How does Tennessee's excise tax treat a company's federal Subpart F income from foreign subsidiaries — is it a dividend, and when can the company deduct it?

Plain-English summary

The taxpayer is a U.S.-organized multinational corporation that does business in Tennessee and pays Tennessee's excise tax (a 6.5% tax on net earnings). Because it owns controlled foreign corporations (CFCs), the federal tax code's Subpart F anti-deferral rules force it to report some of those foreign subsidiaries' earnings on its U.S. return currently, even before the cash is distributed. The company asked two questions about how Tennessee's excise tax handles that "Subpart F income."

Question 1 — Is Subpart F income a "dividend" for Tennessee excise tax? Yes. Tennessee starts its "net earnings" from federal taxable income (§ 67-4-2006(a)(1)), so Subpart F income that is in the federal base flows into the Tennessee base. Tennessee's excise law doesn't define "dividend" or address Subpart F, but the Department treats Subpart F income as a dividend because that's consistent with the federal treatment — the income is included federally under rules that treat it as a deemed dividend in the first place.

Question 2 — Can the company deduct that Subpart F income? Only if it DIRECTLY owns 80% or more of the foreign corporation that generated it. Tennessee gives a deduction from net earnings for "dividends earned by a taxpayer who owns eighty percent (80%) or more of the outstanding capital stock of a corporation" (§ 67-4-2006(b)(2)(A)). The Department reads "owns" to mean direct ownership of the dividend-paying corporation. Critically, the federal constructive-ownership rules of IRC § 958 (which attribute indirectly held stock up to the parent to trigger Subpart F inclusion) do not apply to this Tennessee deduction. So a company can be forced to include Subpart F income from a corporation it owns only indirectly, yet be unable to deduct it because it doesn't directly own 80%.

The ruling walks four ownership structures:

• Scenario 1 — parent owns 100% of CFC 1, which owns 100% of CFC 2. Deduct the Subpart F income from CFC 1 (100% direct ownership). Do not deduct the income from CFC 2 — the parent owns CFC 2 only indirectly (through CFC 1), so it doesn't directly own 80%+ of CFC 2.
• Scenario 2 — CFC 2 is held through a wholly-owned single-member LLC (SMLLC) disregarded for federal tax. Deduct. A single-member LLC that is disregarded federally and owned by a corporation is also disregarded for Tennessee excise tax and treated as a division of the parent. So the parent is treated as directly owning 100% of CFC 2.
• Scenario 3 — CFC 2 is held through a foreign entity that elected disregarded status (Form 8832) but is NOT an LLC. No deduction. To be disregarded for Tennessee F&E, an entity must be (1) a single-member LLC, (2) disregarded federally, and (3) wholly owned by a corporation. The foreign entity meets (2) and (3) but is not an LLC, so Tennessee treats it as a separate entity — and the parent therefore does not directly own CFC 2.
• Scenario 4 — parent owns 50% of CFC 2 directly and 50% through a separate domestic subsidiary. No deduction. The domestic subsidiary is a separate entity for Tennessee excise tax, so the parent directly owns only 50% of CFC 2 — below the 80% threshold. (Its stock is not attributed up to the parent.)

The throughline: Tennessee's 80% dividend deduction is a direct-ownership test, and Tennessee's entity-classification rule disregards only single-member LLCs owned by a corporation — not foreign disregarded entities, not separate corporate subsidiaries. Whether you can deduct your Subpart F income often comes down to what kind of entity sits between you and the foreign corporation.

What this means for you

Multinational corporations doing business in Tennessee

If you report Subpart F income federally, expect Tennessee to pick it up in your excise-tax base as a dividend. Your ability to deduct it under § 67-4-2006(b)(2)(A) depends on direct ownership of the foreign corporation — at least 80% — measured without the federal constructive-ownership rules. Indirect ownership through a tiered CFC, a separate corporate subsidiary, or a non-LLC disregarded entity won't get you there.

Structure matters — single-member LLC vs. everything else

Holding a foreign corporation through a single-member LLC (disregarded federally, owned by a corporation) collapses into the parent for Tennessee excise tax, so the parent is treated as the direct owner and can deduct. Holding it through a foreign disregarded entity that isn't an LLC, or through a separate domestic subsidiary, breaks the direct-ownership chain and loses the deduction. If you're planning the holding structure for a CFC, the entity type between you and the CFC is decisive in Tennessee.

