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2023 Wisconsin Schedule 3-ET Instructions

Purpose of Schedule

A partnership or limited liability company treated as a partnership that makes the election to pay tax at
the entity level must use Schedule 3-ET to compute the entity-level tax on items that would otherwise
be reportable to Wisconsin if the election was not made. For the taxable year in which the election is
made, partners do not include in their Wisconsin adjusted gross income their proportionate share of
items of income, gain, loss, or deduction of the electing partnership.

The election to pay tax at the entity level must be made each year on or before the extended due date
of the Form 3, Wisconsin Partnership Return. The election is made the day Form 3 is filed by checking
box "I" under the information section at the beginning of Form 3. The electing partnership must have
consent from partners who hold an aggregate of more than 50 percent of the capital and profits of the
partnership on the day of the election, according to sec. 71.21(6)(a), Wis. Stats. The election may be
revoked by filing an amended Form 3 on or before the extended due date of the Form 3. Partners who
hold an aggregate of more than 50 percent of the capital and profits of the partnership must consent
to the revocation.

Result of Making the Election

Income/Gains/Tax Rate
• Reporting income and gains

o Net income reportable to Wisconsin is taxed to the partnership and is not taxable to the
partners.

o All income of Wisconsin resident partners that are an individual, estate, or trust must be
reported by the electing partnership.

o Income of Wisconsin resident partners that are not an individual, estate, or trust must be
reported by the electing partnership if the income is attributable to Wisconsin. See
instructions for Column (c) – Nonresidents later in these instructions.

o Income of nonresident partners must be reported by the electing partnership if the income
is attributable to Wisconsin. See instructions for Column (c) – Nonresidents later in these
instructions.

o To the extent a partner would include guaranteed payments in Wisconsin taxable income
had the election not been made, the electing partnership must include the guaranteed
payments in Wisconsin taxable income.

o Partners subtract from their federal adjusted gross income the income reported by the
electing partnership that is included on the electing partnership's Schedule 3-ET for
determining the entity-level tax.

• Tax Rate The net income reportable to Wisconsin is taxed at 7.9 percent. There is no special
capital gains tax rate.

Losses/Deductions

• Reporting losses and deductions An electing partnership may not pass through any items
of loss or deduction to the partners.
• Net operating or business loss An electing partnership may not carryforward a net
operating or business loss to be used to offset income reportable by the electing partnership.

IP-140 (R. 11-23)

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2023 Wisconsin Schedule 3-ET Instructions

• Wisconsin long-term capital gain exclusion An electing partnership may claim the
Wisconsin 30-percent and/or 60-percent long-term capital gain exclusion available for the
portion of long-term capital gain allocable to partners that would have been allowed the
deduction if the entity-level tax election had not been made.
For example, the long-term capital gain allocable to corporate partners would not be allowed
the Wisconsin 30-percent or 60-percent long-term capital gain deduction at the entity level.
• Net capital loss
o The maximum capital loss deduction that may be claimed by the electing partnership is
$3,000.
o Unused capital losses may be carried forward by the electing partnership.
• Passive activity loss
o Passive activity loss limitations under sec. 469 of the Internal Revenue Code (IRC) are
determined at the electing partnership level, and the electing partnership must determine
how each partner would characterize each item of income or loss (passive or non-passive)
as if the election was not made.
o Suspended passive activity losses may be carried forward by the electing partnership.
• Charitable contribution deduction Except for charitable contributions that would otherwise
be allowed as a deduction for a fiduciary as provided in sec. 642, IRC, the charitable
contribution deduction is not allowed to the electing partnership, nor the partners.
• Federal section 179 deduction The federal section 179 expense deduction limitation and
phase-out apply to the electing partnership.
• Investment interest expense The amount of investment interest expense allowed as a
deduction may not exceed the net investment income of the electing partnership for the
taxable year as provided in sec. 163(d), IRC.
• Federal section 754 election The adjustment to partnership income as a result of a section
754 election is included in the electing partnership's calculation of Wisconsin income when
determining tax at the entity level. This includes the election applied under both secs. 734(b)
and 743(b), IRC.
• One-half self-employment tax deduction The federal deduction for one-half of self-
employment taxes resulting from a partnership's federal taxable income as provided in sec.
164(f), IRC, may not be claimed by the partnership. However, the partner is allowed the
deduction for Wisconsin purposes to the extent allowable under the IRC in effect for
Wisconsin.
Tax Credits
• Reporting credits Tax credits, except the credit for net tax paid by the entity to another state,
may not be claimed by the electing partnership and are passed through to the partners.
• Manufacturing and agriculture credit The electing partnership computes the manufacturing and
agriculture credit based on its activities and passes it through to the partners. The partners
complete Schedule MA-M or MA-A, but a partner may only use the credit to offset tax liability
resulting from the partner's prorated share of taxable income from the partnership for a year in
which the election is not made.

