Friday, July 25, 2014

Do Intangible Holding Companies Need to Refile Add-Back Applications in Tennessee?

Tennessee passed legislation in 2012 to require preapproval for companies seeking to deduct intangible expenses paid to affiliates. This resulted in an laborious application process in Tennessee that many taxpayers undertook in 2013 to seek the Commissioner's "approval" to deduct these intangible expenses. The application process required a significant amount of documentation and detail from taxpayers and had to be filed 60 days before the filing of the applicable Tennessee franchise and excise tax return. The Commissioner was ostensibally required to either approve or deny the applications before the due date of the return, but in the event that the Commissioner was unable to complete this task, taxpayer's were absolved of penalties in the event that the applications were ultimately denied. Over 1 year later, the applications that were filed have not been acted on, and taxpayers are now in a position of asking ... "What now?" Under the statutory application process, taxpayers whose applications were approved in 2013 would be filing a renewal of the form with no obligation to provide further support for the deduction in 2014. Because there have been no approvals (or denials for that matter), it is unclear whether a renewal can be filed as there is no provision that deems the applications approved. For some taxpayers who have extended the filing of their franchise and excise tax returns, the 60-day due date for the application for the 2013 tax year is approaching, and they should consider whether they should resubmit the application out of an abundance of caution to make sure that the taxpayer qualifies for penalty abatement in the event that the application is ultimately denied. While the other alternative would be to file for a renewal, there does not seem to be a statutory basis for doing so. That said, the Department will not likely be stringent on this requirement considering that it was their delay in acting on the 2013 applications that has resulted in this dilemma. Taxpayers in this situation should, however, consider what their filing position will be and execute on that to avoid an unintended bad result.