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Family-owned Non-corporate Entities (FONCE)

On June 13, 2008, the Department of Revenue will mail a request for information letter and Disclosure of Activity form to all family-owned noncorporate entities ("FONCE") currently registered as exempt for franchise and excise tax purposes. The letter will ask the FONCE to complete the disclosure of activity form and return it to the Department by July 18, 2008. Failure to return the completed form by July 18, 2008, may result in the revocation of the FONCE's exempt status.

The purpose of this mailing is so the Department may obtain the data necessary to report to the General Assembly information concerning the utilization, costs and benefits of the FONCE exemption, pursuant to House Bill 4129/Senate Bill 4173 (2008). In addition, this information will be used to verify that the entity meets the qualifications for the exemption.

The FONCE must complete the Disclosure of Activity form and identify each member or partner and his or her percentage interest and relationship. In addition, the amount of income derived from each source of passive investment income as well as the source and amount of all non-passive income must be provided. All gross receipts received for the reporting period should be reported as either passive investment income or as non-passive income.

Passive investment income is gross receipts derived from royalties, rents, dividends, interest, annuities and the amount of any gain on the sale or exchange of stock or securities. Non-passive income is any other gross receipts that are not listed as passive investment income.

In order to qualify for the FONCE franchise and excise tax exemption, the entity must meet two criteria:

  1. at least 95% of the entity's ownership must be held by family members, and
  2. substantially all (66.67%) of the activity of the entity is either the production of passive investment income or the combination of the production of passive investment income and farming.

So that the department may verify that the qualifications for exemption have been met, this new Disclosure of Activity form is required to be filed with the Application for Exemption when a new FONCE makes application for the franchise and excise tax exemption, as well as when filing an annual exemption renewal.

Below are links to the new Disclosure of Activity form and other important information.

Important Notice: Non-qualifying Family-owned Non-corporate Entities (PDF)