Could an acquired Florida consolidated group keep filing as a subgroup of its new parent's affiliated group?

Plain-English summary

The Florida Department of Revenue recognized that the taxpayer's affiliated group ceased to exist when an unrelated parent acquired the taxpayer and its subsidiaries.

The former group filed its final short-period federal and Florida consolidated returns through the acquisition date. After that date, the acquired companies joined the new parent's affiliated group and became bound by its election to file separate Florida returns for entities with Florida nexus. They could not continue filing a consolidated return as a subgroup.

The final return also had to recognize federally realized but deferred gains and intercompany or deferred income and expense items that otherwise would not appear on the later separate returns. The ruling barred a new Florida consolidated election until the redacted future tax year specified in the conclusion.

What this means for you

Acquired corporate groups

Determine whether the seller's old affiliated group survives under the federal continued-existence rules that Florida follows. Do not assume the acquired subgroup may preserve its old filing election.

Closing and tax-accounting teams

Inventory deferred gains and intercompany items for the final short-period return and confirm the buyer's existing Florida filing election.

Common questions

Q: Did the old group continue after the acquisition?
A: No.

Q: Could the acquired companies file a subgroup consolidated return?
A: No. They were bound by the new parent's separate-return election.

Citations and references

• Fla. Stat. §§ 220.02(3), 220.131, 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 14C1-004

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 THE TAXPAYER WAS GRANTED
PERMISSION TO CEASE FILING FLORIDA CONSOLIDATED TAX RETURNS.
April 24, 2014
Re:

Technical Assistance Advisement 14C1-004
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXXX. & Subsidiaries (FEIN: XXXX) (hereinafter “Taxpayer”)
XXXX & Subsidiaries, Inc. (FEIN: XXXX) (hereinafter “Parent Corporation”)

Dear XXXX:
This is in response to your request dated XXXX, 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 XXXX 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 SUPPLIED BY TAXPAYER
On XXXX, the Taxpayer was acquired by the Parent Corporation. Prior to the acquisition, the
Taxpayer and the Parent Corporation were completely unrelated entities. The Parent
Corporation will file a federal consolidated income tax return for the XXXX, through XXXX,
period, that will include the Taxpayer and its subsidiaries. The Taxpayer has filed federal and
Florida corporate income tax returns for the short period ended XXXX. Both the Taxpayer and
the Parent Corporation are incorporated in XXXX. The Parent Corporation does not have
Florida nexus.

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 14C1-004
Page 2

The taxpayer is requesting permission to deconsolidate its return for Florida corporate income
tax filing purposes.
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:
(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 12C1.0131, F.A.C., provides, in pertinent part:

Technical Assistance Advisement 14C1-004
Page 3

(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 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;

Technical Assistance Advisement 14C1-004
Page 4

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.
   (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)

Technical Assistance Advisement 14C1-004
Page 5

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 the 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, that taxpayer must continue to file on a consolidated basis in future
years. 1 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.”
Rule 12C-1.0131(3)(b)1. and (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 taxpayer is no longer considered to remain in existence under the
rules described in s. 1.1502-75(d) of the Treasury Regulations.
Florida follows federal tax concepts in the interpretation and administration of its corporate
income tax. 2 Under Treasury Regulation s. 1.1502-75(d)(1), a consolidated group is deemed to
remain in existence only so long as the common parent and at least one subsidiary remain
affiliated with each other. Treasury Regulation s. 1.1502-75(d), and the examples thereunder,
provide that the acquisition of a consolidated group by an unrelated entity filing on a separate
return basis causes the termination of that consolidated group and the creation of a new affiliated
group. 3
1

See s. 220.131(3), F.S.
See s. 220.02(3), F.S.
3
See Rev. Rul. 69-163, 1969-1 CB 217.
2

Technical Assistance Advisement 14C1-004
Page 6

Effective XXXX, the Parent Corporation acquired the Taxpayer and the Taxpayer’s subsidiaries.
Prior to this acquisition, the Parent Corporation and the Taxpayer were unrelated, and the 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, the Taxpayer’s affiliated group (consisting
of the Taxpayer and the Taxpayer’s subsidiaries) ceased to exist on XXXX, and the Taxpayer
and its subsidiaries became part of the Parent Corporation’s affiliated group (with the Parent
Corporation as the common parent).
The Taxpayer and its affiliated group filed a consolidated federal income tax return and a
consolidated Florida corporate income tax return for the short tax year ending XXXX. Through
that date, the Taxpayer was the parent of its own affiliated group that consisted of the Taxpayer
and the Taxpayer’s subsidiaries. On XXXX, the Taxpayer and the Taxpayer’s subsidiaries
became part of the Parent Corporation’s affiliated group. The Taxpayer’s affiliated group ceased
to exist, and the Taxpayer was no longer the parent corporation of an affiliated group. At that
time, the Taxpayer became bound by the filing election of the new parent company, the Parent
Corporation, whose election is to file separate income tax returns for those entities within the
Parent Corporation’s affiliated group that have nexus in Florida. As a result, the Taxpayer and
the Taxpayer’s subsidiaries (a subgroup of the Parent Corporation’s affiliated group) were not
eligible to file Florida consolidated corporate income tax returns for tax years ending XXXX,
and later tax years.
CONCLUSION
The Taxpayer and its subsidiaries filed a corporate income tax return in Florida for the tax year
ending XXXX. The Department recognizes that the Taxpayer’s affiliated group ceased to exist
on XXXX, and that the Taxpayer and its subsidiaries may no longer file consolidated corporate
income tax returns as an affiliated group for tax years beginning on or after XXXX. Any
deferred gains which are realized for Federal tax purposes, but which have not yet be XXXX en
recognized, are required to be reported in total, on the income tax return filed by the Taxpayer,
for the period ending XXXX. In addition, if the Taxpayer group has 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 income tax return filed
by the Taxpayer, for the period ending XXXX. Finally, the Taxpayer group may not elect to file
a consolidated Florida corporate income tax return prior to the tax year ending in XXXX.
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.

Technical Assistance Advisement 14C1-004
Page 7

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,

Suzanne C. Haines
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-717-6794
Record ID: 165128