Did an acquired group's Florida consolidated-return election continue after the group ceased to exist for federal tax purposes?

Plain-English summary

A corporation acquired another affiliated group through a triangular merger. Before the merger, the target parent and its subsidiaries filed consolidated federal and Florida returns. The buyer's group filed a consolidated federal return, but its Florida-nexus members filed separate Florida returns.

Florida concluded that the target's affiliated group ceased to exist when it terminated for federal consolidated-return purposes and its members joined the buyer's affiliated group. The target had to file its final consolidated Florida return for the pre-merger short period, but it could not continue a separate target-group consolidated Florida return afterward.

The buyer's existing elections controlled the enlarged group. Its federal consolidated election and separate-Florida-return filing approach applied to all members, and the buyer could not file a Florida consolidated return for the merger year without a timely Florida consolidated-return election.

What this means for you

A Florida consolidated-return election does not necessarily survive a transaction that terminates the electing affiliated group for federal tax purposes. The identity and continued existence of the federal group, along with the acquiring group's own Florida filing election, controlled the post-merger result here.

Common questions

Did the target group's old Florida consolidated election continue after the merger? No. The group ceased to exist for federal purposes, so its Florida consolidated filing requirement ended as well.

What did the target file for the period before joining the buyer? A final consolidated Florida corporate income tax return for the pre-merger short period described in the ruling.

Could the target and its subsidiaries keep filing as their own Florida consolidated subgroup? No. The quoted Florida rule also states that a subgroup of an affiliated group may not file a consolidated return.

Did the buyer automatically obtain Florida consolidated filing? No. The buyer's group had been filing separate Florida returns, and it could not file a Florida consolidated return for the merger year without a timely election.

Citations and references

• Fla. Stat. § 220.131(1), (3) (Florida consolidated-return election and continuation)
• Fla. Stat. § 220.02(3) (federal tax concepts in Florida corporate income tax)
• Fla. Admin. Code r. 12C-1.0131(1), (3) (consolidated filing, discontinuance, and group existence)
• Treas. Reg. §§ 1.1502-75(d)(1), 1.1502-76(b)(3) (continued existence and termination of federal consolidated groups)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 07C1-002

Original ruling text

SUMMARY
QUESTION: If an affiliated group becomes part of another affiliated group as the result of a
merger, and ceases to exist for purposes of its federal consolidated return election, does such
affiliated group cease to exist for purposes of the Florida consolidated return election?
ANSWER: Yes. Under s. 220.131(3), F.S., the Florida consolidated return election remains in
effect so long as a consolidated return is filed by the affiliated group for federal income tax
purposes.

April 23, 2007

Re:

Technical Assistance Advisement 07C1-002
Corporate Income Tax – Consolidated Filing Requirements
Section 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XX (FEIN XXX) (hereinafter “Taxpayer”)
XX (FEIN XXX) (hereinafter “Acquiree”)
XX (FEIN XXX) (hereinafter “Merger Sub”)

Dear:
Your letter of XX, requests advice regarding the effect of a merger on the parties’ Florida filing
elections, and whether Acquiree may cease filing Florida consolidated corporate income tax
returns. This response to your request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s.
213.22, Florida Statutes.
FACTS AS PROVIDED BY TAXPAYER
On XX, Merger Sub, a wholly-owned subsidiary of Taxpayer, merged into Acquiree, with
Acquiree as the survivor (hereinafter the “Merger”), pursuant to an Agreement and Plan of
Merger, dated XX, among Taxpayer, Acquiree and Merger Sub. In conjunction with this
Merger, Taxpayer issued approximately XX common stock shares to the former shareholders of
Acquiree in exchange for all of the common stock of Acquiree. After this exchange of stock, the
former shareholders of Acquiree owned approximately XX of the Taxpayer’s common shares,
and Acquiree became a wholly-owned subsidiary of Taxpayer. Immediately subsequent to the
Merger, Taxpayer changed its name. The Merger was structured as a triangular “B” merger, and
it met the requirements of I.R.C. s. 368(a)(1)(B) and s. 368(a)(2)(E).
Prior to the Merger, Taxpayer and Acquiree were not affiliates of each other. Taxpayer and its
subsidiaries are members of an affiliated group, with Taxpayer as the common parent for all
periods relevant to the Request, and file a consolidated U.S. Corporate Income Tax Return

