An Irish private limited company that owns property in Tennessee will elect to be a disregarded entity for U.S. federal income tax. Will it still be a separate taxpayer for Tennessee franchise and excise tax, or can it be disregarded?

Plain-English summary

A multinational group (identities redacted) has a second-tier subsidiary that is an Irish private limited company. That subsidiary at times holds title to tangible personal property located in Tennessee, which is what connects it to Tennessee tax. By default, an Irish private limited company is treated as a C corporation for U.S. federal income tax. The subsidiary planned to file IRS Form 8832 to elect to be a disregarded entity for federal income tax, and asked whether it would then still be a separate taxpayer for Tennessee's franchise and excise (F&E) taxes — or whether being disregarded federally would also make it disregarded in Tennessee.

The Department said it stays a separate taxpayer and must file its own F&E return. Tennessee's F&E law generally follows the federal entity classification (corporation, partnership, etc.), but it carves out one important exception: entities that are disregarded for federal income tax are still NOT disregarded for Tennessee F&E — unless the entity is a single-member LLC whose single member is a corporation. Reading that exception, the Department spelled out a three-part test: to be disregarded for Tennessee F&E, an entity must be (1) a single-member LLC, (2) disregarded for federal income tax, and (3) wholly owned by a corporation.

The Irish subsidiary satisfies two of the three: after the Form 8832 election it will be federally disregarded, and it is wholly owned by a corporation. But it fails the first requirement — it is not a limited liability company. The term "LLC" is not defined in the F&E statutes, so the Department gave it its ordinary meaning under Tennessee's LLC Acts, under which no incorporated entity can qualify as an LLC. An Irish private limited company is an incorporated entity (it receives a certificate of incorporation and acts in a corporate capacity) and is a "foreign corporation" for Tennessee purposes. Because it remains a corporation, not an LLC, it cannot be disregarded for F&E and must register separately and file its own franchise and excise tax return.

What this means for you

Businesses using "check-the-box" disregarded entities in Tennessee

A federal Form 8832 election (or default disregarded status) does not automatically flow through to Tennessee franchise and excise tax. Tennessee disregards an entity for F&E only when all three are true: it is a single-member LLC, it is disregarded for federal income tax, and its single member is a corporation. Miss any one — most commonly, the entity is a corporation rather than an LLC — and it is a separate F&E taxpayer that must register and file on its own.

Foreign entities with Tennessee connections

Holding title to property in Tennessee can create an F&E filing obligation. A foreign company that is incorporated under its home country's law (like an Irish private limited company) is treated as a corporation for Tennessee F&E, regardless of how it is classified for U.S. federal income tax. Electing disregarded status federally will not let it merge into its owner's Tennessee return.

Accountants and tax professionals

The exception lives in §§ 67-4-2007(d) and 67-4-2106(c): a federally disregarded entity is not disregarded for F&E unless it is an SMLLC owned by a corporation. The Department reads "corporation" broadly (state-law corporations, default-corporation foreign entities, and Form 8832 corporate electors — see Notice 13-16) and reads "LLC" by reference to the Tennessee LLC Acts, under which an incorporated entity cannot be an LLC. Companion ruling LR 16-10 applies the same three-part test to domestic subsidiaries converting into SMLLCs.

Common questions

Q: I elected to disregard my entity on federal Form 8832. Is it disregarded for Tennessee F&E too?
A: Not automatically. Tennessee disregards an entity for franchise and excise tax only if it is a single-member LLC, disregarded for federal income tax, and wholly owned by a corporation. If your entity is a corporation rather than an LLC, it remains a separate Tennessee taxpayer and files its own F&E return.

Q: Why does the entity here have to file separately?
A: It is an Irish private limited company — an incorporated entity, i.e., a corporation. Tennessee disregards only LLCs (single-member, corporate-owned), and no incorporated entity can qualify as an LLC. So it fails the test even though it is federally disregarded and corporate-owned.

Q: Does a foreign company's U.S. federal tax classification control its Tennessee status?
A: For this exception, no. An entity incorporated under another country's laws is treated as a corporation for Tennessee franchise and excise tax regardless of its federal income tax classification, so it cannot be disregarded as an LLC.

