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Last Updated: 10/4/2017

Foreign Disregarded Entities

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​Recent court decision may affect corporate filers

The Minnesota Supreme Court’s decision in Ashland Inc. v. Commissioner of Revenue may affect corporations that owned foreign disregarded entities and filed corporate franchise tax returns in Minnesota for tax years 1997-2012. (See Case No. A16-1257)
 

What is changing? 

The Minnesota Department of Revenue must now recognize the income, losses, and deductions of a foreign entity owned by a U.S. corporation when the entity elects to be treated as a disregarded entity for federal income taxes.
 

What comes next?

Corporate franchise taxpayers who filed a Minnesota return for these tax years may:

  • Be entitled to a refund of taxes paid.
  • Owe additional tax.
  • Have to adjust net operating loss carryforwards for the affected periods.

File Form M4X, Amended Franchise Tax Return/Claim for Refund, and Schedule NOL, Net Operating Loss Deduction, as needed.

Note: The department will not assess or collect late-payment, late-filing, or substantial understatement penalties from corporations that report additional tax liabilities related to the Ashland decision.

Previous policy (Revenue Notice 98-08)

The department’s policy before the Ashland decision was to exclude foreign disregarded entities from unitary return groups. See Revenue Notice 98-08.

The Ashland decision retroactively overrides the department’s previous policy, which applied to tax years 1997-2012. The department changed its policy for tax years 2013 and later after a law change. See Revenue Notice 13-08.

As a result, 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.