When a corporate parent eliminates an affiliate through dissolution, merger into the parent, conversion to a single-member LLC, or an F reorganization, does the parent (or its financial institution unitary group) get to use that affiliate's unused Tennessee net operating loss carryforward?

Subject

Whether a parent corporation succeeds to an eliminated affiliate's Tennessee net operating loss carryforward for franchise and excise tax purposes.

Plain-English summary

The Tennessee Department of Revenue ruled that a parent corporation generally cannot inherit an eliminated affiliate's unused Tennessee net operating loss (NOL) carryforward for franchise and excise (F&E) tax purposes — no matter which of four common elimination methods was used, and no matter whether either company is a financial institution — with one narrow exception for financial institution unitary groups.

Tennessee treats each taxpayer as a separate entity for NOL purposes. A loss carryforward transfers to a successor only in the specific case where a predecessor merges out of existence into a successor that has no income, expenses, assets, liabilities, equity, or net worth of its own — essentially, an empty shell. That narrow gateway closed all four scenarios in this ruling:

• Dissolution: the affiliate liquidates its assets to the parent and dissolves — its NOL simply doesn't survive, since it never merged into anything.
• Merger into the parent: the parent (an active operating company with its own income, assets, etc.) isn't the kind of "empty shell" successor the statute requires, so the affiliate's NOL doesn't transfer.
• Conversion to a single-member LLC (SMLLC) owned by the parent: Tennessee treats this as economically identical to a merger — the SMLLC becomes a disregarded division of the parent — so the same "no NOL survives" result applies.
• F reorganization (26 U.S.C. § 368(a)(1)(F)): since an F reorganization can't involve merging two active operating companies together (it only covers a "mere change in identity, form, or place of organization," typically merging into a shell), and both companies here are active operating businesses, this doesn't qualify as a true F reorganization in the first place — so no NOL transfers.

The one exception: a financial institution unitary group can continue using an NOL generated by a group member that underwent a genuine F reorganization, as long as that member is still part of the unitary group at the end of the tax year — because unitary groups compute combined net earnings across all current members rather than treating each as a fully separate taxpayer. That exception doesn't extend to dissolution, straight mergers, or SMLLC conversions, even within a unitary group — those still forfeit the NOL. The ruling also confirms none of these outcomes change based on whether the parent, the affiliate, or both are financial institutions (outside the narrow F-reorganization/unitary-group exception), and an NOL generated before an affiliate became a financial institution doesn't get special treatment either.

What this means for you

Corporate groups planning restructurings, M&A integration, or entity simplification

If an affiliate you're planning to eliminate — by dissolution, upstream merger, or SMLLC conversion — carries an unused Tennessee NOL, expect to lose that NOL entirely unless the successor entity is truly an empty shell with no income, expenses, assets, liabilities, equity, or net worth of its own. Simplifying your corporate structure by merging subsidiaries into an active parent is a common and often tax-neutral move federally, but it can be a permanent Tennessee NOL forfeiture if the disappearing entity has carryforwards on its books — factor that into the sequencing and economics of any restructuring.

Financial institution groups

The unitary-group exception for F reorganizations is narrow and specific: it only helps if the loss-generating member remains inside the unitary group through year-end and the transaction is a genuine F reorganization (not a merger of two active operating companies mislabeled as one). Don't assume it extends to dissolutions or straight mergers even within the same unitary group.

Accountants and tax professionals

This ruling walks through Tenn. Code Ann. § 67-4-2006(c)(2)-(4) methodically across four elimination scenarios and cites AT&T Corporation v. Johnson and Little Six Corporation v. Johnson for the baseline rule that NOLs don't survive to a successor taxpayer. The F-reorganization analysis is a useful federal/state contrast point: a transaction that qualifies as tax-free under 26 U.S.C. § 368(a)(1)(F) federally can still fail to preserve state NOLs if it doesn't meet the narrower fact pattern (shell-corporation successor) that provision was designed around.

Common questions

Q: Does merging a subsidiary into its parent preserve the subsidiary's Tennessee NOL carryforward?
A: Generally no. The NOL only survives if the surviving (successor) entity has no income, expenses, assets, liabilities, equity, or net worth of its own — an active parent corporation doesn't meet that test.

Q: Does converting a subsidiary to a single-member LLC preserve its NOL?
A: No. Tennessee treats this conversion as equivalent to a merger of the subsidiary into the parent, so the same NOL-forfeiture analysis applies.

