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                       Instructions for 2024 Schedule RT: 
    Wisconsin Related Entity Expenses Disclosure Statement 

Who Must File Schedule RT 
 
A corporation, individual, or pass-through entity is required to add back certain expenses paid, accrued, or incurred to 
a related party if the total of those expenses is greater than $100,000.  For multistate taxpayers, the $100,000 
threshold is determined after applying the Wisconsin apportionment percentage. 
 
If certain conditions apply, the taxpayer may subsequently deduct those expenses. 
 
The following related entity expenses required to be added back to federal income are defined below.  These expenses 
are required to be added back for Wisconsin purposes even if Schedule RT is not required due to the $100,000 threshold.  
  
  •  Interest expenses                         • Rent expenses 
  •  Management fees                           • Intangible expenses 
  
When Must Schedule RT be Filed 
 
IMPORTANT: If Schedule RT is required, it must be filed it with the Wisconsin franchise or income tax return no later 
than the extended due date of the return.  
   The Department is authorized to disallow related entity expenses if they are not disclosed on a timely filed 
   Schedule RT. 
   The Department will not accept Schedule RT if it is filed after the extended due date of the Wisconsin 
   franchise or income tax return. 
   If the return is filed before the extended due date and the Schedule RT is not included, the taxpayer has until 
   the extended due date to file an amended return and include the Schedule RT. 
   For example, if a calendar year corporation is required to file Schedule RT for 2024 and filed its return on April 
   15, 2025, without Schedule RT, the corporation would have until November 15, 2025, to file Schedule RT with 
   an amended return. 
     
Special Instructions for Pass-Through Entities 
 
For pass-through entities, such as tax-option (S) corporations, partnerships, limited liability companies treated as 
partnerships, estates, and trusts, the pass-through entity is responsible for filing Schedule RT when required. The 
shareholder, partner, member, or beneficiary doesn’t have to file Schedule RT for passed-through expenses.   
 
Special Instructions for Combined Groups 
 
Combined group members aren’t required to add back expenses between members of the same combined group if 
there is no net effect on combined unitary income. In other words, if the payer’s expense and the payee’s income from 
the same transaction cancel out an effect on the combined unitary income, Schedule RT does not have to be filed).  
 
A combined group member may have to add back interest, rent, management fees, or intangible expenses if paid, 
accrued, or incurred to a related entity that is not a member of the combined group or to a member of the combined 
group that excluded the related party income from combined unitary income. 
 
Combined group members required to add back expenses, complete Schedule RT separately for each corporation that 
paid, accrued, or incurred the “added back” expenses and file the Schedule(s) RT with the combined return.  
 
To determine if a combined group member exceeds the $100,000 threshold for filing Schedule RT, multiply that 
member’s “added back” expenses by the combined group’s total Wisconsin apportionment percentage from Form 6, 
page one, line 2. 
 
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                                            2024 Schedule RT-1 Instructions 
                                                      
Definitions         

For purposes of determining if an addback (and Schedule RT filing, if applicable) is required, the Wisconsin Statutes 
provide specific definitions for the terms “related entity” and the types of expenses that must be added back (for 
example, see sec. 71.22 (3g), (3m), (6d), (9ad) and (9am), Wis. Stats.). 
These instructions provide practical definitions of the terms that apply to the addback requirement and Schedule RT. 
Related Entity  
A “related entity” is a related person under one of the following sections of the Internal Revenue Code (IRC): 
• Section 267(b), which defines relationships through which taxpayers would be considered “related” for purposes of 
  disallowing deduction or loss on transactions between related taxpayers. 
• Section 318(a), which defines the operating rules for constructive ownership of stock ownership. 
• Section 707(b), which provides that for purposes of disallowing deduction or loss on transactions between related 
  taxpayers, related taxpayers include: 
  o  A partnership and a partner owning, directly or indirectly, more than 50% of the capital or profits interest in the 
    partnership, and 
  o  Two partnerships in which the same persons own, directly or indirectly, more than 50% of the capital or profits 
    interests. 
Section 1563, which defines the relationships of a Control Group. Under Wisconsin Statutes (sec. 71.22(9ad) and 
(9am), Wis. Stats.) a "related entity" also includes certain real estate investment trusts (REITs) if they are not "qualified 
REITs." In general, this means that a captive REIT is a related entity. For more on REITs, refer to the statute. Also see 
Wisconsin Tax Bulletin #158, page 17, Questions A2 and A3. 
 
