United States

Tennessee: Irish Private Limited Company did not Qualify as Disregarded Entity for Franchise and Excise Tax

Oct 26, 2015
From KPMG TaxWatch

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Recently, the Tennessee Department of Revenue addressed whether an Irish private limited company, which was planning on electing to be treated as a disregarded entity for federal tax purposes, would likewise be disregarded for Tennessee franchise and excise tax purposes. Persons, including corporations and LLCs, doing business within Tennessee are subject to both a franchise tax on net worth, as well as an excise tax on net earnings. Generally, federally disregarded entities are regarded for Tennessee franchise and excise tax.  There is an exception, however, for single-member LLCs disregarded for federal income tax purposes that are wholly-owned by a corporation. The taxpayer requested a letter ruling as to whether the Irish entity would be disregarded.

The Irish private limited company with Tennessee nexus was wholly-owned by another Irish private limited company. At the federal level, an Irish private limited company is classified by default as a corporation. For Tennessee tax purposes, the Department interprets the term “corporation” to include an entity formed under another country’s laws whose default classification under federal tax laws is as a corporation. Thus, the Department noted that once the taxpayer elected to be disregarded for federal tax purposes, it will have met two of the three requirements to be disregarded under Tennessee law. Notably, it would be wholly-owned by a corporation (the other Irish private limited company) and would be disregarded for federal tax purposes. However, the Department noted that the Irish private limited company would fail the test because it was not an LLC. Under Tennessee law, no incorporated entity, foreign or domestic, can qualify as an LLC. The relevant Irish authorities provided that an Irish private limited company was certified as an “incorporated” company after receiving a “certificate of incorporation”  and was therefore authorized to act in a “corporate” capacity.  Thus, the Department concluded that the Irish company was not an LLC and would therefore be regarded for Tennessee franchise and excise tax purposes. For more information on Franchise & Excise Tax Letter Ruling # 15-03, please contact Blair Norman at 615-248-5544. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.