Could a corporation and its subsidiaries stop filing a Florida consolidated return after acquisition ended their former affiliated group?

Plain-English summary

The Florida Department of Revenue concluded that a corporation's former affiliated group ceased to exist when an unrelated parent acquired the group and the former parent merged into a corporation owned by the new parent.

The acquired companies became members of the new parent's affiliated group. They could not continue filing a Florida consolidated return as a subgroup, because Florida's rule prohibits subgroup consolidated filings. Their later subgroup returns were invalid and had to be corrected with separate returns for entities having Florida nexus.

The advisement also required recognition of specified deferred gains and intercompany or deferred items on the final Florida consolidated return where they otherwise would escape reporting after the switch to separate filings. The Department did not confirm the new parent's claim that it lacked Florida nexus.

What this means for you

M&A tax teams

An acquisition can terminate the target's prior affiliated group and its Florida filing election. Revisit return structure immediately after the closing rather than carrying forward the target's historic consolidated filing.

Corporate return preparers

Florida does not permit a subgroup of a larger federal affiliated group to file its own consolidated Florida return. Correct invalid subgroup returns and account for deferred items at the transition.

Common questions

Q: Did the old affiliated group remain in existence after the acquisition?
A: No.

Q: Could the acquired companies keep filing together as a subgroup?
A: No.

Q: Did the Department verify that the new parent lacked Florida nexus?
A: No.

Citations and references

• Fla. Stat. §§ 220.131, 220.02(3), and 213.22
• Fla. Admin. Code r. 12C-1.0131
• Treas. Reg. § 1.1502-75(d)(1)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-010

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: May the taxpayer be granted permission to cease filing Florida consolidated tax returns
based upon changes in business circumstances.
ANSWER: The taxpayer’s affiliated group ceased to exist by operation of law and therefore was granted
permission to cease filing Florida consolidated tax returns.
November 21, 2013

XXX
XXX
XXX

Re:

Technical Assistance Advisement 13C1-010
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXX (FEIN: XXX) (hereinafter “Taxpayer”)
XXX (FEIN: XXX) (hereinafter “Surviving Corporation”)
XXX (FEIN: XXX) (hereinafter “Parent Corporation”)

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (TAA) pursuant to
section 213.22, Florida Statutes (F.S.), and Rule Chapter 12-11, Florida Administrative Code (F.A.C.),
regarding Taxpayer’s request to discontinue filing consolidated Florida corporate income tax returns for
the 2012 tax year. An examination of your letter has established that you have complied with the statutory
and regulatory requirements for issuance of a TAA. Therefore, the Florida Department of Revenue
(hereinafter “the Department”) is hereby granting your request for a TAA.
FACTS
According to the Department’s database, the Taxpayer, as parent of its own affiliated group, filed
consolidated federal and Florida corporate income tax returns through short year ending XXX. Both the
federal and Florida short year corporate income tax returns for tax year ending XXX, were marked as final
returns by the Taxpayer and its subsidiaries.

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 13C1-010
Page 2

Taxpayer’s affiliated group ceased to exist on XXX. The Parent Corporation’s website announced that the
Parent Corporation, a XXX corporation, acquired the Taxpayer and the Taxpayer’s subsidiaries in XXX. 1
The Taxpayer previously formed a separate and unrelated affiliated group from Parent Corporation.
Parent Corporation states in its letter asking permission to deconsolidate that it has no nexus with Florida.
With its letter, the Parent Corporation provided a Certificate of Ownership and Merger, which contains the
following information. On XXX, the Surviving Corporation, which is owned by Parent Corporation, filed
the Certificate of Ownership and Merger with the State of XXX. The Certificate states that:
1.
2.
3.
4.

The Surviving Corporation is organized and incorporated in XXX;
The Surviving Corporation owns 100% of the Taxpayer;
The Taxpayer has merged with and into the Surviving Corporation; and
The Surviving Corporation then assumed all the Taxpayer’s liabilities and obligations.

