Tennessee Department of Revenue Issues Last Call for Intangible Holding Company Voluntary Disclosure

State & Local Tax Alert: Tennessee Edition

Client Alert


The Tennessee Department of Revenue issued Notice 13-06 in June notifying taxpayers that its acceptance of voluntary disclosure of intangible expense deductions at a preferred settlement rate will be ending later this year. The department states in the notice that, beginning September 30, 2013, it will no longer recommend settlements of cases involving intangible expenses paid to affiliates—the infamous "intangible holding company" structure.

The department's settlement initiative began back in late 2011, and since that time, the law has changed, requiring taxpayers for the 2012 tax period and after to file an application to claim deductions for intangible expenses paid to affiliates. The settlement generally required a taxpayer to pay only 25% of the proposed assessment from the disallowance of such deductions.

The timing of this is not surprising as the department is starting to see the first of the applications under the new law being filed, with many that will be filed in August in accordance with the extended deadline due date for tax returns filed for the 2012 tax period.

Taxpayers still on the fence on this issue should seriously consider the voluntary disclosure, especially if they plan to continue to claim the deduction for future periods. The application process will put a taxpayer on the radar with the department; and to the extent that the state denies the application, the State would have the right to pursue prior years on audit if no voluntary disclosure agreement has been executed.