Could a substantially reorganized corporate group discontinue its Florida consolidated filing election?

Plain-English summary

Florida granted permission for the corporate group to stop filing consolidated returns because it had fundamentally reorganized and the request was not a tax-avoidance move. Since its original election, the group had sold, liquidated, terminated, and merged subsidiaries and shifted from a diversified conglomerate into different, more concentrated lines of business.

Separate filing was expected to produce the same or more Florida corporate income tax. The group also represented that it had no realized but unrecognized income or expense items that could later benefit a member after deconsolidation.

The approval imposed four conditions: a specified effective tax year, no deferred items benefiting a group member, a required separate-versus-pro-forma-consolidated tax relationship, and no return to a Florida consolidated group before a specified later year. The source redacts the dates and amounts.

What this means for you

A consolidated election remained binding until the Department consented to separate returns. A genuine change in circumstances—including a fundamental business reorganization—could establish good cause even without a tax-law change.

Common questions

Q: Was a lower separate-return tax the reason for approval? No. The ruling expected the group to pay the same or more tax separately.

Q: Did the Department find a relevant tax-law change? No. It relied on changed business circumstances.

Q: Could the group immediately rejoin a consolidated filing? No. A case-specific lockout condition applied.

Q: Was permission automatic after a reorganization? No. The Department reviewed the facts and imposed conditions.

Citations and references

• Fla. Stat. § 220.131(1) and (3) — consolidated election and continued-filing requirement
• Fla. Admin. Code r. 12C-1.0131(3)(b) — permission to discontinue consolidated filing
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-002

Original ruling text

SUMMARY

QUESTION: Will the Executive Director grant permission to
the Taxpayer to stop filing consolidated Florida corporate
income tax returns because of changes in the consolidated
group over the past ten years?

ANSWER - Based on Facts Below: YES. Taxpayer has shown that
a fundamental change in its consolidated group has occurred
in the past ten years, and that there are independent
business reasons for its request. The consolidated group
will pay more tax as a result of fining separate returns.

Jan 24, 2000

Re: Technical Assistance Advisement 00(C)1-002
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XXX (hereinafter referred to as "Taxpayer")

Dear :

Your letter of XXX, requests permission to discontinue filing
consolidated returns for Florida corporate income tax purposes.
This response to your request constitutes a Technical Assistance
Advisement under Chapter 12-11, Florida Administrative Code, and
is issued to you under authority of s. 213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

Taxpayer is a XXX corporation that, together with its
consolidated group (the "Taxpayer Group"), currently reports its
income on a consolidated basis for Florida corporate income tax
purposes. Taxpayer initially made its election to file
consolidated returns in XXX. At the time, the Taxpayer Group
consisted of taxpayer and XXX corporate entities. In XXX, the
Taxpayer Group engaged in numerous lines of business in various

states, including the following: XXX and XXX. In XXX, Taxpayer
Group had offices in XXX states, and manufacturing facilities in
XXX states. In XXX, the Taxpayer Group had a total of
approximately XXX employees and gross revenues in excess of XXX.
Taxpayer contends that the Taxpayer Group has, over the last XXX
years, evolved from a diversified corporate conglomerate to a
company that conducts XXX and owns XXX in Florida, and conducts
a limited number of real estate activities outside Florida. In
particular, of the XXX subsidiaries in the Taxpayer Group in
XXX, XXX of them have sold their assets and liquidated, XXX of
them have been sold via stock sales, XXX companies were
terminated, and XXX merged into Taxpayer. Of the original XXX
subsidiaries, only XXX are now in existence.

Taxpayer has added XXX new subsidiaries, for a total of XXX as
of XXX. In Florida, the Taxpayer Group owns and operates a XXX,
and owns XXX. Outside of Florida, the Taxpayer Group's
activities include: XXX. A XXX and other XXX were sold during
the XXX tax year. In XXX, the Taxpayer Group had gross revenues
of XXX, and approximately XXX employees.

The Taxpayer Group has no realized but unrecognized income or
expense items that may be recognized at a later date which would
benefit any member of the Taxpayer Group which has been included
within the filed consolidated Florida corporate income tax
returns. If the Taxpayer Group files on a separate return basis,
rather than a consolidated basis, it is expected to pay
approximately XXX more in Florida corporate income taxes for the
XXX tax year. The Taxpayer Group will continue to file
consolidated federal income tax returns.

LEGAL AUTHORITY

Section 220.131(1), F.S., states:

(1) Notwithstanding any prior election made with respect to
consolidated returns, and subject to subsection (5), for
taxable years beginning on or after September 1, 1984, any
corporation subject to tax under the code which corporation
is the parent company of an affiliated group of
corporations may elect, not later than the due date for

filing its return for the taxable year, including any
extensions thereof, to consolidate its taxable income with
that of all other members of the group, regardless of
whether such member is subject to tax under this code, and
to return such consolidated taxable income hereunder, in
which case all such other members must consent thereto in
such manner as the department may by rule prescribe,
provided:

(a) Each member of the group consents to such filing by
specific written authorization at the time the consolidated
return is filed;

(b) The affiliated group so filing under this code has
filed a consolidated return for federal income tax purposes
for the same taxable year; and

(c) The affiliated group so filing under this code is
composed of the identical component members as those which
have consolidated their taxable incomes in such federal
return.

