Could a Florida consolidated group retroactively escape its election by asserting years later that the former parent lacked nexus when the election was made?

Plain-English summary

The former parent elected Florida consolidated filing, and the group filed consolidated federal and Florida returns for many years. After restructuring, the successor parent continued that treatment and even filed an amended consolidated return claiming a refund based on an affiliate's net operating losses.

Years later, the group asserted that the former parent had lacked Florida nexus when making the original election. The Department found no clear and cogent evidence supporting that claim and held that a timely election could not be retroactively revoked by an unsubstantiated allegation of old factual or legal error.

The taxpayer also failed to provide information satisfying the statutory and regulatory good-cause criteria for permission to deconsolidate. It therefore had to continue filing consolidated Florida returns.

What this means for you

Long reliance on a filing election—including use of its tax benefits—makes later inconsistency difficult. A deconsolidation request needs present good cause and supporting information, not simply a retrospective attack on the original election.

Common questions

Did the Department accept the old no-nexus claim? No.

Could the original election be revoked retroactively? No.

Was prospective deconsolidation granted? No, because the required information and good cause were not shown.

Citations and references

• Fla. Stat. § 220.131(1) and (3) and Fla. Admin. Code r. 12C-1.0131, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11C1-007

Original ruling text

Executive Director
Lisa Vickers

TAX: Corporate Income Tax
TAA NUMBER : 11C1-007
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/subsidiary consolidated filing group be granted permission to cease filing
Florida consolidated tax returns by claiming that the original election to consolidate was made erroneously
and without nexus.
ANSWER: The parent/subsidiary consolidated filing group was denied permission to cease filing Florida
consolidated tax returns. Taxpayer did not substantiate its claims that it did not have nexus in 2001, when
it elected to file consolidated returns. Taxpayer must continue to file Florida consolidated corporate
income tax returns.
September 01, 2011
XXX
XXX
XXX
Re:

Technical Assistance Advisement 11C1-007
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXX (FEIN: XXX)
(hereinafter referred to as “Taxpayer”), parent of current consolidated group
XXX (FEIN: XXX)
(hereinafter referred to as “Corporation A”), parent of former consolidated group

Dear XXX:
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, Florida Administrative Code, and is issued to you under
authority of s. 213.22, Florida Statutes.

Child Support Enforcement – Ann Coffin, Director z General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director z Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 11C1-007
Page 2

FACTS SUPPLIED BY TAXPAYER
According to the Florida Department of Revenue’s (hereinafter referred to as the Department) database,
Taxpayer is the parent of a consolidated group of corporations headquartered in XXX. It is listed as a
holding company on its XXX-XXX consolidated federal corporate income tax returns (1120s) and Florida
corporate income tax (CIT) returns (F-1120s). Its subsidiaries are XXX, XXX, XXX, XXX. The four
wholly owned subsidiaries are engaged in various business activities ranging from XXX XXX to XXX
XXX.
Corporation A (domiciled in XXX) was the former parent of the Taxpayer’s consolidated group of
subsidiaries, which were comprised of the four current subsidiaries (listed above), and XXX. Corporation
A, as parent of that consolidated group, filed 1120s, and F-1120s beginning with the period ending XXX,
through XXX. At the time of its Florida consolidated filing election, the Taxpayer claims that
Corporation A had no property, payroll, or sales in Florida, and its only connection to the State of Florida
was its ownership of subsidiary stock.
The Taxpayer states that during a review of its prior Florida corporate income tax returns, it was
discovered that the Florida consolidated return filing election, made on XXX, was invalid because the
former parent company (Corporation A) did not have nexus in the State of Florida when making that
election. Corporation A cites section 220.131(1), F.S., and claims that Corporation A was ineligible to
make a consolidated filing election due to a lack of Florida nexus.
In XXX, Taxpayer filed an amended return (XXX-XXX), which resulted in a refund of $XXX in
previously remitted tax. At the same time, Taxpayer filed an alternative refund claim (refund of $XXX
and net operating loss (nol) carryover of $XXX), based on its assertion that no valid consolidated return
election had been made. That refund claim was denied, as Taxpayer failed to secure written permission to
deconsolidate. Taxpayer protested the denial, and on XXX, the Department filed a Notice of
Determination stating that the Taxpayer cannot change its election to file consolidated by filing an
amended Florida CIT return after the due date for the original election.
Taxpayer now requests permission to discontinue filing a consolidated return beginning with tax year
ending XXX, and agrees that deconsolidation, if granted, will apply prospectively. Taxpayer’s request is
still based on its assertion that the election made on XXX, was invalid. During the review of the
Taxpayer’s request, the Department asked the Taxpayer to supplement its request with additional
information or argument that would show that the Taxpayer was entitled to cease filing a consolidated
Florida corporate income tax return unrelated to its original argument. The Taxpayer did not provide any
additional information to the Department.
LEGAL AUTHORITY
Section 220.131, F.S., states in pertinent 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 the code which corporation is the parent company of an

Technical Assistance Advisement 11C1-007
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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.

