Could a diversified corporate group stop filing Florida consolidated income-tax returns and switch to separate returns?

Plain-English summary

The corporate group had changed dramatically since electing consolidated Florida filing. It expanded business lines, geographic reach, entities, revenue sources, regulation, and operations, evolving from a small organization into a large, diverse group.

Florida granted permission to switch to separate corporate income-tax returns because separate filing better reflected the group's changed business activities. The approval was conditional.

The four conditions set a redacted effective year, required no unreported intercompany or deferred items, barred reconsolidation until a redacted later year, and required specified deferred federal gains to be fully reported in a stated period. The published text redacts all dates attached to those conditions.

What this means for you

Deconsolidation relief can carry tax-accounting safeguards. A taxpayer must show changed circumstances and address deferred gains, intercompany items, and future filing-method changes before approval.

Common questions

Did Florida allow separate filing? Yes, subject to four conditions.

Why was permission granted? The group had become materially different in business mix, structure, scale, and geography.

Can the exact effective years be determined from the public ruling? No; they are redacted.

Citations and references

• Fla. Stat. § 220.131 and Fla. Admin. Code r. 12C-1.0131(3)(b), as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-007

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : 10C1-007
ISSUE : Request for Authority to Discontinue Consolidated Filing
STATUTE CITES: SS. 220.131(1), and 220.131(3), F.S.
RULE CITES: Rules 12C-1.013(3)(b), F. A. C.
QUESTION: May a parent company be granted permission to cease filing Florida consolidated
tax returns based upon changes in business circumstances.
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax
returns based on provisions of the F. A. C. which addresses changes in business circumstances.
July 14, 2010
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10C1-007
Request for Authority to Discontinue Consolidated Filing
Requestor: XXX, (hereinafter referred to as “the taxpayer”)
FEIN: XXX
Section 220.131, Florida Statutes (F.S.)
Rule 12C-1.0131(3) (b), Florida Administrative Code (F.A.C.)

Dear XXX:
Your letter of XXX, 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 s. 213.22, Florida Statutes.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is a wholly-owned subsidiary of a non-U.S. subsidiary, which is in turn, owned by
a foreign corporation. In XXX, the foreign parent company merged its XXX with its XXX to
form the taxpayer. Also, in XXX, the taxpayer elected to begin filing its Florida tax returns on a
consolidated basis.
At the time the consolidated filing election was made, the taxpayer’s XXX consisted of a small
XXX located in XXX. The taxpayer’s XXX consisted of a small XXX located in XXX.
Subsequently, in XXX, the taxpayer purchased a XXX headquartered in XXX, which it sold in
XXX. The taxpayer purchased a XXX located in XXX, and sold it in XXX. The taxpayer then
concentrated on expanding its XXX and XXX.
In XXX, the taxpayer XXX for only one XXX. Since that time it has expanded to XXX a
number of other XXX, and has acquired XXX for an extensive range XXX.
Additionally, the taxpayer’s XXX has changed from XXX to the XXX and XXX of XXX. This
resulted in a change in the type of revenue reported by the taxpayer from XXX to XXX and an
associated change in the XXX. The taxpayer has also added additional companies to its XXX to
handle XXX and XXX to handle XXX. The geographical area in which the taxpayer’s XXX has
changed as well. These expanded XXX have led to the taxpayer being regulated by state
agencies, which was not the case in the past.

Technical Assistance Advisement 10C1-007
Page 2
Further, the taxpayer has created a corporation whose purpose is to XXX and XXX purchased by
the taxpayer and, in XXX, the taxpayer entered into XXX.
Since the initiation of its Florida consolidated filing election, the taxpayer has undergone
significant changes in its business lines and in the size of its operations. These changes have
resulted in a significant difference in the size and business activities of the taxpayer.
Consequently, filing Florida corporate income tax returns on a separate basis would create a
better reflection of the taxpayer’s business activities within the state along with being more
indicative of how its business lines are operated.
LEGAL AUTHORITY
Section 220.131, 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:
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:

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

Technical Assistance Advisement 10C1-007
Page 3
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.
   ISSUE PRESENTED
   Has sufficient reasonable cause been established for the Executive Director to grant the taxpayer
   and its subsidiaries 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

Technical Assistance Advisement 10C1-007
Page 4
return, the 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." The taxpayer indicates that since XXX, when it first elected to file its
consolidated Florida corporate income tax return, it has experienced major changes in its
business circumstances, reflected in significant and numerous changes in both its business mix
and corporate structure. These changes have altered many key aspects of the company’s
business, including its product and service lines, and the geographic locations in which it
operates.
As a result of the changes and diversification in its lines of business and its expanded operations
the taxpayer’s annual gross revenues have grown from approximately $XXX in XXX, to $XXX
in XXX. Many of these changes were not contemplated at the time the taxpayer made its Florida
consolidated filing election, and have allowed the taxpayer to evolve from a small XXX and
XXX into a large and diverse group of corporations.
Since the initiation of the taxpayer’s Florida consolidated filing election, it has undergone
significant changes in its business lines and environment, resulting in a significantly different
business organization than that which originally made the consolidated filing election. Filing
Florida corporate income tax returns on a separate basis should create a better reflection of the
taxpayer’s business activities within the state, and be more indicative of how the taxpayer
operates its lines of business. Therefore, based on the following four conditions, the Department
grants permission to discontinue filing consolidated Florida corporate income tax returns for the
taxable years ending on or after XXX

1. That the deconsolidation is effective for the income tax returns for the taxable
   years ending on or 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 the taxpayer group does not become part of a consolidated Florida
   corporate income tax return prior to the tax year ending in XXX.
4. 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 taxpayers, for the period ending XXX.
   CONCLUSION
   The taxpayer has met the requirements for obtaining permission to discontinue the Florida
   corporate income tax consolidated filing election. Accordingly, the taxpayer’s request for
   permission to file separate Florida corporate income tax returns for the taxable years beginning
   with the return for its tax year ending XXX, is granted subject to the provisions in the preceding
   paragraph.

Technical Assistance Advisement 10C1-007
Page 5
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 backup 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 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,

Suzanne C. Paul
Technical Assistance and
Dispute Resolution

SCP/tlg
Record Id:

67090