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Instructions for 2023 Schedule R

The Wisconsin research credit calculation is determined by Wisconsin statues, not the Internal Revenue Code (IRC).
However, Wisconsin defines which expenses are eligible to be used in the calculation of the credit by referencing sec. 41,
IRC. According to sec. 71.28(4)(ad)4.b., Wisconsin Statues, “qualified research expenses means qualified research ex-
penses as defined in section 41 of the Internal Revenue Code, except that qualified research expenses includes only ex-
penses incurred by the claimant, incurred for research conducted in this state for the taxable year and does not include
compensation used in computing the credit under sub. (1dx), the corporation's base amount. Section 41 (f) (1), (2), (5),
and (6) and (h) of the IRC does not apply to the credit under this subdivision."

Research expenses not used in the research credit calculation may reduce federal taxable income in accordance with
sec.162, 174 and 280(C), IRC, therefore the difference between the research expenses used to calculate the federal
credit and those used to calculate the Wisconsin credit may create a Wisconsin modification

Section 13206 of P.L.115-97, the Tax Cuts and Jobs Act, enacted certain changes to the IRC applicable for tax years
beginning after 2021 related to sections 41, 174 and 280(c). Wisconsin has not adopted section 13206 of P.L.115-97.
Therefore, the pre-2022 rules remain in effect for Wisconsin purposes.

Purpose of Schedule R

Estates and trusts, partnerships, and tax-option (S) corporations use Schedule R to report the distribution of the computed
credit. Individuals, C-corporations, and tax exempt entities use Schedule R to report and claim the credits for increasing
research activities in Wisconsin.

See “Special Instructions for Combined Group Members,” page (2) of these instructions for special rules that apply
to combined group members of a corporation.

For more details on the research credit, see Publication 131 – Tax Incentives for Conducting Qualified Research in
Wisconsin, available at: revenue.wi.gov/Pages/HTML/taxpubs.aspx#business

Only include one type of research credit on a Schedule R. If you are eligible for more than one research credit, use
additional Schedules R. For example, if you qualify for the credit for increasing research expenses and the credit for
activities related to internal combustion engines, complete a separate Schedule R to compute the credit for increasing
research expenses and another Schedule R to compute the credit related to internal combustion engines.

The Schedule(s) R must be included with the Wisconsin income or franchise tax return filed by both the distributing entity
and the claimant.

Who Is Not Eligible

Partnerships, limited liability companies (LLCs) treated as partnerships, and tax-option (S) corporations cannot claim
research credits to be used to offset tax liability; however, the computation of, and eligibility for, the research credits are
based on the research activities conducted by those entities. The credits computed at the entity level flow through to the
partners, members, or shareholders based on their ownership interests and are claimed on their respective tax returns.

Internal Revenue Code

For purposes of computing the Wisconsin research credits, “Internal Revenue Code” means the federal Internal Revenue
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2023 Schedule R Instructions

Code (IRC) as amended to December 31, 2022, with certain exceptions that are explained in the Form 1, 1NPR, 2, 3, 4,
4T, 5S, or 6 instructions.

Relating to the Wisconsin research credits, exceptions to the IRC include:

• Section 41(b)(3)(D) which replaces the 65% in the general definition of contract research expenses with 100% for
payments to Eligible Small Businesses, Universities, and Federal Laboratories.

• Section 41(f)(1), which provides special rules for the aggregation of expenditures for a controlled group of taxpayers
filing a federal consolidated return
• Section 41(f)(2), which provides for special allocations in the case of estates, trusts, and partnerships
• Section 41(f)(5), relating to the definition of a controlled group of corporations
• Section 41(f)(6), regarding an energy research consortium
• The changes to the federal research credit relating to energy research and energy research consortia were not
adopted for Wisconsin purposes.

• Note: Section 13206 of P.L. 115-97, the federal Tax Cuts and Jobs Act, enacted certain changes to secs. 41, 174
and 280C, IRC, applicable for taxable years beginning after 2021 related to research expenditures. Wisconsin has
not adopted sec. 13206 of P.L. 115-97; therefore, the pre-2022 federal provisions apply for Wisconsin purposes.

What Are Qualified Research Expenses

“Qualified research expenses” is defined in sec. 41(b), IRC to include the sum of in-house research expenses and the
applicable percentage of contract research expenses. The applicable percentages are generally equal to
• 65% of the amount paid by the taxpayer to any person who is not an employee of the taxpayer for quali-
fied research
• 75% of the amount paid by the taxpayer to a qualified research consortium for qualified research on be-
half of the taxpayer and one or more unrelated taxpayers

See sec. 41, IRC, as amended to December 31, 2022, or Publication 131 – Tax Incentives for Conducting Qualified
Research in Wisconsin, available at: revenue.wi.gov/Pages/HTML/taxpubs.aspx#business for further details.

