Could an acquired Florida consolidated group discontinue its old consolidated-return election after its membership and parent changed?

Plain-English summary

A corporate parent and its subsidiaries had elected to file one Florida consolidated income-tax return. A new parent acquired the group and then sold several subsidiaries to unrelated buyers, so the original consolidated group no longer existed in its prior configuration. The remaining companies would join the purchaser's new federal and Florida consolidated filing group.

Florida granted permission to end the old consolidated filing election. Rule 12C-1.0131 allows the Department to consider a change in circumstances, including one that does not itself change tax liability, as good cause for discontinuing consolidated returns.

The permission was conditional. Deconsolidation had to begin with the specified tax year; the old group represented that it had no realized-but-unrecognized intercompany items or deferred income or expenses that would disappear from separately filed returns; and any identified federal deferred gains had to be reported in full on the old group's closing-period return.

What this means for you

A consolidated election normally continues

Section 220.131 generally requires consolidated filing in later years while the taxpayers remain in the affiliated group, unless the Department consents to separate returns.

A material acquisition can establish good cause

The decisive change was not simply a desire for a better result. A new parent acquired the companies, sold former members, and replaced the old group with a materially different federal and Florida consolidated group.

Permission can carry closing-year conditions

Before deconsolidation, identify deferred intercompany items, income, expenses, and gains. Florida conditioned approval on preventing those amounts from escaping recognition during the filing change.

Apply before the regulatory deadline

The cited rule required an application no later than the 90th day before the consolidated return's due date, including extensions.

Common questions

Q: Did Florida allow the old group to stop filing consolidated returns?
A: Yes, because the acquisition and membership changes eliminated the prior group, subject to the ruling's conditions.

Q: Could the remaining companies join the buyer's consolidated group?
A: That was the proposed result described in the ruling: the purchaser would include the taxpayer and its remaining subsidiaries in its new federal and Florida group.

Q: What happened to deferred items?
A: The approval depended on there being no omitted intercompany or deferred items, and required specified deferred federal gains to be reported on the closing-period return.

Citations and references

• Fla. Stat. § 220.131(1) and (3) (consolidated elections and continued filing)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12C-1.0131(3)(b) (applications and good cause to discontinue consolidated filing)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08C1-005

Original ruling text

SUMMARY
QUESTION: May a parent/subsidiary consolidated filing group be granted permission to cease
filing Florida consolidated tax returns after being purchased by a new owner (parent) that does
not have Florida nexus.
ANSWER: The parent/subsidiary consolidated filing group was granted permission to cease
filing Florida consolidated tax returns based on provisions of the F.A.C. that address changes in
business circumstances.

July 25, 2008

Re:

Technical Assistance Advisement 08C1-005
Corporate Income Tax - Request for Authority
to Discontinue Consolidated Filing
Section 220.131, Florida Statutes (F.S.)
Rule 12C-1.0131(3)(b), Florida Administrative Code (F.A.C.)
XXX (f.k.a. XXX) (FEIN: XXX)
(hereinafter referred to as “Taxpayer”)
XXX (FEIN: XXX) (herein referred to as “Purchaser”)

Dear :
Your letter of XXX, states that the Taxpayer 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, F.A.C., and is issued to you
under authority of section 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
The Taxpayer is a corporation located in XXX. The Taxpayer, formerly known as XXX, along
with its subsidiaries, filed a consolidated F-1120, and engaged in providing various investment
services to its customers.
On XXX, XXX, was acquired by XXX, a wholly owned subsidiary of the common parent XXX.
Due to the subsidiary-parent relationship between XXX and XXX, XXX, will be hereinafter
referred to as Purchaser. In addition, after acquisition, XXX (former parent), was renamed XXX
(Taxpayer), using the same federal identification number. In addition, upon acquisition,
Purchaser sold a number of the Taxpayer’s subsidiaries. Consequently, the Taxpayer’s former
consolidated group no longer exists with its prior configuration or original members. The
Purchaser is a corporation located in XXX, and is the parent to a federal and Florida
consolidated group under which the Taxpayer will now be included.

Technical Assistance Advisement 08C1-005
Page 2

Therefore, Taxpayer requests permission, effective XXX, to deconsolidate, and begin filing as a
member of the consolidated federal and state group parented by the Purchaser.
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 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(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

Technical Assistance Advisement 08C1-005
Page 3

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.
   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
   In its request for permission to discontinue filing a consolidated Florida corporate income tax
   return, Taxpayer relies on Rule 12C-1.0131(3)(b) 2.a., F.A.C., which permits the Executive
   Director to consider “changes in law or circumstances, including changes that do not affect
   income tax liability.” Taxpayer cites a change in circumstance occurring when it and its
   subsidiaries were acquired by Purchaser on XXX. In addition, after acquisition, Purchaser sold a
   number of the Taxpayer’s subsidiaries to unrelated third parties, thereby further altering the
   original consolidated group. Purchaser, which is now Taxpayer’s new parent, will file
   consolidated federal and Florida corporate income tax returns that will include Taxpayer, and its
   remaining subsidiaries. Purchaser and its subsidiaries will now comprise the new federal and
   state consolidated filing group.
   Taxpayer, with the elimination of its prior consolidated group, will now file within its new
   parent’s (Purchaser) consolidated Florida and federal group commencing with the tax year
   beginning on XXX. Therefore, based on the following three conditions, the Department grants

Technical Assistance Advisement 08C1-005
Page 4

permission for the Taxpayer to discontinue filing consolidated Florida corporate income tax
returns.

1. That the deconsolidation is effective for the tax year beginning XXX.
2. That the Taxpayer Group has no intercompany items realized, but not
   recognized, nor any deferred income or expenses that would normally be reported
   on a consolidated basis, but would not be included in separately filed corporate
   income tax returns.
3. That any deferred gains which are realized for Federal tax purposes, but which
   have not yet been recognized, are required to be reported in total, on the income
   tax returns filed by the Taxpayer, for the period ending XXX.
   CONCLUSION
   Taxpayer Group has met the requirements for granting permission to discontinue the Florida
   corporate income tax consolidated filing election. Accordingly, Taxpayer’s request for
   permission to discontinue filing consolidated Florida corporate income tax returns, beginning
   with the period ending XXX, is granted subject to the provisions in the preceding paragraph.
   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,

Charles J. Dunning
Technical Assistance and Dispute Resolution

Record ID: 45489