Schedule 3K-1 Reporting

• Reporting requirement to partners The electing partnership must provide a Schedule 3K-
1 to each partner as if the election was not made.

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                                  2023 Wisconsin Schedule 3-ET Instructions 
                                            
   • Exceptions and additional reporting requirements to partners 
     o  The electing partnership must check box 3 of Part C. 
     o  The credit for tax paid to another state is not entered on the partner's Schedule 3K-1 because 
        the partners cannot claim the credit. 
     o  The  credit for pass-through withholding will generally be zero  because  the electing 
        partnership is exempt from pass-through withholding. For more information regarding pass-
        through withholding, see the instructions for Form PW-1. Note: if the electing partnership 
        claims its estimated pass-through withholding payments on Form 3, the withholding may 
        not be included on the partner's Schedule 3K-1 because the partner cannot also claim the 
        withholding. 
     o  An electing partnership must include a supplemental statement with each partner's Schedule 3K-1 
        detailing  the  items  of  income,  gain,  loss,  and  deduction  that  are  included  on  the partnership's 
        Schedule 3-ET. Also include the partner's proportionate share of tax paid by the partnership as a 
        result of the election. 
     o  If a nonelecting partnership receives a Schedule 3K-1 from ownership in another partnership that 
        made the entity-level tax election,  the nonelecting partnership  must  provide a supplemental 
        statement  with  each  partner's  Schedule  3K-1  detailing  the  items  of  income,  gain,  loss,  and 
        deduction that are included on the electing partnership's Schedule 3-ET. 
   Partner's Basis in Partnership Interest 
   The adjusted basis of a partner's interest in an electing partnership is determined as if the election 
   was not made. 

   When and Where to File                                                                                             

   The election to be taxed at the entity level must be made annually on or before the extended 
   due date of the Wisconsin Form 3. The election is made on the day Form 3 is filed. Generally, 
   a partnership  must file its franchise or income tax return by the 15th day of the 3rd month following 
   the close of its taxable year, however: 
   • Any  extension  allowed  by  the  Internal  Revenue  Service  (IRS)  for  filing  the  federal  return 
     automatically extends  the Wisconsin  due  date.           
   • If a partnership would like to make the election and the current year's tax return will not be 
     available      in time,      contact  the     department's  Customer        Service Bureau  at 
     DORAuditPassThrough@wisconsin.gov or (608) 266-2772. 
 
   Columns (b), (c), (d), and (e)                                                                                     
 
   Column (b)   Residents-   (Individuals, Estates and Trusts Only):     
   The electing partnership must determine situs of income, loss and deductions of resident partners 
   as if the election was not made and report the amounts in column (b). 
   • For  Wisconsin  resident partners that are an individual, estate, or trust, include  the  total 
     amount  from  the  partner's  Schedule  3K-1,  column  (d)  in  column  (b)  of  the  electing 
     partnership's Schedule 3-ET. 
   Note:  Wisconsin  resident partners that are not  an  individual, estate,  or trust  (e.g., corporations or 
   partnerships), the electing partnership must include in column (c) of Schedule 3-ET the amount reported 
   in column (d) of the partner's Schedule 3K-1 that would be sourced to Wisconsin as if the election was not 
   made. Follow the instructions for Column (c) – Nonresidents below. 
    