Rule 12C-1.0131(3) (b), F.A.C., states:
(1) Unless otherwise distinctly expressed, the terms used in this section shall have the same
meaning as when used in a comparable context in the federal income tax regulations for
consolidated returns. The term "common parent" as used in the federal regulations shall have the
same meaning for Florida corporate tax purposes, and all references to the "Commissioner" or
"District Director" in the federal regulations shall be construed to mean "the Executive Director or
the Executive Director's designee" for purposes of these rules.
(a)1. An affiliated group of corporations, as defined in these rules, which did not file a Florida
consolidated return for the immediately preceding taxable year, may file a consolidated return in
lieu of separate returns for the taxable year, provided the common parent is subject to the Florida
Income Tax Code and each corporation which has been a member during any part of the taxable
year for which the consolidated return is to be filed consents, in the manner provided in paragraph
(e) of this subsection, to be bound by the provisions of these requirements and all applicable
sections of the federal consolidated returns regulations.
2. A subgroup of the affiliated group may not file a consolidated return.

Technical Assistance Advisement 11C1-007
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(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)(a)1. A group which filed, or was required to file, a consolidated return for the immediately
preceding taxable year is required to file a consolidated return for the taxable year unless it has
permission to discontinue filing consolidated returns under paragraph (b) or (c) of this subsection;
or as long as a federal consolidated return is filed.

(b)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
Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income
tax returns?

Technical Assistance Advisement 11C1-007
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DISCUSSION AND ANALYSIS
Section 220.131, F.S., provides that an affiliated group of taxpayers may elect to file a consolidated
Florida corporate income tax return under the parent company’s name and federal identification number.
Such an election requires: (1) the parent company to be subject to Florida tax (nexus with Florida) at the
time of the election; (2) the first consolidated return to be filed timely; and (3) all members of the
affiliated group consent to the filing of a consolidated return. Once an affiliated group of taxpayers elects
to file Florida consolidated corporate income tax returns, the affiliated group is required by section
220.131, F.S., to file Florida consolidated corporate income tax returns for all future years unless the
Department grants permission to deconsolidate or a qualifying event occurs, such as the sale of the
affiliated group.
In this case, Corporation A and its affiliates elected to consolidate their incomes and filed a Florida
consolidated income tax return for the tax year ending XXX. In order to make this election, the Taxpayer,
having control and full knowledge of all the facts, determined that it had nexus with Florida during XXX
and XXX. The Taxpayer filed both federal and Florida consolidated corporate income tax returns for the
XXX, XXX, XXX, XXX, and XXX tax years. Sometime after filing the consolidated F-1120 for the tax
year ending XXX, Corporation A and its affiliates underwent restructuring which resulted in its
elimination, and the elimination of one of its affiliates (XXX). The new parent, Taxpayer, along with four
of the original affiliates, continued to file consolidated federal and Florida corporate income tax returns
for the tax years ending XXX, through XXX. Furthermore, for the tax period ending XXX, Taxpayer
filed an F-1120X (amended return) claiming continued consolidated status, and taking a refund of $XXX,
based on Net Operating Losses of one of its affiliates. After filing its consolidated XXX Florida corporate
income tax return, Taxpayer asserted that Corporation A, the former parent company of the affiliated
group, did not have nexus with Florida when making its original consolidated filing election in XXX. As
a result, Taxpayer now claims that its XXX year old election is invalid, and requests permission to
discontinue filing a consolidated Florida corporate income tax return.
The Taxpayer has not provided clear and cogent evidence to substantiate its claim, and now it implies that
Corporation A was negligent in its XXX investigation to determine its correct federal and Florida
corporate income tax filing status. Although Taxpayer’s arguments lack clarity, there is no doubt that the
language contained in section 220.131, F.S., and Rule 12C-1.0131, F.A.C., provides that once a taxpayer
has made an election to consolidate, it is bound by that election, and it must continue to file Florida
corporate income tax returns on a consolidated basis. There is no provision in the statute or rule that
allows a consolidated filing election to be retroactively revoked by an unsubstantiated XXX-year-old
claim. Once the time for filing the return has passed, or the return is filed timely with a valid extension,
the initial election cannot be revoked by a taxpayer.
The Taxpayer is correct that nexus is required in order to make an election to file Florida corporate
income tax returns. The Taxpayer, XXX years after the fact, now asserts that Corporation A did not have
nexus with Florida in XXX. Once the Taxpayer made its election to file consolidated Florida corporate
income tax returns, the Taxpayer was bound by that decision. See, e.g., Pacific National Co. v. Welch,
304 U.S. 191 (1938), Estate of Sperling v. Commissioner of Internal Revenue Service, 341 F. 2d 201
(1965). “The fact that a decision later turns out to have been unwise does not mean that no real decision
was made. And it is still a true decision even though it may have been based upon an improper method of