Watch the include-but-can't-deduct trap

Subpart F can force you to include income from a foreign corporation you own only indirectly, while the Tennessee deduction is unavailable because you don't directly own 80%. That asymmetry (federal § 958 attribution for inclusion, no attribution for the Tennessee deduction) can leave Subpart F income fully in the Tennessee excise base.

Accountants and tax professionals

Net earnings start from federal taxable income before NOL/special deductions (§ 67-4-2006(a)(1)); the dividend deduction is § 67-4-2006(b)(2)(A) and is read as direct ownership only (IRC § 958 attribution expressly does not apply). Entity classification follows federal under § 67-4-2007(d), but the only disregarded entities respected for F&E are single-member LLCs whose single member is a corporation; everything else is a separate entity (§ 67-4-2106(c) separate filing). The Department also noted that federal tax characterizations are not binding on Tennessee courts interpreting Tennessee tax law (Tidwell v. Berke; Little Six Corp. v. Johnson) — here the dividend treatment happens to align with federal law.

Common questions

Q: Does Tennessee tax my Subpart F income?
A: Effectively yes — it's included in federal taxable income, which is the starting point for Tennessee net earnings, and Tennessee treats it as a dividend. Whether you can deduct it is a separate question.

Q: When can I deduct Subpart F income on my Tennessee excise return?
A: When you directly own 80% or more of the outstanding capital stock of the foreign corporation that generated it (§ 67-4-2006(b)(2)(A)). Direct ownership only — the federal indirect/constructive-ownership rules don't count for this deduction.

Q: I hold the foreign corporation through an LLC. Does that block the deduction?
A: Not if it's a single-member LLC that is disregarded for federal tax and owned by a corporation — Tennessee disregards it too and treats you as the direct owner. But a foreign disregarded entity that isn't an LLC, or a separate corporate subsidiary, is treated as a separate entity and breaks the direct-ownership chain.

Q: Why could I owe tax on income from a corporation I don't really control directly?
A: Because the federal rules that force you to include the income (IRC § 958 attribution) are broader than Tennessee's deduction, which requires direct 80% ownership. The income comes in, but the deduction may not.

Q: Can I rely on this ruling?
A: No. A Tennessee revenue ruling is advisory and not binding even on the Department, and no taxpayer may rely on it as binding. It interprets the law at a point in time. Confirm your structure and facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):
- § 67-4-2007(a) (excise tax, 6.5% on net earnings of persons doing business in Tennessee); § 67-4-2004(38) and § 67-4-2007(d) (persons subject; entity classification follows federal, but only a single-member LLC owned by a corporation is disregarded for F&E); § 67-4-2106(c) (separate-entity filing)
- § 67-4-2006(a)(1) ("net earnings" = federal taxable income before the net operating loss deduction and special deductions under 26 U.S.C. §§ 241, 243-247, as adjusted)
- § 67-4-2006(b)(2)(A) (deduction for dividends earned by a taxpayer owning 80% or more of the outstanding capital stock of a corporation — read as direct ownership)

Internal Revenue Code / federal:
- I.R.C. § 951 (U.S. shareholder includes its pro rata share of a CFC's Subpart F income); § 951(b) (U.S. shareholder = 10%+ vote/value); § 952 (Subpart F income; § 952(b) ECI exclusion; § 952(c) earnings-and-profits limit); § 957 (controlled foreign corporation; § 957(c) U.S. person); § 958 (constructive ownership; § 958(a) indirect, § 958(b) incorporating § 318(a)) — § 958 attribution does not apply to the Tennessee deduction; § 962(c)
- Treas. Reg. § 301.7701-2(b)(8) (foreign entities treated as corporations federally); IRS Form 8832 (Entity Classification Election); Form 1120, Schedule C (dividends)
- Tenn. Dep't of Revenue Notice 14-12 (June 2014) (entities treated as corporations for F&E)

Case law (federal tax treatment not binding on Tennessee):
- Tidwell v. Berke, 532 S.W.2d 254, 261 (Tenn. 1975) (a revision of federal tax law does not change the interpretation of a corresponding but unaltered state tax law)
- Little Six Corp. v. Johnson, 1999 WL 336308, at *3 (Tenn. Ct. App. May 28, 1999) (federal-court rulings on federal tax law are not binding on Tennessee courts interpreting Tennessee tax law)