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                           2023 Wisconsin Schedule 3-ET Instructions 
                                         
 Column (c)  -Nonresidents (Including All Partnerships and Corporations):       

 The  electing partnership must determine situs  of income,  loss  and deductions of  nonresident 
 partners according to secs. 71.04, 71.14, 71.25, 71.362, or 71.45, Wis. Stats., as if the election 
 was not made and report the amounts in column (c). 

 • For nonresident partners that are an individual, estate, or trust, include the total amount from 
   the partner's Schedule 3K-1, column (e) in column (c) of the electing partnership's Schedule 
   3-ET. 
 • For nonresident partners that are not an individual, estate, or trust (e.g., corporations or partnerships), 
   the electing partnership must include in column (c) of the Schedule 3-ET the amount reported in column 
   (d) of the partner's Schedule 3K-1 that would be sourced to Wisconsin as if the election was not made.  

   Note For multi-tiered entity tax calculations, include a supplemental schedule showing how the tax was 
   computed, similar to example 2 later in these instructions. 

   Example 1  -Determining Wisconsin Sourced Income in a Single-Tiered Structure :

   Facts: 

   • Partners A and B each have 50-percent ownership interest in Partnership 
   • Partner A was a Wisconsin resident for the entire year in 2023 
   • Partner B was a nonresident of Wisconsin for the entire year in 2023 
   • In 2023, 25 percent of the partnership's income is earned in Wisconsin and 75 percent is earned in 
     other states 
   • Partnership has $100,000 of net ordinary business income in  2023  from the sale  of tangible 
     personal property 
   • Partnership makes an election under sec. 71.21(6)(a), Wis. Stats., to pay tax at the entity level for 
     2023 

   Computation of income attributable to Wisconsin: 
 
                                                         Partner A (resident) Partner B (nonresident) 

     Portion of business income from partnership         $50,000              $50,000 

     Wisconsin apportionment % (situs of income)         100%                   25% 

     Partnership’s Wisconsin source income               $50,000              $12,500 
    
   The electing partnership's Wisconsin income is $62,500 ($50,000 + $12,500). 

   Example 2  -Determining Wisconsin Sourced Income in a Multi-Tiered Structure: 

   Facts: 

   • Partnership A operates a unitary business in California, New Jersey, and Wisconsin. 
   • Partnership A has three partners: 
     o   Partnership B is a 50% partner 
     o   Individual C is a 25% partner and a resident of New Jersey 
     o   Individual D is a 25% partner and a resident of Wisconsin 

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                           2023 Wisconsin Schedule 3-ET Instructions 
                                     
 • Partnership A has $20,000,000 of federal ordinary business income, no Wisconsin adjustments, 
   and sales of tangible personal property as follows: 
   o California sales (has nexus)  $15,000,000  30% 
   o New Jersey sales (has nexus)  $7,500,000          15% 
   o Wisconsin sales (has nexus)  $27,500,000  55% 
   o Sales to other states         $0 
   o Total sales                   $50,000,000 
 • Partnership A elects to pay tax at the entity-level under sec. 71.21(6)(a), Wis. Stats. 
 • Partnership B has four partners 
   o Corporation E is a 40% partner 
   o Corporation F is a 35% partner 
   o Individual G is a 15% partner and a resident of Wisconsin 
   o Individual H is a 10% partner and a resident of Minnesota 
 • Partnership B has no additional entity level activity other than its interest in Partnership A. 
 • All income and expense amounts of Partnerships A and B are allocated to each partner on a pro-
   rata basis based on ownership percentage. 
 • Corporations E and F  both conduct business  in Wisconsin and New York. The  Wisconsin 
   apportionment percentages for these corporations are as follows, after combining their share of the 
   partnership's apportionment data with their own apportionment data: 
   o Corporation E  30% 
   o Corporation F  40% 

 Taxable Income: If Partnership A makes the election, it will owe tax on $12,400,000 of Wisconsin 
 taxable income. See the computations in Tables 1 and 2 below. 

