Tennessee Revenue officials explain family‑owned exemption for franchise and excise taxes

Billy Traud, a member of the Tennessee Department of Revenue’s taxpayer education section, opened a recorded webinar Wednesday to explain the family‑owned noncorporate election (FONCE) exemption for the state’s franchise and excise taxes and to answer taxpayer questions.

The department told attendees the exemption is grounded in statute (Tennessee Code Annotated §67‑4‑2008) and has two principal eligibility tests: at least 95% of an entity’s ownership units must be held by members of a qualifying family, and at least two‑thirds of the entity’s activity must come from holding or forming one or more personal residences (or from passive investment income, farming, or a combination of those activities). "If those qualifications are met, then we can consider that to be family owned," Traud said.

Why it matters: qualifying for FONCE can exempt an otherwise taxable entity from franchise and excise liability; failing to meet the tests means the entity is taxable for all activities in that year and must file a franchise and excise return.

Key requirements and common pitfalls

- Ownership and relationships: Traud reviewed who counts as family under the statute (ancestors, spouses including former spouses, lineal descendants and spouses of descendants, legally adopted children, and…