Section 220.131(3), F.S., states:

(3) The filing of a consolidated return for any taxable
year shall require the filing of consolidated returns for
all subsequent taxable years so long as the filing
taxpayers remain members of the affiliated group or, in the
case of a group having component members not subject to tax
under this code, so long as a consolidated return is filed
by such group for federal income tax purposes, unless the
director consents to the filing of separate returns.

Rule 12C-1.0131(3)(b), F.A.C., states:

(b)1. Notwithstanding that a consolidated return is
required for a taxable year, the Executive Director or the
Executive Director's designee is authorized to grant
permission to a group to discontinue filing consolidated
returns. Any such application shall be made to the Office
of General Counsel, Technical Assistance and Dispute

Resolution, P.O. Box 7443, Tallahassee, Florida 32314-7443,
and shall be made not later than the 90th day before the
due date for the filing of the consolidated return,
including extensions of time. Permission to revoke will be
contingent upon an agreement between the taxpayer and the
Executive Director or the Executive Director's designee to
the terms, conditions, and adjustment under which the
change will be effected.

2. The Executive Director or the Executive Director's
   designee is authorized to grant permission to a group to
   discontinue filing consolidated returns if the net result
   of all amendments to the Florida Income Tax Code or the
   Internal Revenue Code or regulations with effective dates
   commencing within the taxable year had a substantial
   adverse effect on the consolidated tax liability of a group
   for such year relative to what the aggregate tax liability
   would be if the members of the group filed separate returns
   for such year. Other factors which will be taken into
   account in determining whether good cause exists for
   granting permission to discontinue filing consolidated
   returns beginning with the taxable year include:

a. Changes in law or circumstances, including changes which
do not affect income tax liability;

b. Changes in law which are first effective in the taxable
year and which result in a substantial reduction in the
consolidated net operating loss for such year relative to
what the aggregate net operating losses would be if the
members of the group filed separate returns for such year;
and

c. Changes in the Florida Income Tax Code or the Internal
Revenue Code or regulations which are effective prior to
the taxable year but which first have a substantial adverse
effect on the filing of a consolidated return relative to
the filing of separate returns by members of the group in
such year.

3. Permission to revoke may be contingent upon an agreement

between the taxpayer and the Executive Director or the
Executive Director's designee to the terms, conditions, and
adjustment under which the change will be effected.

ISSUE PRESENTED

Has sufficient reasonable cause been established for the
Executive Director to grant Taxpayer permission to stop filing
consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

The first issue is whether Taxpayer has shown the existence of a
substantial adverse effect by reason of filing consolidated
returns. There are two bases in the Florida Administrative Code
for allowing a taxpayer to revoke its consolidated reporting
election. Rule 12C-1.0131(3)(b)2., F.A.C., provides that
permission to deconsolidate may be granted "if the net result of
all amendments to the Florida Income Tax Code or the Internal
Revenue Code or regulations... had a substantial adverse effect
on the consolidated tax liability of a group for such year
relative to what the aggregate tax liability would be if the
members of the group filed separate returns for such year". The
Taxpayer Group would pay more Florida corporate income tax on a
separate return basis, as compared to a consolidated return.
Taxpayer has not cited any tax law changes as the basis for its
request, and further discussion of the main portion of Rule 12C1.0131(3)(b)2., F.A.C., is unnecessary.

Instead, Taxpayer has relies upon Rule 12C-1.031(3)(b)2.a.,
F.A.C., which permits the Executive Director to consider
"[c]hanges in law or circumstances, including changes which do
not affect income tax liability". There is no evidence of a
change in law, either federal or state, which has greatly
affected Taxpayer's business activities or the business
environment in which it operates. Rather, Taxpayer contends that
the business of the affiliated group has changed significantly
since XXX. According to Taxpayer, it has evolved from a
diversified corporate conglomerate to a company that conducts
XXX operations and owns XXX in Florida, and conducts a limited
number of XXX activities outside Florida. When the Taxpayer

Group elected consolidated filing in XXX, it was engaged in XXX
(ownership, leasing, development, construction, and management)
through XXX subsidiaries with XXX employees. As of XXX,
Taxpayer had terminated its XXX activities, and had concentrated
all of its business activities in XXX. The current XXX
activities also differ from the XXX activities conducted in XXX,
with only XXX subsidiaries and XXX employees.

Since electing consolidated reporting, Taxpayer has
substantially reorganized its affiliated group. Taxpayer's core
business has effectively changed, and it has moved into new
lines of business. The Taxpayer Group will pay the same or more
tax by filing separate returns. This is not a situation where
Taxpayer has received the benefits of consolidated reporting,
and wishes to change its reporting methods for tax avoidance
reasons. Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for XXX and later years:

1. That the deconsolidation is effective for the tax year
   ending on XXX;

2. That Taxpayer has no realized but unrecognized income or
   expense items that may be recognized at a later date which
   would benefit a member of the Taxpayer Group;

3. That the difference in tax liability for the tax year
   ended XXX, between the separate tax returns filed and a pro
   forma consolidated return for the same period is greater
   than the amount of tax on the pro forma consolidated
   return;

4. That the Taxpayer Group does not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year ending XXX.

CONCLUSION

Taxpayer has met the requirements for granting permission to
discontinue the Florida corporate income tax consolidated filing
election. Accordingly, Taxpayer's request for permission to

file separate income tax returns for the tax year ended XXX, is
granted.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
based on those facts and specific situation summarized above.
You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules
upon this advice is based may subject future transactions to a
different treatment than expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Gary A. Moreland
Technical Assistance
and Dispute Resolution

GAM/gm
Control No. 39551