 Organizational Structure: 
 
                                       Partnership A 
  
         Individual C                                                   Individual D 
                                       Partnership B  
         NJ Resident                                                    WI Resident 
                                          50% 
         25%                                                             25% 
  
                                                                              Individual H 
                            Corporation F                  Individual G 
   Corporation E 
                                   35%                     WI Resident        MN Resident 
     40% 
                                                           15%                             10% 
                                                                              
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                                2023 Wisconsin Schedule 3-ET Instructions 
                                               
   Table 1: Partnership A's Computation of Income Attributable to Wisconsin: 
                                                                                                          
                                                  Individual C        Individual D                        
                           Partnership B          NJ Resident         WI Resident       Total 
       Ownership % in           50%                  25%                   25%          100%              
       Partnership A                                                                                      
       Business income     $10,000,000            $5,000,000          $5,000,000        $20,000,000       
       WI apportionment         N/A                  55%                   N/A                            
       WI taxable          $4,650,000             $2,750,000          $5,000,000        $12,400,000       
       income              (see Table 2)                                                                  
 
   Table 2: Partnership B's Partners' Computation of Income Attributable to Wisconsin: 
 
                           Corporation   Corporation          Individual G Individual H                   
                                E                 F           WI Resident  MN Resident           Total 
       Ownership % in           40%            35%             15%             10%               100% 
       Partnership B 
       Business income     $4,000,000        $3,500,000       $1,500,000   $1,000,000   $10,000,000 
       WI apportionment         30%            40%             N/A             55%                    
       WI taxable          $1,200,000        $1,400,000       $1,500,000   $550,000     $4,650,000 
       income 
  
 Column (d) - Entity-Level Adjustments:         Enter any amount for which the item of income, gain, 
 loss  or deduction  must  be  adjusted  to  arrive  at  the  amount  attributable  or  taxable  to  the 
 entity. A  positive adjustment will increase the amount and a negative adjustment will decrease it. 
 Include a statement describing adjustments made in column (d). 
 
 The  net  income  or  loss  of  the  partnership  is  computed  under  sec.   71.21,  Wis.  Stats.,  which 
 provides, in part: 

 • The net income of a partnership shall be computed in the same manner and on the same 
   basis as provided for computation of the income of persons other than corporations.  
 • The standard deduction shall not be allowed in computing the taxable income of a partnership. 
 • Except for charitable contributions that would otherwise be allowed as a deduction for a fiduciary 
   as provided in sec.     642, IRC, the deductions for charitable contributions provided in sec.        170, 
   IRC, are not allowed.  
 • The passive activity loss limitations in sec. 469, IRC, apply. 
   o     Passive activity loss limitations are determined at the electing partnership level, and the 
         electing partnership must determine how each partner would characterize each item of 
         income or loss (passive or non-passive) as if the election was not made. 
   o     The electing partnership must complete a pro forma federal Form 8582,          Passive Activity 
         Loss Limitations, for Wisconsin in order to determine the allowable passive activity loss 
         the electing partnership may claim. 
   o     Passive losses may not be passed through to the partners. 
   o     Suspended passive losses may be carried forward by the electing partnership.  

 • For additional information on determining income and adjustments at the entity level for partnerships, see 
   Common Questions on the department's website at:  
   https://www.revenue.wi.gov/Pages/FAQS/ise-passthrough-tax.aspx. 

 Column (e) - Total: For each line, enter the sum of columns (b), (c), and (d). 

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2023 Wisconsin Schedule 3-ET Instructions

Specific Line Instructions - Income

Lines 2 & 3 - Net rental real estate and other net rental income or loss:

• Passive activity loss limitations are determined at the electing partnership level. A maximum
$25,000 of losses from rental real estate activities applies as provided in sec. 469(i), IRC. The
electing partnership must determine how each partner would characterize each item of income
or loss (passive or non-passive) as if the election was not made.
• The electing partnership must complete a pro forma federal Form 8582, Passive Activity Loss
Limitations, for Wisconsin in order to determine the allowable passive activity losses the
electing partnership may claim, and enter any adjustment necessary in column (d).
• Suspended passive activity losses may be carried forward by the partnership.

