Could a Florida consolidated group keep filing after a reorganization placed its former parent and subsidiaries under another U.S. parent?

Plain-English summary

The Florida Department of Revenue concluded that a taxpayer's existing consolidated group ended when an internal reorganization placed its former parent and subsidiaries under a different U.S. parent.

Under the federal consolidated-return rules used by Florida, the old affiliated group ceased to exist on December 31, 2016. Its former corporations became members of the surviving parent's group, so the taxpayer could no longer file a Florida consolidated return for tax years beginning on or after January 1, 2017.

The ruling also required cleanup on the taxpayer's final 2016 return. Deferred gains, realized but unrecognized intercompany items, and deferred income or expenses had to be reported there to the extent they would not appear on the later separate pro forma returns.

What this means for you

Corporate groups completing reorganizations

A Florida consolidated-return election does not preserve a group that has ceased to exist under the applicable federal group-continuity rules. Map the pre- and post-reorganization common parent and subsidiaries before choosing the Florida filing method.

Tax directors and return-preparation teams

Review deferred gains and intercompany items when a group terminates. The ruling required items that would otherwise fall outside separate returns to be recognized on the final consolidated return.

Common questions

Q: Did the Department merely permit the taxpayer to stop filing consolidated returns?
A: The Department said the former affiliated group ceased to exist and therefore could no longer file as that consolidated group.

Q: When did the old group end?
A: December 31, 2016, on the facts stated in the ruling.

Q: What filing posture applied afterward?
A: The taxpayer could not file Florida consolidated returns as the former group for tax years beginning on or after January 1, 2017.

Q: What happened to deferred items?
A: Specified deferred gains, intercompany items, income, and expenses had to be recognized on the final 2016 return if they would not be included in the later separate filings.

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) and 1.1502-76(b)(5)
• Rev. Rul. 69-163, 1969-1 C.B. 217

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 18C1-006

Original ruling text

February 19, 2018

Executive
Director
Leon M. Biegalski

SUMMARY
TAX: Corporate Income Tax
TAA NUMBER: 18C1-006
ISSUE: Request for authority to discontinue consolidated filing
STATUTE CITE(S): 220.131, Florida Statute (F.S.)
RULE CITE(S): 12C-1.0131, Florida Administrative Code (F.A.C.)
QUESTION:
Based upon the facts presented, Taxpayer requests advisement on the following issues
1.

May the Taxpayer be granted permission to cease filing Florida consolidated tax returns based upon changes
in business circumstances?

ANSWERS:
1.

Re:

Taxpayer’s affiliated group ceased to exist by operation of law and therefore taxpayer was granted permission
to cease filing Florida consolidated tax returns. Section 220.131(3), F.S., provides that the consolidated
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.” The acquisition of a consolidated group by an unrelated entity filing on a separate return
bases causes the termination of that consolidated group. The Florida consolidated filing requirement is
eliminated if taxpayer is no longer considered to remain in existence under the rules described in s. 1.150275(d) of the Treasury Regulations.

Technical Assistance Advisement
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing and Consolidated Filing
Requirements
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXXX (hereinafter “Taxpayer”)

Dear XXXX:
This is in response to your request dated May 11, 2017, for a Technical Assistance Advisement
(TAA) pursuant to section 213.22, Florida Statutes (F.S.), and Rule Chapter 12-11, Florida
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2

Administrative Code (F.A.C.), regarding permission to discontinue filing consolidated Florida
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
Taxpayer is one of four groups of U.S. corporations filing four consolidated federal corporate
income tax returns as part of its affiliated group. Taxpayer was the only affiliated group also
filing consolidated Florida corporate income tax returns. There was no common U.S. parent who
directly owned 80% of the shares and voting power of the four consolidated groups. The four
consolidated groups are as follow:





XXXX
XXXX
XXXX
XXXX

The four groups were involved in an internal reorganization. The parents of XXXX, XXXX, and
Taxpayer contributed all of their stock to XXXX in a share for share exchange. Beginning on
January 1, 2017, the parent of XXXX became the common U.S. parent of XXXX, XXXX and
Taxpayer. The affiliated groups of XXXX, XXXX and Taxpayer ceased to exist. XXXX
survives as the affiliated group with the new members and continues filing a Federal
consolidated tax return. 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;

Technical Assistance Advisement
Page 3

(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.
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:
(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

Technical Assistance Advisement
Page 4

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 paragraph (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. (Emphasis Supplied)

(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

Technical Assistance Advisement
Page 5

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 for XXXX.
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, Section 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., F.A.C., and Rule 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 taxpayer is no longer considered to remain in
existence under the rules described in Section 1.1502-75(d) of the Treasury Regulations.
Generally, Florida follows federal tax concepts in the interpretation and administration of its
corporate income tax.2 Under Treasury Regulation 1.1502-75(d)(1), an affiliated group is
deemed to remain in existence only so long as the common parent remains 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. Treasury Regulation
1.1502-76(b)(5), 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.3
Effective January 1, 2017, after a reorganization the common parent of Taxpayer became a
subsidiary in the XXXX group. Under Section 1.1502-75(d)(1) of the Treasury Regulations,
Taxpayer ceased to exist as an affiliated group on December 31, 2016, and Taxpayer’s former
includible corporations became part of XXXX’s affiliated group. As a result, Taxpayer is not

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
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eligible to file Florida consolidated corporate income tax returns for tax years ending December
31, 2017.
CONCLUSION
The Department recognizes that Taxpayer’s affiliated group ceased to exist on December 31,
2016, and that Taxpayer may no longer file consolidated corporate income tax returns as an
affiliated group for tax years beginning on or after January 1, 2017.
If separate Florida proforma returns are filed for the Florida subsidiaries any deferred gains
which are realized for Federal tax purposes, but which have not been recognized, are required to
be reported in total, on the income tax return filed by Taxpayer for the period ending December
31, 2016. In addition, if 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, Taxpayer must recognize
the income for these items on the income tax return filed by Taxpayer, for the period ending
December 31, 2016.
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,

William Roberts
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-717-7658
Record ID: 18757