Can a Tennessee series LLC with dozens of individual series file one combined franchise and excise tax return, or does every series have to file its own separate return?

Plain-English summary

A Tennessee series LLC (a special LLC structure that can create internal "series," each with its own separate liability shield) is wholly owned by a limited partnership. The plan: transfer the LP's rental properties into individual series, one property per series, eventually reaching up to thirty separate series -- so a problem with one property's liability can't reach the others. For federal tax purposes, the SLLC and every series are "disregarded" and simply reported on the LP's own federal return. The SLLC asked whether it could similarly file just one combined Tennessee franchise and excise (F&E) tax return covering all the series, rather than a separate return for each.

The Department said no -- every series, plus the SLLC itself, must file its own separate return. The reasoning ran through two questions:

1. Is each series a separate "entity" at all for Tennessee tax purposes? Yes. Tennessee's series-LLC statute (part of the 2006 amendments to the TRLLCA) has a "Separateness of series" provision: as long as certain formalities are followed (notice in the articles of organization, separate books/records per series), each series' debts and liabilities are enforceable only against that series' own assets -- not against the SLLC generally or any other series. Because a tax liability is a kind of liability, the Department read this as clear legislative intent that each series stands as its own entity for state tax purposes -- reinforced by other TRLLCA provisions that expressly call each series a "separate LLC" for things like voting rights, profit distributions, and membership transfers. The fact that federal "check-the-box" tax regulations (2010 proposed/amended Treasury regulations) also treat each series as its own entity for determining federal classification reinforced the same conclusion at the state level, since Tennessee's LLC classification generally follows the federal classification.

2. Even though each series is "disregarded" federally, does that let it skip filing its own Tennessee return? No -- because Tennessee's disregarded-entity pass-through rule is narrower than the federal one. Tennessee generally requires every taxpayer to file its own separate F&E return, with one specific exception: a single-member LLC that's disregarded for federal purposes AND wholly owned by a corporation doesn't have to file separately (it just gets folded into its corporate owner's return). Here, each series (and the SLLC itself) is a disregarded single-member LLC, but its single member/owner is a limited partnership, not a corporation -- so the exception doesn't apply, and each one has to file on its own. The Department also noted the SLLC's own return will likely carry only minimal tax liability unless it holds assets separate from its series, and flagged that Tennessee has no combined/consolidated F&E return option for affiliated groups generally (only a net-worth consolidation election for the franchise tax base, which still requires each member to file separately).

What this means for you

Series LLCs owning Tennessee real estate or other liability-sensitive assets

Don't assume the liability-separation benefit of a series structure comes with a filing-consolidation benefit for Tennessee taxes -- it doesn't. Every series, and the parent SLLC, is its own separate F&E taxpayer with its own return and (at minimum) the $100 minimum franchise tax, unless each series happens to be wholly owned by a corporation specifically (not a partnership, individual, or other LLC).

Accountants and tax professionals administering series LLCs

The key structural lever here is Tennessee's narrower disregarded-entity carve-out (§§ 67-4-2007(d), 67-4-2106(c)): it ONLY excuses separate filing for single-member LLCs wholly owned by a corporation. If your series LLC's series are owned by an LP, individual, trust, or another LLC instead, expect separate F&E returns for every series regardless of the federal "disregarded" treatment. Budget for the $100 minimum franchise tax (§ 67-4-2119) per series with no positive net worth or Tennessee property.

Common questions

Q: Can a series LLC file one combined Tennessee franchise and excise tax return for all its series?
A: No. Each series must file its own separate F&E return, and so must the parent SLLC -- there's no combined-filing option under Tennessee's series-separateness statute.

Q: If a series is a disregarded entity for federal tax purposes, does that mean it doesn't need to file a Tennessee return either?
A: Only if the series is a single-member LLC wholly owned by a CORPORATION. Ownership by a limited partnership, individual, or other non-corporate owner doesn't qualify for that exception, so the series must file its own separate Tennessee return.

Q: Does each series at least owe less in franchise tax by being small?
A: A series with no positive net worth and no real/tangible Tennessee property still owes a minimum $100 franchise tax -- there's no de minimis exemption from filing.

