Could an acquired Florida parent-subsidiary group stop filing consolidated returns after joining a new affiliated group with no Florida consolidated election?

Plain-English summary

The purchaser acquired all of the taxpayer's stock. That ownership change ended the taxpayer's former parent-subsidiary affiliated group and placed the taxpayer in a separate purchaser group whose parent had not elected Florida consolidated filing.

The Department treated the acquisition as a qualifying change in circumstances and allowed the taxpayer to discontinue consolidated Florida corporate income tax returns.

Permission was effective for the specified tax year and required that the taxpayer have no realized but unrecognized income or expense items that could later benefit a member of the former affiliated group. The ruling also depended on full disclosure of material facts.

What this means for you

An acquisition that legally ends the old group can justify a change in filing method, but the new group's election and transition items must be carefully documented.

Common questions

What ended the former group? The purchaser's acquisition of all the taxpayer's stock.

Why could filing change? The taxpayer joined a distinct group whose parent had not elected Florida consolidated filing.

What item condition applied? No realized but unrecognized income or expense could later benefit an affiliated-group member.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-002

Original ruling text

Executive Director
Lisa Echeverri

TAX: Corporate Income Tax
TAA NUMBER : 12C1-002
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 after being purchased by a new owner (parent).
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. which addresses changes in business
circumstances.
February 02, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement 12C1-002
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XXX (FEIN: XXX) (hereinafter referred to as
“Taxpayer”)
XXX (FEIN: XXX) (herein referred to as “subsidiary”)
XXX (FEIN: XXX) (herein referred to as “Purchaser”)

Dear XXX:
Your letter of XXX, states that the Purchaser is requesting that the Executive Director of the Florida
Department of Revenue grant the Taxpayer 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

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 12C1-002
Page 2

According to the Florida Department of Revenue’s (hereinafter referred to as the Department) database,
the Taxpayer is a corporation headquartered in XXX. The Taxpayer and its subsidiary file consolidated
federal and Florida corporate income tax returns. Taxpayer is engaged in the XXX service business.
On XXX, the Purchaser acquired 100% of the common stock of the Taxpayer. As a result, the Taxpayer’s
consolidated group no longer exists. The Purchaser is part of a separate and distinct affiliated group. The
Purchaser’s affiliated group of corporations did not file a Florida consolidated return for the preceding
taxable year. Furthermore, the Purchaser indicates that according to the Florida Administrative Code
(F.A.C.), Rule 12C-1.0131(1)(a)2., F.A.C., a subgroup of the prior affiliated group may not file a
consolidated return. Purchaser states that each company within the new group of companies will continue
to file separately in accordance with the Florida Income Tax Code.

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 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:
(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.

Technical Assistance Advisement 12C1-002
Page 3

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
the 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 Taxpayer permission
to stop filing consolidated Florida corporate income tax returns?

Technical Assistance Advisement 12C1-002
Page 4

DISCUSSION AND ANALYSIS
In its request for permission to discontinue filing a consolidated Florida corporate income tax return,
Purchaser 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." Purchaser
cites a change in circumstance occurring on XXX, when it acquired 100% of the common stock of the
Taxpayer. Purchaser, which is domiciled in XXX, does not have nexus in Florida and is not required to
file a Florida Corporate Income Tax return. Purchaser’s parent has not elected to file consolidated
corporate income tax returns in Florida for its affiliated group, either prior to or after the acquisition of
Taxpayer.
Since there was a change in ownership, the Taxpayer’s original affiliated group ceased to exist, and the
Taxpayer is now bound by the filing election of the Purchaser’s affiliated group.
CONCLUSION
Based on the following 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 ending XXX and
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;
   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 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.

Technical Assistance Advisement 12C1-002
Page 5

Sincerely,

Charles J. Dunning
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 110840