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/19-02fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 19-02
Revenue rulings are not binding on the Department. 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 excise tax to Internal Revenue Code Subpart F income.
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 a global company with various corporate subsidiaries doing business in countries
throughout the world. The Taxpayer is organized as a United States corporation under the laws of a
state other than Tennessee. The Taxpayer is doing business in Tennessee and is subject to
Tennessee’s excise tax as a corporation.
The Taxpayer states that pursuant to Subpart F of the Internal Revenue Code (the “IRC”), it is
required in each of the Scenarios below to include in its federal taxable income earnings attributable
to foreign subsidiaries.

Scenario 1
The Taxpayer directly owns 100% of the stock in a controlled foreign corporation (“CFC 1”), which, in
turn, directly owns 100% of the stock in another controlled foreign corporation (“CFC 2”). CFC 1 and
CFC 2 are classified as corporations for federal income tax purposes, and each meets the definition
of a “controlled foreign corporation” within the meaning of IRC § 957. Pursuant to IRC § 958(a)(2), for
purposes of Subpart F of the Internal Revenue Code, the Taxpayer is deemed to directly own the
1

stock in CFC 2 that is owned by CFC 1. The Taxpayer includes in its federal gross income its 100%
share of Subpart F income attributable to CFC 1 and CFC 2 pursuant to IRC § 951.
See Appendix A for an illustration of this scenario.

Scenario 2
The facts are the same as Scenario 1, except that the Taxpayer’s ownership of CFC 2 is through a
wholly-owned limited liability company (the “SMLLC”) organized under the laws of a state other than
Tennessee. The SMLLC is disregarded for federal income tax purposes. The SMLLC is not a
controlled foreign corporation for purposes of Subpart F. Because the SMLLC is disregarded for
federal income tax purposes, the Taxpayer is considered to directly own 100% of CFC 2’s stock for
federal income tax purposes. The Taxpayer therefore includes in its federal gross income its 100%
share of Subpart F income attributable to CFC 2 pursuant to IRC § 951.
See Appendix B for an illustration of this scenario.

Scenario 3
The facts are the same as Scenario 2, except that the Taxpayer owns 100% of the stock of CFC 2
through an entity (the “Foreign Entity”) organized under the laws of a foreign country. The Foreign
Entity has elected to be classified as a disregarded entity for federal income tax purposes. The
1
Foreign Entity, however, is not a limited liability company in Tennessee. Because the Foreign Entity
is a disregarded entity for federal income tax purposes, the Taxpayer is treated as directly owning all
of the stock of CFC 2 for federal income tax purposes. The Taxpayer includes in its federal gross
income its 100% share of Subpart F income attributable to CFC 2 pursuant to IRC § 951.
See Appendix C for an illustration of this scenario.

Scenario 4
The facts are the same as Scenario 1, except that the Taxpayer directly owns 100% of the stock of a
corporation (the “Domestic Subsidiary”) organized under the laws of the United States, and directly
owns 50% of the stock of CFC 2. The remaining 50% of the stock of CFC 2 is owned by Domestic
Subsidiary. Pursuant to IRC § 958(b) and, by reference, IRC § 318(a), for purposes of Subpart F, the
Taxpayer is deemed to constructively own the stock in CFC 2 that is owned by the Domestic
Subsidiary.
The Taxpayer includes in its federal gross income its 100% share of Subpart F income attributable to
CFC 2 pursuant to IRC § 951.
See Appendix D for an illustration of this scenario.

1

This ruling request does not address whether the Foreign Disregarded Entity qualifies as a limited liability company under
Tennessee law.

2

RULINGS
1.

Is the Taxpayer’s Subpart F income considered a dividend for purposes of the Tennessee
excise tax?
Ruling: Yes, the Taxpayer’s Subpart F income is considered a dividend for purposes of the
Tennessee excise tax.

2.

