Could an acquired Florida consolidated group revoke its election and begin filing separate returns?

Subject

Request for Authority to Discontinue Consolidated Filing

Plain-English summary

The Department permitted the group to stop filing Florida consolidated corporate income-tax returns and file separately for the year ended December 31, 1999. The acquisition of its former parent by a new parent with no Florida nexus was a change in circumstances supporting permission to revoke the election.

The permission carried four conditions: deconsolidation had to begin with the 1999 year; the group could not have deferred income or expense items that would later benefit a member; separate-return tax for 1999 had to equal or exceed the pro forma consolidated tax; and the group could not join another Florida consolidated return before the year ended December 31, 2004.

What this means for you

A consolidated election generally continued into later years. A corporate acquisition did not automatically end it; the group needed Department permission and had to accept the stated conditions.

Common questions

Q: Was acquisition by a non-Florida parent enough to break the election automatically? No.

Q: Did the Department grant permission? Yes, for separate filing beginning with the 1999 year.

Q: Could the group immediately join another Florida consolidated return? No; the permission barred that through the year ending December 31, 2003.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-009

Original ruling text

SUMMARY

QUESTION: When Company A (which has nexus in Florida and
files a consolidated Florida corporate income tax return

with its subsidiaries) is acquired by Company B (which does

not have nexus in Florida) may Company A be granted
permission to cease filing Florida consolidated tax

returns?

ANSWER - BASED ON THE FACTS BELOW: The prior parent

(Company A) was granted permission to cease filing Florida
consolidated tax returns based on the provisions of the
F.A.C. which address a change in circumstances. Taxpayer
will pay the same or more tax based upon separate return

filing.

Aug 17, 2000

Re: Technical Assistance Advisement 00C1-009
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.031(3), F.A.C.
XXX, FEI# XX ("Company A")
XXX, FEI# XX ("Company B")
XXX, FEI# XX ("Company C") (former parent)
XXX, ("Company D") (new parent)

Dear:

Your letter dated XX, 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 Section 213.22, Florida

Statutes.

FACTS SUPPLIED BY TAXPAYER

Company A is incorporated in XX and domiciled in XX, but has
nexus for Florida corporate income tax. Company B and Company C
are incorporated in XX and domiciled in XX, Florida. They have

nexus for Florida corporate income tax.

For the five years ending XX, Company A, Company B and Company C
(the Group") filed a consolidated Florida corporate income tax

return with Company C as the parent corporation. The Group

initially made its election to file consolidated returns in XX.

Since that time, the Group has consisted of just these three

corporations.
The stock of the parent Company C was acquired on XX, by a non-
Florida corporation, Company D. Company D has no nexus for

Florida corporate income tax.

LEGAL AUTHORITY

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

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. (emphasis supplied)

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

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(1)(a), F.A.C., provides in part:

1. An affiliated group of corporations, as defined in
   these rules, which did not file a Florida consolidated
   return for the immediately preceding taxable year, may
   file a consolidated return in lieu of separate returns
   for the taxable year, provided the common parent is

subject to the Florida Income Tax Code...

2. A subgroup of the affiliated group may not file a

consolidated return.

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

1. A group which filed, or was required to file, a
   consolidated return for the immediately preceding taxable
   year is required to file a consolidated return for the
   taxable year unless it has permission to discontinue filing
   consolidated returns under paragraph (b) or (c) of this
   subsection; or as long as a federal consolidated return is
   filed.

2. The requirement set forth in s. 220.131(1), F.S., that

the parent company of an affiliated group must be subject

to the Florida Income Tax Code is a condition that is
necessary for an affiliated group to make an election to

file a Florida consolidated return. There is no requirement
ins. 220.131, F.S., that the parent be subject to the

Florida Income Tax Code in each subsequent year.
Therefore, the affiliated group may not break its

consolidated election because the parent company no longer

has nexus with Florida.

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

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.

(emphasis supplied)

ISSUE PRESENTED

Has sufficient reasonable cause been established for the
Executive Director to grant the Group permission to stop filing

consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

The Executive Director or duly authorized designee may grant
permission to a group to discontinue filing consolidated

returns. One of the factors that will be taken into account in
granting such permission is a change in law or circumstance. A
new parent corporation, which has not established nexus in
Florida, is deemed to be a change in circumstances, as provided
in Rule 12C-1.0131(3)(b)2, F.A.C. Therefore, based on the
following four conditions, the Department grants permission to
discontinue filing consolidated corporate income tax returns for

1999 and later years:

1. That the deconsolidation is effective for the tax year

ending on December 31, 1999;

2. That the Group has no realized but unrecognized income
   or expense items that may be recognized at a later

date which would benefit a member of the Group;

3. That the difference in tax liability for the tax year
   ended December 31, 1999, between the separate tax
   returns to be filed and a pro forma consolidated
   return for the same period is equal to or greater than
   the amount of tax on a pro forma consolidated return;

and,

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

year ending December 31, 2004.

CONCLUSION

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

file separate income tax returns for the tax year ended December

31, 1999, is granted.

Please review the consolidated estimated tax balance available
to Company C for 1999. If any of that amount should be
transferred to one of the subsidiaries, to be claimed on its

1999 return, please send a written request for a corporate funds

transfer to:

Refunds and Distribution Process
BLDG |

5050 W TENNESSEE ST
TALLAHASSEE, FL 32399

Mail or FAX the request at least 30 days prior to filing the
separate returns. The request should identify the company names

and FEl# s. If no request for a transfer of estimated tax

payments is made, the balance of estimated tax payments paid
(plus any credits and estimated tax payment carryovers) under

Company C will only be available to be claimed by Company C.

When the taxpayers file the separate Florida corporate income
tax returns for 1999, please attach to the returns a letter with
the second paragraph of page three of your letter, which begins,

"For the years..." and a copy of this TAA.

This response constitutes a Technical Assistance Advisement
under Section 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 Section 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 Section 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,

Kathleen Marsh, CPA

Technical Assistance and Dispute Resolution

(850) 922-9409

KAM/km
Control No. 41580