Line 4 - Guaranteed payments:

To the extent a partner would otherwise include the guaranteed payments in Wisconsin taxable
income, the electing partnership must include the guaranteed payments in Wisconsin taxable income.

Enter guaranteed payments for services performed by partners on line 4a and guaranteed payments
for use of partners' capital on line 4b.

For additional information on the treatment of guaranteed payments at the entity level for partnership,
see common questions 27 through 29 on the department's website at:
https://www.revenue.wi.gov/Pages/FAQS/ise-passthrough-tax.aspx.

Lines 8 through 10 - Gains and losses:

• The Wisconsin 30-percent and/or 60-percent long-term capital gain exclusion allowed for
individuals may be claimed by the electing partnership at the entity level.
• The maximum capital loss deduction that may be claimed by the electing partnership is $3,000.
• Capital losses, including suspended capital losses, may not pass through to partners.
• Unused capital losses may be carried forward by the electing partnership.
Note A supplemental schedule may be used to track capital loss carryforward amounts and
included as an attachment when submitting the return.

Example 1:

• Partnership XYZ's Partners A and B each have a 50-percent interest in the partnership.
• Partners A and B are full-year Wisconsin resident individuals.
• Partnership XYZ makes the election to pay tax at the entity level.
• The combined total of Partner A's and B's Wisconsin Schedule 3K-1 from Partnership XYZ
includes the following:

Income/(Loss) Item Amount
Net short-term capital gain (loss) ($15,000)
Net long-term capital gain (loss) ($5,000)
Net section 1231 gain (loss) $16,000

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                                2023 Wisconsin Schedule 3-ET Instructions 
                                          
 • Assume there are no prior year unrecaptured section 1231 losses, and the section 1231 gain 
   is treated as a capital gain (not ordinary income). 
 • Partnership XYZ has a net capital loss of $4,000 ($16,000 - $15,000 - $5,000).  
 • Partnership XYZ's Schedule 3-ET should show the following: 

                                                Column 
                  Column (a)                                 Column (c)   Column (d)      Column (e) 
                                                (b) 
   Line 8:   Net short-term capital gain (loss) ($15,000)                       $12,000   ($3,000) 

   Line 9:   Net long-term capital gain (loss)    ($5,000)                        $5,000          
   Line 10: Net section 1231 gain (loss)        $16,000                      ($16,000)            
 Note: The unused capital loss of $1,000 may be carried forward by Partnership XYZ. 

 Example 2: 

 • Partnership XYZ's Partners A and B each have a 50-percent interest in the partnership.  
 • Partners A and B are full-year Wisconsin resident individuals. 
 • Partnership XYZ makes the election to pay tax at the entity level. 
 • The combined total of Partner A's and B's Wisconsin Schedule 3K-1 from Partnership XYZ 
   includes the following: 

                                Income Item                                           Amount 
   Net short-term capital gain (loss)                                                 ($18,000) 
   Net long-term capital gain (loss)                                                  ($108,000) 
   Net section 1231 gain (loss)                                                       ($20,000) 
    
 • Assume the section 1231 loss is treated as an ordinary loss (not a capital loss) 
 • Partnership XYZ has a net capital loss of $126,000 (-$18,000 - $108,000). 
 • Partnership XYZ's Schedule 3-ET should show the following: 

                  Column (a)                    Column (b)  Column (c)       Column (d)   Column (e) 
   Line 8:   Net short-term capital gain (loss) ($18,000)                     $15,000     ($3,000) 
   Line 9:   Net long-term capital gain (loss)  ($108,000)                    $108,000 
                                                                                                  
   Line 10: Net section 1231 gain (loss)        ($20,000)                                 ($20,000) 

 Note: The unused capital loss of $123,000 may be carried forward by Partnership XYZ. 

