Controlled Group Election Under Combined Reporting
Wisconsin law allows a commonly controlled group of corporations to elect to include every member of the commonly controlled group for combined reporting purposes.
The original act that created Wisconsin's combined reporting law, 2009 Wisconsin Act 2, did not contain the controlled group election. Wisconsin's combined reporting statute, s. 71.255, was shortly thereafter amended by 2009 Wisconsin Act 28 (the 2009 2011 Budget Bill) to include the controlled group election.
The provisions for the election are found in sec. 71.255(2m), Wis. Stats., as created by 2009 Wisconsin Act 28, and sec. Tax 2.63, Wis. Adm. Code (June 2010 Register). The scope of the election allows every member of the commonly controlled group to be included in the combined group regardless of whether they are all engaged in the same unitary business.
A "commonly controlled group" may be any one of the following, based on ownership of stock representing more than 50% of voting power:
- Parent-subsidiary chain, based on direct or indirect ownership.
- Brother-sister corporations with a single common owner, based on direct or indirect ownership.
- Corporations where stock cannot be separately transferred ("stapled entities").
- Brother-sister corporations owned by, or for the benefit of, family members.
The designated agent of the combined group makes the election. Preapproval of the election by the department is not needed. The designated agent makes the election on Wisconsin Form 4R, Federal Taxable Income Reconciliation for Wisconsin Combined Groups, Part I, line 1. For the first year of the election, a statement must be included with Form 4R that (a) lists every corporation that is a member of the commonly controlled group, (b) indicates that each corporation of the commonly controlled group has agreed to be bound by the election, and (c) indicates the election shall apply to any member that subsequently enters the commonly controlled group.
Form 4R must be submitted either with an original return filed by the due date, including extensions, or an amended return filed on or before the end of the automatic 7 month extension period for filing the original return.
Example: A combined return without a controlled group election is timely filed without an extension. The designated agent may make the election by filing an amended combined return on or before the end of the automatic 7 month extension period applicable to the original return.
Once the election is made, it is binding and applicable to all commonly controlled group members for ten years. The designated agent may renew the election without prior approval from the department by following the procedures for making the initial election.
The department may disregard, and subsequently revoke, an election if it has the primary effect of tax avoidance rather than simplifying the determination of which items are includable in a combined return. A revocation of an election is applicable to every member of the commonly controlled group, not just the members responsible for the tax avoidance transaction. The commonly controlled group may not make a new election during the three taxable years following a revocation.
Apportionment and Nexus
Any enterprise engaged in business both in and outside Wisconsin must apportion its apportionable income when the business in Wisconsin is an integral part of a unitary business. For a combined group, nexus is determined for the unitary business as a whole, as provided in sec. 71.255(5)(a), Wis. Stats., as created by Wisconsin Act 2. Hence, if a member of a combined group has nexus in Wisconsin and that nexus is attributable to the combined group's unitary business, all members of the combined group have nexus in Wisconsin.
For a combined group that has made the controlled group election, the entire commonly controlled group's business is deemed to be a single unitary business, and the commonly controlled group becomes the combined group. Therefore, if a combined group has made the controlled group election and at least one member of the combined group has nexus in Wisconsin, all members of the combined group have nexus in Wisconsin.
Last updated July 30, 2010