Interest Expenses 
Interest expenses are expenses that would otherwise be deductible in computing Wisconsin net income which are for 
interest as defined in section 163, IRC, after applying any Wisconsin modifications. 
Rent Expenses 
Rent expenses are expenses that would otherwise be deductible in computing Wisconsin net income which are 
attributable to, for the use of, or for the right to use, real property, including: 
• Tangible personal property affixed to real property if the owner of the tangible personal property is the same as or 
  related to the owner of the real property 
• Services rendered in connection with rented real property if the owner of the property is the same as or related to 
  the entity providing the service 
   
For purposes of the addback and Schedule RT requirement, the method used to compute the expense and the manner 
in which it is reported for financial accounting purposes do not matter. For example, amounts paid under capital leases 
might not be called “rent expenses” in the financial accounting records, but they are considered “rent expenses” for 
purposes of the addback and Schedule RT requirement. 
Management Fees 
Management fees are expenses that would otherwise be deductible in computing Wisconsin net income which are for 
the purchase of services (other than services provided by taxpayer’s own employees) that pertain to any of the 
following: 
 
   •       Accounts receivable                             • Taxation 
   •       Employee benefit plans                          • Financial matters 
   •       Insurance, including self-insurance             • Securities 
   •       Legal matters                                   • Accounting 
   •       Payroll                                         • Reporting on compliance matters 
   •       Data processing                                 • Similar activities 
   •       Purchasing                                

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2024 Schedule RT-1 Instructions

Intangible Expenses
Intangible expenses include any of the following expenses to the extent they would otherwise be deductible in the
computation of Wisconsin net income:
• Royalty, patent, technical, and copyright fees
• Licensing fees
• Losses related to, or incurred in connection directly or indirectly with, factoring transactions or discounting
transactions
• Amortization expenses
• Other expenses, losses, or costs for, related to, or directly or indirectly in connection with acquiring, using,
maintaining, managing, owning, selling, exchanging, or disposing of intangible property.

Under sec. 71.22(3h), Wis. Stats., “Intangible property” includes, but is not limited to:

• Stocks • Trademarks
• Bonds • Service marks
• Financial instruments • Copyrights
• Patents • Mask works
• Patent applications • Trade secrets
• Trade names • Similar types of intangible assets

Part I: Addition Modification for Related Entity Expenses

On lines 1 through 4, enter the name and identification number of related entities to whom the taxpayer paid, accrued,
or incurred the expense described. Fill in the aggregate amount of the expense attributable to each entity. Enter the
unapportioned amounts even if the return utilizes apportionment.

If reporting expenses incurred to more than two related entities for any of the expense types shown, prepare and
attach a schedule listing each additional entity’s name and identification number and the total amount of interest
expenses, rent expenses, management fees, or intangible expenses, as applicable, for that entity. Enter the totals from
that schedule on lines 1c, 2c, 3c, or 4c, as applicable.

Actual numbers must be disclosed. Entering “available on request” is not adequate.

The total on Part I, line 5 should agree to the amount reported as an addition modification for related entity expenses.
For combined group members, the amount on Part I, line 5 should match the amount the member included in the
combined group’s total on Form 6, Part II, line 2c.

Part II: Subtraction Modification for Related Entity Expenses Eligible for Deduction

The amounts from Part I that are eligible to be deducted are entered on lines 6a through 6d. The combined Part II, line
7 totals should agree to the amount reported as a subtraction modification for related party expenses. For each
combined group member, the amount on Part II, line 7 should match the amount the member included in the combined
group’s total on Form 6, Part II, line 4b.

Interest expenses, rent expenses, management fees, or intangible expenses paid, accrued, or incurred to a related
party may be deducted to the extent they meet one the three conditions found on page 2 of Schedule RT.

The three conditions correspond to the provisions of sec. 71.80(23)(a), Wis. Stats. Conditions A, B, and C are each
described in more detail in the sections that follow.

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                                                   2024 Schedule RT-1 Instructions 
                                                              
Is the Expense Deductible? 
 