Q: Is there any way a group can keep using an eliminated affiliate's NOL?
A: Only in the narrow case of a financial institution unitary group where the affiliate underwent a genuine F reorganization and remains a member of the unitary group at year-end.

Q: Does it matter whether the parent or affiliate is a financial institution?
A: Not by itself. Financial institution status only matters when it triggers the specific unitary-group F-reorganization exception described above; otherwise the standard separate-entity NOL rules apply regardless of financial institution status.

Q: Does this ruling bind the Department for other corporate groups?
A: No. This is a Revenue Ruling — advisory only and not binding on the Department, even for the taxpayer who requested it.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 67-4-2007(a); § 67-4-2004(29) (excise tax on net earnings; persons subject to tax)
• Tenn. Code Ann. § 67-4-2006(a)(1) (definition of "net earnings"/"net loss")
• Tenn. Code Ann. § 67-4-2006(c)(1)-(4) (NOL carryforward rules; shell-successor exception; financial institution unitary group exception)
• Tenn. Code Ann. §§ 67-4-2007(d), 67-4-2106(c) (disregarded SMLLC treated as a division of its corporate parent)
• Tenn. Code Ann. § 67-4-2007(e)(1)-(2) (separate-entity filing rule; financial institution unitary group combined return)
• 26 U.S.C. § 368(a)(1)(F) (federal "F reorganization" definition; cannot merge two active operating companies)
• AT&T Corporation v. Johnson, 148 S.W.3d 74 (Tenn. Ct. App. 2004); Little Six Corporation v. Johnson, 1999 WL 336308 (Tenn. Ct. App. 1999) (NOLs don't survive to a successor taxpayer)

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/07-14fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 07-14
WARNING
Revenue rulings are not binding on the Department. This presentation of the ruling in a
redacted form is information only. Rulings are made in response to particular facts
presented and are not intended necessarily as statements of Departmental policy.

SUBJECT
The use by a parent corporation of a subsidiary corporation’s net operating loss carryforward,
where the subsidiary has either dissolved, merged into the parent, converted to a single member
limited liability company, or undergone a reorganization pursuant to 26 U.S.C. § 368(a)(1)(F).
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
The Taxpayer is the ultimate parent corporation in a large affiliated group, which files a
consolidated federal income tax return. The Taxpayer is incorporated and commercially
domiciled outside of Tennessee. However, the Taxpayer is subject to tax within Tennessee, and
has filed Tennessee tax franchise and excise tax returns.
Over the last several years, the Taxpayer has streamlined its operations through transactions
involving third parties, as well as internal restructurings that eliminated affiliates no longer
deemed necessary to the organization. Elimination of entities pursuant to the internal
restructuring was accomplished through (1) dissolution of the affiliate, (2) merger of the affiliate
into the Taxpayer or (3) conversion of the affiliate from a corporation to a disregarded single
member limited liability company wholly owned by the Taxpayer (“SMLLC”). The Taxpayer
has also suggested that certain affiliates may undergo a tax-free reorganization pursuant to 26
U.S.C. § 368(a)(1)(F) (an “F reorganization”). Certain of these affiliates had unused Tennessee
net operating loss (“NOL”) carryforwards.
QUESTIONS
1.
Is the Taxpayer entitled to use a Tennessee NOL carryforward generated by an affiliate
that has (1) dissolved, (2) merged into the Taxpayer, (3) converted to a disregarded SMLLC
wholly-owned by the Taxpayer, or (4) undergone an F reorganization?
2.
Does the result in Question #1 change if the Taxpayer and its affiliate are both financial
institutions?

