Two criteria must be met to qualify for the FONCE exemption:
- At least 95% of the entity's ownership must be held by family members, and
- Substantially all (66.67%) of the activity of the entity is either
- The production of passive investment income or
- The combination of the production of passive investment income and farming
An entity claiming this exemption must file an Application for Exemption/Annual Exemption Renewal (Form FAE183) for the initial and subsequent taxable periods for which the entity is claiming the exemption. This form is due on or before the 15th day of the fourth month following the close of the entity’s taxable period, however if an entity has requested an extension for federal income tax purposes, then an automatic seven month extension will be granted for this form as well. While failure to timely file the form will not preclude the entity from qualifying for the exemption, the Department may assess the entity a penalty of $200, per occurrence, for late filing.
The disclosure of activity section of the form must always be completed. All gross receipts shown on the federal income tax return should be reported so that the Department can verify that the qualifications for exemption have been met.
Reference: Tenn. Code Ann. § 67-4-2008(a)(11).