Wisconsin appellate court rules Department cannot challenge DRD from non-corporate entities in prior years

Start adding items to your reading lists:
Save this item to:
This item has been saved to your reading list.

March 2021


The Wisconsin Court of Appeals on February 25 upheld a lower court decision concluding that Wisconsin’s dividend received deduction (DRD) — which requires that a distribution be received with respect to ‘common stock’ — applies to a distribution made from a foreign LLP that elected to be taxed as a corporation for federal income tax purposes. 

The appellate court did not rule on the substantive statutory issue. It ruled that the Department of Revenue was precluded from asserting the DRD was inapplicable to the 2013 to 2015 tax years because such position would be contrary to Department guidance in effect during that time. The Department has since withdrawn such guidance. 

Observation: This decision should continue to preclude the Department from denying the DRD to non-corporate foreign distributions during tax years while that guidance was in place. Should the Department assert its position following the guidance withdrawal, taxpayers should consider whether the trial court’s substantive statutory analysis denying the DRD would remain applicable. If the Department appeals, the Wisconsin Supreme Court could provide a resolution.

The takeaway

The Department has since withdrawn guidance in Publication 119 regarding the treatment as stock of interests in LLCs that have elected corporate tax treatment. Accordingly, the Court’s ‘contrary-to-guidance’’ decision appears to no longer be a barrier to the Department denying DRD treatment to non-corporate entity distributions. 

Because the ‘contrary-to-guidance’ conclusion was dispositive, the Court did not reach the statutory interpretation issue of whether Lux qualified as a ‘corporation’ or whether its distributions were dividends from common stock. Taxpayers should consider whether the circuit court’s decision upholding the application of Wisconsin’s DRD to the Lux distributions remains applicable. However, it is unknown how an appellate court would rule on the statutory interpretation. We expect Wisconsin’s DRDs to be an issue going forward.

The Department has 30 days from the February 25 decision to file a Petition for Review with the Wisconsin Supreme Court, which has discretion whether to grant review.

Contact us

Peter Michalowski

State and Local Tax Leader, PwC US

Follow us