3.
Does the result in Question #1 change if the Taxpayer is a financial institution, but the
affiliate is not?
4.
Does the result in Question #1 change if the Taxpayer is not a financial institution, but
the affiliate is?
5.
Do the results in Questions #1-#4 change based on whether the affiliate was legally
dissolved, merged out of existence or converted?
6.
If the affiliate originally filed Tennessee franchise and excise tax returns as a corporation
and subsequently began to file as a financial institution before the dissolution, merger or
conversion, will the affiliate’s NOL carryforward that was generated when it was filing as a
corporation succeed to the Taxpayer upon the affiliate’s dissolution, merger or conversion?
RULINGS
1.
No. The Taxpayer may not use the NOL carryforward of an affiliate that has (1)
dissolved; (2) merged out of existence and into the Taxpayer; (3) converted from a corporation to
a SMLLC wholly owned by the Taxpayer; or (4) been a party to an F reorganization.
2.
No. The result in Question #1 does not change if the Taxpayer and its affiliate are
members of one financial institution unitary group. However, the Taxpayer’s financial institution
unitary group may use the NOL carryforward generated by a group member that has been a party
to an F reorganization, provided that the affiliate is in existence as a member of the unitary group
at the end of the unitary group’s tax year.
3.
No. The result in Question #1 does not change if the Taxpayer is a financial institution,
but the affiliate is not.
4.
No. The result in Question #1 does not change if the affiliate is a financial institution, but
the Taxpayer is not.
5.
No. The results in Questions #1-#4 do not change based on whether the affiliate was
legally dissolved, merged out of existence or converted.
6.

No. The Taxpayer is not entitled to use the NOL carryforward generated by its affiliate.
ANALYSIS

Tennessee imposes an excise tax at the rate of 6.5 percent on the “net earnings” of certain
persons doing business within Tennessee. Tenn. Code Ann. § 67-4-2007(a). Persons subject to
the excise tax include, but are not limited to, corporations and limited liability companies. Tenn.
Code Ann. § 67-4-2004(29). Tenn. Code Ann. § 67-4-2006(a)(1) defines “net earnings” or “net
loss” of a corporation as “federal taxable income or loss before the operating loss deduction and
special deductions provided for in 26 U.S.C. §§ 241-247 and 249, and as adjusted by subsections
(b) and (c) of this section.”

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Tenn. Code Ann. § 67-4-2006(c)(1) permits a taxpayer to deduct a net operating loss from its net
earnings in the computation of its Tennessee excise tax liability; qualified net operating losses
may be carried forwarded and deducted for up to fifteen years.
Tenn. Code Ann. § 67-4-2006(c)(2) provides that, except for unitary groups of financial
institutions, each taxpayer is considered a separate entity. In the case of mergers, consolidations,
and like transactions, no loss carryforwards incurred “by the predecessor taxpayer are allowed as
a deduction from net earnings on the excise tax return filed by the successor taxpayer.” See AT &
T Corporation v. Johnson, 148 S.W.3d 74 (Tenn.Ct.App. 2004) (holding that taxpayer was not
entitled to use of net operating loss incurred by predecessor); Little Six Corporation v. Johnson,
1999 WL 336308 (Tenn.Ct.App. No. 01-A-01-9806-CH00285, May 28, 1999) (holding that
taxpayer was not entitled under TENN. COMP. R. & REGS. § 1320-6-1-.21(2)(d) to use of net
operating loss incurred by predecessor). Id. Tenn. Code Ann. § 67-4-2006(c)(2) further provides
that “a loss carryforward may be taken only by the taxpayer that generated it, with the exception
set forth in Tenn. Code Ann. § 67-4-2006(c)(3).” Id. Tenn. Code Ann. § 67-4-2006(c)(3)
provides that when a taxpayer merges out of existence and into a successor taxpayer that has “no
income, expenses, assets, liabilities, equity or net worth,” any qualified Tennessee loss carryover
of the predecessor that merged out of existence shall be available for carryforward and deduction
from the net earnings of the surviving successor.
Tenn. Code Ann. § 67-4-2006(c)(4) provides that a unitary group of financial institutions may
take “any qualified loss carryforward that was generated by any group member that is in
existence as a member of the group at the end of the group’s tax year; provided, that such loss
carryover has not previously been taken by the member itself before it joined the group or by
another unitary group of financial institutions at the time the financial institution generating the
loss was a member of that group; and provided, that the loss carryover shall be subject to the
limitations” set forth in the provisions relating to loss carryforwards.
1.

Use of the affiliate’s NOL carryforward if neither the Taxpayer nor the affiliate are
members of a financial institution unitary group.