Q: Can another series LLC rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. Confirm your own series LLC's ownership structure and formalities with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2007(a) (Supp. 2010) (excise tax on persons doing business in Tennessee); §§ 67-4-2105(a), 67-4-2106(a) (Supp. 2010) (franchise tax on net worth)
• § 67-4-2004(37) (Supp. 2010) ("person" subject to F&E tax, including LLCs)
• §§ 67-4-2007(e)(1), 67-4-2106(c) (separate-entity filing requirement)
• §§ 67-4-2007(d), 67-4-2106(c) (F&E classification follows federal classification; disregarded-LLC exception limited to corporate-owned single-member LLCs)
• § 48-249-101 et seq. (Tennessee Revised Limited Liability Company Act)
• § 48-249-309(a), (b), (d)-(h) (Supp. 2010) (series LLC formation; "Separateness of series" liability shield; each series treated as a "separate LLC" for various purposes)
• § 48-249-1003 (Supp. 2010) (LLC state tax classification follows federal classification)
• § 67-4-2103(d) (2006) (net-worth consolidation election for franchise tax; no combined/consolidated F&E return)
• § 67-4-2119 (2006) (minimum $100 franchise tax)

Federal authority cited by the ruling:

• Prop. Treas. Reg. §§ 301.6011-6, 301.6071-2, 301.7701-1(a)(5); amended Treas. Reg. §§ 301.7701-1(e), (f) (Sept. 13, 2010; 75 Fed. Reg. 55699) (each series treated as a separate entity for federal tax classification)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/fae/11-42fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-42
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.

SUBJECT
Whether each individual series of a series limited liability company must file as a separate entity
for Tennessee franchise and excise tax purposes.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[SLLC] was organized on [DATE], as a Tennessee series limited liability company. The SLLC is
wholly owned by the [LP]; each of the SLLC’s [SERIES] is also wholly owned by the LP.
The LP currently owns a number of rental properties but plans to transfer ownership of such
properties to the [SERIES]. It is anticipated that each [SERIES] will hold title to a separate piece
of rental property in order to separate and mitigate certain liabilities associated with the
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ownership of such property. Once the LP has completed the transfers of title, it is expected that
[SLLC] will contain upwards of thirty separate series.
For federal tax purposes, the SLLC and each [SERIES] are disregarded to the LP and are
included on the LP’s federal income tax return.
QUESTION
May the SLLC file a single Tennessee franchise and excise tax return that reports the activities of
all of the [SERIES]?
RULING
No. The SLLC and each individual [SERIES] must file its own separate return for Tennessee
franchise and excise tax purposes.
ANALYSIS
Tennessee imposes an excise tax on all persons, as defined under TENN. CODE ANN. § 67-42004(37) (Supp. 2010), doing business within Tennessee. TENN. CODE ANN. § 67-4-2007(a)
(Supp. 2010). Tennessee also imposes a franchise tax at the rate of $0.25 per $100, or major
fraction thereof, on the net worth of a person doing business in Tennessee, pursuant to TENN.
CODE ANN. §§ 67-4-2105(a) (Supp. 2010) and 67-4-2106(a) (Supp. 2010).1 Persons subject to
the Tennessee franchise and excise taxes include, but are not limited to, limited liability
companies. TENN. CODE ANN. § 67-4-2004(37). With certain limited exceptions, each taxpayer is
considered a “separate and single business entity” for Tennessee franchise and excise tax
purposes and must file a franchise and excise tax return on a separate entity basis. TENN. CODE
ANN. §§ 67-4-2007(e)(1) and 67-4-2106(c).
The threshold question in the determination of whether the SLLC may file a single Tennessee
franchise and excise tax return that includes the [SERIES] is whether each individual series is
considered a separate entity for Tennessee state tax purposes. As explained below, each
individual series must be treated as a separate entity.
The Tennessee Revised Limited Liability Company Act, TENN. CODE ANN. § 48-249-101 et seq.
(the “TRLLCA”) permits the establishment of a limited liability company by filing articles of
organization with the Tennessee Secretary of State, as set forth in TENN. CODE ANN. § 48-249201(a) (Supp. 2010).
The TRLLCA was amended in 2006 to permit the establishment of one or more designated series
within a limited liability company. The limited liability company’s articles of organization or
operating agreement may “establish, or provide for the establishment of, one (1) or more
designated series of members, holders, managers, directors, membership interests or financial

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Note that, under TENN. CODE ANN. § 67-4-2108(a)(1) (Supp. 2010), the franchise tax base “shall in no case be less
than the actual value of the real or tangible property owned or used in Tennessee, excluding exempt inventory and
exempt required capital investments.” For purposes of this section, “property” is to be “valued at cost less
accumulated depreciation in accordance with generally accepted accounting principles.” TENN. CODE ANN. § 67-42108(a)(3).

