Did a section 501(c)(25) subsidiary need to file a Florida corporate income tax return without its own IRS determination letter?

Subject

Exempt Status Under s. 220.22(1), F.S., and Rule 12C-1.022(1)(e), F.A.C.

Plain-English summary

The subsidiary did not appear required to file a Florida corporate income tax return if it was a qualified section 501(c)(25) subsidiary, had no separate federal return requirement, and had no Florida tax liability. The IRS treated qualified subsidiaries as part of the parent and required their items to be reported on the parent's federal return.

The Department did not say that the parent's determination letter created a separate Florida exempt status for the subsidiary. Without its own letter, the subsidiary did not qualify for the rule's documentation-based filing exception; instead, it avoided filing because neither statutory filing trigger applied.

What this means for you

The ruling separates tax-exempt status from the practical duty to file. A subsidiary may lack its own determination letter yet still have no Florida return obligation if it has neither a federal filing duty nor Florida tax liability.

Common questions

Was the parent's IRS letter treated as the subsidiary's own determination letter? No.

Why was no Florida return required? The qualified subsidiary filed no separate federal return and had no Florida tax liability.

Would unrelated business income matter? Yes. The ruling notes that such income can create Florida tax and filing consequences.

Citations and references

• Fla. Stat. §§ 213.22, 220.03(1)(e), and 220.22(1)
• Fla. Admin. Code r. 12C-1.022(1)(a) and (e)
• I.R.C. §§ 501(a), 501(c)(25), and 512

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C1-003

Original ruling text

Jul 05, 1994

Re: Request for Technical Assistance Advisement; TAA 94(C)1-003 Corporate Income Tax - Exempt Status Under s. 220.22(1), F.S., and Rule 12C-1.022(1)(e), F.A.C. Dear

This is in response to your letters of XXX, XXX, and XXX, concerning the tax exempt status of your client's subsidiary under s. 220.22(1), F.S., and Rule 12C-1.022(1)(e), F.A.C.

FACTS

On XXX, hereafter referred to as Company, formed XXX, hereafter referred to as Sub.

On XXX, the I.R.S. issued a determination letter to Company granting it status as an organization described in section 501(c)(25), I.R.C., and exempting it from federal income tax under section 501(a), I.R.C.

Sub is unable to obtain a separate determination letter from the I.R.S., because under s. 501(c)(25), I.R.C., the existence of a subsidiary is ignored and the parent company is deemed to own the assets of the subsidiary.

QUESTION

For Florida corporate income tax purposes, is the determination letter issued to Company by the I.R.S., sufficient to establish Sub's tax exempt status?

DISCUSSION AND ANALYSIS OF LAW

Section 220.22(1), F.S., states:

"A return with respect to the tax imposed by this code shall be made by every taxpayer for each taxable year in which such taxpayer either is liable for tax under this

code or is required to make a federal income tax return, regardless of whether such taxpayer is liable for tax under this code."

Rule 12C-1.022(1)(a), F.A.C., states in part:

"The Florida Income Tax Code does not specifically provide for an exception from the filing requirements for any organization, association, or legal entity. Therefore, every corporation, as defined in s. 220.03(1)(e), F.S...., will be required to file a return absent a specific provision within the Internal Revenue Code or the Treasury Regulations exempting the entity from filing a federal tax return or a letter of determination from the Internal Revenue Service providing that the entity does not have a federal filing requirement...."

Rule 12C-1.022(1)(e), F.A.C., states in part:

"1. Any non-profit or other organization, including a private foundation, which is fully exempt from the federal income tax which has a "determination letter" from the Internal Revenue Service to that effect is required to file a copy of the determination letter attached to Form F-1120 in order to establish with the Department that it qualifies as an exempt organization under the Florida Income Tax Code. Additional Florida returns will not be required as long as the organization continues to qualify for exemption from federal income tax.

"2. However, such organizations having "unrelated trade or business income" as defined in I.R.C. Section 512 or filing with the Internal Revenue Service on Forms 990-C or 990-T (as opposed to other 990 forms) must file Form F-1120 annually."

You requested that Sub be found to be exempt from Florida corporate income tax as part of Company. However, the Florida corporate income tax code does not provide for a tax exempt status. Florida corporate income tax code does provide that when determining a corporation's tax liability, the taxable

income of an organization exempt from the federal income tax under s. 501(a), I.R.C., shall be the unrelated business taxable income of the organization as determined under s. 512, I.R.C. The statutes and rules discussed hereafter govern the return filing requirements for these organizations.

Because Sub has no determination letter from the IRS, it does not qualify to be exempted from the return filing requirements under Rule 12C-1.022(1)(e), F.A.C. However, s. 220.22, F.S., only requires corporations to file Florida corporate income tax returns when they are either liable for tax or are required to file a federal income tax return.

The determination letter issued to Company by the IRS states that any of Company's qualified subsidiaries will not be treated as separate corporations and their income, deductions, assets, credits, and liabilities are to be reported on Company's federal tax return.

Assuming that Sub is a qualified subsidiary under s. 501(c)(25)(E)(i), (ii), and (iii), I.R.C., is not required to file a federal corporate tax return, and is not liable for tax under Chapter 220, F.S., there would be no Florida filing requirement.

It appears that Sub is not required to file a Florida return since, based on the information provided in your letter, it does not meet the requirements of s. 220.22, F.S., of either filing a federal return or having Florida tax liability.

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
Statutory Compliance Section