Foreign Disregarded Entities

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.

Corporation 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.

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

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.