How did Florida require a single-owner LLC treated federally as its corporate owner's branch to report within a consolidated group?

Subject

Filing Requirements for Limited Liability Companies

Plain-English summary

The Department required two layers of Florida reporting for the LLC's income. The single-owner New York LLC was treated federally as a branch or division of its corporate owner, so its income appeared on that corporation's books and flowed into the parent's federal consolidated return.

For Florida consolidated-return membership, the LLC was not a separate affiliated corporation. Florida required the consolidated group to use the same component members as the federal consolidated group, so the LLC did not appear separately on Florida Form F-851. Its income nevertheless stayed inside the owner's federal taxable income and therefore remained in the Florida consolidated return.

Separately, Florida law treated an LLC as an artificial entity taxable as a corporation. The ruling therefore required the LLC to compute its own taxable income as if it filed a federal corporate return and to file a separate Florida corporate income tax return, regardless of its federal treatment as a corporation, partnership, branch, or division.

The Department noted that Florida law provided no subtraction to remove the LLC's branch income from the corporate owner's federal taxable income used in the consolidated return. The ruling thus expressly required both inclusion through the owner and a separate LLC filing.

What this means for you

Under the statutes applied in this 1997 ruling, federal disregarded-entity treatment did not eliminate the LLC's separate Florida filing obligation. At the same time, it did not make the LLC a separate member of the federal-matched consolidated group.

The affiliation schedule and the income computation answered different questions: the LLC was omitted as a member but its branch income remained embedded in the owner's consolidated taxable income.

Common questions

Q: Was the LLC listed as a separate member on Florida Form F-851? No. The form included the federal affiliated members and excluded the LLC as a separate affiliate.

Q: Did the consolidated return still include the LLC's income? Yes. The corporate owner's federal taxable income included the LLC as a branch, and Florida used that same income base.

Q: Did the LLC itself file a Florida return? Yes. The ruling required a separate return because Florida treated the LLC as a taxable artificial entity.

Q: Did federal branch treatment control every Florida filing consequence? No. It controlled how the income entered the owner's consolidated base, while Florida's LLC statute created the separate entity-level filing requirement.

Citations and references

• Fla. Stat. § 220.131(1) — consolidated-return election and identical federal component members
• Fla. Stat. § 220.43(1) — federal income items carried into the Florida return in the same manner and amounts
• Fla. Stat. § 220.03(1)(b); I.R.C. § 1504(a) — definition of an affiliated group of corporations
• Fla. Stat. §§ 608.471(1) and 220.02(1) — LLC as an artificial entity subject to Chapter 220 tax
• Fla. Stat. § 220.13(2)(j) — LLC taxable income computed as if the LLC filed a federal corporate return
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C1-002

Original ruling text

Apr 28, 1997

Re: TAA 97(C)1-002
XXX ("Corporation A")
XXX ("LLC")
XXX ("Parent")
Corporate Income Tax - Filing Requirements for Limited
Liability Companies
ss. 220.03(1)(e), 220.13(2)(j), and 220.131(1), F.S.

Dear :

This is in response to your letter of February 23, 1996, in
which you requested a Technical Assistance Advisement regarding
Florida corporate income tax filing requirements for limited
liability companies.

FACTS

Parent and its subsidiaries made a Florida corporate income tax
consolidated filing election, and have historically filed both
federal and Florida corporate income tax returns on a
consolidated basis. In late 1995, one of the Parent's
subsidiaries, Corporation A, formed a limited liability company,
LLC, in the State of New York. You stated that under federal
income tax principles the LLC will be treated as a branch or
division of Corporation A, and will not be treated as a
corporation or a partnership. Accordingly, the income and
expenses of the LLC will appear on Corporation A's books, and
will be included in the consolidated federal tax return filed by
the Parent. No separate federal returns will be prepared for
the LLC, nor will it appear on the affiliation schedule filed
with Parent's federal consolidated return.

QUESTIONS

1. Since Florida treats limited liability companies as
   corporations, can [LLC] be included as a separate
   affiliated member in the consolidated group of Parent for

Florida corporate income tax purposes?

2. Assuming [LLC] is considered an affiliated member, how
   should the consolidated return be prepared? Can [LLC] be
   shown on the Florida affiliations schedule, form F-851?
   Does a proforma consolidated federal return need to be
   drafted reflecting LLC as a separate corporation?
3. If [LLC] is not considered a separate affiliated member of
   the group, can [Corporation A] include [LLC] within
   [Corporation A's] books and records as a branch or division
   for Florida purposes similar to the federal return?

DISCUSSION AND ANALYSIS OF LAW

The general thrust of the questions which you pose concerns
whether an LLC which you say will be treated as a branch or
division for federal tax purposes constitutes a separate
corporation subject to tax for Florida corporation income tax,
and whether such corporate entity qualifies for inclusion in a
Florida consolidated return. We turn to the consolidation
provision for Florida in subsection 220.131(1), F.S.(1995),
which states:

(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:
(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.

However, the parent corporation of an affiliated group
which filed a consolidated return under this code for the
taxable year immediately preceding the taxable year of such
group beginning on or after September 1, 1982, may, subject
to these provisions, elect to consolidate its income with
that of all other members of the group which would have
been included as members under this section as amended and
in effect prior to July 19, 1983, and to return such
consolidated taxable income hereunder. Such election shall
be made within 90 days of December 20, 1984, or upon filing
the taxpayer's first return after December 20, 1984,
whichever is later. (emphasis supplied)

In your request, you discuss the requirement in paragraph
220.131(1)(c), F.S., which states: "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." (emphasis supplied) This provision
requires that a Florida consolidated return must include the
identical members of the federal affiliated group which are
included in the federal consolidated return. The election
subsection makes it clear that all includable entities of the
federal affiliated group must be part of the Florida
consolidated filing, and in this request, all of the federal
affiliated members will be included in the Florida consolidated
return, but not all of the Florida "entities" will be included
in the related federal return for the respective tax year.