For purposes of the Tennessee excise tax, the Taxpayer may not use the NOL carryforward of an
affiliate that has (1) dissolved; (2) merged out of existence and into the Taxpayer; (3) converted
from a corporation to a SMLLC wholly owned by the Taxpayer; or (4) been a party to an F
reorganization. It is assumed for purposes of this question that neither the Taxpayer nor the
affiliate are members of a financial institution unitary group.
As noted above, Tenn. Code Ann. § 67-4-2006(c)(1) permits a taxpayer to deduct a net operating
loss from its net earnings in the computation of its Tennessee excise tax liability; qualified net
operating losses may be carried forwarded and deducted for up to fifteen years. Tenn. Code Ann.
§ 67-4-2006(c)(2) provides that, except for unitary groups of financial institutions, each taxpayer
is considered a separate entity. In the case of mergers, consolidations, and like transactions, no
loss carryforwards incurred “by the predecessor taxpayer are allowed as a deduction from net
earnings on the excise tax return filed by the successor taxpayer.” Id. Tenn. Code Ann. § 67-42006(c)(2) further provides that “a loss carryforward may be taken only by the taxpayer that
generated it, with the exception set forth in Tenn. Code Ann. § 67-4-2006(c)(3).” Id. Tenn. Code
Ann. § 67-4-2006(c)(3) provides that when a taxpayer merges out of existence and into a

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successor taxpayer that has “no income, expenses, assets, liabilities, equity or net worth,” any
qualified Tennessee loss carryover of the predecessor that merged out of existence shall be
available for carryforward and deduction from the net earnings of the surviving successor.
1)
Dissolution of affiliate. In the event an affiliate makes a liquidating distribution of its
assets to the Taxpayer and subsequently dissolves, the affiliate’s NOL does not survive the
dissolution and the Taxpayer does not succeed to the affiliate’s NOL. As noted above, Tenn.
Code Ann. § 67-4-2006(c)(2) provides that a loss carryforward may be taken only by the
taxpayer that generated it, unless the taxpayer merges out of existence and into a successor
taxpayer that has “no income, expenses, assets, liabilities, equity or net worth.” In this case, the
affiliate has not merged into another entity; rather, it has liquidated its assets and dissolved.
Accordingly, the Taxpayer may not use the dissolved affiliate’s NOL carryforward.
2)
Merger of affiliate into Taxpayer. In the event an affiliate merges out of existence and
into the Taxpayer, the Taxpayer does not succeed to the affiliate’s NOL. Pursuant to Tenn. Code
Ann. §§ 67-4-2006(c)(2) and 67-4-2006(c)(3), the affiliate’s NOL carryforward will not be
allowed as a deduction from the net earnings of the Taxpayer unless the Taxpayer is a successor
taxpayer that has no income, expenses, assets, liabilities, equity or net worth. The facts presented
indicate that the Taxpayer has income, expenses, assets, liabilities, equity and/or net worth.
Accordingly, the Taxpayer is not the type of successor taxpayer that may succeed to the NOL of
the merged affiliate. The NOL of the affiliate will therefore not be available for carryforward and
deduction from the net earnings of the Taxpayer.
3)
Conversion of affiliate to a SMLLC under state law. In the event an affiliate converts
under state law from a corporation to a SMLLC wholly owned by the Taxpayer, the Taxpayer
does not succeed to the affiliate’s NOL.
A SMLLC 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. 1 The
disregarded SMLLC is treated as a division of its parent corporation. Thus, when a subsidiary
corporation converts to a SMLLC under state law, the subsidiary becomes a division of the
parent corporation for Tennessee franchise and excise tax purposes.
Such a conversion is tantamount to a merger of the subsidiary corporation out of existence and
into the parent corporation. Accordingly, the conversion of the affiliate corporation to a SMLLC
wholly owned by the Taxpayer is considered for Tennessee excise tax purposes to be a merger of
the affiliate out of existence and into the Taxpayer, with the Taxpayer as the successor entity.
Pursuant to Tenn. Code Ann. §§ 67-4-2006(c)(2) and 67-4-2006(c)(3), the affiliate’s NOL
carryforward will not be allowed as a deduction from the net earnings of the Taxpayer unless the
Taxpayer is a successor entity that has no income, expenses, assets, liabilities, equity or net
worth. As noted above, the facts presented indicate that the Taxpayer has income, expenses,
1

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 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. Tenn. Code Ann. §§ 67-4-2007(d) and 67-42106(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.

