Tennessee: Subpart F Income Considered a Dividend

The Tennessee Department of Revenue has ruled that Subpart F income is treated as a dividend for franchise and excise tax purposes. Furthermore, if a taxpayer directly owns 80 percent or more of the outstanding capital stock of the controlled foreign corporation (CFC) from which it received the Subpart F income, it will be eligible for the dividends-received deduction provided under state law.  However, the ruling makes clear Subpart F income from an indirectly owned CFC does not qualify as for a dividends-received deduction.  The exception to this general rule is if the ownership of the CFC is through a disregarded SMLLC. In that instance, the taxpayer will be treated as directly owning the stock of the CFC. For more questions on Revenue Ruling #19-02, please contact John Harper at 615-744-2170.