Q: Can I rely on this letter 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. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2007 (excise tax — (a) 6.5% of net earnings; (d) classification follows federal, but a federally disregarded entity is not disregarded for F&E unless it is a single-member LLC owned by a corporation)
• § 67-4-2105(a), § 67-4-2106 (franchise tax of $0.25 per $100 of net worth; (c) restates the federal-classification rule and the single-member-LLC exception); § 67-4-2108(a) (minimum franchise tax base = value of real or tangible property in Tennessee)
• § 67-4-2004(38) (persons subject to the franchise and excise taxes, including corporations and LLCs)
• § 48-249-102(12), § 48-202-101(19) (definitions of "foreign LLC"; an incorporated entity cannot qualify as an LLC); § 48-11-201(19) ("foreign corporation")

Federal and Department guidance:

• Treas. Reg. § 301.7701-2 Ex. 3 (Irish private limited company's default federal classification is a C corporation); § 301.7701-3(c)(1) (Form 8832 disregarded-entity election)
• Tennessee Department of Revenue Notice 13-16 (Nov. 2013) (Department's reading of "corporation"); statutory-interpretation principle drawn from Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010)

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/15-03fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 15-03

Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and circumstances
presented, and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes, and is not intended as
a statement of Departmental policy. Taxpayers should consult with a tax professional before
relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee franchise and excise taxes to a foreign entity disregarded for
federal income 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 ruling herein is binding upon the
Department and 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

[PARENT] is a [REDACTED – DESCRIPTION OF ACTIVITIES]. [PARENT], through its wholly owned
subsidiary [FIRST SUBSIDIARY] (“[FIRST SUBSIDIARY]”), an Irish private limited company, [REDACTED DESCRIPTION OF ACTIVITIES]. [FIRST SUBSIDIARY] utilizes its wholly owned subsidiary, [SECOND

SUBSIDIARY] (“[SECOND SUBSIDIARY]”), based in [LOCATION], to [REDACTED - DESCRIPTION OF
ACTIVITIES]. [SECOND SUBSIDIARY] is also an Irish private limited company.
[REDACTED]. [SECOND SUBSIDIARY] at times retains title to [TANGIBLE PERSONAL PROPERTY]
[REDACTED] located in Tennessee.
[SECOND SUBSIDIARY], [REDACTED], was incorporated with approval of the Ireland Registrar of
Companies in [YEAR]. [SECOND SUBSIDIARY], upon formation, was treated as a C corporation for
U.S. federal income tax purposes, its default classification. However, [SECOND SUBSIDIARY] plans to
file Form 8832 with the Internal Revenue Service (“IRS”) electing to be treated as a disregarded entity
for U.S. federal income tax purposes.
RULING
Will [SECOND SUBSIDIARY], an Irish private limited company that elects to be treated as a
disregarded entity for U.S. federal income tax purposes, be considered a taxpayer for purposes of
the Tennessee franchise and excise taxes?
Ruling: [SECOND SUBSIDIARY] will be considered a separate taxpayer for Tennessee
franchise and excise tax purposes. Tennessee law only allows single member limited liability
companies whose single member is a corporation to be disregarded for purposes of the
Tennessee franchise and excise taxes. As [SECOND SUBSIDIARY] is not properly
characterized as a limited liability company for Tennessee franchise and excise tax purposes,
it will be required to file on a separate legal entity basis.
ANALYSIS
Tennessee imposes a franchise tax at the rate of $0.25 per $100, or major fraction thereof, on the
1
net worth of a person “doing business” in Tennessee. Tennessee also imposes an excise tax at the
2
rate of 6.5% on the net earnings of all persons doing business within Tennessee. Persons subject to
the Tennessee franchise and excise taxes include, but are not limited to, corporations and limited
3
liability companies. With certain limited exceptions, each taxpayer is considered a “separate and
single business entity” for Tennessee franchise and excise tax purposes and must file its Tennessee
4
franchise, excise tax return on a separate entity basis.

