Family-Owned Non-Corporate Entities (FONCE)
To qualify for the FONCE franchise and excise tax exemption, the entity must meet two criteria:
- At least 95% of the voting rights, capital interest, or profits of the entity must be owned by relatives or by trusts for their benefit, or by the estate of a deceased individual who, while living, was a relative; and
- 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.
Natural persons are considered relatives if, by blood or adoption, they are descended from a common ancestor and their relationship with each other is that of a first cousin or closer than that of a first cousin, or if they are a spouse or former spouse of any such person or a lineal descendant of a spouse or former spouse of any such person.
Passive investment income is gross receipts derived from royalties, rents from residential property or farm property, dividends, interest, annuities, and the amount of any gain on the sale or exchange of stock or securities. Residential property cannot have more than four residential units at any one location. Non-passive income is any other gross receipts that are not listed as passive investment income.
So that the Department may verify that the qualifications for exemption have been met, an application for exemption form is required to be filed when a FONCE applies for the exemption and annual renewal thereafter.
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