Could a parent stop filing Florida consolidated returns after an acquisition ended the affiliated group that made the election?

Plain-English summary

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

The taxpayer's former group entered the acquiring parent's federal consolidated return, while the acquiring parent had not made its own Florida consolidated election. The taxpayer nevertheless continued filing its own Florida consolidated returns in error using pro forma federal returns.

The Department treated the acquisition as a change in circumstances and granted permission to deconsolidate. The taxpayer and members of its former group could amend returns whose limitation periods had not expired.

What this means for you

Corporate tax departments

An acquisition that ends the electing affiliated group can support a fact-specific request to discontinue Florida consolidated filing.

Companies correcting filing errors

Permission to deconsolidate did not reopen closed years. The ruling limited amendments to returns still within the statute of limitations.

Common questions

Was the request granted retroactively? Yes, based on the acquisition-related change in circumstances.

Why was continued filing an error? The prior group and its election had ended, and its members were included in the acquiring parent's federal consolidated return.

Could the former members amend returns? Yes, for returns whose limitation periods remained open.

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 21C1-001

Original ruling text

QUESTION: May a parent company be granted permission to cease filing Florida consolidated
tax returns based upon a change in business circumstances regarding 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 business circumstances
regarding the members of the taxpayer's affiliated group.

January 15, 2021
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 21C1-001
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

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
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
Based on the information provided in the TAA request, the taxpayer’s affiliated group was acquired by
XXX, prior to which time the entities were unrelated. The TAA request asserts that following the
acquisition the taxpayer’s affiliated group ceased to exist, and its consolidated filing election was
nullified for both federal and Florida corporate income tax purposes.

XXX
January 15, 2021
Florida Department of Revenue
Page 2
The TAA request further asserts that the taxpayer continued filing its tax returns on a consolidated basis
in error, as the acquiring parent files its tax returns on a separate basis, never having made a
consolidated filing election.
In the telephone conference held on XXX, it was stated that the taxpayer and its affiliated group were
included in XXX consolidated federal return beginning with its acquisition in XXXX, and that the federal
consolidated returns filed with the taxpayer’s Florida returns are pro forma returns.

ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to permit it
to stop filing consolidated Florida corporate income tax returns retroactively to the date of its
acquisition in XXXX and allow it to amend its Florida corporate income tax returns for the XXXX through
XXXX tax years.
LAW

Section 220.131(1), 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:
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

XXX
January 15, 2021
Florida Department of Revenue
Page 3

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:
(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.

XXX
January 15, 2021
Florida Department of Revenue
Page 4
ANALYSIS
Section 220.131(1), F.S., allows “any corporation subject to tax under this code which corporation is
the parent company of an affiliated group of corporations” to elect to consolidate its taxable
income with that of all other members of the group. Once such election is made, the consolidated
group is required to continue filing a consolidated Florida return as long as it continues to file a
consolidated federal return, regardless of whether the parent corporation continues to have nexus
in Florida. The language of s. 220.131(1), F.S., clearly indicates that it is the parent corporation that
both makes the election to consolidate and files the consolidated return.
As stated in s. 220.131(1), F.S., the parent corporation that makes a consolidated filing election
must be subject to Florida corporate income tax, that is, have nexus with Florida, at the time it
makes a consolidated filing election. It is not required to maintain nexus in subsequent years, but
the group must continue to file a consolidated Florida corporate income tax return in all
subsequent years.
The federal tax returns on which the taxpayer’s Florida returns filed with the Department are
based, indicate that they have been filed on a consolidated basis, as do the taxpayer’s Florida
corporate income tax returns. However, the information provided indicates that the taxpayer’s
consolidated filing election was nullified when it was acquired by XXX, and that the members of the
taxpayer’s former consolidated group were included in the consolidated federal returns of XXX,
beginning with the return for the XXXX tax year. Therefore, under the provisions of section
220.131, F.S., the taxpayer should have ceased filing its own consolidated return following its
acquisition based on a change in circumstances.
CONCLUSION
The taxpayer’s request for permission to deconsolidate is granted based on a change in circumstances.
The taxpayer and the members of its prior consolidated group may amend their returns to correct this
filing error for returns for which the statute of limitations has not expired.
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.

XXX
January 15, 2021
Florida Department of Revenue
Page 5
Sincerely,

Suzanne C. Paul
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
cc: XXX
XXX
XXX
XXX