Condition A: General Indicators 
• Specific evidence that these criteria are met will vary based on the facts and circumstances. However, if an 
  expense meets Condition B or Condition C then it probably also meets the criteria in Condition A. 
• Section 71.80(23)(a)3., Wis. Stats., provides a related party expense added to Wisconsin income may then 
  deducted if the taxpayer establishes that all of the following are true: 
  o  The primary motivation for the transaction was one or more business purposes other than the avoidance or 
   reduction of state income or franchise taxes. 
  o  The transaction changed the economic position of the taxpayer in a meaningful way apart from tax effects; and 
  o  The expenses were paid, accrued, or incurred using terms that reflect an arm’s length relationship. 
• Examples of factors that may indicate the expense does not satisfy Condition A are presented below: 
  o  There was no actual transfer of funds from the taxpayer to the related entity, or the funds were 
   substantially returned to the taxpayer, either directly or indirectly 
  o  If the transaction was entered on the advice of a tax advisor, the advisor’s fee was determined by reference to 
   the tax savings 
  o  The related entity does not regularly engage in similar transactions with unrelated parties on terms 
   substantially similar to those of the subject transaction 
  o  The transaction was not entered into at terms comparable to arm’s length as determined by Treas. Reg. 
   §1.482- 1(b) 
  o  There was no realistic expectation of profit from the transaction apart from the tax benefits 
  o  The transaction resulted in improper matching of income and expenses 
  o  An expense for the transaction was accrued under FIN 48 
  o  If a rent expense, the rent was paid, accrued, or incurred to a captive REIT 
  o  Factors specific to interest expenses: 
                  The taxpayer is not sufficiently capitalized or has no reasonable expectation to make payment on the debt 
                   underlying the interest expense 
                  There is no written contract underlying the interest expense that reflects an arm’s length interest rate 
                  The interest is attributable to any of the following: 
                   - An unpaid charge that is not an allowable expense 
                   - A loan from a captive insurance company 
                   - A dividend notes 
                   - A loan from a related entity with net operating loss carryforwards 
                   - A loan from a related entity that is an intermediary set up in a jurisdiction that imposes no corporate-
                     level income tax 
                            
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2024 Schedule RT-1 Instructions

Condition B: Related Entity Included Income in Tax Base
Section 71.80(23)(a)2., Wis. Stats., provides that a related party expense added to Wisconsin income may then be
deducted if the taxpayer establishes that both of the following are true:
• The related party included the income or receipts from the transaction in its tax base for a tax on (or measured by)
net income or receipts in Wisconsin or another jurisdiction, and
• The related party’s “aggregate effective tax rate” was at least 80% of the taxpayer’s “aggregate effective tax rate.”

An entity’s “aggregate effective tax rate” is the sum of its effective tax rates for each state, U.S. possession, or foreign
country where it does business. An entity’s “effective tax rate” for a jurisdiction is the maximum tax rate imposed by
that jurisdiction multiplied by the entity’s apportionment percentage (if any) computed for that jurisdiction.

Worksheet 1 at the end of these instructions demonstrates how to compute the aggregate effective tax rates and apply
the 80% test. Special rules and exceptions apply to this computation, which are described in more detail below.

Differing Taxable Years. For both the taxpayer and the related entity, compute the aggregate effective tax rate for the
taxable year that included the transaction date. If the taxpayer and the related entity are on differing taxable years and
the related entity’s taxable year has not yet ended, special rules apply. See Wisconsin Tax Bulletin #158, page
21, Question C9 for details.

Items Not Includable in “Aggregate Effective Tax Rate.” Do not include the following in the computation of the
aggregate effective tax rate:
• If the expense was incurred to a pass-through entity, any tax rate that is imposed at the shareholder, partner,
member, or beneficiary level rather than at the pass-through entity level
• The tax rate of any jurisdiction where the taxpayer or related entity files a combined or consolidated report or
return if the consolidation or combination eliminates the tax effects of the transaction

See Wisconsin Tax Bulletin #158, page 21, Questions C5 and C6 for further details of these exceptions.

Dividends Paid Deduction. If the related party is not taxed on some or all of its income in a jurisdiction due to deduction
for dividends paid the amount considered to be included in its tax base is the amount after applying the dividends paid
deduction.
• If the deduction for dividends paid is less than 100% of the related entity’s total income, a pro rata share of its
income from the transaction is deemed to be excluded from its tax base in that jurisdiction.
• Additionally, sec. 71.80(23)(a)2., Wis. Stats., specifically provides that Condition B does not apply to expenses
paid, accrued, or incurred to a REIT that does not meet the definition of “qualified REIT.”

Related Entity Has Loss or Credit Carryforwards. For purposes of Condition B, the related entity’s aggregate
effective tax rate is computed without regard to loss carryforwards or credit carryforwards. If the related entity has no tax
liability in a particular state because of its loss or credit carryforwards, its effective tax rate in that state is still that state’s
maximum statutory tax rate multiplied by the entity’s apportionment percentage in that state. See Wisconsin Tax
Bulletin #158, page 21, Question C7 for an example.

Condition C: Related Entity Acts as Conduit
Section 71.80(23)(a)1., Wis. Stats., provides a related party expense that was “added back,” a Wisconsin deduction is
generally allowable if either of the following are true:
• The related entity paid, accrued, or incurred that same expense to an unrelated third party during the same taxable
year (in other words, the related entity acted as a conduit between the taxpayer and the unrelated third party), or
• The related entity is a bank holding company under 12 USC 1841(a), a savings bank holding company under 12
USC 1841(l), or a savings and loan holding company under 12 USC 1467a(a)(1)(D) or direct or indirect subsidiary
of such company; except not including any entity that is organized under the laws of another jurisdiction and that
primarily holds and manages investments of a bank, subsidiary, or affiliate.