(hereinafter “consolidated Federal Tax Return”). See I.R.C. ss. 1504(a) and 1501; Florida
Statutes s. 220.03(1)(b). Acquiree and its subsidiaries were members of an affiliated group, with
Acquiree as the common parent, and also filed a consolidated Federal Tax Return for taxable
years ending prior to the Merger. All members of the affiliated groups are calendar year
taxpayers for Federal Income Tax purposes.
Prior to the Merger, Acquiree and its subsidiaries filed a consolidated Florida Corporate Income
Tax Return (hereinafter “consolidated Florida Income Tax Return”). See Florida Statutes s.
220.131. Taxpayer and its subsidiaries did not file a consolidated Florida Income Tax Return
prior to the merger. Several members of Taxpayer’s affiliated group did have nexus with Florida
and therefore filed separate Florida Corporate Income Tax Returns for taxable years ending prior
to the merger; however, Taxpayer did not have nexus with Florida and consequently did not file
an income tax return with Florida. Taxpayer continues to have no nexus with Florida.
At the request of the Department, Taxpayer provided additional information, which can be
summarized as follows. As a result of the merger, Taxpayer will continue to be the parent
company of its affiliated group for federal income tax purposes, and Acquiree and its
subsidiaries will be members of that affiliated group. Acquiree, which filed a consolidated
federal income tax return for itself and its subsidiaries, will be included in the Taxpayer’s federal
consolidated corporate income tax return. As of the date of the merger, the affiliated group
consisting of Acquiree and its subsidiaries will cease to exist for federal income tax purposes,
and those entities will become subsidiaries of the Taxpayer. Acquiree will be required to file a
final federal consolidated income tax return for the short period ending XX, and will be included
in Taxpayer’s consolidated federal income tax return for the short period XX, through XX.
Finally, Taxpayer has advised that Taxpayer and Acquiree are not under audit or in litigation
with the Department with respect to the issues raised in this advisement. See Rule 12-11.003,
F.A.C.
ISSUES PRESENTED

1. Whether Acquiree and its subsidiaries are required to file a Florida consolidated income tax
   return for the tax period of XX, through XX.
2. Whether Acquiree and its subsidiaries may file a consolidated Florida corporate income tax
   return for the tax period of XX, through XX.
3. Whether Taxpayer and its subsidiaries may file a Florida consolidated corporate income tax
   return for the tax period of XX, through XX, or any portion thereof.
   APPLICABLE LAW
   Section 220.131, F.S., provides in part:
   (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 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.

(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.

(emphasis added)
Rule 12C-1.0131, F.A.C., provides in part:

(1)(a)2. A subgroup of the affiliated group may not file a consolidated return.
(b) If a group wishes to exercise its privilege of filing a consolidated return, such
consolidated return must be filed not later than the date prescribed, including
extensions of time, for the filing of the common parent’s return. Such
consolidated return may not be withdrawn after such last day but the group may
change the basis of its return at any time prior to such last day.

(3)(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 has
   a substantial adverse effect on the consolidated tax liability of the 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.
   (c) The Executive Director or the Executive Director’s designee may grant all
   groups or a particular class of groups permission to discontinue filing
   consolidated returns if any provision of the Florida Income Tax Code or the
   Internal Revenue Code or regulations has been amended and such amendment is
   of the type which could have a substantial adverse effect on the filing of
   consolidated returns by substantially all groups or all such groups, as the case may
   be, relative to the filing of separate returns. Ordinarily, the permission to
   discontinue shall apply to the taxable year which includes the effective date of
   such amendment.
   (d) If a group has permission under paragraphs (b) or (c) of this subsection to
   discontinue filing consolidated returns for any taxable year and such group wishes
   to exercise such election, then the common parent must file a separate return for
   such year on or before the last day prescribed by law including extensions of time
   for the filing of the consolidated return for such year.

(e) A group shall be considered as remaining in existence, for the purposes of
these rules, in accordance with the rules prescribed in s. 1.1502-75(d) of the
Federal Income Tax Regulations.

(h) The taxable year of members of the group, including rules for changing to the
parent’s taxable year, income to be included in the consolidated return, income to
be included in and the time for making separate returns for periods not included in
a consolidated return for the purposes of these rules shall be in accordance with
the rules prescribed in the federal income tax regulations.

