Could a Florida insurance-company group discontinue its longstanding grandfathered consolidated corporate income tax filing?

Plain-English summary

The Florida Department of Revenue permitted a group of insurance companies to stop filing consolidated Florida corporate income tax returns for tax years beginning on or after January 1, 2016. The group had filed consolidated returns since at least 1999 under an unusual grandfathered filing structure, and more than half of its companies had been acquired or incorporated after that time.

Florida normally requires a consolidated-return election to continue in later years. But Rule 12C-1.0131 lets the Executive Director consider changes in law or circumstances when deciding whether good cause exists to permit separate returns. The Department found the group's major structural changes, operational growth, and unusual filing history sufficient.

The approval came with an important transition condition. Deferred gains realized for federal purposes but not yet recognized, along with intercompany items and other deferred income or expenses that otherwise would not appear on separately filed Florida returns, had to be recognized on the group's return for the period ending December 31, 2015.

What this means for you

Corporate groups with old Florida filing elections

A longstanding consolidated election is not automatically revocable, but substantial changes in structure and operations may support a request. This ruling involved an exceptional grandfathered group whose Florida membership differed from its federal consolidated group.

Tax directors planning deconsolidation

The timing rule matters. The request must be made no later than the 90th day before the consolidated return's due date, including extensions. Here, the January 20, 2017 request was timely for the 2016 return with an October 1, 2017 extended due date.

Accountants and tax professionals

Model the transition items before seeking permission. Florida conditioned the change on accelerating deferred gains, intercompany items, and deferred income or expenses that could otherwise fall out of the tax base after separate filing begins.

Common questions

Q: Did Florida approve separate filing?
A: Yes, for tax years beginning on or after January 1, 2016.

Q: Why was good cause established?
A: The Department cited substantial changes in the group's structure, growth in operations, and the unusual circumstances surrounding its grandfathered consolidated filing.

Q: What had to be reported before deconsolidation?
A: Deferred federal gains not yet recognized, intercompany items, and other deferred income or expenses that would not be captured on separate returns had to be recognized on the return ending December 31, 2015.

Q: Can any consolidated group use this ruling to stop filing immediately?
A: No. The TAA is taxpayer-specific, and the Department's consent depended on this group's facts, timely application, and transition conditions.

Citations and references

• Fla. Stat. §§ 220.131(1) and 220.131(3)
• Fla. Stat. § 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19C1-002

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Re:

Jim Zingale
Executive Director

floridarevenue.com

Technical Assistance Advisement 19C1‐002
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”)

June 24, 2019
Dear XXXX:
This is in response to your request dated January 20, 2017, 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 2016 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 Department is hereby granting your request
for a TAA.
FACTS SUPPLIED BY TAXPAYER
Taxpayer has filed Florida consolidated returns in prior years going back to at least 1999.
Taxpayer is composed of nine insurance companies: XXXX, XXXX, XXXX, XXXX, XXXX, XXXX, XXXX,
XXXX, and XXXX. Over half of the included companies were acquired or incorporated after
1999, accounting for a significant amount of the business activity.
Taxpayer is requesting permission to deconsolidate its return for Florida corporate income tax
filing purposes.
LEGAL AUTHORITY
Section 220.131, 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
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, F.A.C., provides
(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;
   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.
   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 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.”
The parent company XXXX. (formerly known as XXXX) filed Florida consolidated returns that
included XXXX and XXXX in the years prior to 1999. On June 18, 1999, as part of a merger,
Taxpayer became a subsidiary of XXXX. In the years following the merger, the parent acquired
or incorporated several companies.
The group included for the Florida filings differs from the federal group. This type of Florida tax
filing is only allowed for Taxpayers that made the proper “grandfather” election. Under current
Florida Law a taxpayer subject to Florida income tax is allowed to file either a separate or
consolidated income tax return. If the taxpayer elects to file on the consolidated basis the
consolidated Florida return must contain the same group as shown on the federal income tax
return. An exception to the requirement is allowed if the taxpayer made a “grandfather’
election.
The “grandfather” election allows the taxpayer to make a positive election to file a consolidated
return using the law in effect prior to the unitary tax years (Unitary ran for tax years beginning
on or after September 1, 1982 to tax years beginning prior to September 1, 1984. To be a valid
“grandfather” election the taxpayer must have used the same method prior to unitary. The
election also had to be made within 90 days after December 20, 1984 or by the due date of the
first non‐unitary return after December 20, 1984, including extensions, whichever is later.
Taxpayer has been unable to provide definitive supporting documentation that a valid
“grandfather” election was not made.
Taxpayer has had significant changes in the structure of its operations since the time period for
which Taxpayer would’ve qualified and made a valid “grandfather” election. Taxpayer’s overall
change in business circumstances, growth in operations, along with the unusual issues in this
case, are sufficient for granting Taxpayer’s request for deconsolidation.
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 January 20, 2017, this
requirement is satisfied for the 2016 tax return, for which the extended due date is October 1,
2017. Therefore, the request to discontinue filing consolidated returns will be granted for the
Taxpayer’s tax year beginning January 1, 2016.

CONCLUSION

1

See s. 220.131(3), F.S.

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 effective
for the tax years beginning on or after January 1, 2016. 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, 2015. 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, 2015.
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: 16301