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assets, liabilities, equity and/or net worth. Accordingly, the Taxpayer is not the type of successor
taxpayer that may succeed to the NOL of the merged affiliate. The NOL of the affiliate will
therefore not be available for carryforward and deduction from the net earnings of the Taxpayer.
4)
F reorganization of affiliate. The Taxpayer has suggested that the Taxpayer would
succeed to the affiliate’s NOLs if the affiliate is a party to an F reorganization. The Taxpayer,
however, would not succeed to the affiliate’s NOL in the event the affiliate were a party to an F
reorganization. 26 U.S.C. § 368(a)(1)(F) provides that the term “reorganization” includes “a
mere change in identity, form, or place of organization of one corporation, however effected.”
[Emphasis added.] Importantly, an F reorganization cannot involve the merger or consolidation
of two separate operating companies. 2 Because the affiliate and the Taxpayer are both operating
companies, the merger of the two would not qualify as an F reorganization. As discussed above,
the Taxpayer would be unable to use the affiliate’s NOL after a merger of the affiliate into the
Taxpayer, because the Taxpayer would not be a successor entity that has no income, expenses,
assets, liabilities, equity or net worth. Note that an affiliate that has undergone an F
reorganization by merging out of existence and into a shell corporation would likely be able to
use NOLs generated before the reorganization.
2.

Use of the affiliate’s NOL carryforward if both the Taxpayer and the affiliate are
members of one financial institution unitary group.

For purposes of the Tennessee excise tax, the Taxpayer’s financial institution unitary group 3 may
not use the NOL carryforward generated by a group member that has (1) dissolved; (2) merged
out of existence and into the Taxpayer; or (3) converted from a corporation to a SMLLC wholly
owned by the Taxpayer. However, the Taxpayer’s financial institution unitary group may use the
NOL carryforward generated by a group member that has been a party to an F reorganization,
provided that the affiliate is in existence as a member of the unitary group at the end of the
unitary group’s tax year.
Tenn. Code Ann. § 67-4-2006(c)(1) permits a taxpayer to deduct a net operating loss from its net
earnings in the computation of its Tennessee excise tax liability; qualified net operating losses
may be carried forwarded and deducted for up to fifteen years. Tenn. Code Ann. § 67-42006(c)(4) provides that a unitary group of financial institutions may take “any qualified loss
carryforward that was generated by any group member that is in existence as a member of the
group at the end of the group’s tax year; provided, that such loss carryover has not previously
been taken by the member itself before it joined the group or by another unitary group of
2

Note that an F reorganization may involve two corporations under certain circumstances, such as the
reincorporation of the operating company in another state. Importantly, however, such F reorganizations are
accomplished through the use of a single operating company and a shell corporation. See H.R. Rep. No. 760, 97th
Cong., 2d Session (1982). For example, suppose that Corporation X wishes to reincorporate in another state. A shell
corporation, Y, is formed in the new state. Corporation X then merges into Corporation Y, with Corporation Y as the
surviving entity.
3

Tenn. Code Ann. § 67-4-2007(e)(2) provides that unitary groups of financial institutions must file a combined
Tennessee franchise and excise tax return and pay tax based on the apportioned combined net earnings of the entire
unitary group. One taxpayer must be designated to file the return. It is assumed for purposes of this ruling that, as
the parent corporation, the Taxpayer would be the entity that files the combined return on behalf of the unitary
group.