1

TENN. CODE ANN. §§ 67-4-2105(a) and -2106(a) (2013). Note that, under TENN. CODE ANN. § 67-4-2108(a)(1) (2013),
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.” According to TENN.
CODE ANN. § 67-4-2108(a)(3), for purposes of this section, “property” is to be “valued at cost less accumulated
depreciation in accordance with generally accepted accounting principles.”
2

TENN. CODE ANN. § 67-4-2007(a) (2013).

3

TENN. CODE ANN. § 67-4-2004(38) (2013). As explained in more detail below, an Irish private limited company is
generally considered to be a corporation for purposes of Tennessee law.
4

TENN. CODE ANN. §§ 67-4-2106(c) and -2007(d) (2013).

TENN. CODE ANN. §§ 67-4-2106(c) and -2007(d) (2013) provide that, for Tennessee franchise and excise
tax purposes, respectively, a business entity shall 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, these statutes further provide that “entities that are disregarded for federal
income tax purposes, except for limited liability companies whose single member is a corporation,
5
shall not be disregarded” for Tennessee franchise and excise tax purposes. Thus, to be disregarded
for Tennessee franchise and excise tax purposes, an entity must be (1) a single member limited
liability company; (2) disregarded for federal income tax purposes; and (3) wholly owned by a
corporation.
For purposes of TENN. CODE ANN. §§ 67-4-2106(c) and -2007(d), the Department has interpreted the
term “corporation” to include an entity formed as a corporation under state law; a non-corporate
entity whose default classification for federal tax purposes is to be treated as a corporation; an
entity formed under another country’s laws whose default classification for federal tax purposes is
6
to be treated as a corporation; and an entity that makes an election on federal Form 8832 (Entity
7
Classification Election) to be classified as a corporation for federal tax purposes.
Under Treas. Reg. § 301.7701-2 Ex. 3, an Irish private limited company has a default classification as
a C corporation for U.S. federal income tax purposes. Accordingly, both [SECOND SUBSIDIARY] and
[FIRST SUBSIDIARY] are currently treated as C corporations for purposes of the Tennessee franchise
and excise taxes. Upon filing Form 8832 with the IRS, [SECOND SUBSIDIARY] will be disregarded for
U.S. federal income tax purposes pursuant to Treas. Reg. § 301.7701-3(c)(1). As a result, [SECOND
SUBSIDIARY] will be a federally disregarded entity wholly owned by a corporation – meeting two of
the three requirements to be disregarded for Tennessee franchise and excise tax purposes.
[SECOND SUBSIDIARY] will not, however, be disregarded for franchise and excise tax purposes
because it cannot properly be characterized as a “limited liability company.” The term “limited
liability company” is not defined in the Tennessee franchise and excise tax laws, but plainly refers to
an entity qualified to do business in this state under the Tennessee Revised Limited Liability
8
Company Act, or its predecessor, the Tennessee Limited Liability Company Act. Both acts provide
means by which a foreign entity may qualify as a “foreign LLC” authorized to conduct business as a

5

Id.

6

See Treas. Reg. § 301.7701-2(b)(8) (West, Westlaw through July 30, 2015) (listing foreign entities that are
classified federally as corporations).
7

See
TENNESSEE
DEPARTMENT
OF
REVENUE,
NOTICE
13-16
(Nov.
2013),
http://tn.gov/assets/entities/revenue/attachments/13-16fe.pdf (last visited July 30, 2015).
8

available

at

See generally TENN. CODE ANN. §§ 48-201-101 to -247-202 (2013); TENN. CODE ANN. § 48-249-101 to -1019 (2013).
When a statutory term is left undefined, Tennessee courts may employ certain presumptions to give meaning
and effect to the words chosen by the General Assembly. Lee Med., Inc. v. Beecher, 312 S.W.3d 515, 526 (Tenn.
2010). For instance, the General Assembly is presumed to have known the “state of the law” and “its own prior
enactments” when it ratified the subject legislation. Id. Thus, when enacting TENN. CODE ANN. §§ 67-4-2106(c) and
-2107(d), it is presumed that the legislature was aware that the term “limited liability company” would be
interpreted consistently with the relevant acts governing the formation, qualification, and operation of entities
commonly referred to as “limited liability companies,” or “LLCs.”

