Could a corporate group discontinue Florida consolidated filing after extensive business and entity changes distorted its apportionment factors?

Plain-English summary

Florida granted the corporate group's request to discontinue consolidated filing for the fiscal year ended June 30, 1995, with conditions.

The group had filed consolidated Florida returns since 1989. Mergers, liquidations, acquisitions, and shifts among four business sectors allegedly distorted the apportionment factors applied to group members. The Department did not find a statutory change causing substantial adverse tax effects, but accepted the long-running business and entity changes as grounds for permission.

The approval required: effectiveness for the year ended June 30, 1995; no realized but unrecognized items later benefiting a member; an approximately $300,000 difference between separate returns and a pro forma consolidated return; and no participation in another Florida consolidated return before the year ended June 30, 2001.

The group had to file the appropriate separate returns and could not retroactively amend earlier fiscal years to file separately.

What this means for you

• Discontinuing consolidated filing required Department permission and agreed conditions.
• Business restructuring and apportionment distortion supported relief even without a qualifying law change.
• The permission was prospective for the approved year and imposed a multi-year reentry restriction.

Common questions

Q: When did separate filing begin?
A: For the fiscal year ended June 30, 1995.

Q: Could the group amend older years to file separately?
A: No.

Q: When could the group next join a Florida consolidated return?
A: Not before the tax year ended June 30, 2001.

Citations and references

• Fla. Admin. Code r. 12C-1.0131(3)(b) — permission and conditions for discontinuing consolidated filing
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C1-002

Original ruling text

Jun 13, 1996

Re: TAA 96(C)1-002
Request For Authority to Discontinue Consolidated Filing

XXX ("Parent")
Dear :
Your request for permission to discontinue filing consolidated
returns for the above subject for the fiscal year ended June 30,
1995 is granted and requires that separate returns be filed by

the appropriate separate corporations.

FACTS PRESENTED BY TAXPAYER'S REPRESENTATIVE

Parent has been filing consolidated Florida corporate income tax
returns since it made the election for the tax year ended June

30, 1989. Since that time, numerous legal entity and business
alignment changes have occurred within its four business

sectors. The business sectors include communications,
semiconductors, electronics and XXX. These changes have created
alleged substantial distortion when applying the group's

apportionment factors to several members of the group.

The changes include the merger and liquidation of eleven
corporations in 1992 and three in 1994, and the acquisition of

three corporations in 1993 and two in 1994.

Parent stipulates that there are no realized but unrecognized
income or expense items that may be recognized at a later date
which would benefit any member of the Parent affiliated group

should the deconsolidation request be granted.

REGULATORY AUTHORITY

Rule 12C-1.0131(3)(b), F.A.C., states:

(b)1. Notwithstanding that a consolidated return is

required for a taxable year, the Executive Director or the

Executive Director's designee is authorized to grant
permission to a group to discontinue filing consolidated
returns. Any such application shall be made to the Office

of General Counsel, Tax Policy and Dispute Resolution, P.O.
Box 7443, Tallahassee, Florida 32314-7443, and shall be
made not later than the 90th day before the due date for

the filing of the consolidated return, including extensions

of time. Permission to revoke will be contingent upon an
agreement between the taxpayer and the Executive Director
or the Executive Director's designee to the terms,
conditions, and adjustment under which the change will be

effected.

2. The Executive Director or the Executive Director's
   designee is authorized to grant permission to a group to
   discontinue filing consolidated returns if the net result

of all amendments to the Florida Income Tax Code or the
Internal Revenue Code or regulations with effective dates
commencing within the taxable year has a substantial
adverse effect on the consolidated tax liability of the
group for such year relative to what the aggregate tax
liability would be if the members of the group filed
separate returns for such year. Other factors which will
be taken into account in determining whether good cause
exists for granting permission to discontinue filing
consolidated returns beginning with the taxable year
include:

a. Changes in law or circumstances, including changes which
do not affect income tax liability;

b. Changes in law which are first effective in the taxable
year and which result in a substantial reduction in the
consolidated net operating loss for such year relative to
what the aggregate net operating losses would be if the
members of the group filed separate returns for such year;
and

c. Changes in the Florida Income Tax Code or the Internal
Revenue Code or regulations which are effective prior to
the taxable year but which first have a substantial adverse
effect on the filing of a consolidated return relative to

the filing of separate returns by members of the group in

such year.

3. Permission to revoke may be contingent upon an agreement
   between the taxpayer and the Executive Director or the
   Executive Director's designee to the terms, conditions, and

adjustment under which the change will be effected.

DISCUSSION AND ANALYSIS OF LAW

Information for this determination was initially received ina

letter dated September 18, 1995. Based on our meeting with
representatives from your office and those of the Parent on
September 27, 1995, and our written request dated November 16,
1995, we received additional information dated November 6, 1995,
November 26, 1995, December 8, 1995, April 1, 1996 via FAX, and
April 3, 1996.

Parent states that the appropriate extension of time was
requested for the fiscal year ended June 30, 1995, and that this
submission is made within the required 90 days of the extended

due date of the return.

The information submitted by Parent fails to show that

continuing to file consolidated Florida corporate income tax
returns would have a substantial adverse effect on the company,
and we are unaware of any changes in law or circumstances, or in
the Florida Income Tax Code or Internal Revenue Code or
regulations which would have a substantial adverse effect on

Parent.

However, the information shows numerous changes in the business
group and in the business lines in which the group engages. The
shifts appear to have been evolving over the last 10 years and

may have affected the apportionment factors used in the

preparation of the corporate tax return.

Therefore, based on the following four conditions, the
Department hereby grants permission to discontinue filing

consolidated corporate income tax returns:

1. That the deconsolidation be effective for tax years
   ending on June 30, 1995, and

2. That Parent has no realized but unrecognized income or

expense items that may be recognized at a later date
which would benefit any member of the Parent
affiliated group, and

3. That the difference in tax liability for the tax year
   ended June 30, 1995, between the separate tax returns
   filed and a pro forma consolidated return for the same
   period is approximately $300,000, and

4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior

to the tax year ended June 30, 2001.

Please note that the Florida Statutes do not allow a parent
company of an affiliated group to deconsolidate retroactively,
or allow the Parent to amend its prior fiscal years' returns for

the purpose of filing separately.

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,

Val Poliuto

Statutory Compliance Section

Control #22369
VIP/kk