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The Tennessee Revised Limited Liability Company Act permits the establishment of one or more designated series within a limited liability company (often referred to as the Master LLC). If certain statutory requirements are met, then each series is treated as a separate entity with respect to its debts, liabilities, obligations, and expenses. The Master LLC is also treated as an entity separate from the series. The Tennessee Department of Revenue (the Department) has issued guidance (Notice #13-15) providing that each series in a series LLC is treated as a separate entity for state tax purposes.

 

Tax classification

 

The tax classification of the Master LLC and each series must be determined as though it were a separate limited liability company. The Department explained that generally, for Tennessee franchise and excise tax purposes, the Master LLC and each series will be classified in the same manner that it is classified for federal income tax purposes. However, if the Master LLC or a series would be disregarded for federal income tax purposes, then the Master LLC or a series is disregarded for Tennessee franchise and excise tax purposes only if the Master LLC or a series is wholly owned by a corporation. The Department stated in a separate notice, discussed below, that it interprets “corporation” in this context to include any entity that is classified as a corporation for federal income tax purposes. All other federally disregarded Master LLCs or series are treated as separate entities for Tennessee franchise and excise tax purposes.

 

Registration

 

The Department also explained that the Master LLC and each series must separately register with the Department and set up separate tax accounts before doing any business in Tennessee.

 

Tax returns

 

The Department said that the Master LLC and each series must file a separate tax return unless the Master LLC or a series is classified as a disregarded entity for franchise and excise tax purposes. Unless disregarded, the Department will treat the Master LLC and each series as a separate entity for purposes of assessments, refund and taxpayer remedies.

 

Notice regarding classification of single member limited liability companies

 

In a separate notice (Notice #13-16), the Department clarified whether a single member limited liability company (SMLLC) will be disregarded for Tennessee franchise and excise tax purposes if: (1) the SMLLC is disregarded for federal income tax purposes; and (2) its sole owner is not a corporation under state law, but is classified as a corporation for federal income tax purposes. The Department stated that it interprets “corporation” in this context to include any entity that is classified as a corporation for federal income tax purposes, such as a business trust, a limited liability company or a limited partnership. Therefore, a SMLLC that is disregarded for federal income tax purposes will be disregarded for Tennessee franchise and excise tax purposes if its sole member is federally classified as a corporation.

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