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computing tax liability or upon a mistake of law or fact that leads to an increase in tax liability.” See
Rosenfield v. United States, 156 F.Supp. 780 (1957).
There are also equitable principles that ban the Taxpayer from retroactively revoking its election. The
Taxpayer has a duty of consistency. A person with full knowledge of the facts shall not be permitted to act in a manner inconsistent with its former position. See, e.g., Estate of Hilda Ashman v.
Commissioner of Internal Revenue, 231 F.3d 541 (2000), National Alfalfa Dehydrating & Milling Co. v.
Commissioner of Internal Revenue, 417 U.S. 134, 149 (1974). In Orin R. Woodbury and Imogene R.
Woodbury v. Commissioner of Internal Revenue, 900 F.2d 1457 (1990), in referencing Pacific National
Co. v. Welch, supra, the court stated:
“change from one method to the other … would require recomputation and readjustment of
tax liability for subsequent years and impose burdensome uncertainties upon the
administration of the revenue laws.… There is nothing to suggest that Congress intended to
permit a taxpayer, after expiration of the time within which return is to be made, to have his
tax liability computed and settled according to the other method.”
The Taxpayer cannot change its timely filed election with unsubstantiated claims that Corporation A did
not have Florida nexus in XXX, even if the election was in error. The Taxpayer is bound by its timely
filed election to consolidate. The time in which the Taxpayer could have changed its decision passed on
XXX, when the initial consolidated return was filed timely with an extension of time.
After electing to file Florida consolidated corporate income tax returns, Taxpayer now seeks to escape the
consequences of its choice by pointing the Department at its election and telling the Department that it
“erred.” However, the Department is not required to look at the issue, and the Taxpayer cannot compel
the Department to do so. See, e.g., Lee County v. State Farm Mut. Auto. Ins. Co., 634 So. 2d 250, 251
(Fla. 2nd DCA 1994). Even if the Department were to look at the issue, the courts have held that Taxpayer
has the proof (“strong proof”) requirement to show that it did not have nexus with Florida in XXX. In
Estate of Hilda Ashman v. Commissioner of Internal Revenue, supra, the Court stated that “The
commissioner must, in general, rely upon taxpayers’ honesty and accuracy, whether those virtues are
grounded on the love of duty or the fear of discovery. The suggestion that he did not rely because he
should have suspected her of wrongdoing is a wallydraigle.” The Taxpayer cannot force the Department
to look at the nexus issue, especially when both the Taxpayer and the Department have relied upon the
Taxpayer’s initial characterization of the facts for over XXX years.
The Taxpayer is estopped from changing its mind and retroactively revoking Corporation A’s election to
file Florida consolidated income tax returns. The Department relied on the Corporation A’s representation
of the facts that it had nexus in Florida in XXX. Estoppel rests on the principles of equity, justice, and
morality. See Camp v. Moseley, 2 Fla. 171 (1848), Gray v. Gray, 107 So. 261 (1926), and Quality Shell
Homes and Supply Company v. Roley, 186 So. 2d 837. The Court in Davis v. Evans, 132 So.2d 476 (Fla.,
1st DCA 1961), at 481, provided the elements of estoppel: “(1) a representation by the party estopped to
the party claiming the estoppel as to some material fact, which representation is contrary to the condition
of affairs later asserted by the estopped party; (2) a reliance upon this representation by the party claiming
the estoppel; and (3) a change in the position of the party claiming the estoppel to his detriment, caused by
the representation and his reliance thereon.” In this case, all three elements are present. The Taxpayer

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represented the material fact that it had nexus in Florida in XXX and now asserts otherwise. The
Department has relied upon the Taxpayer’s representation. The Taxpayer’s change in representation has a
negative impact on the Department and the corporate income taxes it collects.
The Department also reviewed the Taxpayer’s request to cease filing a consolidated Florida corporate
income tax return to see whether the criteria established in statute and rule for granting such a request
were not. However, the Taxpayer did not provide any information to the Department as required by
Section 220.131 F.S., or Rule 12C-1.0131, F.A.C. The Department cannot grant the Taxpayer’s request
since additional information was not provided.
CONCLUSION
The Taxpayer is bound by its election in XXX to file consolidated Florida corporate income tax returns.
Simply claiming that it didn’t have nexus at the time the election to consolidate was made is insufficient
and does not establish good cause for permission to deconsolidate. The Taxpayer cannot change its
election by unsubstantiated claims that Corporation A did not have Florida nexus, and that its XXX
election is invalid. In addition, the Taxpayer did not provide information to the Department meeting the
criteria set forth in Rule 12C-1.0131, F.A.C. As a result, the Taxpayer must continue to file Florida
consolidated corporate income tax returns.
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,

Charles J. Dunning
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 98924