No type of corporate entity, including an S corporation, can qualify for the FONCE exemption.
A Limited Liability Company (LLC) and limited partnership are non-corporate entities that may qualify for the FONCE exemption if all other requirements are met. For example, an LLC or LP must be at least 95% family-owned (which means natural persons who are relatives, trusts for the benefit of such relatives, and the estate of a deceased individual who was a relative while living) and meet the passive income test.
References: Tenn. Code Ann. § 67-4-2008(a)(11).
Note: This article was updated on June 10, 2026, as a result of a law change. The previous version of FONCE-3 is available here.
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