Could a corporate group keep its Florida consolidated-return election after a proposed federal reverse acquisition and change in U.S. parent?

Plain-English summary

Continued Florida consolidated filing depended on which federal consolidated group survived the reorganization.

The Department could not determine from the submitted facts whether the proposed transactions qualified as a reverse acquisition or which federal consolidated group continued. If Company C's federal group continued, the group could continue filing Florida consolidated returns. If that federal group ended, a group seeking Florida consolidated filing needed a new election, and its new parent had to be eligible to elect—including being subject to Florida tax.

What this means for you

Florida group continuity followed the federal consolidated-return result. A claimed federal reverse acquisition was not enough without establishing which group legally continued.

Common questions

Q: Did the Department definitively approve continued filing? A: No. Its answer was conditional because it could not determine the federal reverse-acquisition result.

Q: Was a separate notice of reorganization required? A: No. The ruling identified no procedural notification requirement.

Q: How were post-reorganization Florida returns to be filed? A: Companies required to file were to do so consistently with the ruling's federal-group-continuity analysis.

Citations and references

• Fla. Stat. § 220.131 — Florida consolidated corporate-income-tax returns
• Treas. Reg. § 1.1502-75(d)(3)(i) — reverse acquisitions
• I.R.C. §§ 368 and 382 — reorganization provisions stated in the ruling's facts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-003

Original ruling text

Mar 02, 1995

Re: TAA 95(C)1-003
Request for Technical Assistance Advisement Corporate Income Tax - Reverse Acquisition/Reorganization

Dear :

This is in response to your letter of XX, concerning the effects of your client's reorganization on its election to file consolidated returns for Florida, under s. 220.131, F.S.

FACTS

The scenario set forth in your letter has a worldwide group of corporations contemplating a reorganization which your proposal treats as a reverse acquisition for federal income tax purposes under the provisions of Treasury Regulation s. 1.1502-75(d)(3).

At present there is no common U.S. parent corporation. Three groups of corporations, XX (which will henceforth be referred to as Company A), XX (which will henceforth be referred to as Company B), and XX (which will henceforth be referred to as Company C), file separate consolidated U.S. federal income tax returns. Of these groups, the only companies having Florida nexus are Company C and some of its subsidiaries, and only Company C and its subsidiaries file a consolidated Florida Corporate Income and Emergency Excise Tax return. The other groups do not file Florida returns.

Under the proposed plan of reorganization, the non-U.S. parent, XX (which will henceforth be referred to as Company P), will contribute all of the stock of Company A, Company B, and Company C, to XX (which will henceforth be referred to as Company X), a newly formed Delaware corporation. Company X will become the common U.S. parent of all U.S. members of the group. Pursuant to the provisions of s. 368, I.R.C., Company A will merge into Company X. Company X will change its name to Company A, becoming New Company A. At such time, New Company A will directly own

all stock of the subsidiaries of Company B and Company C. New Company A will also directly own the stock of the subsidiaries of Company A, and indirectly own all stock of the subsidiaries of Company B and Company C.

Following the reorganization, all U.S. federal tax returns will be filed on a consolidated basis including New Company A, Company B, Company C, and their U.S. subsidiaries. Your letter states the proposed reorganization will be considered a reverse acquisition for federal income tax purposes, and Company C will be regarded as the acquiring company, but New Company A will technically be the new parent of the federal consolidated group, even though the Company C consolidated group will be treated as continuing in existence, and the old Company A affiliated group will terminate as of the date of initial stock transfer. For Federal income tax purposes, this series of transactions will generate no gain or loss to Company P, Company A, Company B, or Company C, and no federal s. 382, I.R.C., limitations will apply.

QUESTIONS

Will the new U.S. parent, New Company A, be required to have nexus in Florida in order for the group to retain its existing Florida consolidated return election?

What procedural requirements are required to notify the Florida Department of Revenue of the above transaction?

In whose name should the post-reorganization Florida returns be filed?

What other return requirements or acts are required as a result of the contemplated reorganization?

DISCUSSION AND ANALYSIS OF LAW

Section 220.131, F.S., states in part:

"(1) Notwithstanding any prior election made with respect to consolidated returns, and subject to subsection (5), for

taxable years beginning on or after September 1, 1984, any corporation subject to tax under this code which corporation is the parent company of an affiliated group of corporations may elect, not later than the due date for filing its return for the taxable year, including any extensions thereof, to consolidate its taxable income with that of all other members of the group, regardless of whether such member is subject to tax under this code, and to return such consolidated taxable income hereunder, in which case all such other members must consent thereto in such manner as the department may by rule prescribe, provided: (emphasis added)

"(a) Each member of the group consents to such filing by specific written authorization at the time the consolidated return is filed;

"(b) The affiliated group so filing under this code has filed a consolidated return for federal income tax purposes for the same taxable year; and "(c) The affiliated group so filing under this code is composed of the identical component members as those which have consolidated their taxable incomes in such federal return....

"(3) The filing of a consolidated return for any taxable year shall require the filing of consolidated returns for all subsequent taxable years so long as the filing taxpayers remain members of the affiliated group or, in the case of a group having component members not subject to tax under this code, so long as a consolidated return is filed by such group for federal income tax purposes, unless the director consents to the filing of separate returns..." (emphasis added)

From the information provided, the Department is unable to determine whether the transactions proposed to be carried out by Company P may qualify as a reverse acquisition under Treasury Regulation s. 1.1502-75(d)(3)(i). Notwithstanding the assertion made in your letter of XX, we cannot determine which (if any) consolidated group will be deemed to continue to exist and which

consolidated groups will be deemed to cease to exist.

Accordingly, we cannot determine whether the consolidated group of which Company C is the common parent will be deemed to be filing a consolidated return for federal income tax purposes, as is required by s. 220.131, F.S. If the Company C consolidated group is no longer deemed to be filing a return for federal income tax purposes, the new parent corporation would be required to be subject to tax in Florida in order to make a consolidated return filing election under s. 220.131(1), F.S.

Therefore, if under the Internal Revenue Code the Company C group is deemed to be continuing to file a consolidated return for federal income tax purposes, the group may continue to file Florida consolidated returns. However, if under provisions of the Internal Revenue Code the Company C group is no longer deemed to be filing a consolidated return for federal income tax purposes, a new consolidated filing election would be required by a consolidated group wishing to file consolidated Florida corporate income tax returns, provided the parent of the consolidated group is eligible to make such an election. For example, if New Company A is the parent of the consolidated group for purposes of the Internal Revenue Code and if this group wishes to file consolidated Florida corporate income tax returns, a new consolidated filing election must be made for Florida, provided New Company A is eligible to make such an election.

Your references to Technical Assistance Advisement (TAA) 85(C)1007, dated September 26, 1985, were not deemed to be pertinent to the instant situation.

There are no procedural requirements to notify this department of the reorganization. Following the reorganization, the companies required to file Florida returns should do so on a basis consistent with the preceding discussion.

We are unaware of any other requirements on the part of the companies pursuant to the contemplated reorganization.

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 based 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 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,

Suzanne C. Paul
Statutory Compliance Section

SCP/kk
Control No. 16947