The Taxpayer merged with and into the Surviving Corporation and the Taxpayer ceased to exist on XXX.
According to the Parent Corporation, as the Taxpayer’s affiliated group ceased to exist on XXX, the
Parent Corporation included the Taxpayer and the Taxpayer’s subsidiaries on the Parent Corporation’s
federal consolidated tax return for tax years ending XXX, and XXX. Nevertheless, the Parent Corporation
had the Taxpayer and its subsidiaries file Florida corporate income tax returns as a subgroup for those tax
periods. Neither the Surviving Corporation nor the Parent Corporation is included in those Florida filings.
Parent Corporation now states that the entities previously included in the Florida consolidated filing of the
Taxpayer request to file on a separate company basis for tax year ending XXX.
LEGAL AUTHORITY
Section 220.131, F.S., lists the conditions to be met for an affiliated group of corporations to file a
consolidated Florida corporate income tax return. Section 220.131, F.S., also lists the conditions to be met
for an affiliated group of corporations to stop filing a consolidated corporate income tax return.
Specifically, s. 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 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:

1

The XXX, which is available through the Parent Corporation Internet site, states that Parent Corporation acquired the
Taxpayer and the Taxpayer’s subsidiaries in XXX. The Parent Corporation’s Internet site shows a press release announcing the
acquisition of the Taxpayer and Taxpayer’s subsidiaries in XXX.

Technical Assistance Advisement 13C1-010
Page 3

(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. (Emphasis Supplied)

Rule 12C-1.0131, F.A.C., provides further information on when an affiliated group of corporations may
stop filing a consolidated corporate income tax return. Specifically, Rule 12C-1.0131, F.A.C., provides, in
pertinent part:
(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.

(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

Technical Assistance Advisement 13C1-010
Page 4

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;
   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.
   (c) The Executive Director or the Executive Director’s designee may grant all groups or a
   particular class of groups permission to discontinue filing consolidated returns if any
   provision of the Florida Income Tax Code or the Internal Revenue Code or regulations
   has been amended and such amendment is of the type which could have a substantial
   adverse effect on the filing of consolidated returns by substantially all groups or all such
   groups, as the case may be, relative to the filing of separate returns. Ordinarily, the
   permission to discontinue shall apply to the taxable year which includes the effective date
   of such amendment.
   (d) If a group has permission under paragraphs (b) or (c) of this subsection to discontinue
   filing consolidated returns for any taxable year and such group wishes to exercise such
   election, then the common parent must file a separate return for such year on or before
   the last day prescribed by law including extensions of time for the filing of the
   consolidated return for such year.

Technical Assistance Advisement 13C1-010
Page 5

(e) A group shall be considered as remaining in existence, for the purposes of these rules,
in accordance with the rules prescribed in s. 1.1502-75(d) of the Federal Income Tax
Regulations.

(h) The taxable year of members of the group, including rules for changing to the parent’s
taxable year, income to be included in the consolidated return, income to be included in
and the time for making separate returns for periods not included in a consolidated return
for the purposes of these rules shall be in accordance with the rules prescribed in the
federal income tax regulations. (Emphasis Supplied)

Treasury Reg. s. 1.1502-75(d)(1), provides:
General rule.—A group remains in existence for a tax year if the common parent remains
as the common parent and at least one subsidiary that was affiliated with it at the end of
the prior year remains affiliated with it at the beginning of the year, whether or not one or
more corporations have ceased to be subsidiaries at any time after the group was formed.
Thus, for example, assume that corporation P acquires the sole outstanding share of stock
of S on January 1, year 1, and that P and S file a consolidated return for the year 1
calendar year. On May 1, year 2, P acquires the sole outstanding share of stock of S1
and, on July 1, year 2, P sells the S share. The group (consisting originally of P and S)
remains in existence in year 2 because P remained the common parent and, S, a
subsidiary that was affiliated with P at the end of year 1, remained affiliated with P at the
beginning of year 2.
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?
DISCUSSION AND ANALYSIS
Florida law provides that once a taxpayer makes an election to file a corporate income tax return on a
consolidated basis, then that taxpayer must continue to file on a consolidated basis in future years. 2
However, s. 220.131(3), F.S., goes on to provide that such election shall remain in effect “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.”
Rules 12C-1.0131(3)(b)1. and 12C-1.0131(3)(e), F.A.C., reflect this exception from the requirement to
continue filing on a consolidated basis. They provide that the Florida consolidated filing requirement is
eliminated if the affiliated group is no longer considered to remain in existence under the rules described
in s. 1.1502-75(d) of the Treasury Regulations.
2

See s. 220.131(3), F.S.