 Line 11  -  Other income  or loss:  If  more  than  three  lines  are  necessary,  submit  a 
 supplemental statement with   Schedule 3-ET identifying each item of income or loss, and enter 
 the total income or loss from the supplemental statement on line 11a.        
 
 Line 12 - Total income or loss: Add lines 1 through 11c for columns (b), (c), (d), and (e). 
  
   Specific Line Instructions - Deductions                                                            
 
 Line 13 - Section 179 deduction: The federal section 179 deduction limitation and phase-out  
 apply to the electing partnership. For 2023, the maximum deduction is $1,160,000. This limit starts 
 to phase-out when the cost of section 179 property placed in service during the tax year exceeds 
 $2,890,000. 

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2023 Wisconsin Schedule 3-ET Instructions

Line 14 - Investment interest expense:

• The amount of investment interest expense allowed as a deduction may not exceed the net
investment income of the electing partnership for the taxable year as provided in sec. 163(d),
IRC.
• The electing partnership must complete a pro forma federal Form 4952, Investment Interest
Expense Deduction, for Wisconsin in order to determine the allowable investment interest
expense the electing partnership may claim, and enter any adjustment necessary in column
(d).
• Suspended interest expenses may be carried forward by the electing partnership.

Line 16 - Other deductions: If more than three lines are necessary, submit a supplemental
statement with Schedule 3-ET identifying each deduction item, and enter the total deductions from
the supplemental statement on line 16a.

Line 17 - Total deductions: Add lines 13 through 16c for columns (b), (c), (d), and (e).

Line 18 - Taxable income or loss: Subtract line 17 from line 12.

Line 19 - Entity-level gross tax: Multiply line 18 by 7.9 percent (0.079). If line 18 is less than
zero, fill in 0. This is the electing partnership's gross tax.

Line 20 - Credit for net tax paid to another state:

• Enter the amount from line 22 of Schedule ET-OS, Entity-Level Credit for Net Tax Paid to
Another State, and submit Schedule ET-OS with the electing partnership's Form 3.
• The electing partnership may only claim a credit for:
o Net income or franchise taxes paid to another state on the same income that is taxable to
Wisconsin, and
o Individual income tax paid on a composite return on behalf of Wisconsin resident partners
to another state on the same income that is taxable to Wisconsin.
• The electing partnership may not pass the credit through to partners.
• Partners of the electing partnership may not claim a credit for taxes paid to another state on
income of the partnership, since the partners do not pay Wisconsin income tax on the electing
partnership income.
• See additional limitations in sec. 71.07(7)(b)3., Wis. Stats.
Line 21 - Net tax: Subtract line 20 from line 19. If line 20 is larger than line 19, fill in 0. This is
the electing partnership's entity-level net tax. Enter the amount from line 21 on Form 3, page 1,
line 1.

Additional Information, Assistance, and Forms

Web Resources
• Common questions: Pass-Through Entity-Level Tax - Partnerships:
https://www.revenue.wi.gov/Pages/FAQS/ise-passthroughpartnr.aspx
• Forms and instructions: https://www.revenue.wi.gov/Pages/HTML/formpub.aspx
• Wisconsin Tax Bulletin: https://www.revenue.wi.gov/Pages/ISE/wtb-Home.aspx

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                       2023 Wisconsin Schedule 3-ET Instructions 
                            
 • Wisconsin Statutes and Administrative Code: 
   https://www.revenue.wi.gov/Pages/HTML/sites.aspx 

 • Tax Publications: https://www.revenue.wi.gov/Pages/HTML/taxpubs.aspx 

 Contact Information 
 • Email questions to: DORAuditPassThrough@wisconsin.gov 
    
 • Call (608) 266-2772 
 • Call or visit any Department of Revenue office:  
   https://www.revenue.wi.gov/Pages/FAQS/ise-address.aspx 

 Applicable Laws and Rules 
 This document provides statements or interpretations of the following laws and regulations enacted as of 
 November 23, 2023: subch. III of ch. 71, Wis. Stats., and sec. 71.98, Wis. Stats. 

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