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