The parent corporation can elect to file a Florida consolidated
return to include all of its federal affiliated members.
However, the issue concerns how the Florida Corporate Income Tax
Code treats an LLC where the LLC's income is included in a
federal affiliate's taxable income as a branch or division and
for Florida corporate income tax purposes the LLC is required to
compute its taxable income as an artificial entity

("association") taxable as a corporation. See subsection
220.02(1), F.S., and paragraph 220.13(2)(j), F.S.
Unfortunately, there is no provision in the Florida statutes to
exclude or subtract LLC income from the federal taxable income
of an affiliate included in the Florida consolidated return.
Subsection 220.43(1), F.S., provides that "each taxpayer making
a return under this code shall take into account the items of
income, deduction, or exclusion on such return in the same
manner and amounts as reflected in such taxpayer's federal
income tax return for the same taxable year." (emphasis
supplied) The LLC income is required to be included in the
consolidated taxable income filed for federal tax purposes and,
in complying with the intent of subsections 220.131(1) and
220.43(1), F.S., is also required to be included in the
consolidated taxable income filed for Florida corporate income
tax purposes.

Another concern is whether the federal tax treatment of an LLC
as a branch or division rather than as a corporation prevents
such organization from constituting part of the federal
affiliated group, as defined in paragraph 220.03(1)(b), F.S. and
s. 1504(a) of the Internal Revenue Code, and accordingly
prevents such artificial entity from constituting part of the
consolidated return filing for Florida corporate income tax
purposes. Subsection 220.131(1), F.S., uses the term "affiliated
group of corporations" in describing the members which may elect
and consent to file a Florida consolidated return. This group
is defined in paragraph 220.03(1)(b), F.S., to mean:

"Affiliated group of corporations" means two or more
corporations which constitute an affiliated group of
corporations as defined in s. 1504(a) of the Internal
Revenue Code. (emphasis supplied)

The above term, "affiliated group of corporations" is a term of
art. It refers to the affiliation, or relationship, between two
or more "corporations". There is no discussion in Section
1504(a) of the Internal Revenue Code as to what organizations
constitute corporations for purposes of determining an
"affiliated group of corporations." It would appear that a
limited liability company (LLC) could not be included within a

consolidated return for federal tax purposes, essentially
because an LLC is not a corporation but rather is either
classified as an association taxable as a corporation or as an
entity subject to tax treatment as a partnership. Turning to
the Florida Statutes, quite significant is the statement in
subsection 608.471(1), F.S.: "A limited liability company is an
"artificial entity" within the purview of s. 220.02 and is
subject to the tax imposed under chapter 220." Additionally,
paragraph 220.13(2)(j), F.S., although requiring that the
"taxable income" is determined as if a federal corporate return
had been filed, the paragraph refers to "a similar limited
liability company created as an artificial entity pursuant to
the statutes of the United States or any other state, territory,
possession, or jurisdiction...." (emphasis supplied)
Accordingly, it is concluded that an LLC, even if taxable like a
corporation for federal tax purposes, such organization is
simply an artificial entity taxed as an association and cannot
be treated as a corporation for purposes of federal or Florida
consolidated return filing.

The taxable income of an LLC is required to be reported as a
separate entity, and cannot be included in a Florida
consolidated return based on the legislative intent to parallel
federal tax reporting for purposes of consolidated return
filing. An LLC is required to report its taxable income as a
separate entity, irrespective of the federal tax treatment of
the entity as a corporation, partnership, or as a division or
branch of another affiliated corporation.

RESPONSES

1. LLC, as a limited liability company, is included as a
   branch or division of Corporation A for federal income tax
   purposes and is not treated as a separate affiliated member
   in Parent's federal or Florida consolidated return.
   Accordingly, LLC is to be treated as a division or branch
   of Corporation A in reporting Corporation A's federal
   taxable income for purposes of federal and Florida
   consolidated return filing. LLC is additionally required
   to report its taxable income as a separate entity for
   Florida corporate income tax purposes.

2. A Florida consolidated return can be filed by Parent and
the members of its federal affiliated group, but this
consolidated return filing will not include LLC as a
separate affiliated entity. Accordingly, the F-851 will
include all federal affiliated members and will not include
LLC as an affiliated member. However, the separate taxable
income of Corporation A will include the income of LLC, and
thus the taxable income of LLC will be included in the
Florida consolidated return. This is consistent with the
legislative intent of subsection 220.131(1), F.S., that the
Florida consolidated return include the same affiliated
members and the same taxable income as reflected in the
federal consolidated return filing.

3. LLC is not considered a separate affiliated member of the
   group, and Corporation A must include LLC's income within
   Corporation A's books and records as a branch or division
   for purposes of Florida and federal consolidated filing.
   Additionally, LLC, although not an affiliated "corporation"
   for purposes of consolidated filing, must also file its
   separate return in Florida as an artificial entity
   ("association") taxable as a corporation pursuant to
   paragraph 220.13(2)(j), F.S.

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,

Harry A. Baucom
Tax Law Specialist
Technical Assistance and
Dispute Resolution

HAB/hb
Control No: 24818
Enclosure