Could a Florida consolidated group discontinue filing after substantial changes in business focus, growth, acquisitions, and international reach?

Plain-English summary

Florida allowed a consolidated corporate group to discontinue consolidated filing because its business circumstances had changed substantially since the original election.

The ruling points to a shift in business focus, substantial growth, acquisitions, increased research and development, international expansion, and a much broader geographic footprint. Taken together, those changes established reasonable cause under the administrative rule.

Approval was subject to four conditions covering the effective year, the absence of realized-but-unrecognized income or expense items, a waiting period before joining another Florida consolidated return, and recognition of deferred gains in the specified return.

What this means for you

Corporate tax departments

Good cause can rest on major non-tax business changes, not only on a statutory amendment or an adverse tax-liability comparison.

Growing and acquisitive groups

Document how the organization today differs from the group that originally elected Florida consolidated filing.

Common questions

Was permission granted? Yes.

What established good cause? The combined shift in business focus, growth, acquisitions, 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 20C1-002

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

QUESTION: May a parent company be granted permission to cease filing Florida consolidated
tax returns based upon changes in business circumstances?
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax
returns based on provisions of the Florida Administrative Code which address changes in
business circumstances.

March 3, 2020
XXXXXXX XXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXX XX XXXXXX

Re:

Technical Assistance Advisement 20C1-002
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 XXXXXX,
This is in response to Taxpayer’s request dated December 30, 2019, 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 was incorporated XXXXX. Taxpayer is a leading worldwide XXXXX. 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 the taxable year ending
XXXXX.

Technical Assistance Advisement
Page 2

Over the last XXXXX years, significant technological advancements in the XXXXX have changed
the nature of Taxpayer’s business, making it more specialized. The needs of Taxpayer’s
customers have changed to meet technology changes, and to survive and flourish, the company
has grown organically and through acquisitions. Taxpayer’s organizational and technology
changes, as well as its acquisition activity and international growth, have changed the
Taxpayer’s business considerably.
Organizational Changes
XXXXX Taxpayer had XXXXX. In 2013, Taxpayer underwent a major reorganization into XXXXX,
which provided more transparency to its investors and broadened awareness of Taxpayer’s
competitive strengths.
Today, Taxpayer operates its business in XXXXX. XXXXX.
Technology Changes
XXXXX Taxpayer focused on the XXXXX. XXXXX.
Taxpayer has exponentially increased its investment in research and development. XXXXX.
Acquisition Activity
Over the past XXXXX, Taxpayer has engaged in significant acquisition activity in support of
growing its business. XXXXX.
Today, Taxpayer’s current corporate structure is significantly more complex than it was XXXXX.
Accordingly, Taxpayer’s tax reporting and internal accounting procedures are far more complex.
International Growth
Taxpayer’s acquisitive growth has also increased its international footprint. XXXXX.
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

Technical Assistance Advisement
Page 3

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.

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

Technical Assistance Advisement
Page 4

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.
   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 nature of the affiliated group has changed
   significantly since its fiscal year end 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 acquisitions undertaken by Taxpayer have
   also expanded its geographic footprint considerably between XXXXX and 2019.
   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:

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 less than it would have been on a consolidated basis.

Technical Assistance Advisement
Page 5

1. That the deconsolidation is effective for the tax year ending XXXXX.
2. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
3. That Taxpayer’s group does not become part of a consolidated Florida corporate income tax
   return prior to the tax year ending XXXXX.
4. 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.
   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

Jennifer M. Ensley
Tax Law Specialist
Technical Assistance and Dispute Resolution
Activity: 310409
Cc: XXXXX
XXXXX
XXXXX
XXXXX