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rights having separate rights, powers or duties, with respect to specified property or obligations
of the LLC, or profits and losses associated with specified property or obligations, and any such
series may have a separate business purpose or investment objective.” TENN. CODE ANN. § 48249-309(a) (Supp. 2010).
If certain statutory requirements are met,2 each series of a series limited liability company must
be treated as a separate entity with respect to the “debts, liabilities, obligations and expenses” of
the series. Specifically, TENN. CODE ANN. § 48-249-309(b) (“Separateness of series”) provides
that “the debts, liabilities, obligations and expenses incurred, contracted for or otherwise
existing, with respect to a particular series … shall be enforceable against the assets of such
series only, and not against the assets of the limited liability company generally, or any other
series of the LLC.” (Emphasis added.) Additionally, none of the debts, liabilities, obligations, or
expenses of the limited liability company generally, or of another series, are enforceable against
the assets of the series when the statutory requirements are met. Id.
Because a tax constitutes a liability or obligation, the tax liability of a particular series is
enforceable only against the assets of that series. The clear intent of TENN. CODE ANN. § 48-249309(b), which is titled “Separateness of series,” is therefore for each series to be treated as a
separate entity for Tennessee state tax purposes. This conclusion is strongly supported by
additional provisions of the TRLLCA that expressly state that each series “shall” be treated as a
“separate LLC” for various purposes, including the classification of interests and voting rights;
rights to shares of profits and distributions; management duties, admission of members, and
transfers of memberships; and termination. TENN. CODE ANN. § 48-249-309(d)-(h).
Additionally, the fact that each series is treated as a separate entity for federal tax purposes
strongly suggests that each series must also be treated as a separate entity for Tennessee state tax
purposes. The federal tax classification of a limited liability company generally governs its
classification for Tennessee state tax purposes. TENN. CODE ANN. § 48-249-1003 (Supp. 2010)
provides that, “[f]or purposes of all state and local Tennessee taxes, a domestic or foreign LLC
shall be treated as a partnership or an association taxable as a corporation, as such classification
is determined for federal income tax purposes.”3 Thus, for state tax purposes, a limited liability
company will be treated as a corporation, partnership, or disregarded entity in the same manner
as it is for federal purposes.
Importantly, applicable federal regulations treat each series as a separate entity for the purpose of
determining federal tax classification. On September 13, 2010, the Internal Revenue Service
filed Prop. Treas. Reg. §§ 301.6011-6, 301.6071-2, and 301.7701-1(a)(5), and amended Treas.
2

TENN. CODE ANN. § 48-249-309(b)(1)(A) requires that the “LLC documents establish or provide for the
establishment of one (1) or more series.” While an operating agreement qualifies as an “LLC document,” TENN.
CODE ANN. § 48-249-309(b)(1)(C) requires that notice of the limitation on liabilities of a series be set forth in the
articles of organization, which are filed with the Secretary of State. TENN. CODE ANN. § 48-249-309(b)(1)(B)
requires that separate and distinct records be maintained for each series. Additionally, the assets associated with
each series must be “reflected and held in separate and distinct records, directly or indirectly, including through a
nominee or otherwise, and accounted for in such separate and distinct records separately from the other assets of the
LLC and the assets of any other series of the LLC.”
3

This provision (originally codified at TENN. CODE ANN. § 48-211-101) was enacted in 1994, before the publication
of the federal “check-the-box” regulations in late 1996. As a result, the provision does not specifically reference the
“disregarded” entity option now available under the federal regulations.

