Could an acquired Florida consolidated group stop consolidated filing after joining an unrelated buyer's affiliated group?

Plain-English summary

A parent and subsidiary had filed consolidated Florida returns. An unrelated company then acquired the parent in a stock-for-stock transaction. The buyer became the new parent, filed a federal consolidated return, but had never filed a Florida consolidated return and was not eligible to do so on the stated facts.

Florida allowed the acquired group to discontinue consolidated filing. The original affiliated group had ceased to exist, and the acquired companies became members of the buyer's group and were bound by its Florida filing election.

Approval carried three conditions: deconsolidation began in the specified redacted year, no realized but unrecognized item could later benefit an old-group member, and the group could not join another Florida consolidated return before the redacted waiting date.

What this means for you

The ruling treated the unrelated acquisition and termination of the old affiliated group as a sufficient change in circumstances. The buyer's existing Florida filing choice controlled the acquired members after the transaction.

Common questions

Why did the old group stop existing? The former parent became a subsidiary in the unrelated buyer's affiliated group and no longer had the same federal consolidated members.

Did the buyer file Florida consolidated returns? No. The ruling says its group had never done so and was not eligible under the stated facts.

Was permission automatic? No. Florida imposed the three transaction-specific conditions described in the ruling.

What happened to unrecognized income or expense items? The approval required that none later benefit a member of the former affiliated group.

Citations and references

• Fla. Stat. § 220.131(1)-(3) (Florida consolidated filing and consent to separate returns)
• 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 06C1-008

Original ruling text

SUMMARY
QUESTION: May an affiliated group be granted permission to cease filing Florida consolidated corporate income tax
returns when it is purchased by another company and merged into an existing affiliated group?
ANSWER - Based on Facts Below: Yes. The parent company was granted permission to cease filing Florida
consolidated corporate income tax returns based on provisions of the F.A.C. that address changes in business
activities.

October 27, 2006

Re: Technical Assistance Advisement 06C1-008
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "Taxpayer")
XXX (hereinafter referred to as "AA Company")
XXX (hereinafter referred to as "ZZ 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
The Taxpayer and its subsidiary, ZZ Company, have filed consolidated Florida income tax returns since XX. On XXX,
XX of the stock of the Taxpayer was acquired by AA Company through a stock for stock transaction. Prior to its
purchase of the Taxpayer, AA Company was unrelated to the Taxpayer or ZZ Company.
AA Company is now the parent of the Taxpayer and ZZ Company. AA Company is not subject to the Florida Income
Tax Code, and while it files a consolidated federal corporate income tax return, the AA Company affiliated group has
never filed consolidated Florida corporate income tax returns. Pursuant to s. 220.131, F.S., AA Company and its
affiliated group are not eligible to file in Florida on a consolidated basis. The affiliated group of which Taxpayer is now
a member no longer has the same affiliated members with which Taxpayer previously filed its federal consolidated tax
return, and Taxpayer is no longer the parent of that affiliated group. In short, Taxpayer's affiliated group no longer
exists, and Taxpayer and its affiliated group have become part of the AA Company affiliated group. Due to the
changes in facts surrounding the members of Taxpayer's affiliated group, Taxpayer requests permission to

discontinue filing Florida consolidated tax returns for tax years beginning on or after XX, the date the Taxpayer was
acquired by AA Company.
ISSUE PRESENTED
Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income tax
returns?
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 this 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(2), F.S., states:
Subject to subsection (5), the director may require a consolidated return for those members of an affiliated group of
corporations which are subject to tax and which would be eligible to elect to consolidate their incomes under
subsection (1), if the filing of separate returns for such corporations would improperly reflect the taxable incomes of
such corporations or of such group.
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(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 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.
   DISCUSSION AND ANALYSIS
   The Taxpayer seeks permission to deconsolidate based upon the acquisition of the Taxpayer by AA Company.
   Effective XX, the Taxpayer and ZZ Company, its affiliate, became members of the AA Company's affiliated group, and
   that affiliated group does not file Florida consolidated corporate income tax returns. The Taxpayer was in a similar line
   of business as AA Company prior to its acquisition by AA Company, and, more importantly, prior to the acquisition, the
   two entities did not share common ownership and were completely unrelated to each other.
   In this case, the original Florida affiliated group was acquired by AA Company, which does not file a Florida
   consolidated return. There was a change in ownership. The original affiliated group ceased to exist, and the Taxpayer
   is now bound by the filing election made by AA Company.

CONCLUSION
Based on the following three conditions, the Department grants the Taxpayer permission to discontinue filing
consolidated corporate income tax returns:

1. That the deconsolidation is effective for the tax year beginning on XX;
2. That Taxpayer has no realized but unrecognized income or expense items that may be recognized at a later date
   that would benefit a member of the affiliated group;
3. That the Taxpayer group does not become part of a consolidated Florida corporate income tax return prior to the
   tax year ending on or before XX.
   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 adversely 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
   Record ID: 25063