Could an affiliated group stop filing consolidated Florida returns after substantial growth and changes in business focus?

Plain-English summary

The Florida Department of Revenue granted an affiliated corporate group's request to stop filing consolidated Florida corporate income-tax returns.

Since the original election, the group had changed business focus, divested non-core operations, spun off a business into another consolidated group, and experienced substantial growth. Those changes in circumstances established good cause under the rule, even though separate filing was estimated to produce more Florida tax.

The request also met the rule's filing deadline. Permission was subject to four conditions covering the effective year, realized-but-unrecognized items, a period before joining another Florida consolidated return, and recognition of deferred gains.

What this means for you

Affiliated corporate groups

A consolidated election generally continues until the Department consents to separate filing. A timely, fact-supported request is required.

Tax directors and advisors

Document operational change and growth since the election, and plan for deferred items before requesting deconsolidation.

Common questions

Q: Did changed business circumstances establish good cause?
A: Yes.

Q: Was the request timely?
A: Yes; it met the rule's 90-day requirement for the applicable return.

Q: Was the permission unconditional?
A: No. Four conditions applied.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15C1-003

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: MAY THE TAXPAYER BE GRANTED PERMISSION TO CEASE FILING FLORIDA
CONSOLIDATED INCOME
TAX RETURNS BASED UPON CHANGES IN BUSINESS
CIRCUMSTANCES?
ANSWER: THE TAXPAYER’S AFFILIATED GROUP WAS GRANTED PERMISSION TO CEASE
FILING FLORIDA CONSOLIDATED INCOME TAX RETURNS.
June 17, 2015
RE:

Technical Assistance Advisement 15C1-003
Corporate Income Tax - Request for Permission to Deconsolidate
Section 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXXX (“Taxpayer”)
FEIN: XXXX
BPN: XXXX

Dear XXXX:
This letter is in response to your letter of XXXX, requesting permission for the Taxpayer to discontinue
filing consolidated Florida corporate income tax returns beginning with the tax year ending XXXX. This
response constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative
Code, and is issued to you under the authority of section 213.22, Florida Statutes.
FACTS AS PROVIDED BY TAXPAYER
XXXX (“Company”) was founded in XXXX when XXXX purchased a XXXX. As early as XXXX, the
Company began diversifying its business segments. This included XXXX. Over the years, it continued to
diversify its interests to include XXXX. As competition within the XXXX grew, the Company, in the
XXXX, began divesting itself of operations that were not directly related to its XXXX, such as its XXXX
production.
In XXXX, XXXX acquired the Company, creating the combined Taxpayer. The merger was effective
XXXX, and was XXXX, with Taxpayer becoming the new parent of the surviving federal consolidated
group. The federal consolidated group was deemed to continue. Following the acquisition, Taxpayer
focused its efforts on further developing and growing its XXXX. Consequently, the Taxpayer divested
itself of its XXXX. In XXXX, it sold its remaining XXXX and other insignificant non-core operations. It
also spun off its XXXX into their own consolidated group.

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

Taxpayer has provided information asserting substantial growth and change of business focus from the
time of its election to consolidate to the XXXX tax year1.
Item

Percentage Increase
X%
X%
X%
X%

Item

XXXX
X
X
X
X
X
X
X
X
X

XXXX
XXXX
XXXX
XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

XXXX
X
X
X
X
X
X
X
X
X

On the basis of the facts presented in its letter dated XXXX, and additional information provided to the
Department, Taxpayer requests permission to discontinue filing Florida consolidated tax returns for tax
years beginning on or after XXXX. Taxpayer has advised it is not under audit or in litigation with the
Department with respect to the issues raised in this advisement.
ISSUES PRESENTED
Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income
tax returns?
LEGAL AUTHORITY
Section 220.131, F.S., provides 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:

1

Incorporated into this TAA are Taxpayer’s Request for TAA, including Attachments 1 – 3; and its responses to requests for
additional information, Attachments 4 – 6, including the supporting data spreadsheet (dated XXXX) and chart titled Summary of
Changes in Business from XXXX to XXXX (dated XXXX).

(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.
Rule 12C-1.0131(3), F.A.C., provides in part:
(a)1. A group which filed, or was required to file, a consolidated return for the immediately
preceding taxable year is required to file a consolidated return for the taxable year unless it
has permission to discontinue filing consolidated returns under paragraph (b) or (c) of this
subsection; or as long as a federal consolidated return is filed.

2. The requirement set forth in Section 220.131(1), F.S., that the parent company of an
   affiliated group must be subject to the Florida Income Tax Code is a condition that is
   necessary for an affiliated group to make an election to file a Florida consolidated return.
   There is no requirement in Section 220.131, F.S., that the parent be subject to the Florida
   Income Tax Code in each subsequent year. Therefore, the affiliated group may not break its
   consolidated election because the parent company no longer has nexus with Florida.
   (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 323147443, 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.
3. 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.
   (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.

DISCUSSION
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. 2 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.”3
2

See s. 220.131(3), F.S.
The Taxpayer estimates that its Florida corporate income tax liability for the XXXX tax year on a separate return basis will be
approximately $XXXX greater than it would have been on a consolidated basis.
3

The Taxpayer and its affiliated group have been filing a consolidated federal income tax return and a
consolidated Florida corporate income tax return since its election in XXXX. The Taxpayer asserts that
the business focus of the group has changed significantly since XXXX. In addition, the numbers provided
by the Taxpayer show that its business has grown since the time of making its election to file consolidated
corporate income tax returns in Florida.
The Taxpayer group’s overall change in business focus, along with its change in business and growth in
operations, taken together, are a sufficient basis for granting the Taxpayer’s request for deconsolidation.
As was noted in the Taxpayer’s request to deconsolidate its tax return, Rule 12C-1.0131(3)(b)1., F.A.C.,
requires that the request to cease filing consolidated Florida corporate income tax returns be filed no later
than the 90th day before the due date, or extended due date if an extension was filed, for filing of the
consolidated return. As the Taxpayer’s request to deconsolidate is dated and postmarked XXXX, this
requirement is satisfied for the XXXX tax return, for which the extended due date is XXXX. Therefore,
the request for deconsolidation will be granted for the Taxpayer’s tax year beginning XXXX.
CONCLUSION
Based on the above analysis and based on the following conditions, the Department grants the Taxpayer
permission to discontinue filing consolidated corporate income tax returns:

1. That the deconsolidation is effective for the tax years beginning on or after XXXX; and
2. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date that would benefit a member of the affiliated group; and
3. That the Taxpayer does not become part of a consolidated Florida corporate income tax
   return prior to the tax year ended XXXX, and
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 XXXX.
   As a reminder, Technical Assistance Advisements are based on full disclosure of all relevant facts, and the
   lack of disclosure of a material fact by the Taxpayer may adversely affect the response provided in this
   Technical Assistance Advisement.
   This response constitutes a Technical Assistance Advisement under section 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 section 213.122, F.S. Our response is based 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 backup documents are public records
under Chapter 119, Florida Statutes, and are subject to disclosure to the public under the conditions of
section 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, the backup materials and this response, deleting the names, addresses
and any other details which might lead to identification of the Taxpayer. Your response should be
received by the Department within 15 days of the date of this letter.
Sincerely,

Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6478
Record ID: 197507