Could an acquired company stop filing Florida consolidated returns after its original affiliated group ceased to exist in a merger?

Plain-English summary

Florida conditionally allowed a former consolidated parent to discontinue consolidated corporate income tax filing after an acquisition and merger ended its original affiliated group.

The acquired taxpayer merged into a newly formed entity and ceased to exist. The surviving entity joined the acquiring parent's group, whose members filed separate Florida returns because the new parent had not made a Florida consolidated election.

The Department granted deconsolidation subject to three conditions: it would begin in the specified tax year; the taxpayer could have no realized but unrecognized income or expense items that might later benefit a former group member; and the group could not become part of another Florida consolidated return until the specified future period.

What this means for you

Corporate tax departments

An ownership change that terminates the original affiliated group can support deconsolidation, but the Department may impose timing and tax-attribute conditions.

M&A teams

The new parent's existing Florida filing choice mattered. Here, the surviving entity became bound by a parent whose group filed separately.

Common questions

Was permission granted? Yes, with three express conditions.

What changed? The original group ceased to exist after the stock acquisition and merger.

Could deferred items benefit a former member? No. The ruling made the absence of such items a condition.

Could the group immediately join another consolidated return? No. The ruling imposed a redacted waiting period.

Citations and references

• Fla. Stat. Sec. 220.131(1)
• Fla. Stat. Sec. 220.131(3)
• Fla. Admin. Code R. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 20C1-011

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : TAA 20C1-011
ISSUE : Request for Authority to Discontinue Consolidated Filing
STATUTE CITES: S. 220.131, F.S.
RULE CITES: Rule 12C-1.0131, F. A. C.
QUESTION: May a parent company be granted permission to cease filing Florida consolidated
tax returns based upon changes in facts surrounding the members of the taxpayer's affiliated
group?
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax
returns based on provisions of the F.A.C. which address changes in facts surrounding the
members of the taxpayer's affiliated group.

October 9, 2020

XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 20C1-011
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXX (“the taxpayer”)
FEIN: XX-XXXXXXX

Dear XXX:
This is in response to your request dated XXX, 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 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.

XXX
October 9, 2020
Florida Department of Revenue
Page 2

FACTS SUPPLIED BY TAXPAYER
The taxpayer files consolidated federal and Florida corporate income tax returns. On XXX, XXX
purchased the taxpayer’s stock. The taxpayer was then merged into an entity XXX had
previously formed for that purpose, after which the taxpayer ceased to exist. Following the
merger, the name of the surviving entity was changed, and it received a new federal
identification number. XXX is the parent company of the surviving entity.
As XXX has not made a consolidated filing election pursuant to the provisions of section
220.131, F.S., XXX and its subsidiaries file their Florida corporate income tax returns on a
separate basis.

The taxpayer’s affiliated group that existed prior to the merger no longer exists for federal and
Florida income tax purposes, as the taxpayer and its affiliated group have become part of the
XXX affiliated group. Due to the changes in facts surrounding the members of the taxpayer's
affiliated group, the taxpayer requests permission to discontinue filing Florida consolidated tax
returns for tax years beginning on or after XXX, the date the taxpayer was acquired by XXX.
ISSUE
Whether the taxpayer should be granted permission to discontinue filing consolidated Florida
corporate income tax returns.
LAW
Section 220.131(1), F.S., states:
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;

XXX
October 9, 2020
Florida Department of Revenue
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.
Section 220.131(2), F.S., states:
Subject to subsection (5), the director may require a consolidated return for those
members of an affiliated group of corporations which are subject to tax and which
would be eligible to elect to consolidate their incomes under subsection (1), if the filing
of separate returns for such corporations would improperly reflect the taxable
incomes of such corporations or of such group.

Section 220.131(3), F.S., states:
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., states:
(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 had a substantial
   adverse effect on the consolidated tax liability of a group for such year relative to what
   the aggregate tax liability would be if the members of the group filed separate returns

XXX
October 9, 2020
Florida Department of Revenue
Page 4

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
   Effective XXX, the taxpayer became a member of XXX affiliated group. That affiliated group
   does not file consolidated Florida corporate income tax returns. Prior to the acquisition, the
   taxpayer and XXX did not share common ownership and were completely unrelated to each
   other. Based on its having been acquired by XXX, the taxpayer seeks permission to discontinue
   filing consolidated Florida corporate income tax returns, as authorized by section 220.131, F.S.,
   and Rule 12C-1.0131, F.A.C.
   As the taxpayer’s original Florida affiliated group was acquired by XXX, a change in ownership
   has occurred, and the taxpayer’s original affiliated group has ceased to exist. The taxpayer is
   now bound by the filing election made by its new parent company, XXX.
   CONCLUSION
   Based on the following three conditions, the Department grants the taxpayer permission to
   discontinue filing consolidated corporate income tax returns:
4. That the deconsolidation is effective for the tax year beginning on XXX;
5. That the 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;

XXX
October 9, 2020
Florida Department of Revenue
Page 5

3. That the taxpayer group does not become part of a consolidated Florida corporate
   income tax return until tax years ending on or after XXX.
   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,

Suzanne C. Paul
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794
SCP/
AMS No.: 7000416239