Your exempt account number is on the certificate of exemption issued when you registered your entity as an exempt FONCE.  It is also printed on the cover letter you received in the mail with the Disclosure of Activity form.  If you cannot find your exempt account number, enter your FEIN and mark it as such.  Example:  FEIN 62-1234567

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Two criteria must be met in order to qualify for the FONCE exemption:
1.  At least 95% of the entity’s ownership must be held by family members, and
2.  Substantially all (66.67%) of the activity of the entity is either:
     a.  The production of passive investment income or
     b.  The combination of the production of passive investment income and farming

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Please see Tenn. Code. Ann. § 67-4-2008(a)(11).

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1)  Capture the necessary information for reporting to the General Assembly, pursuant to HB4129/SB4173 (2008).

2)  Verify that the entity meets the qualifications for the exemption.

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You may lose your exemption status and become liable for the franchise and excise tax if we are unable to verify that your entity meets the qualifications for the exemption.

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Yes, so that the department may verify that the qualifications for exemption have been met, this new Disclosure of Activity form is required to be completed with your annual exemption renewal.  Any new FONCE must also complete this form when making application for the franchise and excise tax exemption.

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To determine who is considered a “family member,” identify one person (either an owner or non-owner, living or deceased) to whom the owners are potentially related.  With respect to that person, the following are considered members of the family:

1. Mother, father, grandmother or grandfather
2. Spouse or former spouse
3. Son, daughter, grandson, granddaughter, step-son, step-daughter, step-grandson or step-granddaughter
4. Brother or sister
5. Son-in-law, step-son-in-law, grandson-in-law, daughter-in-law, step-daughter-in-law, granddaughter-in-law, brother-in-law or sister-in-law
6. The estate or trust of a deceased individual who, while living, was one of the above

Note:  Legally adopted individuals are treated as the child of such person by blood.
Also, a step-child remains a member of the family regardless of any change in the marital status of the parent and step-parent.

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Yes. In order for us to determine if the FONCE has met the income requirement, we need to know the amount and sources of all gross receipts for the reporting period.

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“Passive investment income” is defined as gross receipts derived from royalties, rents, dividends, interest, annuities and the amount of any gain on the sale or exchange of stock or securities.

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Non-passive income is any income that is not listed as passive investment income.

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No. The definition of "passive investment income" does not include gains from the sale or exchange of any asset other than "stock or securities."

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Franchise and excise tax law does not contain a definition of "rents," and, therefore, the term must be given its ordinary and commonly understood meaning. Although income may be reported as rent, it may legally represent a license or service fee, such as hotel or motel charges. The department does not consider hotel and motel room charges to be "rent."

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If you lease to multiple unrelated parties, you do not have to give a complete list of all tenants but can enter “various unrelated tenants” in the space provided.

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“Affiliated with or related to” includes, but is not limited to, individuals or entities that have common ownership with the exempt entity and individuals or entities that have family-members as owners in the exempt entity, etc.

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You can get this information from the county Assessors of Property or on your property tax bill.  Most assessors of property have this information on the Internet at www.assessment.state.tn.us. 

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Property is classified as industrial & commercial property if it is classified as such for property tax purposes.  The industrial & commercial property includes all property of every kind used, directly or indirectly, or held for use, for any commercial, mining, industrial, manufacturing, trade, professional, club whether public or private, nonexempt lodge, business or similar purposes, whether conducted for profit or not.  All real property that is used, or held for use, for dwelling purposes that contains two or more rental units is defined as industrial & commercial property.

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Farm property includes all real property that is used, or held for use, in agriculture, including, but not limited to, growing crops, pastures, orchards, nurseries, plants, trees, timber, raising livestock or poultry or the production of raw dairy products.

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18.

“Farming" is defined as the growing of crops, nursery products, timber or fibers, such as cotton, for human or animal use or consumption; the keeping of horses, cattle, sheep, goats, chickens or other animals for human or animal use or consumption; the keeping of animals that produce products, such as milk, eggs, wool or hides for human or animal use or consumption; or the leasing of the land to be used for the purposes herein described.

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Property is classified as residential property if it is classified as such for property tax purposes.  Residential property includes all real property that is used, or held for use, for dwelling purposes and that contains not more than one rental unit.  All real property that is used, or held for use, for dwelling purposes but that contains two or more rental units, is defined and shall be classified.

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You should return the form with a brief statement indicating the basis for the entity’s exempt status.  For example, a statement that the entity is exempt because at least two-thirds of its income is derived from farming activities would be sufficient.  The statement should be written on the form or on an attached sheet.  You do not need to complete the remainder of the Disclosure of Activity form.

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