When computing the research credit, expenses paid with original forgivable Paycheck Protection Program (PPP) loan pro-
ceeds, subsequent forgivable PPP loan proceeds, emergency grants of economic injury disaster loans (EIDL) and targeted
EIDL advances, subsidies for certain loan payments, grants for shuttered venue operators, grants issued by the state of
Wisconsin related to the COVID-19 pandemic authorized under 42 USC 801, and grants issued by the Wisconsin Economic
Development Corporation under the ethnic minority emergency grant program are allowed if they are considered qualified
research expenses.

What Is Qualified Research

“Qualified research” is defined in sec. 41(d), IRC. It means research for which expenditures may be treated as expenses
under sec.174, IRC. This research must be undertaken for discovering information that is technological in nature, and its
application must be intended for use in developing a new or improved business component of the taxpayer. In addition,
substantially all of the activities of the research must be elements of a process of experimentation relating to a new or
improved function, performance, reliability, or quality. See secs. 41 and 174, IRC, for a complete definition and special
rules.

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2023 Schedule R Instructions

Wisconsin related to the COVID-19 pandemic authorized under 42 USC 801, and grants issued by the Wisconsin Economic
Development Corporation under the ethnic minority emergency grant program are allowed if they are considered qualified
research expenses.

Expenses Must Be Incurred in Wisconsin

Expenses incurred entirely outside Wisconsin cannot be allocated to Wisconsin even if incurred for the benefit of research
in Wisconsin. If qualified research expenses are incurred in and outside Wisconsin and the amount incurred in Wisconsin
cannot be accurately determined, a portion of the qualified expenses may be reasonably allocated to Wisconsin.

Credits Are Income

The credit that you compute on Schedule(s) R is income and must be reported on your Wisconsin franchise or income
tax return in the year computed. This is true even if you cannot use the full amount of a credit computed this year to offset
tax liability for this year and must carry part or all of it forward to future years.

Carryover of Unused Credits

Up to 15% of the research credit is refundable. Any unused research credit that is not refundable may be carried forward
for 15 years. If there is a reorganization of a corporation claiming a research credit, the limitations provided by sec. 383,
IRC, may apply to the carryover of any unused Wisconsin research credit.

Adjustments for Certain Acquisitions and Dispositions

If a major portion of a trade or business is acquired or disposed of, adjustments must be made to qualified research
expenses for the period before or after the acquisition or disposition. See sec. 41(f)(3), IRC, for details.

Short Taxable Year

For any short taxable year, qualified research expenses or expenditures must be annualized.

Special Instructions for Combined Group Members

In general, credits are attributes of the separate corporation rather than attributes of the combined group. Nonetheless,
sec. 71.255(6)(c), Wis. Stats., allows for the sharing of certain nonrefundable research credits. A corporation is not re-
quired to share its nonrefundable research credits. Special rules apply to combined group members sharing their respec-
tive nonrefundable research credits. Additional information can be found in the instructions to Form 6CS, Wisconsin
Sharing of Research Credits, and sec. Tax 2.61(10)(c) and (d), Wisconsin Administrative Code.

Important features of these special rules include:

• Combined group members compute their respective research credit amounts based on their own “qualified research
expenses”.
• For combined group members, “qualified research expenses” is modified so that research funded by another combined
group member and performed by a different combined group member, is considered qualified research expenses of
the combined group member performing the research, and the reimbursement from the combined group member
funding the research may not be considered a qualified research expense of the funding member.
• Combined group members use their own respective qualified research expenses for the average of the prior three
years qualified research expense computation as if the members themselves filed on a separate entity basis.

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2023 Schedule R Instructions

• Only the “sharable credits” may be shared. Generally, a corporation may only share its nonrefundable research credits
with the combined group if it was a member of that same combined group in the year the credit originated. However,
if the credit originated before January 1, 2009, the corporation may share the credit if it would have been in that same
combined group had Wisconsin law required combined reporting in the year the credit originated.

Specific Instructions for Schedule R

Line 1. Enter wages you pay to employees for actually doing research work, or for directly supervising or directly sup-
porting research work, in Wisconsin. Generally, “wages” means the amount reported on the employee’s wage statement,
federal Form W-2. Include qualified wages that were used in computing the federal work opportunity tax credit.

Line 2. Enter the cost of supplies used in the conduct of qualified research in Wisconsin. “Supplies” are tangible property
other than land, improvements to land, or depreciable property whether or not you take a depreciation deduction for it.

Line 3. Enter the amount paid for the rental or lease of computers used in qualified research in Wisconsin. Reduce this
amount by the amount that you received for the right to use substantially identical property.

Line 4. Enter 65% of amounts paid under a contract for qualified research performed in Wisconsin by someone other
than your employee. Enter 75% of the payments made to a qualified research consortium in Wisconsin. A qualified
research consortium is a tax-exempt organization described in IRC section 501(c)(3) or (6) that is organized and operated
primarily to conduct scientific research and is not a private foundation.

Prepaid contract research expenses are considered paid in the year the research is actually done.

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2023 Schedule R Instructions

Line 5. Enter any expenses used in computing the federal orphan drug credit that are Wisconsin qualified research
expenses.

Line 7. Enter the amount of any wages included on line 6 that qualify for the Wisconsin development zones jobs credit.
These wages may not be used in determining the Wisconsin research credit.

