Could a parent corporation succeed to a Florida LLC's approximately $3 million net operating loss when the LLC merged into the parent?

Subject

NOL-Effects of Merger

Plain-English summary

The parent corporation could acquire and use the LLC's approximately $3,004,849 Florida net operating loss after the merger if three conditions were met. The merger had to qualify under IRC section 381 as though the LLC were a corporation, and Florida would apply any federal-style limitations on acquiring or using the loss carryovers.

The same approach applied to other tax attributes, including depreciation basis, credits, capital-loss carryovers, and excess-contribution carryovers. Although the LLC had filed a partnership return federally, Florida had treated it as a corporation under the statutes cited in the ruling.

What this means for you

The ruling did not grant an unrestricted loss transfer. It allowed corporate-merger treatment only by applying the qualification rules and limitations that would have governed if the LLC had been a corporation under federal tax law.

Common questions

Q: Did Florida's statutory-merger rules apply to the LLC? Yes, under the ruling's historical facts and conditions.

Q: Could the parent use the LLC's Florida NOL after the merger? Yes, if all three stated conditions were satisfied.

Q: Were other tax attributes automatically unlimited? No. Florida would impose the corresponding federal-style limitations.

Citations and references

• Fla. Stat. § 608.471 — Florida tax treatment of a limited liability company
• Fla. Stat. §§ 220.02(1), 220.03(1)(e), and 220.13(2)(j) — corporate treatment and taxable income
• IRC § 381 — tax attributes in corporate acquisitions, as cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C1-003

Original ruling text

Jul 27, 1993

Re: Technical Assistance Advisement - 93C1-003
Corporate Income Tax; NOL-Effects of Merger
Chapter 220, F.S.
XXX (hereinafter referred to as Parent)
XXX (hereinafter referred to as Sub)
XXX (hereinafter referred to as Partner)

Your request for a Technical Assistance Advisement has been
referred to this office for response. The specific request is
for technical advice on whether Florida statutory merger rules
apply to limited liability companies, and whether Parent will
succeed to the Florida net operating loss of approximately
$3,004,849 of Sub after the statutory merger is consummated.

BACKGROUND

Sub was organized in the State of Florida pursuant to
Chapter 608, Florida Statutes, as a Limited Liability Company
(LLC) on July 1, 1990. Presently, the company is owned by
Parent, 99% interest, and Partner, 1% interest. At the present
time, Sub is contemplating a merger with Parent between the
months of June 1993 and August 1993, inclusive. This will be
included in both companies' taxable years ending August 31,
1993. Sub will cease to exist, and Parent will be the survivor.
Since its inception through August 31, 1992, the company (Sub)
has generated cumulative Florida net operating losses totalling
approximately $3,004,849.

DISCUSSION OF LAW

Section 608.471, Florida Statutes, provides:

"(1) A limited liability company is an `artificial entity'
within the purview of s. 220.02 and is subject to the tax
imposed under chapter 220.

(2) The income of a limited liability company organized
pursuant to this chapter shall be subject to the Florida
Income Tax Code and the tax levied pursuant to chapter
220."

Chapter 220.13(2)(j) provides:

"`Taxable income,' in the case of a limited liability
company as defined in and organized pursuant to chapter 608
or a similar limited liability company created as an
artificial entity pursuant to the statutes of the United
States or any other state, territory, possession, or
jurisdiction, absent a federal report and determination of
taxable income as a corporation under the Internal Revenue
Code, means taxable income determined as if such limited
liability company were required to file or had filed a
federal corporate income tax return under the Internal
Revenue Code;"

DEPARTMENT'S DETERMINATION

It was stated that since its inception XXX has filed a
partnership return for federal tax purposes, but pursuant to ss.
220.02(1), and 220.03(1)(e), F.S., the limited liability company
has been treated as a corporation for state tax purposes.

Sub currently has net operating loss carryovers totalling
approximately $3,004,849. In order to have consistent tax
treatment of Sub, the Department of Revenue will allow Parent
corporation to acquire the net operating losses and other tax
attributes of Sub under the following conditions:

(1) That the merger would qualify as a statutory merger
subject to the provisions in s. 381, I.R.C., if Sub were a
corporation pursuant to the Internal Revenue Code;

(2) That if any limitations would be imposed on the
acquisition or utilization of net operating loss carryovers for
federal purposes if Sub were a corporation pursuant to the
Internal Revenue Code, then similar limitations will be imposed
for Florida tax purposes; and

(3) That if any limitation would be imposed on the
acquisition or utilization of any other tax attributes,
including the basis of depreciation, credits, capital loss
carryovers, excess contributions carryovers, if Sub were a
corporation pursuant to the Internal Revenue Code, then similar
limitations will be imposed for Florida purposes.

The Department answers your question, "Whether the Florida
statutory merger rules apply to Limited Liability Companies" in
the affirmative, and if the three conditions listed above are
met then Parent is allowed to use the net operating loss of Sub
after the merger.

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
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 and your request
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 by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Lynwood Taylor
Tax Audit Specialist III
Statutory Compliance Section