Could a corporation and its subsidiaries keep filing a Florida consolidated return after an unrelated parent acquired them?

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 corporation and its subsidiaries. Under the federal continued-existence rule used by Florida, they became part of a new affiliated group with the acquirer as common parent.

The acquired corporation and subsidiaries therefore could not continue filing as their old Florida consolidated group. They were bound by the new parent's separate-return election, and a subgroup could not file its own consolidated return. The new parent also lacked Florida nexus and could not elect Florida consolidated filing.

The ruling required the acquired corporation to report all realized but unrecognized deferred gains on its final short-period return. It also required recognition of intercompany items and deferred income or expenses that otherwise would not appear on the separately filed returns.

What this means for you

Acquired corporate groups

An acquisition can terminate the prior consolidated group by operation of law; the result is not limited to discretionary permission based on good cause.

Corporate tax teams

Review deferred gains and intercompany items before the final short-period return, and confirm whether the new common parent has Florida nexus.

Common questions

Q: Did the former affiliated group remain eligible to file consolidated Florida returns?
A: No. It ceased to exist under the federal continued-existence rule applied by Florida.

Q: Could the acquired corporations file as a consolidated subgroup?
A: No.

Q: Could the new parent elect Florida consolidated filing?
A: Not on the stated facts, because it lacked Florida nexus.

Q: What happened to deferred items?
A: The ruling required the identified deferred gains, intercompany items, income, and expenses to be recognized on the final short-period return.

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)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15C1-002

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.
May 4, 2015
Re:

Technical Assistance Advisement 15C1-002
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXXX (hereinafter “Taxpayer”)
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 tax year beginning XXXX. 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 not yet filed federal and Florida
corporate income tax returns for the short period ended XXXX. The Taxpayer and the Parent
Corporation are both incorporated in XXXX. The Parent Corporation does not have Florida nexus.
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Sue Harlan, Interim Director  Information Services – Damu Kuttikrishnan, Director

http://dor.myflorida.com/dor/
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

The taxpayer is requesting permission to deconsolidate its return for Florida corporate income tax
filing purposes for the tax year beginning XXXX.
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 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.

Technical Assistance Advisement
Page 3

(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;
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.

Technical Assistance Advisement
Page 4
(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)

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?

Technical Assistance Advisement
Page 5

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
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 have not yet 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 with Florida. Additionally, the Parent Corporation states it does not
have nexus with Florida and, therefore, cannot elect to file a consolidated return in Florida. As a
result, the Taxpayer and the Taxpayer’s subsidiaries (a subgroup of the Parent Corporation’s
affiliated group) are not eligible to file Florida consolidated corporate income tax returns for tax
years ending XXXX, and later tax years.

1

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

Technical Assistance Advisement
Page 6

CONCLUSION
The Taxpayer and its subsidiaries will be filing 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 been 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
at this time since the Parent Company does not have nexus with Florida, as required by s. 220.131(1),
F.S.
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: 193410