Line 9. On lines 9a through 9c, enter the qualified research expenses for the years indicated. If you did not have qualified
research expenses in one or more of the three prior years, check the box on line 9, do not complete lines 9a through 9e,
and enter 0 on line 10.

For example, if you had qualified research expenses in 2022 and 2021, but not 2020, do not average your prior year's
research expenses. You must use the credit percentage from line 13a, 13b, or 13c.

Line 12. Check the appropriate box to indicate which research credit you are computing. However, if you checked the
box on line 9 because you did not have qualified research expenses in one or more of the prior three years, skip line 12
and check the appropriate box on line 13 instead.

Do not check more than one box on line 12. If you qualify to compute more than one research credit, complete a
separate Schedule R for each credit.

Line 13. If you checked the box on line 9 because you did not have qualified research expenses in one or more of the
three prior years, check the box to indicate which credit you are computing.

Do not check more than one box on line 13. If you qualify to compute more than one research credit, complete a
separate Schedule R for each credit.

Line 15. Fill in the amount of research credit passed through from tax-option (S) corporations, partnerships, LLCs treated
as partnerships, estates, or trusts. The pass-through credit is shown on Schedule 5K-1 for shareholders of tax-option (S)
corporations, Schedule 3K-1 for partners and LLC members, and Schedule 2K-1 for beneficiaries of estates or trusts. Fill in
the name, federal employer identification number (FEIN), and amount of credit passed through from the entity. If you were
allocated a credit from more than two pass-through entities, attach a schedule showing each entity's name, FEIN, and
amount of the credit. Fill in the total pass-through credit from the addition schedule on line 15c and attach the schedule to
Schedule R.

Line 16. Total research credits.

Line 16a. Fiduciaries – Prorate the credits from line 16 between the entity and its beneficiaries in proportion to the income
allocable to each. Show the beneficiaries’ portion of the credit on line 16a. Show the credit for each beneficiary on
Schedule 2K-1.

Line 16b. Subtract line 16a from line 16. This is the estates or trust’s portion of the credit.

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2023 Schedule R Instructions

Line 17. This line computes the maximum refundable portion of research credit. Multiply line 16 by 15% (.15). Fiduciaries
should multiply line 16b by 15% (.15).

For additional information on the refundable portion of the research credit, see the common questions:
revenue.wi.gov/Pages/FAQS/research-credit-cq.aspx

Line 18. Enter the amount of credit from line 16 (line 16b for fiduciaries) used to offset tax on the current year's income
or franchise tax return.

Line 20. Refundable portion of research credit. Enter the lesser of line 17 or 19. Enter the amount from line 20 on line 39
of Schedule CR. See the following exceptions:

• If the claimant is a combined group member, enter the refundable amount of credit on Form 6, Part III, line 13 instead of
Schedule CR.
• Tax-option (S) corporations, partnerships, and LLCs treated as partnerships should prorate the amount of credit among
the shareholders, partners, or members based on their ownership interest. Show the credit for each shareholder on
Schedule 5K-1 and for each partner or member on Schedule 3K-1.

For additional information on the refundable portion of the research credit, see the common questions:
revenue.wi.gov/Pages/FAQS/research-credit-cq.aspx

Line 22. Enter the research credit from prior taxable years not used to offset your tax liability in those years and has not
expired under the 15-year carryforward limitation. Include Schedule CF with your return.

Line 23. Add lines 18, 21, and 22. This is the total nonrefundable portion of the research credit. Enter the amount of
credit from line 23 on line 17 of Schedule CR. See the following exceptions:

• If the claimant is a combined group member, enter the nonrefundable amount of credit on Form 6, Part V, line 1 instead
of Schedule CR.
• Tax-option (S) corporations, partnerships, and LLCs treated as partnerships should prorate the amount of credit among
the shareholders, partners, or members based on their ownership interest. Show the credit for each shareholder on
Schedule 5K-1 and for each partner or member on Schedule 3K-1.

Additional Information and Assistance

Web Resources

The Department of Revenue’s web page, available at revenue.wi.gov, has a number of resources to provide additional
information and assistance, including:

• Refundable portion of research credit common questions
• Related forms and their instructions
• Common Questions
• Publications on specific tax topics
• The Wisconsin Tax Bulletin
• A home page specifically for combined reporting topics
• Links to the Wisconsin Statutes and Administrative Code

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                                2023 Schedule R Instructions 
 
Contact Information  

If you cannot find the answer to your question in the resources available on the Department of Revenue’s web page, 
contact the department using any of the following methods: 
 
•  E-mail your question to: DORFranchise@wisconsin.gov 

•  Call (608) 266-2772  
 (Telephone help is also available using TTY equipment. Call the Wisconsin Telecommunications Relay System at 711 
 or, if no answer, (800) 947-3529. These numbers are to be used only when calling with TTY equipment.) 

•  Send a fax to (608) 267-0834 
 
                                Applicable Laws and Rules 
  This document provides statements or interpretations of the following laws and regulations enacted as of  the 
 revised date :  Chapter 71 Wis. Stats., and Chapter Tax 2, Wis. Adm. Code 

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