franchise and excise tax

Two of my clients have already contacted me about the renewal form sent to them by the Tennessee Department of Revenue regarding the exemption of their LLC from Tennessee franchise and excise tax.  If your LLC (or limited partnership) is exempt from Tennessee franchise and excise tax, it is very important to fill out this form each year.  You do not have to pay anything to renew the exemption. 

The most common exemption is obligated member entity (“OME”).  The OME exemption applies when the members waive liability protection.  If you are relying on this exemption, check the obligated member entity box and all the boxes on Schedule F.  Additionally, if any new members have been admitted, they must sign an Amendment to the Articles of Organization that waives liability protection and file it with the Tennessee Secretary of State. 

The two most common other exemptions for our clients are the family owned non-corporate entity (“FONCE”) and the farming/personal residence exemptions.  My recommendation is to allow your CPA who prepares the tax return for the LLC to complete the form, if you are relying on either of these exemptions.  There is information from the LLC’s federal income tax return (Form 1065) that will be needed. 

Not all LLCs are exempt from franchise and excise taxes.  Generally, these LLCs operate a business or own commercial real estate.  Even though not exempt, the earnings from an LLC operating a business may not be subject to tax if they are treated as self-employment income by the owners of the LLC for federal income tax purposes.  No application for exemption is filed to claim this benefit.

In summary, you can avoid an unpleasant tax bill for your LLC if you or your CPA annually renews the exemption of your LLC from Tennessee franchise and excise taxes.

A lot of my clients recently received a Franchise and Excise Tax Annual Exemption Renewal Form from the Tennessee Department of Revenue. This form applies to Limited Liability Companies and Limited Partnerships that claim an exemption from Tennessee Franchise and Excise Taxes.

The three most common exemptions that apply to my clients are the obligated member entity (“OME”) exemption, the family-owned non-corporate entity (“FONCE”) exemption, and the farm exemption. If your company qualifies for one of these exemptions, you need to fill out the renewal form with the help of your CPA and send it to the Department of Revenue no later than April 15, 2010. If your company qualifies for an exemption and you have not received the form, you can get the form at http://tennessee.gov/revenue/forms/fae/fae183.pdf, or you can call the Department of Revenue at (615) 253-0600.

If you do not file the form by April 15, 2010, you will lose your exemption for 2009. The Department has the discretion to allow a late filing. If they allow a late filing, they will charge you a $1,000 penalty.