Technical Assistance Advisement 13C1-010
Page 6

Florida follows federal tax concepts in the interpretation and administration of its corporate income tax.3
Under s. 1.1502-75(d)(1) of the Treasury Regulations, an affiliated group is deemed to remain in existence
only so long as the common parent and at least one subsidiary that was affiliated with the common parent
at the end of the prior year remains affiliated with the common parent at the beginning of the year.
Section 1.1502-75(d)(1) of the Treasury Regulations, and the examples thereunder, provide that the
acquisition of an affiliated group by an unrelated entity filing on a separate return basis causes the
termination of that consolidated group. 4
On XXX, Taxpayer and its subsidiaries were deemed to remain an affiliated group, per s. 1.1502-75(d)(1)
of the Treasury Regulations. Effective XXX, Parent Corporation acquired Taxpayer and Taxpayer’s
subsidiaries. Prior to this acquisition, Parent Corporation and Taxpayer were unrelated and Parent
Corporation did not meet the 80 percent voting control requirement of I.R.C. s. 1502(a)(2). Under s.
1.1502-75(d)(1) of the Treasury Regulations, Taxpayer’s affiliated group (consisting of Taxpayer and
Taxpayer’s subsidiaries) ceased to exist at the close of business on XXX, and then Taxpayer and its
subsidiaries became part of Parent Corporation’s affiliated group (with Parent Corporation as the common
parent) on XXX.
The Taxpayer and its affiliated group filed consolidated federal income tax returns and consolidated
Florida corporate income tax returns marked final returns for short tax year ending XXX. Through that
date, the Taxpayer was the parent of its own affiliated group that consisted of Taxpayer and Taxpayer’s
subsidiaries. Then, effective for tax year beginning XXX, Taxpayer’s affiliated group did not exist and
the Taxpayer was no longer the parent corporation of an affiliated group. The Taxpayer and Taxpayer’s
subsidiaries became part of Parent Corporation’s affiliated group. Pursuant to Rule 12C-1.0131(1)(a)2.,
F.A.C., a subgroup of an affiliated group may not file a consolidated return.
As a result, Taxpayer and Taxpayer’s subsidiaries were not eligible to file consolidated Florida corporate
income tax returns, as a subgroup of the Parent Corporation’s affiliated group, for the XXX, through
XXX, tax year and tax year ending XXX, as well as later tax years. Beginning XXX, Taxpayer became
bound by the filing election of the new parent company, Parent Corporation, whose election was to file
separate income tax returns for those entities within the Parent Corporation’s affiliated group. The
Department has not confirmed the Parent Corporation’s statement that it does not have nexus with Florida.
Regardless of whether Parent Corporation elected to file separate corporate income tax returns, the Parent
Corporation’s affiliated group would not qualify to make an election to file consolidated Florida corporate
income tax returns if the Parent Corporation does not have nexus with Florida. See Rule 12C1.0131(1)(a), FA.C.
CONCLUSION
Taxpayer and Taxpayers subsidiaries filed consolidated corporate income tax returns in Florida for tax
years ending XXX, and XXX1, based on a subgroup of Parent Corporation’s affiliated group in error.
These subgroup returns are invalid and must be corrected. Taxpayer and Taxpayer’s subsidiaries should
have filed consolidated corporate income tax returns in Florida only for the XXX, through XXX, tax year.
3
4

See s. 220.02(3), F.S.
See Rev. Rul. 69-163, 1969-1 CB 217.

Technical Assistance Advisement 13C1-010
Page 7

The Taxpayer and its subsidiaries with Florida nexus should not have filed on a consolidated basis for the
remainder of tax year in XXX (XXX – XXX) or for the XXX tax year.
Parent Corporation may wish to participate in a voluntary disclosure of separate income tax returns for
each separate entity with nexus in Florida for these two tax years. If valid, the voluntary disclosure
program would afford Parent Corporation an automatic waiver of penalties. For more information, see
http://dor.myflorida.com/dor/forms/2013/gt800053.pdf.
The Department recognizes that Taxpayer’s affiliated group ceased to exist at the close of business on
XXX, and that Taxpayer, with Taxpayer’s subsidiaries, may no longer file consolidated Florida corporate
income tax returns as an affiliated group for tax years beginning on or after XXX. 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 Florida corporate income tax return for tax year ending XXX. In addition, if the
Taxpayer and its subsidiaries have intercompany items realized, but not recognized, or 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, the Taxpayer must recognize the income for these items on
the Florida corporate income tax return for tax year ending XXX. Finally, the Taxpayer and its
subsidiaries may not become part of a consolidated Florida corporate income tax return with the Taxpayer
as the parent company prior to the tax year ending in XXX.
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,

Debra Gifford, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-717-6752
Record ID: 150076