New guidance issued on Wisconsin’s pass-through entity tax

On Jan. 25, 2019, the Wisconsin Department of Revenue (WDOR) issued frequently asked questions (FAQ) related to the Wisconsin pass-through entity tax created by 2018 Act 368. There were notable clarifications to earlier guidance.

As a reminder, the pass-through election can be taken by S corporations, effective for taxable years beginning on or after Jan. 1, 2018. Partnerships and limited liability companies may pursue the election effective for taxable years beginning on or after Jan. 1, 2019.

1. Election – The election to be taxed at the pass-through entity level must be made annually on or before the extended due date of the Wisconsin Form 5S. This election can be revoked by filing an amended Form 5S on or before the extended due date. Please note, there is no official form to make a pass-through entity tax election. Schedule 5S-ET, Entity-Level Tax Computation, is expected to be ready July 19, 2019. Please be aware Form 5E, Election by an S Corporation Not Be Treated as a Tax-Option Corporation, should not be completed. This election is fundamentally separate from the election made on Schedule 5S-ET.
2. Shareholder notification – An electing S corporation should check Box #3 in Part B of Schedule 5K-1 to indicate to the shareholder that the election has been made. While the WDOR is not requiring signatures of consent on the return, the electing S corporation should document that consent is received from shareholders who hold an aggregate of more than 50 percent of the shares. The WDOR is not planning on releasing an official “consent” form. Electing S corporations should have in their files contemporaneous documentary evidence that a timely, valid pass-through entity election has been made to meet an auditor’s standard of proof. This could entail a resolution entered into the board of director minutes detailing the outcome of the consent vote and/or written, signed consents from the requisite number of shareholders. Other forms, e.g., electronic consents, may be acceptable but we recommend that electing S corporations and their shareholders err on the side of caution in supporting their annual consent election.
3. Estimated payments – The WDOR will not apply payments made by individual shareholders to the liability of the electing S corporation. The WDOR will move nonresident PW-1 payments to entity-level income tax payments if the payments were made by an electing S corporation. A written request to move payments may be submitted through email to DORIncomePassThroughComposite@wisconsin.gov. The electing S corporation must make an extension payment using