In each Scenario, for purposes of the Tennessee excise tax, can the Taxpayer deduct from
net earnings its Subpart F income pursuant to TENN. CODE ANN. § 67-4-2006(b)(2)(A) (2013)?
Ruling:
In Scenario 1, the Taxpayer is entitled to deduct under TENN. CODE ANN. § 67-4-2006(b)(2)(A)
the Subpart F income that it receives from CFC 1 because the Taxpayer owns 100% of the
outstanding capital stock of CFC 1. However, the Taxpayer is not entitled to deduct Subpart F
income from CFC 2 because it does not own 80% or more of the outstanding capital stock of
CFC 2.
In Scenario 2, the Taxpayer is entitled to deduct under TENN. CODE ANN. § 67-4-2006(b)(2)(A)
the Subpart F income that it receives from CFC 2. The SMLLC is disregarded for Tennessee
excise tax purposes and is considered a division of the Taxpayer, such that the Taxpayer is
treated as directly owning 100% of the stock of CFC 2.
In Scenario 3, the Taxpayer is not entitled to take a deduction under TENN. CODE ANN. § 67-42006(b)(2)(A) for the Subpart F income that it receives from CFC 2.
In Scenario 4, the Taxpayer is not entitled to take a deduction under TENN. CODE ANN. § 67-42006(b)(2)(A) for the Subpart F income it receives from CFC 2 because it only owns 50% of
the outstanding capital stock of CFC 2.
ANALYSIS

Tennessee imposes an excise tax at the rate of 6.5% on the net earnings of all persons doing
2
business within Tennessee. Persons subject to the Tennessee excise taxes include, but are not
limited to, limited liability companies and business entities classified as corporations for federal
3
income tax purposes. With certain limited exceptions, each taxpayer is considered a “separate and
single business entity” and must file its Tennessee franchise and excise tax return on a separate
4
entity basis.
2

TENN. CODE ANN. § 67-4-2007(a) (Supp. 2018).

3

TENN. CODE ANN. §§ 67-4-2004(38), -2007(d) (Supp. 2018).

4

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

3

For Tennessee franchise and excise tax purposes, a business entity is classified as a corporation,
partnership, or other type of business entity, consistent with the way the entity is classified for
5
federal income tax purposes. However, “entities that are disregarded for federal income tax
purposes, except for limited liability companies whose single member is a corporation, shall not be
6
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 applying TENN. CODE ANN. § 67-4-2007(d) (Supp. 2018), 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
7
tax purposes is to be treated as a corporation; and an entity that makes an election on federal
8
Form 8832 (Entity Classification Election) to be classified as a corporation for federal tax purposes.
Subpart F of the Internal Revenue Code (the “IRC”) provides rules for the taxation of certain U.S.
shareholders of controlled foreign corporations. Subpart F is an anti-deferral regime and accelerates
9
taxation of certain undistributed earnings of the foreign corporation.
IRC § 951(a) (West 2018) states that a U.S. shareholder of a controlled foreign corporation (“CFC”) is
required to include in federal income its pro rata share of the Subpart F income of a CFC in the year
in which the CFC would recognize it as taxable income if subject to tax in the United States. Subpart
F income includible in federal gross income by a U.S. shareholder for any taxable year may not
10
exceed the CFC's earning and profits for the taxable year. IRC § 952(b) (West 2018) provides an
exclusion from Subpart F income for U.S.-source income that is effectively connected with a U.S.
trade or business.
IRC § 957(a) (West 2018) provides that a “controlled foreign corporation” is any foreign corporation if
more than 50% of (1) the total combined voting power of all classes of stock of such corporation
entitled to vote, or (2) the total value of the stock of such corporation, is owned by U.S. shareholders
at any time during the CFC’s taxable year.

5

Id.

6

Id.

7

See Treas. Reg. § 301.7701-2(b)(8) (West, Westlaw through September 17, 2018) (listing foreign entities that are classified
federally as corporations).

8

See Tenn. Dep’t of Rev., Notice 14-12 (June 2014), available at http://tn.gov/assets/entities/revenue/attachments/14-12fe.pdf.

9

IRC § 952(a) (West 2018) defines Subpart F income as including certain insurance income, foreign base company income, a
portion of international boycott income, the sum of the amounts of any illegal bribes, kickbacks, or other payments paid on
behalf of the CFC, and income derived from any foreign country for which IRC § 901(j) denies a foreign tax credit for taxes
paid to such country.
10

I.R.C. § 962(c)(1)(A) (West 2018).