9

limited liability company in this state. However, it is clear under both acts that no incorporated
10
entity may qualify as a limited liability company in this state. By extension, it is evident that no
incorporated entity, foreign or domestic, may be properly characterized as a “limited liability
company” for purposes of TENN. CODE ANN. §§ 67-4-2106(c) and -2007(d).
As an Irish private limited company, [SECOND SUBSIDIARY] is an incorporated entity under the
11
applicable Irish laws governing its formation and operation. The relevant Irish statutory authority
provides that any such company is certified as an “incorporated” company receiving a “certificate of
12
incorporation” authorized to act in a “corporate” capacity. Furthermore, as mentioned previously,
an Irish private limited company is classified by default as a C corporation for U.S. federal income
13
tax purposes.
Therefore, it is clear that [SECOND SUBSIDIARY] is more akin to and properly
treated as a corporation as that term is interpreted for Tennessee franchise and excise tax
14
purposes.
As [SECOND SUBSIDIARY] will remain a corporate entity even after electing to be disregarded for
federal income tax purposes, [SECOND SUBSIDIARY] may not be disregarded for Tennessee
franchise and excise tax purposes. Thus, [SECOND SUBSIDIARY] will be treated as a single and
separate business entity for Tennessee franchise and excise tax purposes and will be required to
separately register with the Department and file its own separate franchise and excise tax return.

9

See TENN. CODE ANN. § 48-202-101(19) (2013) (defining a “foreign LLC” for purposes of the Tennessee Limited
Liability Company Act); TENN. CODE ANN. § 48-249-102(12) (2013) (defining a “foreign LLC” for purposes of the
Tennessee Revised Limited Liability Company Act). Notably, both acts provide that the laws of the jurisdiction
where the foreign LLC was formed govern its formation and internal affairs. TENN. CODE ANN. § 48-246-101; TENN.
CODE ANN. § 48-249-901. Similarly, both acts allow a foreign LLC to retain, with certain exception, any name
designation allowed by the jurisdiction where it was formed. TENN. CODE ANN. § 48-207-101; TENN. CODE ANN. § 48249-106. Thus, it naturally follows that a foreign entity could qualify as an LLC even though it is not specifically
referred to as an “LLC” or “limited liability company” in its jurisdiction of formation.
10

The earlier act clearly defines a “foreign LLC,” in part, as an entity that is “not incorporated.” TENN. CODE ANN.
§ 48-202-101(19). The later act circuitously defines a “foreign LLC” as “a limited liability company formed under
the laws of a jurisdiction other than this state.” TENN. CODE ANN. § 48-249-102(12). Thus, while the later act drops
the specific requirement that the foreign entity be “not incorporated,” it is no less evident that a limited liability
company cannot simultaneously be a corporation. See BLACK’S LAW DICTIONARY (10th ed. 2014) (defining
“incorporate” as “to form a legal corporation”); TENN. CODE ANN. § 48-11-201(47) (West 2015) (defining
“unincorporated entity” for purposes of the Tennessee Business Corporation Act to include limited liability
companies).
11

Companies
Act
2014
(Act
No.
http://www.irishstatutebook.ie/pdf/2014/en.act.2014.0038.pdf.
12

Id.

13

Treas. Reg. § 301.7701-2 Ex. 3.

14

38/2014)

(Ir.),

available

at

See TENNESSEE DEPARTMENT OF REVENUE, NOTICE 13-16. Additionally, the Tennessee Business Corporation Act
defines a “foreign corporation” as “a corporation for profit incorporated under a law other than the laws of this
state.” TENN. CODE ANN. § 48-11-201(19) (West 2015)). Here, [SECOND SUBSIDIARY] was incorporated under the
Irish Companies Act [Year], and thus comes within the definition of “foreign corporation” for purposes of
Tennessee law, regardless of its federal income tax classification.

Caleb Barron
Assistant General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

September 23, 2015