Could a longstanding Florida consolidated group switch to separate returns after substantial growth and changes in business focus?

Plain-English summary

Florida allowed a longstanding consolidated corporate group to switch to separate returns after its business circumstances changed substantially.

The group had expanded through multiple acquisitions, increased its membership, broadened its operations and product line, became publicly traded, and experienced substantial revenue growth. The Department found that the changed business focus and overall growth together supplied good cause under Fla. Admin. Code R. 12C-1.0131(3)(b)2.a.

The permission was conditional. The redacted terms set an effective tax year, required that there be no realized but unrecognized income or expense items, barred the group from joining a Florida consolidated return before a stated future year, and required specified deferred federal gains to be reported for the stated period.

What this means for you

Growing corporate groups

Business changes that do not themselves change tax liability can still support a deconsolidation request, but the Department evaluates the taxpayer's particular history and circumstances.

Corporate tax teams

Permission can carry binding conditions. The TAA did not create an automatic right for any group that has grown or made acquisitions.

Common questions

Did Florida grant deconsolidation? Yes.

What supplied good cause? The group's substantial growth, acquisitions, expanded operations and product line, and changed business focus.

Was the approval unconditional? No. Four taxpayer-specific conditions governed the effective date, unrecognized items, future consolidated filing, and deferred gains.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 22C1-003

Original ruling text

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 F. A. C. which address changes in business circumstances.

March 2, 2022
XXX
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 22C1-003
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.
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.
FACTS SUPPLIED BY TAXPAYER
The taxpayer was founded in XXXX. It XXX. It also XXX. The taxpayer files its tax returns on a
consolidated basis for both federal and Florida purposes and, based on its earliest tax records, the

XXX
March 2, 2022
Florida Department of Revenue
Page 2
taxpayer has been filing its tax returns on a consolidated basis since at least as early as the XXXX tax
year.
In XXXX, the taxpayer’s consolidated group consisted of XXX entities, all of which XXX. In XXXX, XXX
entities were included in the taxpayer’s consolidated group. In XXXX, the taxpayer’s consolidated group
consisted of XXX entities, at which time the taxpayer acted as the XXX for the group. In XXXX, an
additional XXX entity was acquired and in XXXX, the taxpayer acquired an additional XXX entity.
In XXXX, the taxpayer acquired a group of corporations comprised of entities that engaged in XXX, and
included a XXX which XXX, and its subsidiary that acted as a XXX. By XXXX, this group of corporations
had been fully merged into the taxpayer.
In XXXX, XXX additional XXX entities became part of the taxpayer’s consolidated group, and in XXXX, an
additional affiliate was acquired and added to the consolidated group.
The taxpayer became publicly traded on XXXX, at which time it described itself as XXX.
With its most recent acquisition of a company whose operations are complementary to its own in XXXX,
the taxpayer’s revenue has increased to $XXX for the XXXX fiscal year, from $XXX in the XXXX fiscal year.
The taxpayer’s consolidated group has increased from XXX members in XXXX to XXX in XXXX, it now has
XXX and XXX, and has become a leading XXX.
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

XXX
March 2, 2022
Florida Department of Revenue
Page 3
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:
(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.
   ANALYSIS
   The 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
   The taxpayer contends that the business focus and operations of the affiliated group have changed

1

The taxpayer estimates that its Florida corporate income tax liability for the XXXX tax year on a separate return
basis will be approximately $XXX less than it would have been on a consolidated basis.

XXX
March 2, 2022
Florida Department of Revenue
Page 4
greatly since XXXX, in which year, based on its earliest tax records, the taxpayer filed its Florida
corporate income tax return on a consolidated basis.
The information provided by the taxpayer shows growth in the consolidated group during the time the
taxpayer has been filing its Florida corporate income tax returns on a consolidated basis, beginning at
least as early as XXXX. The activities conducted by the taxpayer and its product line have expanded
significantly between XXXX and XXXX.
The taxpayer’s overall business focus, along with its substantial growth, taken together, are a sufficient
basis for granting the taxpayer’s request for deconsolidation.
CONCLUSION
Based on the following four conditions, the Department grants permission to the taxpayer to
discontinue filing consolidated corporate income tax returns beginning with the tax year ended XXXX:

1. That the deconsolidation is effective for the tax year ending on XXXX.
2. That the taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
3. That the taxpayer group does not become part of a consolidated Florida corporate income tax
   return prior to the tax year ending XXXX.
4. That any deferred gains which are realized for Federal tax purposes, but which have not yet
   been recognized, are required to be reported in total, on the income tax returns filed by the
   taxpayers, for the period ending XXXX.
   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