Could a section 501(c)(25) subsidiary avoid a Florida corporate 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 have to file a Florida corporate income tax return if it was not required to file a federal return and had no Florida tax liability. Those were the two filing triggers in section 220.22.

Because the subsidiary had no separate IRS determination letter, it did not qualify for the administrative rule's documentation-based filing exception. The ruling nevertheless found that the absence of both statutory triggers was enough to avoid a Florida return.

What this means for you

An entity's lack of a separate exemption letter does not necessarily create a return requirement. The federal filing obligation and actual Florida tax liability must still be tested independently.

Common questions

Did Florida recognize a general corporate tax-exempt status? The ruling says the Florida code did not provide one in those terms.

Did the subsidiary satisfy the determination-letter rule? No.

Why could it still avoid filing? It had neither a federal filing requirement nor Florida tax liability on the stated facts.

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 94C1-004

Original ruling text

Jul 05, 1994

Re: Request for Technical Assistance Advisement; TAA 94(C)1-004
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 XX, XX, and XX,
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.

If Sub does not meet the requirements of s. 220.22, F.S., of
either filing a federal return or having Florida tax liability,
it would not be required to file a Florida return.

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