Minnesota DOR Addresses Foreign Disregarded Entities

Minnesota’s Department of Revenue discusses how the Minnesota Supreme Court’s recent decision in Ashland Inc. v. Comm’r of Revenue affects corporations:

  • that owned foreign disregarded entities in their 1997 to 2012 tax years; and
  • filed corporate franchise tax returns.

Potential Changes in Past Tax Liabilities

As a result of the decision, the department must now include the income, losses, and deductions of a foreign entity that elected to be treated as a disregarded entity for federal income tax purposes. Thus, taxpayers who filed a franchise tax return for the years at issue may:

  • be entitled to a refund of taxes paid;
  • owe additional tax; or
  • have to adjust net operating loss carryforwards.

However, if  corporations report additional tax liabilities due to the decision, the department will not assess:

  • late-payment penalties;
  • late-filing penalties; or
  • substantial understatement penalties.

Filing and Amending Returns

Taxpayers filing or amending returns for the affected tax years must include the income and apportionment factors of all foreign disregarded entities in the calculation of net income and apportionment percentage.

Bulletin, Minnesota Department of Revenue, October 5, 2017, ¶204-320

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