Could a Florida corporate group stop filing consolidated returns after major changes in its business and group structure?

Plain-English summary

The Florida Department of Revenue gave a parent corporation and its subsidiaries permission to stop filing Florida consolidated corporate income tax returns.

The group had expanded through acquisitions, changed its product and business focus, reorganized its operations, and developed separate management, accounting, and technology infrastructure after becoming independent from a former parent. The Department found that the overall change in business focus and substantial growth established good cause under Rule 12C-1.0131(3)(b).

Permission came with four conditions: a specified effective year, no realized but unrecognized income or expense items, no return to a Florida consolidated group before a specified later year, and full recognition of federally realized but deferred gains on the stated separate returns.

What this means for you

Corporate tax departments

A Florida consolidated election generally continues until the Department consents to separate returns. Detailed operational and structural changes can support good cause, but approval may include protective conditions.

Transaction and reporting teams

Inventory deferred gains and other realized-but-unrecognized items before requesting deconsolidation, because the Department may require recognition as a condition of approval.

Common questions

Q: Did business changes justify ending consolidated filing?
A: Yes. The Department relied on the group's changed focus and substantial growth.

Q: Was the approval unconditional?
A: No. It imposed four conditions covering timing, deferred items, and reentry into a consolidated Florida return.

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 14C1-009

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: MAY A PARENT COMPANY BE GRANTED PERMISSION TO CEASE
FILING FLORIDA CONSOLIDATED TAX RETURNS BASED UPON CHANGES IN
BUSINESS CIRCUMSTANCES?
ANSWER: THE PARENT COMPANY WAS GRANTED PERMISSION TO CEASE FILING
FLORIDA CONSOLIDATED TAX RETURNS BASED ON PROVISIONS OF THE F. A. C.
WHICH ADDRESS CHANGES IN BUSINESS CIRCUMSTANCES.
August 11, 2014
Re:

Technical Assistance Advisement 14C1-009
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXXXX and Subsidiaries (“Taxpayer”)
FEIN: XXXXX

Dear XXXXX:
This is in response to your request dated XXXXX, 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.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is headquartered in XXXXX. The taxpayer files as part of a consolidated group for
both federal and Florida purposes, and has been filing as part of a consolidated group since at
least XXXXX. The taxpayer began as a XXXXX owner and manufacturer, and was acquired in
XXXXX and owned by a XXXXX parent company engaged in the XXXXX business, prior to
XXXXX. Until XXXXX, the taxpayer’s product was sold to XXXXX that XXXXX the finished
product.
In the early XXXXX, the taxpayer began expanding through acquisition of other companies.
One acquisition resulted in the taxpayer acquiring XXXXX entities, allowing it to control
XXXXX. In XXXXX, the taxpayer acquired several XXXXX. The XXXXX business was
expanded through XXXXX. In XXXXX, the XXXXX parent company acquired the XXXXX in

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Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
XXXXX, allowing the taxpayer to manufacture and distribute XXXXX of its products, in
contrast to the XXXXX it had been able to XXXXX before the acquisition. Additional XXXXX
were acquired in XXXXX, after which all of the taxpayer’s XXXXX companies were
consolidated into a single company.
In XXXXX, the XXXXX company was removed from the taxpayer’s consolidated group, and
the remaining members of the group were XXXXX an independent consolidated group of
companies. 1 At that time, the taxpayer became XXXXX, set up its own separate management,
accounting, and information technologies, systems and infrastructure, while continuing to
increase XXXXX. The acquisition of XXXXX in XXXXX gave the taxpayer a substantially
greater presence in Florida.
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:
(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:
(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
1

The taxpayer has stated that it was not required to make a new federal consolidated filing election XXXXX, and
that it is still bound by its previous federal consolidated filing election.

Technical Assistance Advisement
Page 3
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., provides:
(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;
   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.
   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

Technical Assistance Advisement
Page 4
liability." 2 Taxpayer contends that the business focus of the affiliated group has changed
significantly since XXXXX, the year for which the taxpayer made its consolidated filing
election.
The information provided by the taxpayer shows growth in the consolidated group since the
taxpayer made its consolidated filing election in XXXXX. The activities conducted by the
taxpayer and its product line have expanded greatly between XXXXX and XXXXX, and it is no
longer a XXXXX.
The taxpayer’s overall business focus, along with its substantial growth, taken together, are a
sufficient basis for granting the taxpayer’s request for deconsolidation.
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
XXXXX:

1. That the deconsolidation is effective for the year ending on XXXXX.
2. That the 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 XXXXX.
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 XXXXX.
   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

2

The taxpayer estimates that its Florida corporate income tax liability for the 2013 tax year on a separate return
basis will be approximately XXXXX less than it would have been on a consolidated basis.

Technical Assistance Advisement
Page 5
Technical Assistance Advisement, backup material and response within fifteen days of the date
of this advisement.
Sincerely,

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794

SCP/
Control No.: 172586