Could a corporate group stop filing Florida consolidated returns after a reverse acquisition and extensive restructuring?

Plain-English summary

Florida refused to let the corporate group stop filing consolidated state income tax returns because its restructuring did not significantly change the nature of its business. The group remained subject to the consolidated-filing election made by the old parent.

The old parent was acquired through a reverse acquisition. For federal tax purposes, the old parent's group survived, so its Florida consolidated election remained effective even though a new taxpayer controlled it. The restructured group had different officers, a different commercial domicile, a closed Florida headquarters, merged subsidiaries, and substantially larger operations. It continued to file a federal consolidated return.

Organizational change was not enough

The Department described mergers, acquisitions, sales, consolidations, liquidations, and dissolutions as commonplace changes in corporate form or structure. It found that the taxpayer's business had continued to be the same type of business before and after the transaction.

The taxpayer had chosen a reverse acquisition in which the old parent's tax attributes survived. Citing Regal Kitchens, Inc. v. Florida Department of Revenue, the TAA said the taxpayer was bound by that choice.

Changes in executive officers and the board of directors also did not establish a basis for deconsolidation.

Florida's continued-filing rule

Section 220.131(3) required consolidated filing in later years while the relevant group conditions continued, unless the director consented to separate returns. Rule 12C-1.0131(3)(b) allowed permission when good cause existed, including specified changes in law or circumstances and substantial adverse consolidated-tax effects.

On the disclosed facts, the Department found no significant change in the nature of the taxpayer's business circumstances and concluded that requiring continued consolidated returns was not an unreasonable exercise of discretion.

What this means for you

A change in ownership or internal structure does not automatically end a Florida consolidated-return election. A group seeking permission to deconsolidate should distinguish changes in the actual nature of its business or relevant law and tax effects from changes in corporate form, leadership, location, or size.

Common questions

Q: Did the reverse acquisition terminate the old Florida consolidated election?
A: No. The old parent's group and tax attributes survived for tax purposes, so the election remained effective.

Q: Were new officers, a new commercial domicile, and a closed Florida headquarters enough?
A: No. The Department found those changes did not significantly change the nature of the business.

Q: Did the Department view mergers and subsidiary changes as extraordinary by themselves?
A: No. It characterized such reorganizations as common changes in form or structure.

Q: Can Florida ever permit a group to discontinue consolidated filing?
A: Yes. The quoted rule authorized permission for good cause, but the group did not establish it here.

Citations and references

• Fla. Stat. § 220.131(1) — consolidated-return election requirements
• Fla. Stat. § 220.131(3) — continued consolidated filing unless the director consents
• Fla. Admin. Code r. 12C-1.0131(3)(b) — permission and good-cause factors for discontinuing consolidated filing
• Regal Kitchens, Inc. v. Florida Department of Revenue, 641 So. 2d 158 (Fla. 1st DCA 1994) — taxpayer bound by chosen transaction form

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04C1-008

Original ruling text

SUMMARY
QUESTION: May a consolidated group be granted permission to cease filing Florida consolidated corporate income
tax returns based upon changes in law or circumstances?
ANSWER - Based of Facts Below: The parent company was not granted permission to cease filing Florida
consolidated tax returns. Changes in the organizational structure of the consolidated group, such as mergers,
acquisitions, liquidations, dissolutions, and sales of subsidiaries, divisions, or assets, were not a sufficient basis for
deconsolidation when the nature of the business remains the same.

December 22, 2004

Re: Technical Assistance Advisement 04C1-008
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (FEIN XX - XX) and Subsidiaries (hereinafter referred to as "Taxpayer")
XXX (FEIN XX - XX) (hereinafter referred
to as "Old Parent Company")
Dear:
Your letter of XX, requests permission for the Taxpayer 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
Old Parent Company was incorporated in XXX in XX. Old Parent Company, along with its consolidated group,
reported its income on a consolidated basis for Florida corporate income tax purposes since its initial election in XX.
Since its election, Old Parent Company has been commercially domiciled in Florida.
At the time of the election to file Florida consolidated corporate income tax returns, Old Parent Company had XX
subsidiaries and directly operated XX in XX states, primarily located in the XXX and XXX regions of the United States.
For the tax year ending XX, Old Parent Company's affiliated group had approximately XX in XXX in XXX, and XX in
XXX. In XX, Old Parent Company carried few XXX. In XX, Old Parent Company’s management and board of directors
controlled all business decisions, including tax related decisions.
As of XX, Old Parent Company was XXX in the United States. On XX, the Taxpayer, a XXX domiciled company,

