On April 15, 2020, the Wisconsin legislature passed, and Governor Tony Evers signed, Assembly Bill 1038 (Act 185), which provides COVID-19 emergency tax relief and conforms to select provisions of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) (CARES Act). Act 185 is effective as of April 16, 2020, the date of publication.

Key provisions of Act 185 are summarized below.

Internal Revenue Code conformity — targeted updates to incorporate certain CARES Act provisions

Wisconsin's date of conformity to the Internal Revenue Code of 1986, as amended (IRC), remains tied to the IRC as of December 31, 2017. Act 185, however, makes the following additional changes to incorporate select provisions of the CARES Act:

• Exempts tax year 2020 distributions from an IRC-qualified retirement account from Wisconsin income tax and penalties, subject to certain conditions
• Creates additional deductions, for tax year 2020, for certain individual charitable contributions
• Suspends the limitations on certain individual and corporate charitable contributions made in calendar year 2020 only for certain amounts donated in 2020 and allows a carryforward for disallowed amounts to future years
• Clarifies that an individual's health insurance plan is still treated as a high-deductible health plan even if it fails to provide a deductible for telehealth and other remote care services
• Conforms to the federal income tax treatment of Paycheck Protection Program loans to businesses and employees under the Small Business Administration's loan guarantee program from February 15, 2020, through June 30, 2020 (the entire loan may be forgiven on a tax-free basis if the borrower satisfies certain conditions)
• Excludes from income certain student loan principal and interest payments made by an employer from March 28, 2020 through December 31, 2020, on behalf of an employee, subject to the current cap of $5,250
• Conforms to the correction of a drafting error in the Tax Cuts and Jobs Act of 2017 to allow a 15-year recovery period for qualified improvement property

Act 185 does not include provisions that would couple to the changes made by the CARES Act to the federal net operating loss (NOL) carrybacks and IRC Section 163(j) business interest expense limitations. Further, Wisconsin in 2017 decoupled from the business interest expense limitations under IRC Section 163(j) and the state continues to do so.

Discretionary interest and penalty waivers

Act 185 authorizes the Secretary of Revenue (Secretary) to waive interest and penalties that would otherwise apply for any person who fails to timely remit general fund taxes or transportation fund taxes during the period covered by the COVID-19 emergency. Such waiver is allowed when the Secretary determines that the failure is because of the pandemic.

Property tax relief

Late installment payments of property taxes are usually subject to interest and penalties, with the interest accruing from February 1st of the year in which the taxes are due. For property taxes payable in 2020, Act 185 authorizes a municipality, after making a general or case-by-case finding of hardship, to effectively waive interest and penalties on an installment payment due after April 1, 2020, that is not timely received, if the total amount due is received on or before October 1, 2020. Interest and penalties will accrue from October 1, 2020, for any property taxes payable in 2020 that are delinquent after this date.

Current law allows taxpayers to file a claim to recover the unlawful imposition or excessive assessment of property taxes only if they paid their property taxes on time. Under Act 185, this restriction does not apply to taxes due and payable in 2020 if they are paid by October 1, 2020, or by any installment date for which taxes are due after October 1, 2020.

Implications

Act 185 provides for limited updates to Wisconsin's IRC conformity for select provisions of the CARES Act. Otherwise, the state's conformity to the IRC generally remains as of December 31, 2017. There are also penalty and interest relief provisions that appear to be discretionary. EY will continue to monitor developments in this area including the development of forms and/or procedures for requesting such relief.

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