Could an acquired Florida consolidated corporate-income-tax group discontinue consolidated filing after becoming part of a new parent group that filed separately in Florida?

Plain-English summary

An unrelated purchaser acquired all the stock of the taxpayer and its subsidiaries. The former taxpayer group ceased to exist for federal and Florida consolidated-return purposes, while the purchaser's own group had always filed Florida corporate income tax returns on a separate-entity basis.

The Department treated the ownership change and disappearance of the old consolidated group as a sufficient change in circumstances to permit revocation of the former Florida consolidated-filing election.

Permission was subject to two conditions: deconsolidation had to take effect for the tax year ending December 31, 2011, and the old group could have no realized-but-unrecognized or deferred income or expense items that might later benefit a former member or normally appear on a consolidated return but escape the new separate returns.

What this means for you

An acquisition can support permission to stop consolidated Florida filing when it genuinely ends the old group and the new parent has a different Florida filing election. The Department's conditions protect against items falling between the consolidated and separate-return systems.

Common questions

What was the qualifying change in circumstances? An unrelated purchaser acquired the old parent, ending the former consolidated group and placing its companies in a parent group that filed separately in Florida.

Was permission automatic? No. The Department granted permission under the stated facts and conditions.

What deferred-item condition applied? The old group could not have specified unrecognized or deferred items that would benefit a member or go unreported after deconsolidation.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-010R

Original ruling text

Executive Director
Marshall Stranburg

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.

October 03, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement 12C1-010R
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 “Purchaser”)
XXX (FEIN: XXX) (hereinafter referred to as “Taxpayer”)
XXX (FEIN: XXX) (Subsidiary of Taxpayer)
XXX (FEIN: XXX) (Subsidiary of Taxpayer)
XXX (FEIN: XXX) (Subsidiary of Taxpayer)

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (TAA) pursuant to
section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding permission to discontinue filing
consolidated returns for Florida corporate income tax purposes. An examination of your letter has
established that you have compiled with the statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department is hereby granting your request for a TAA.

FACTS SUPPLIED BY TAXPAYER
According to the Florida Department of Revenue’s (hereinafter referred to as the Department) database,
the Taxpayer is a corporation headquartered in XXX. Its account indicates that the Taxpayer and its
subsidiaries have a history of filing consolidated Florida and federal corporate income tax returns.
Taxpayer is engaged in the XXX business.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

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

Technical Assistance Advisement 12C1-010R
Page 2

On XXX the Purchaser acquired 100% of the common stock of the Taxpayer and its subsidiaries.
Taxpayer and subsidiaries filed their last Florida and federal consolidated returns for the short period
XXX, through XXX. As a result of the purchase, the consolidated group consisting of Taxpayer and its
subsidiaries no longer exists for Florida and federal corporate income tax purposes. The Purchaser is the
parent to its own consolidated group and files its required Florida returns on a separate entity basis.
Purchaser has never elected to file Florida consolidated returns for its consolidated group either prior to or
after its acquisition of the Taxpayer/subsidiaries. Purchaser requests permission for the Taxpayer and
subsidiaries to discontinue filing consolidated Florida corporate income tax (CIT) returns. This request is
based on a “change in circumstances,” as Taxpayer’s consolidated group ceased to exist after Purchaser’s
acquisition and is now a subgroup of Purchaser’s consolidated group and not eligible to file a Florida
consolidated return (see Rule 12C-1.0131, Florida Administration Code (F.A.C.).
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.
Rule 12C-1.0131(3)(b), F.A.C., states:

Technical Assistance Advisement 12C1-010R
Page 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 323147443 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 12C1-010R
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. As a result of the acquisition, the Taxpayer’s consolidated group no longer exists. Taxpayer
and subsidiaries are now part of the Purchaser’s consolidated group, which does not file a Florida
consolidated return. Purchaser, which is domiciled in XXX, has always elected to file Florida corporate
income tax returns on a separate entity basis. Prior to the acquisition, Purchaser and Taxpayer did not
share common ownership and were completely unrelated to each other. Taxpayer is now bound by the
Florida filing election made by the new parent (Purchaser), and each company within the new group of
companies will file separate Florida corporate income tax returns beginning with the tax year ending
December 31, 2011.
CONCLUSION
Taxpayer has met the requirements for granting permission to discontinue the Florida corporate income
tax consolidated filing election. Accordingly, based on the following two conditions, the Department
grants the Taxpayer permission to discontinue filing consolidated Florida corporate income tax returns:

1. That the deconsolidation is effective for the Florida corporate income tax returns for the
   tax year ending December 31, 2011;
2. That the Taxpayer Group has no realized, but unrecognized, income or expense items
   that be may recognized at a later date that would benefit a member of the affiliated group,
   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.
   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.

Technical Assistance Advisement 12C1-010R
Page 5

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, MBA
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 126162