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