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Reg. §§ 301.7701-1(e) and (f).4 Under these proposed and amended federal regulations, each
series is treated as a separate entity. As a result, each series’ federal tax classification will be
determined separately under Treas. Reg. §§ 301.7701-2, 301.7701-3, and/or 301.7701-4. Thus, a
series with one owner is treated either as a corporation or as disregarded to its owner, and a
series with two or more owners is treated either as a corporation or as a partnership.
Accordingly, each individual series must be treated as a separate limited liability company for
Tennessee franchise and excise tax purposes.
The second question in the determination of whether the SLLC may file a single Tennessee
franchise and excise tax return that includes the [SERIES] is whether the [SERIES] are treated as
entities that are disregarded to the SLLC for franchise and excise tax purposes.
As noted above, each taxpayer is generally considered a “separate and single business entity” for
franchise and excise tax purposes and must file a franchise and excise tax return on a separate
entity basis. TENN. CODE ANN. §§ 67-4-2007(e)(1) and 67-4-2106(c). However, a limited
liability company will nevertheless be disregarded to its owner for franchise and excise tax
purposes under certain circumstances. In such instances, the limited liability company will not
file a separate return; rather, it will be included on the return of its owner.
TENN. CODE ANN. §§ 67-4-2007(d) and 67-4-2106(c) provide that, for purposes of Tennessee
franchise and excise taxation, a business entity will be classified as a corporation, partnership, or
other type of business entity, consistent with the way the entity is classified for federal income
tax purposes. However, TENN. CODE ANN. §§ 67-4-2007(d) and 67-4-2106(c) further provide
that “entities that are disregarded for federal income tax purposes, except for limited liability
companies whose single member is a corporation, shall not be disregarded” for Tennessee
franchise and excise tax purposes. In other words, a limited liability company that is wholly
owned by a corporation and that is disregarded for federal income tax purposes will be
disregarded for Tennessee franchise and excise tax purposes as well. All other federally
disregarded limited liability companies are treated as separate entities for franchise and excise
tax purposes. TENN. CODE ANN. §§ 67-4-2007(e)(1) and 67-4-2106(c).
As explained below, each [SERIES] is properly considered a separate entity for franchise and
excise tax purposes.
To be disregarded under TENN. CODE ANN. §§ 67-4-2007(d) and 67-4-2106(c), a particular
[SERIES] must 1) constitute a single member limited liability company; 2) be classified as a
disregarded entity for federal income tax purposes; and 3) be wholly owned by a corporation. If
any of these requirements are not met, the [SERIES] will be treated as a separate entity for
franchise and excise tax purposes.
The facts indicate that [LP] is the single member of each of the [SERIES] and that each
[SERIES] is classified as a disregarded entity for federal income tax purposes. Thus, while a
particular [SERIES] does in fact constitute a single member limited liability company and is
classified as a disregarded entity for federal income tax purposes, the series is not wholly owned
by a corporation. Rather, each [SERIES] is wholly owned by a limited partnership. Accordingly,
each [SERIES] is properly considered a separate entity for franchise and excise tax purposes.
4

F.R. Doc. 2010-22793; 75 Fed. Reg. 55699 et seq.

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Because the [SERIES] do not meet the requirements under TENN. CODE ANN. §§ 67-4-2007(d)
and 67-4-2106(c) to be treated as disregarded entities, each such series must file its own separate
Tennessee franchise and excise tax return.5
Note that the SLLC must also file a separate Tennessee franchise and excise tax return, for the
same reasons discussed above with respect to the [SERIES] (i.e., it is a single member limited
liability company that is disregarded for federal tax purposes, but is wholly owned by a limited
partnership instead of a corporation). However, unless the SLLC holds assets and/or has business
activities in its own right separate and apart from the series, it will likely have only a minimal tax
liability.6

Kristin Husat
Senior Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

09/06/2011

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The franchise and excise tax statutes do not permit affiliated groups to elect to file a single combined or
consolidated return. TENN. CODE ANN. § 67-4-2103(d) (2006) does allow an affiliated group to elect to compute its
net worth on a consolidated basis for franchise tax purposes. However, each member of the group must nevertheless
still file its own separate franchise and excise tax return.
6

An entity with no positive net worth and no real or tangible property owned or used in Tennessee must pay a
minimum franchise tax of $100. TENN. CODE ANN. § 67-4-2119 (2006).

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