4

IRC § 951(b) defines a United States shareholder, with respect to any foreign corporation, as a
United States person that owns 10% or more of the total combined voting power of all classes of
stock entitled to vote of such foreign corporation, or more than 10% or more of the total value of
shares of all classes of stock of the foreign corporation. Pursuant to IRC § 957(c), a United States
person, is generally any domestic corporation, domestic partnership, domestic trust or estate, or
United States individual citizen or resident.
IRC § 958 (West 2018) sets forth constructive ownership rules for making CFC and U.S. shareholder
ownership determinations. IRC § 958(a) treats stock owned directly or indirectly by a foreign
corporation, foreign partnership, foreign trust, or foreign estate as proportionately owned by its
shareholders, partners or beneficiaries. IRC § 958(b) incorporates portions of IRC § 318(a), and in
part provides that stock owned by a corporation is treated as owned proportionately by a 10% or
greater shareholder, and stock owned by a 50% or greater shareholder is imputed to the
corporation.
1.

Subpart F Income Treated as a Dividend

The Taxpayer’s Subpart F income is treated as a dividend for purposes of the Tennessee excise tax.
TENN. CODE ANN. § 67-4-2006(a)(1) (Supp. 2018) provides in pertinent part that for a corporation or
“any other taxpayer required to file a federal income tax return on a federal form 1120 or any
variation of that form,” the term “‘net earnings’ or ‘net loss’ is defined as federal taxable income or
loss before the operating loss deduction and special deductions provided for in 26 U.S.C. §§ 241, 242
[repealed], 243-247” and as adjusted by TENN. CODE ANN. § 67-4-2006(b) and (c). Thus, any Subpart F
income included in federal taxable income or loss before the net operating loss deduction and
11
special deductions will be included in the computation of net earnings or loss.
Subpart F income is generally treated as a dividend for purposes of the Tennessee excise tax.
Tennessee excise tax law does not provide a definition of “dividend” or address the characterization
of Subpart F income. However, the treatment of such income as a dividend for excise tax purposes
12
is consistent with the federal treatment of Subpart F income. In particular, the amount of Subpart
F income included in federal taxable income is determined based on rules that treat the income as a
13
dividend; in other words, the income’s very inclusion in the net earnings computation derives from
its federal treatment as a dividend.
11

For corporations, Subpart F income is included on federal Form 1120, line 28 (taxable income before net operating loss and
special deductions). Corporations report Subpart F income on federal Form 1120, Schedule C, Line 14(a), and that amount is
included in total dividends reported on Schedule C, line 19 (total dividends), which is in turn reported on Form 1120, Line 4.
Federal taxable income as described in TENN. CODE ANN. § 67-4-2006(a)(1) includes Subpart F income as included on federal
Form 1120 (U.S. Corporation Income Tax Return), Line 28.
12

Note that the courts have stated that the federal income tax treatment of a transaction as a taxable dividend distribution is
not controlling for state income tax purposes. The Tennessee Supreme Court has held, for example, that the revision of a
federal tax law does not precipitate a revised interpretation of a corresponding but unaltered state tax law. Tidwell v. Berke,
532 S.W.2d 254, 261 (Tenn. 1975). Similarly, the Tennessee Court of Appeals has stated that “rulings of the federal courts in
regard to federal tax laws are not binding on Tennessee courts when they are called upon to interpret Tennessee tax laws.”
Little Six Corp. v. Johnson, 1999 WL 336308 at 3 (Tenn. Ct. App. May 28, 1999).

13

See note 10, supra. Describing the pro-rata share of Subpart F income included in a U.S. shareholder’s federal income, IRC
§ 951 states that it is the amount “which would have been distributed with respect to the stock which such shareholder owns

5

2.

Deduction of Subpart F Income under TENN. CODE ANN. § 67-4-2006(b)(2)(A)

