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April 1, 2020
2020-0819

Wisconsin Circuit Court affirms Tax Appeals Commission decision in Deere and Company allowing dividend received deduction for "check the box" partnership

 In a March 9, 2020 decision and order in Deere and Company,1 the Wisconsin Circuit Court (Circuit Court) affirmed a Wisconsin Tax Appeals Commission (WTAC) ruling that a foreign limited partnership (LP) that had elected to be treated as a corporation could claim a dividends received deduction (DRD).

In so finding, the WTAC had reversed the Wisconsin Department of Revenue's (DOR) denial of the DRD for distributions received from LP (see Tax Alert 2019-1535).

The Circuit Court affirmed the WTAC's analysis, which began with examining the question of whether the LP was a corporation for Wisconsin income tax purposes. The WTAC concluded that federal entity classification was paramount in making the determination. According to the WTAC, LP, by electing federal corporate classification, was not only to be taxed as a corporation but was a corporation under Wis. Stat. Section 71.22(1k). Accordingly, the DOR had to accept the deemed transactions facilitating the transformation from partnership to corporation, which resulted in the taxpayer being treated as owning stock in a corporation and, by that stock ownership, receiving dividends for which it may claim the DRD.

The WTAC had also pointed to previously published guidance issued by the DOR treating a limited liability company (LLC) that elects to be treated as a corporation for federal income tax purposes as such for Wisconsin income tax purposes, including treating the LLC interest as common stock. The WTAC concluded there was no basis to treat the LP interest differently; as such, the DOR had to adhere to its own guidance in effect during the audit period per Wis. Stat. Section 73.16(2)(a).

Implications

It is unknown at this time whether the DOR will appeal this decision to the Wisconsin Court of Appeals or file a Petition to Bypass, which would ask the Wisconsin Supreme Court to take the case directly. Taxpayers that have paid assessments on this issue may consider applicable statutes of limitations in claiming refunds.

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Contact Information
For additional information concerning this Alert, please contact:
 
State and Local Taxation Group
   • Bill Nolan (william.nolan@ey.com)
   • Tiffany Davister (tiffany.davister@ey.com)

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ENDNOTE

1 Wisconsin Department of Revenue v. Deere and Company, Dane County Case No. 2019CV002596 (Wis. Cir. Ct., Dane Cnty., March 9, 2020).

 

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