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financial institutions at the time the financial institution generating the loss was a member of that
group; and provided, that the loss carryover shall be subject to the limitations” set forth in the
provisions relating to net operating loss carryforwards.
1)
Dissolution of affiliate. In the event an affiliate that is a member of the Taxpayer’s
financial institution unitary group makes a liquidating distribution of its assets to the Taxpayer
and subsequently dissolves, the unitary group cannot use the NOL carryforward generated by the
affiliate. As noted above, Tenn. Code Ann. § 67-4-2006(c)(4) provides that the unitary group
may take any NOL carryforward “that was generated by any group member that is in existence
as a member of the group at the end of the group’s tax year.” By virtue of having dissolved, the
affiliate is not in existence as a member of the group at the end of the group’s tax year.
Accordingly, the NOL carryforward generated by the affiliate is not available for use by the
unitary group.
2)
Merger of affiliate into Taxpayer. In the event an affiliate that is a member of the
Taxpayer’s financial institution unitary group merges out of existence and into the Taxpayer, the
unitary group cannot use the NOL carryforward generated by the affiliate. As noted above, Tenn.
Code Ann. § 67-4-2006(c)(4) provides that the unitary group may take any NOL carryforward
“that was generated by any group member that is in existence as a member of the group at the
end of the group’s tax year.” By virtue of having merged out of existence and into the Taxpayer,
the affiliate is not in existence as a member of the group at the end of the group’s tax year.
Accordingly, the NOL carryforward generated by the affiliate is not available for use by the
unitary group.
3)
Conversion of affiliate to a SMLLC under state law. In the event an affiliate that is a
member of the Taxpayer’s financial institution unitary group converts under state law from a
corporation to a disregarded SMLLC wholly owned by the Taxpayer, the unitary group cannot
use the NOL carryforward generated by the affiliate. As discussed in the analysis of Question #1,
a disregarded SMLLC is treated as a division of its parent corporation for Tennessee franchise
and excise tax purposes. Upon converting to a SMLLC, the subsidiary corporation becomes a
division of the parent corporation. Such a conversion is tantamount to a merger of the subsidiary
corporation out of existence and into the parent corporation. Accordingly, the conversion of the
affiliate corporation to a disregarded SMLLC wholly owned by the Taxpayer is considered for
Tennessee excise tax purposes to be a merger of the affiliate out of existence and into the
Taxpayer. As noted above, Tenn. Code Ann. § 67-4-2006(c)(4) provides that the unitary group
may take any NOL carryforward “that was generated by any group member that is in existence
as a member of the group at the end of the group’s tax year.” By virtue of having merged out of
existence, the affiliate is not in existence as a member of the group at the end of the group’s tax
year. Accordingly, the NOL carryforward generated by the affiliate is not available for use by the
unitary group.
4)
F reorganization of affiliate. In the event that an affiliate that is a member of the
Taxpayer’s financial institution unitary group undergoes an F reorganization, the unitary group
may continue to use the NOL carryforward generated by the affiliate, provided that the affiliate
is in existence as a member of the unitary group at the end of the unitary group’s tax year.

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3.

Use of the affiliate’s NOL carryforward if the Taxpayer is a financial institution and the
affiliate is not.

The Taxpayer has asked whether the response to Question #1 would change if the Taxpayer were
a financial institution and the affiliate were not. The response to Question #1 would not change
under these facts.
Tenn. Code Ann. § 67-4-2007(e)(1) provides that, except for unitary groups of financial
institutions and business entities that have been required or permitted to file excise tax returns on
a combined, consolidated or separate accounting basis, each taxpayer is considered a separate
and single business entity for Tennessee excise tax purposes. Thus, if the affiliate is not a
financial institution, it will be considered a single business entity separate from the Taxpayer
(and the Taxpayer’s financial institution unitary group, if one exists). The analysis under
Question #1 therefore applies.
4.

Use of the affiliate’s NOL carryforward if the affiliate is a financial institution and the
Taxpayer is not.

The Taxpayer has asked whether the response to Question #1 would change if the affiliate were a
financial institution and the Taxpayer were not. The response to Question #1 would not change
under these facts.
Tenn. Code Ann. § 67-4-2007(e)(1) provides that, except for unitary groups of financial
institutions and business entities that have been required or permitted to file excise tax returns on
a combined, consolidated or separate accounting basis, each taxpayer is considered a separate
and single business entity for Tennessee excise tax purposes. Thus, if the Taxpayer is not a
financial institution, it will be considered a single business entity separate from the affiliate (and
the affiliate’s financial institution unitary group, if one exists). The analysis under Question #1
therefore applies.
5.

Change of results in Questions #1-#4.

The Taxpayer has asked whether the results in Questions #1-#4 would change based on whether
the affiliate was legally dissolved, merged out of existence or converted to a SMLLC. The
analysis of Questions #1-#2 discusses each of these scenarios in detail.
6.

Use of the affiliate’s NOL carryforward if the affiliate generated the NOL before
becoming a financial institution, and the affiliate dissolves, merges or converts to an
SMLLC.

The Taxpayer has asked whether the NOL carryforward would be available to the Taxpayer if
the affiliate incurred the NOL before becoming a financial institution, and the affiliate dissolves,
merges or converts to an SMLLC after becoming a financial institution.
The Taxpayer would not succeed to the NOL carryover of the affiliate under this scenario. If the
Taxpayer is not a financial institution, the analysis provided under Question #1 applies. If the
Taxpayer is a member of a financial institution unitary group, and the affiliate was a member of

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that group before its dissolution, merger or conversion, the analysis provided under Question #2
applies.

Kristin Husat
Tax Counsel

APPROVED:

Reagan Farr
Commissioner of Revenue

DATE:

05/03/07

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