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2024 Schedule RT-1 Instructions

Other exceptions and special rules regarding Condition C are presented next:
Exception for Interest on Acquisition of Stock. Under sec., 71.80(23)(a)1., Wis. Stats., Condition C does not apply
to interest expense in connection with any debt that is used to acquire the taxpayer’s own stock or assets under
section 368 of the Internal Revenue Code.

Same Taxable Year. In order for Condition C to apply, the related entity must pay, accrue, or incur the expense to the
unrelated third party in the same taxable year as the taxpayer paid, accrued, or incurred the expense to the related
entity. The “taxable year” used in applying this test is the taxpayer’s taxable year.
However, if the related entity pays the expense to the unrelated third party after the taxpayer’s taxable year ends but
before the unextended due date of the taxpayer’s Wisconsin income or franchise tax return, the expense incurred to
the unrelated third party may be considered incurred during the taxpayer’s recently ended taxable year. If so considered,
the related entity’s payment to the unrelated third party can’t be counted again for the subsequent taxable year. For an
example, see Wisconsin Tax Bulletin #158, page 19, Question C2.
Less Than 100% of Interest Expense Paid to Unrelated Third Party. If less than 100% of the total interest expense
paid, accrued, or incurred to the related entity from the taxpayer and all other related entities is paid, accrued, or
incurred to the unrelated third party, a pro rata share of the taxpayer’s expense is considered to meet Condition C. For
an example, see Wisconsin Tax Bulletin #158, page 20, Question C3.

What if the Expense Isn’t Deductible?

If any portion of the expenses you “added back” does not qualify for a Wisconsin deduction, you should do the
following:
• Review your prior years’ returns and amend them as necessary. If you had similar transactions in those years, the
department may audit those transactions and adjust under its authority in secs. 71.30(2) and 71.80(1)(b), Wis.
Stats.
• If the related entity files Wisconsin returns, prepare Schedule RT-1 to notify the related entity of the amount of
expense that isn’t deductible to you. The related entity may then subtract that amount from its taxable income. See
the Schedule RT-1 instructions for details.

Worksheet 1, may be used to compute aggregate effective tax rates for purposes of determining if Condition B applies

Worksheet 1: Computation of Aggregate Effective Tax Rates

CAUTION: Before using this worksheet, read the exceptions "Items Not Includable in "Aggregate
Effective Tax Rate" earlier in the instructions.

Taxpayer’s Aggregate Effective Tax Rate

(a) (b) (c) (d)
State or other Highest statutory tax rate Apportionment1percentage Effective tax rate
jurisdiction where in state or jurisdiction in state or jurisdiction (b) x (c)
taxpayer is subject to
tax on or measured by
net income or receipts

Taxpayer’s aggregate effective tax rate (sum of amounts in column d)

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                                       2024 Schedule RT-1 Instructions 
                                                       
                              Related Entity’s Aggregate Effective Tax Rate 
   (Prepare separately for each related entity to which the taxpayer incurred the “added back” expenses) 
                   (a)             (b)                           (c)                        (d) 
   State or other             Highest statutory     Apportionment percentage in             Effective tax rate 
   jurisdiction where         tax rate in state or         state or jurisdiction            (b) x (c) 
   related entity is               jurisdiction 
   subject to tax on or 
   measured by net 
   income or receipts 
                                                                                  
   Related entity’s aggregate effective tax rate (sum of amounts in column d) 

1 If the income from the transaction is nonapportionable income, use 100% or 0%. If a portion of the income is 
nonapportionable, you will need to prorate the apportionment percentage based on the ratio of apportionable income to 
nonapportionable income. 
 
Additional Information and Assistance 
 
Web Resources. 
 
The Department of Revenue’s web page has a library of common  questions on general business tax topics, including the 
addback and Schedule RT filing requirements. The FAQs are available at: revenue.wi.gov/faqs/index.html. 
 
You can also find additional FAQs on the addback and Schedule RT filing requirements in the Wisconsin Tax Bulletin 
quarterly publication, issues #158 (October 2008) and #159 (January 2009). The Wisconsin Tax Bulletin is available on 
the department’s web site at: revenue.wi.gov/ise/wtb/index.html. 
 
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 
•  Write to the Audit Bureau, Wisconsin Department of Revenue, Mail Stop 3-107, PO Box 8906, Madison, WI 
   53708-8906 
 
                                       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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