Did substantial growth and changed business circumstances justify ending a group's Florida consolidated-return election?

Plain-English summary

The Florida Department of Revenue allowed a corporate group to discontinue consolidated Florida corporate-income-tax filing beginning with the year ended December 31, 2012.

The taxpayer documented substantial growth in the group, including expanded business lines, employees, income, assets, and services. The Department treated that change in circumstances as sufficient good cause under its deconsolidation rule.

Permission carried four conditions: the change was effective for 2012; the taxpayer represented that it had no realized but unrecognized income or expense items; the group could not join a Florida consolidated return before the year ending December 31, 2017; and specified federal deferred gains not yet recognized had to be reported in full on the returns for the period ending December 31, 2011.

What this means for you

Corporate groups seeking deconsolidation

Florida consolidated filing generally continues after election, so a request needs documented good cause and may come with transition conditions.

Return preparers

Review deferred gains and other unrecognized items before the effective year and track any Department-imposed waiting period before future consolidated filing.

Common questions

Q: Did the Department approve separate filing?
A: Yes, beginning with the 2012 year.

Q: Could the group immediately rejoin a consolidated Florida return?
A: No. The advisement barred that through tax years before the year ending December 31, 2017.

Citations and references

• Fla. Stat. §§ 220.131(1) and (3), and 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-008

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: Whether the Taxpayer has established sufficient reasonable cause for the Executive
Director to permit it to stop filing consolidated Florida corporate income tax returns?

ANSWER: Based on the following four conditions, the Department grants permission to the
Taxpayer to discontinue filing consolidated corporate income tax returns beginning with tax year
ended December 31, 2012:

1. That the deconsolidation is effective for the year ending on December 31, 2012.
2. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
3. That the Taxpayer Group does not become part of a consolidated Florida corporate
   income tax return prior to the tax year ending December 31, 2017.
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 December 31, 2011.
   October 25, 2013

XXX
XXX
XXX

Re:

Technical Assistance Advisement 13C1-008
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.013.131(3) and 12C-1.0151, F.A.C.
XXX (“Taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (“TAA”)
pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding permission to discontinue filing
consolidated corporate income tax returns. An examination of your letter has established that you
have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the
Department is hereby granting your request for a TAA.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement 13C1-008
Page 2

FACTS SUPPLIED BY TAXPAYER
Taxpayer is incorporated and domiciled in XXX. Taxpayer files as part of a consolidated group for
both federal and Florida purposes. Taxpayer has been filing as part of a consolidated group since at
least XXX. Taxpayer is a XXX that includes XXX, and other services to customers that XXX, in the
XXX. Taxpayer was founded in XXX by XXX to XXX each other when they were unable to XXX.
Over the past XXX Taxpayer has been expanding into both XXX and into XXX.
ISSUE
Whether the Taxpayer has established sufficient reasonable cause for the Executive Director to permit
it to stop filing consolidated Florida corporate income tax returns?
LAW
Section 220.131(1), F.S., states in 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 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 in part:
(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.

Technical Assistance Advisement 13C1-008
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 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 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;

ANALYSIS
Taxpayer relies on Rule 12C-1.0131(3)(b)2.a., F.A.C., which permits the Executive Director to
consider "[c]hanges in law or circumstances, including changes which do not affect income tax
liability" when granting permission to discontinue filing consolidated returns. Taxpayer contends that
it has grown substantially since XXX, the earliest year for which Taxpayer information is available
and a consolidated return was filed.
The information provided by Taxpayer shows growth in the consolidated group since XXX. The
consolidated group includes both XXX and XXX companies. Between XXX and XXX, Taxpayer’s
XXX grew XXX, and its XXX and XXX grew XXX. In the XXX and XXX, Taxpayer’s employees
grew by XXX, the total income grew by XXX, and the total assets grew by XXX. Taxpayer has
added services such as XXX XXX, XXX, XXX, and XXX to its XXX. Taxpayer has also added
additional services to its XXX such as online and mobile XXX, XXX, and other XXX.
Taxpayer’s substantial growth since XXX is a sufficient basis for granting deconsolidation pursuant to
Rule 12C-1.0131(3)(b)2.a., F.A.C.

Technical Assistance Advisement 13C1-008
Page 4

CONCLUSION
Based on the following four conditions, the Department grants permission to the Taxpayer to
discontinue filing consolidated corporate income tax returns beginning with tax year ended December
31, 2012:

1. That the deconsolidation is effective for the year ending on December 31, 2012.
2. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
3. That the Taxpayer Group does not become part of a consolidated Florida corporate income tax
   return prior to the tax year ending December 31, 2017.
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 December 31, 2011.
   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 predicated on those facts and the specific situation
   summarized above. You are advised that subsequent statutory or administrative rule changes, or
   judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar
   future transactions to a different treatment than expressed in this response.
   You are further advised that this response, your request and related documents are public records
   under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s.
   213.22, F.S. Your name, address, and any other details, which might lead to identification of the
   taxpayer, must be deleted before disclosure. In an effort to protect the confidentiality of such
   information, we request you provide the undersigned with an edited copy of your request for Technical
   Assistance Advisement, backup material and response within fifteen days of the date of this
   advisement.
   Sincerely,

Affan Qureshi, Esq.
Senior Attorney
Technical Assistance and Dispute Resolution
(850)717-7602

Record ID #146644