not to be a tax-option corporation for that taxable year and for later taxable years until its status is again changed. (b) If persons who, on the day on which the election occurs, hold more than 50 percent of the shares of a corporation that has elected out under par. (a) consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to be a tax-option corporation for that taxable year, except that no corporation electing under par. (a) and no successor of such a corporation may be a tax-option corporation for any of the next 4 taxable years after the taxable year to which its election under par. (a) first applies. (4m) TAX-OPTION CORPORATION ELECTION TO PAY FRANCHISE OR INCOME TAX AT THE ENTITY LEVEL. (a) If persons who hold more than 50 percent of the shares on the day on which an election under this paragraph is made consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to be taxed at the entity level at a rate of 7.9 percent of net income reportable to this state as described in par. (d) 1. for that taxable year. (b) It is the intent of the election under par. (a) that shareholders of a tax-option corporation may not include in their Wisconsin adjusted gross income their proportionate share of all items of income, gain, loss, or deduction of the tax-option corporation. It is also the intent that the tax-option corporation shall pay tax on items that would otherwise be taxed if this election was not made. (c) If persons who, on the day on which the election under this paragraph is made, hold more than 50 percent of the shares of a corporation that has elected to be taxed at the entity level under par. (a) consent, a corporation that is an S corporation for federal income tax purposes may elect, on or before the due date or extended due date of its return under this chapter, to revoke for that taxable year its election under par. (a). (d) If an election is made under par. (a), all of the following apply: 1. The net income of the tax-option corporation is computed under s. 71.34 (1k), with the following modifications, and the situs of income shall be determined as if the election was not made: a. For taxable years beginning after December 31, 2019, and before January 1, 2023, an adjustment shall be made so that the net capital loss, after netting capital gains and capital losses to arrive at total capital gain or loss, is offset against income only to the extent of $500. Losses in excess of $500 shall be carried forward to the next taxable year for which an election is made under par. (a) and offset against income up to the limit under this subd. 1. a. Losses shall be used in the order in which they accrue. am. For taxable years beginning after December 31, 2022, an adjustment shall be made so that the net capital loss, after netting capital gains and capital losses to arrive at total capital gain or loss, is offset against income only to the extent of $3,000. Losses in excess of $3,000 shall be carried forward to the next taxable year for which an election is made under par. (a) and offset against income up to the limit under this subd. 1. am. Losses shall be used in the order in which they accrue. b. The subtraction under s. 71.05 (6) (b) 9. or 9m. shall be allowed. bd. For taxable years beginning after December 31, 2022, the income exclusion under s. 71.05 (1) (i) shall be allowed. 2. Except as provided in s. 71.07 (7) (b) 3., the tax credits under this chapter may not be claimed by the tax-option corporation. 3. The tax-option corporation may not claim losses under ss. 71.05 (8) and 71.26 (4). 4. The provisions of ss. 71.29 and 71.84 relating to estimated payments and underpayment interest shall apply to the tax-option corporation for the taxable year beginning in 2019 and later years. 5. If the tax-option corporation fails to pay the amount owed to the department with respect to income as a result of the election under par. (a), the department may collect such amount from the shareholders based on their proportionate share of such income. (e) The department may promulgate rules to implement this subsection. (5) FEDERAL RETURN COPY. A tax-option corporation shall file with its state franchise or income tax return an exact copy of its federal income tax return for the same year and shall file any other return or statement filed with or made to, or any document received from, the U.S. internal revenue service, and any form required of that corporation and prescribed by the department of revenue, affecting the taxation of its shareholders. (6) NOTICE TO SHAREHOLDERS OF APPEALS AND OTHER PROCEEDINGS. Except as provided in s. 71.745, any notice of determination by the department of any tax-option item may be contested by a tax-option corporation under subch. XIV. A tax-option corporation shall timely notify all shareholders of any administrative or judicial proceeding about the determination of any tax-option item. Each shareholder may participate in any such proceeding and shall be bound by the final determination in that proceeding. (7) QUALIFIED SUBCHAPTER S SUBSIDIARIES. If a tax-option corporation elects to treat a subsidiary as a qualified subchapter S subsidiary for federal purposes, that election also applies for this chapter. If this state has jurisdiction to impose the taxes under this chapter on the qualified subchapter S subsidiary, this state has the jurisdiction to impose the taxes under this chapter on the tax-option corporation. (9) ADJUSTMENT UNDER RULES. A corporation that elects under sub. (4) (a) not to be a tax-option corporation and a corporation that elects to become a tax-option corporation shall adjust its income, under rules promulgated by the department of revenue, for the taxable year for which that election is first effective to avoid the omission or double inclusion of any item of income, loss or deduction.
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