Could a Florida consolidated group deconsolidate after major shifts in business strategy, composition, growth, acquisitions, and divestitures?

Plain-English summary

Florida allowed a consolidated corporate group to discontinue consolidated filing after major changes in its business and group composition.

The taxpayer had realigned its business strategy and external reporting, grown substantially, acquired and divested operations, and changed the membership and geographic reach of the group since the original election. Florida found those circumstances collectively established reasonable cause.

Approval was subject to four conditions covering the effective year, realized-but-unrecognized items, a waiting period before future Florida consolidation, and recognition of deferred gains in the specified return.

What this means for you

Corporate tax departments

Major operational and organizational changes can establish good cause even when they are not changes in tax law.

Acquisitive or restructuring groups

Document how business segments, legal entities, geographic footprint, and strategy differ from the facts at the time of election.

Common questions

Was deconsolidation granted? Yes.

What supported it? The combined business-strategy shift, group-composition changes, growth, acquisitions, divestitures, and geographic expansion.

Was approval unconditional? No. Florida imposed four conditions.

Citations and references

• Fla. Stat. Sec. 220.131
• Fla. Admin. Code R. 12C-1.0131(3)(b)2.a.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19C1-004

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Jim Zingale
Executive Director

floridarevenue.com

September 26, 2019
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Re:

Technical Assistance Advancement 19C1-004
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section (s.) 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXXXX (hereinafter “Taxpayer”)

Dear XXXXX,
This is in response to Taxpayer’s 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.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is headquartered in XXXXX. Taxpayer and its subsidiaries file as part of a consolidated
group for both federal and Florida tax purposes and have been filing on a consolidated basis in
Florida since XXXXX.
In XXXXX, Taxpayer was one of the nation’s leading XXXXX, serving approximately XXXXX people
with information and resources to help them make better informed decisions about their
XXXXX. Taxpayer offered a broad range of traditional and consumer-directed XXXXX. Taxpayer’s
operations were conducted and reported externally in three business segments: XXXXX.
XXXXX, Taxpayer realigned its external business segments to correspond with its evolving
business strategy of helping its members XXXXX. As a result of this realignment, Taxpayer’s
operations are now conducted and reported in the XXXXX segment. The following changes in
Taxpayer’s underlying business contributed to the realignment of its external reporting in
XXXXX:

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•
•
•

Significant growth in government business, XXXXX;
The acquisition of additional XXXXX; and
The divestiture of Taxpayer’s XXXXX.

Taxpayer notes that since its election to file consolidated in XXXXX, its composition has changed
significantly:
•
•
•

Only half of the original XXXXX entities included in the XXXXX Florida consolidated filing
remained as of XXXXX.
XXXXX entities were merged into other XXXXX entities, XXXXX were dissolved, XXXXX
were formed, and XXXXX divested.
XXXXX acquired XXXXX additional legal entities to support its evolving business strategy.

Taxpayer’s business has shifted from one that was primarily a XXXXX to one where the majority
of its business is XXXXX. Consequently, Taxpayer’s geographic footprint has expanded
considerably.
ISSUE PRESENTED
Has sufficient reasonable cause been established for the Executive Director to grant Taxpayer
permission to cease filing consolidated Florida corporate income tax returns?
LEGAL AUTHORITY
Section 220.131, F.S., provides 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

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(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)(b), F.A.C, provides in pertinent part:

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

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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
   liability.”1 Taxpayer contends that the business focus of the affiliated group has changed
   significantly since XXXXX, the year for which Taxpayer made its consolidated filing election.
   The information provided by Taxpayer demonstrates growth in the consolidated group since
   Taxpayer made its consolidated filing election. The activities conducted by Taxpayer have also
   expanded its geographic footprint considerably between XXXXX.
   Taxpayer’s overall shift in business focus, along with its substantial growth, taken together, are
   a sufficient basis for granting Taxpayer’s request for deconsolidation.
   CONCLUSION
   Taxpayer has established sufficient reasonable cause for the Executive Director to grant
   Taxpayer permission to cease filing consolidated Florida corporate income tax returns.
   Based on the following four conditions, the Department grants permission to Taxpayer to
   discontinue filing consolidated corporate income tax returns beginning with the tax year ending
   XXXXX:
4. That the deconsolidation is effective for the tax year ending XXXXX.
5. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
6. That Taxpayer’s group does not become part of a consolidated Florida corporate income tax
   return prior to the tax year ending XXXXX.
7. That any deferred gains which are realized for federal purposes, but which have not yet
   been recognized, must be reported in total, on the income tax return filed by Taxpayer’s
   group for tax year ending XXXXX.

1

Taxpayer estimates that its Florida corporate income tax liability for the tax year ending XXXXX, on a separate
return basis will be approximately XXXXX than it would have been on a consolidated basis, although Taxpayer
notes that the difference may be less because the XXXXX.

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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 213.22, F.S. Our response is based on those facts and
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the statutes or rules upon this advice is
based may subject 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, F.S., 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 material and
this response, deleting 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,
Jennifer M. Ensley
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-7659
Activity: 246799
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