"Disregarded" describes when an entity is treated as a division or part of its owner. A disregarded entity does not file tax returns in its own name, but its activity is included in the return of its owner. The rules as to when an entity may be disregarded differ between federal and state tax reporting. Entities disregarded for federal income tax purposes are not disregarded for F&E taxes except for limited liability companies whose single member (SMLLC) is a corporation.
A SMLLC is disregarded for franchise, excise tax purposes when it is disregarded for federal income tax purposes, and its single member is a “corporation.” A “corporation” in this context means any entity that is classified as a corporation for federal income tax purposes. A single member limited liability company owned by an S corporation or real estate investment trust (REIT) is disregarded for franchise and excise tax purposes.
A SMLLC is required to file a franchise, excise tax return when 1) it is not disregarded for federal income tax purposes, or 2) when it is disregarded for federal income tax purposes, but its single member is an entity other than an entity that is classified as a corporation for federal income tax purposes.
Entities that are not LLCs are never permitted to be disregarded for franchise & excise tax purposes. For example, a limited partnership or corporation, that is disregarded federally is not disregarded for franchise and excise tax purposes. These entities that are subject to the franchise or excise tax must file their own separate franchise and excise tax return.
Reference: Tenn. Code Ann. §§ 67-4-2007(d); 67-4-2106(c).