(emphasis added)
Treasury Reg. s. 1.1502-75(d)(1), provides:
General rule.—A group remains in existence for a tax year if the common parent
remains as the common parent and at least one subsidiary that was affiliated with
it at the end of the prior year remains affiliated with it at the beginning of the year,
whether or not one or more corporations have ceased to be subsidiaries at any
time after the group was formed. Thus, for example, assume that individual A
forms corporation P. P acquires 100 percent of the stock of corporation S on
January 1, 1965. On May 1, 1966, P acquires 100 percent of the stock of S-1, and
on July 1, 1966, P sells the stock of S. The group (consisting originally of P and
S) remains in existence in 1966 since P has remained as the common parent and at
least one subsidiary (now S-1) remains affiliated with it.
DISCUSSION
Florida law provides that once a taxpayer makes an election to file on a consolidated basis, then
that taxpayer must continue to file on a consolidated basis in future years. S. 220.131(3), F.S.
However, s. 220.131(3), F.S., goes on to provide that such election shall remain in effect “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)(a)1., F.A.C., and Rule 12C-1.0131(3)(e), F.A.C., reflect
this exception. They provide that the Florida consolidated filing requirement is eliminated if the
taxpayer is no longer considered to remain in existence under the rules described in s. 1.150275(d) of the Treasury Regulations.
Florida follows federal tax concepts in the interpretation and administration of its corporate
income tax. S. 220.02(3), F.S. Under Treasury Regulation s. 1.1502-75(d)(1), a consolidated
group is deemed to remain in existence only so long as the common parent and at least one
subsidiary remain affiliated with it. Treasury Regulation s. 1.1502-76(b)(3), and the examples
hereunder, provide that the acquisition of a consolidated group by an unrelated entity filing on a
separate return basis causes the termination of that consolidated group. See Rev. Rul. 69-163,
1969-1 CB 217.

On XX, Taxpayer acquired the Acquiree and its subsidiaries. Prior to this acquisition, Taxpayer
and Acquiree were unrelated to each other within the meaning of Treasury Regulation s. 1.150276(b)(3). Under § 1.1502-75(d)(1) of the Treasury Regulations, the Acquiree affiliated group
(consisting of Acquiree and its subsidiaries) ceased to exist, and Acquiree and its subsidiaries
became part of Taxpayer’s affiliated group (with Taxpayer as the common parent). Taxpayer
and its affiliated group filed consolidated federal income tax returns and separate Florida
corporate income tax returns. The existing filing elections of the acquiring affiliated group
(Taxpayer) remain in force and are applied to all of the affiliated group members. Accordingly,
Taxpayer’s consolidated federal return election and its election to file separate Florida corporate
income tax returns apply to all members of the affiliated group. Based on the facts provided,
Acquiree is required to file a consolidated Florida corporate income tax return for the period XX
through XX. Acquiree may not file a consolidated Florida corporate income tax return for the
period XX through XX, nor may Taxpayer file a consolidated Florida corporate income tax
return for the XX tax year in the absence of a timely Florida consolidated return filing election.
CONCLUSION
Based on the following, the Acquiree must discontinue filing Florida consolidated corporate income
tax returns for tax periods beginning after XX;

1. That with respect to the Acquiree the deconsolidation is effective for federal tax purposes
   for the tax year beginning XX;
2. That Acquiree will have reported realized but unrecognized income or expense items in
   accordance with the requirements of the Internal Revenue Code and Chapter 220, Florida
   Statutes, on its final federal and Florida returns; and
3. That Acquiree and its affiliated group may not file a Florida consolidated 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., and is binding
   on the Department only under the facts and circumstances described in your request. Our response
   is based on the facts and the specific situation summarized above and under s. 213.22, F.S., has no
   precedential value except to the taxpayer that requests the advisement, and then only for the specific
   transaction addressed in the Technical Assistance Advisement. Your are advised that subsequent
   statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which
   this advised 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 the 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 back-up material, and this response,
deleting names, addresses and other details that 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,
Gary A. Moreland
Senior Attorney
Technical Assistance and Dispute Resolution
GAM/
Record ID: 25838