A taxpayer may deduct Subpart F income under TENN. CODE ANN. § 67-4-2006(b)(2)(A) if the taxpayer
receives such income from a controlled foreign corporation in which it owns 80% or more of the
outstanding capital stock.
TENN. CODE ANN. § 67-4-2006(b)(2)(A) provides a deduction from net earnings or loss for “dividends
earned by a taxpayer who owns eighty percent (80%) or more of the outstanding capital stock of a
corporation.”
The plain language of the statute indicates that the taxpayer claiming the deduction must directly
14
own stock in the company paying the dividend. Consequently, if a taxpayer does not directly own
80% or more of the outstanding capital stock of the corporation that is deemed to have paid the
dividends, it is not entitled to claim the deduction provided by TENN. CODE ANN. § 67-4-2006(b)(2)(A).
Scenario 1
In Scenario 1, the Taxpayer owns 100% of the stock of CFC 1, and, thus, it is entitled to deduct the
Subpart F income that it receives from CFC 1.
The Taxpayer is not, however, entitled to take a deduction pursuant to TENN. CODE ANN. § 67-42006(b)(2)(A) for Subpart F income generated by CFC 2 because the Taxpayer does not directly own
80% or more of the outstanding capital stock of CFC 2.
Scenario 2
The Taxpayer is entitled to deduct under TENN. CODE ANN. § 67-4-2006(b)(2)(A) the Subpart F income
that it receives from CFC 2.
The SMLLC is treated as disregarded for federal income tax purposes. It is wholly-owned by the
Taxpayer, which is a corporation for federal income tax purposes and, consequently, Tennessee
excise tax purposes. Because the LLC is a limited liability company that is wholly owned by a
corporation and disregarded for federal income tax purposes, it is disregarded for Tennessee excise
tax purposes.
Because the SMLLC is disregarded for Tennessee excise tax purposes, it is treated as a division of
the Taxpayer for purposes of the excise tax. As such, for Tennessee excise tax purposes, the
Taxpayer directly owns all of the capital stock of CFC 2 and is entitled to take the deduction under
TENN. CODE ANN. § 67-4-2006(b)(2)(A) for Subpart F income that it receives from CFC 2.

. . . . in such corporation.” Moreover, under IRC § 952(c), Subpart F income may not exceed “the earnings and profits” of the
CFC in the taxable year. Additionally, the amount of Subpart F income must, under IRC § 951(a)(2)(B), be reduced by actual
dividend distributions received by any person, other than the taxpayer, who had owned the taxpayer’s stock during some
part of the taxable year.
14

Note that, although there are the constructive ownership rules under IRC § 958, those principals do not apply for purposes
of the deduction under TENN. CODE ANN. § 67-4-2006(b)(2)(A).

6

Scenario 3
The Taxpayer is not entitled to take a deduction under TENN. CODE ANN. § 67-4-2006(b)(2)(A) for
Subpart F income generated by CFC 2.
In Scenario 3, the Foreign Entity is disregarded for federal income tax purposes and is wholly owned
by a corporation. However, the Foreign Entity is not a limited liability company. Thus, the Foreign
Entity is considered a single and separate business entity for Tennessee excise tax purposes and is
not disregarded for Tennessee excise tax purposes.
The Taxpayer does not directly own the stock of CFC 2 and therefore cannot take the deduction
under TENN. CODE ANN. § 67-4-2006(b)(2)(A) for Subpart F income generated by CFC 2.
Scenario 4
In Scenario 4, the Taxpayer is not entitled to take a deduction pursuant to TENN. CODE ANN. § 67-42006(b)(2)(A) for Subpart F generated by CFC 2 because the Taxpayer owns only 50% of the
outstanding capital stock of CFC 2.
The Taxpayer and the Domestic Subsidiary are separate entities for Tennessee excise tax purposes.
Thus, the Taxpayer directly owns only 50% of the stock of CFC 2 for excise tax purposes. Therefore,
the Taxpayer cannot take the deduction under TENN. CODE ANN. § 67-4-2006(b)(2)(A) for Subpart F
income generated by CFC 2.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

6/11/19

7

Appendix A
Scenario 1
Federal
Separate

Tennessee
Separate

Taxpayer
100%

Separate

CFC 1

Separate
100%

Separate

CFC 2

Separate

8

Appendix B
Scenario 2

Federal
Separate

Tennessee
Taxpayer

Separate

100%

Disregarded

SMLLC
SMLLC

Disregarded

100%

Separate

CFC 2

Separate

9

Appendix C
Scenario 3

Federal
Separate

Tennessee
Separate

Taxpayer
100%

Disregarded

Foreign
Entity

Separate
100%

Separate

CFC 2

Separate

10

Appendix D
Scenario 4

Federal

Tennessee

Separate

Separate
Taxpayer
100%

Separate

Domestic
Subsidiary

50%

Separate

50%

Separate

CFC 2

Separate

11