purchased Old Parent Company through the use of an acquisition company. The acquisition company was then
merged into Old Parent Company. Old Parent Company changed its name and the Taxpayer changed its name.
The Internal Revenue Service classifies the merger as a reverse acquisition. Old Parent Company is treated as the
surviving group for tax purposes. As a result of this federal treatment, Old Parent Company's Florida consolidation
election remains effective for the Taxpayer even though the Taxpayer now controls Old Parent Company.
After the merger, the XXX original subsidiaries of Old Parent Company were merged into Old Parent Company. In
addition, several of the Taxpayer's operating subsidiaries, including the one subsidiary that had nexus with Florida and
was filing a separate Florida corporate income tax return, were also merged into Old Parent Company. None of the
Old Parent Company executive officers are executive officers of the Taxpayer. The commercial domicile of the
Taxpayer is in XXX, and the Florida corporate headquarters of Old Parent Company was closed.
As of XX, the Taxpayer owned and operated XX in approximately XX states. For the tax year ending XX, the
Taxpayer's affiliated group had approximately XX in XXX, XXX in XX, and XXX in XXX. These XXX figures represent
an increase of 75%, 125%, and 113%, respectively, over the amount of Old Parent Company's XX at the time the
consolidated election was made. In addition, none of Old Parent Company’s executive officers are executive officers
of the Taxpayer.
The Taxpayer's Group will continue to file consolidated federal income tax returns. The Taxpayer estimates that its
Florida tax liability for tax year ending XX will be a Florida loss of approximately (XX) on a consolidated basis. On a
separate return basis, the Taxpayer estimates that it would pay approximately XX in tax for one entity and would have
Florida losses of approximately (XX) for its other entities. The Taxpayer states that changes in the Taxpayer's
operating structure have been driven by efforts to centralize the Taxpayer's operations and to reduce business
inefficiencies that existed due to the combination of XX separate public companies. The Taxpayer also states that
there are no known changes in Florida taxable income that will not be the result of economic or organizational
differences.
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... 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
Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income tax
returns?
DISCUSSION AND ANALYSIS
The Taxpayer contends that there have been substantial changes in business circumstances since the Florida
consolidated reporting election was made in XX. We disagree. The Taxpayer states that during tax year ending XX,
the entity that made the consolidated election became a second tier subsidiary of an unrelated taxpayer and that it is
no longer the parent company of its affiliated group.
Corporate reorganizations, such as mergers, acquisitions, sales, or consolidations, are commonplace, and are often
no more than changes in the form or structure of the corporate organization. The Taxpayer merged one operating
subsidiary into another and dissolved an operating subsidiary. The Taxpayer’s business has been, and continues to
be, XXX.
Taxpayers have ample opportunity to choose the form and structure of their mergers. The Taxpayer chose to structure
its merger with Old Parent Company as a reverse acquisition with the tax attributes of Old Parent Company surviving,
instead of the Taxpayer’s tax attributes. Under Regal Kitchens, Inc. v. Florida Department of Revenue, (Fla. 1st DCA
1994) 641 So.2d 158, the Taxpayer is bound by its choice.
Finally, the fact that the executive officers controlling the affiliated group are not the same as those executive officers
that made the initial election to consolidate is not a basis for granting permission to deconsolidate. Likewise, a change
in the board of directors from the point in time when the initial election to consolidate was made is not a basis for
granting permission to deconsolidate.
CONCLUSION
The information presented by the Taxpayer does not establish that there has been a significant change in the nature
of the Taxpayer's business circumstances. It is not an unreasonable exercise of discretion to require the continued
filing of consolidated Florida returns.
As a reminder, Technical Assistance Advisements are based on full disclosure of all relevant facts, and the lack of
disclosure of a material fact by the Taxpayer may affect the response provided in this Technical Assistance
Advisement.
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 back-up 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 that 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 the identification of the Taxpayer.
Your response should be received by the Department within 15 days of the date of this letter.
Sincerely,
Robert DuCasse
Technical Assistance and Dispute Resolution
RCD/rd
Control No.: 61517