Could a Florida corporate group stop filing consolidated returns after inadvertently electing consolidated treatment without adequate professional advice?

Subject

Consolidated Return Requirements

Plain-English summary

Florida permitted the group to discontinue consolidated filing for fiscal 1994 and later, but only if an extension made the request timely. The Department treated the election made without adequate CPA advice as good cause even though forming more subsidiaries was not itself the kind of changed circumstance described by the rule.

The Department refused to let the company amend its already-filed fiscal 1993 consolidated return to file separately. The request came too late to satisfy the rule's 90-day timing requirement for that year.

What this means for you

Under this historical rule, permission to leave consolidated filing operated prospectively and depended on a timely request. Filing an extension could affect the request deadline for an unfiled return, but it did not reopen an earlier year already filed on a consolidated basis.

Common questions

Was planned formation of additional subsidiaries enough by itself? No. The Department called that a logical progression for a growing company, not the required change in circumstances.

What established good cause? On these facts, the consolidated election had been made without adequate professional advice.

Could the company amend its 1993 return to deconsolidate? No. The return preceded the request, so the 90-day requirement was not met.

Citations and references

• Fla. Stat. § 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C1-002

Original ruling text

Apr 13, 1994

RE: TAA 94(C)1-002
Corporate Income Tax - Consolidated Return Requirements

Dear :

This is in response to your letters of February 15, 1994, and
April 1, 1994, requesting permission to discontinue filing
consolidated Florida corporate income tax returns.

FACTS

(XXX) is a business incorporated and domiciled in Florida, which
transacts business both within and without Florida. XXX states
that it has operated as a single corporation and has never owned
stock in subsidiaries which would meet the test of an affiliated
group until its subsidiary, (XXX), was formed during the fiscal
year ended January 31, 1993.

The XXX was inactive during fiscal year 1993. During fiscal
year 1994, the XXX assumed a non-Florida lease obligation from
XXX, although XXX remained liable on the lease. XXX states that
the XXX had no business activity other than the lease. XXX does
not intend to transfer any assets to the XXX or for the XXX to
begin a trade or business.

XXX plans to form new subsidiaries to conduct business outside
of Florida, some of which will not have Florida nexus.

For federal income tax purposes, XXX filed a consolidated return
for fiscal year 1993, and included the XXX as an inactive
corporation.

XXX made a valid consolidated return filing election, and filed
a consolidated Florida corporate income tax return, including
the XXX as an inactive corporation, for fiscal year 1993.

XXX states that it inadvertently made the valid election to file

consolidated returns for Florida, which was not its intent, and
requests permission to discontinue filing of consolidated
returns for fiscal years 1993 and 1994, and proposes amending
the fiscal year 1993 return to reflect separate filing.

XXX further states that it plans to file an extension of time in
which to file its fiscal year 1994 Florida corporate income tax
return.

QUESTION

XXX requests permission to discontinue filing consolidated
Florida corporate income tax returns, and wishes to amend the
fiscal year 1993 return in order to reflect separate filing, and
file separately for fiscal year 1994.

DISCUSSION AND ANALYSIS OF LAW

Rule 12C-1.0131, F.A.C., states in part:

"(3)(b) Notwithstanding that a consolidated return is
required for a taxable year, the Executive Director or the
Executive Director's designee may, upon application for
good cause shown, grant permission to a group to
discontinue filing consolidated returns. Any such
application shall be made to the Chief, Bureau of Technical
Assistance and Training, 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.
Ordinarily, permission will be granted 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: (emphasis
added)

"1. Changes in law or circumstances, including changes
which do not affect income tax liability;

"2. 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

"3. 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."

Although your letter indicated that you consider forming
additional subsidiaries to be a change in circumstances, we do
not believe this to be "a change in circumstances" within the
meaning of the rule. Rather, it would appear to be a logical
progression in the life of a growth oriented company in an
expanding market, particularly when that company already had one
subsidiary.

While the information submitted by XXX fails to show that
continuing to file consolidated Florida corporate income tax
returns would have a substantial adverse effect on the company,
and we are unaware of any changes in law or circumstances, or in
the Florida Income Tax Code or Internal Revenue Code or
regulations which would have a substantial adverse effect on
XXX, we have established in telephone conversations with company
representatives that the consolidated filing election was made
without adequate advice from XXX's C.P.A.'s.

Because the Florida consolidated return filing election was made
without adequate professional advice, we believe good cause to
discontinue filing consolidated returns has been shown, and

permission to discontinue filing of consolidated returns is
granted for the 1994 fiscal year and later years only, provided
an extension of time is filed to extend the due date of the
fiscal year 1994 return.

The Florida Statutes do not allow a parent company of an
affiliated group to deconsolidate retroactively, or allow your
company to amend its fiscal year 1993 return for the purpose of
filing separately. The rule clearly states, "requests to
discontinue consolidated filing must be made no later than the
90th day before the due date for the filing of the consolidated
return, including extensions of time."

The 1993 return was filed prior to your request to discontinue
consolidated filing. Therefore the 90 day provision was not met
with regard to the 1993 return.

However, as stated above, if an extension is filed for the
fiscal year 1994 Florida return, your request to discontinue
consolidated filing would meet the 90 day provision for the 1994
return and those of later years, and permission to file
separately would be granted.

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 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 section 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
confidential information, we request you notify the undersigned

in writing within 15 days of any deletions you wish made to the
request or this response.

Sincerely,

Suzanne C. Paul
Technical Assistant
Statutory Compliance Section