Could a Florida corporate group stop filing consolidated returns after the subsidiary that made the election merged into the ultimate parent?

Plain-English summary

The Department granted permission to discontinue the Florida consolidated return for the 1995 tax year and later years. The subsidiary that had made the consolidated election merged into the ultimate parent and no longer existed as an independent member of the filing group.

Requiring only the ultimate parent and the remaining subsidiary to file together would have created an impermissible subgroup because the federal consolidated group included many additional subsidiaries. The ultimate parent had not elected to bring that full federal group into a Florida consolidated return.

The Department also found no demonstrated distortion of Florida taxable income from separate filing. Those structural changes and the absence of distortion established good cause to end the prior election.

What this means for you

A Florida consolidated-return election generally continues in later years, but corporate restructurings can change whether the original filing taxpayers remain an affiliated group. Permission to stop filing is fact-specific and must come from the Department.

The ruling did not authorize a handpicked subset of a larger federal affiliated group to file a Florida consolidated return. It instead allowed the ultimate parent and remaining subsidiary to continue filing separately.

Common questions

Q: Why did the old consolidated filing requirement end? The subsidiary that made the election merged into the ultimate parent and ceased to remain a member of the original filing group.

Q: Could the ultimate parent and one subsidiary simply continue as a two-company consolidated group? No. That would have been a subgroup of the much larger federal consolidated group.

Q: Did the Department find separate filing distorted Florida income? No. The ruling said no such distortion had been shown.

Q: From what year was discontinuance approved? The 1995 tax year and later years.

Citations and references

• Fla. Stat. § 220.131(1)-(3) — consolidated election, continuation, and Department authority
• Fla. Admin. Code r. 12C-1.0131(1)(a)2. — no subgroup consolidated return
• Fla. Admin. Code r. 12C-1.0131(3) — continued filing and permission to discontinue
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C1-005

Original ruling text

Sep 16, 1997

Re: TAA 97 (C)1-005
Request For Authority to Discontinue Consolidated Filing
XXX ("Parent")
XXX("Sub A")
XXX ("Sub B")
s. 220.131, F.S., Consolidated Return Election

Dear :

You asked whether a consolidated return was required to have
been filed under the facts and circumstances contained in your
letters of September 27, 1996, November 20, 1996 and January 17,
1997. The Department has determined that a consolidated return
is no longer required under the facts and circumstances
presented.

FACTS PRESENTED BY THE TAXPAYER

Sub A has been filing consolidated Florida corporate income tax
returns since it made the election to do so with the tax year
ended December 31, 1980. The members of the affiliated group
include Sub A and Sub B. Parent files separate Florida returns.
Additionally, Parent wholly owns four other subsidiaries that
transact business in Florida and file separate returns.

As of November 16, 1995, Sub A merged into Parent, becoming a
division of Parent. As a result of the merger, Sub A requests
permission to discontinue filing consolidated returns. Thus,
Parent and Sub B would continue to file separate returns.

REGULATORY AUTHORITY

Section 220.131(1), 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 the 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.

Section 220.131(3), F.S., states:

(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)

Rule 12C-1.0131 (1)(a)2., F.A.C., states:

(a)2. A subgroup of the affiliated group may not file a
consolidated return.

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

(a)1. A group which filed, or was required to file, a
consolidated return for the immediately preceding taxable
year is required to file a consolidated return for the
taxable year unless it has permission to discontinue filing
consolidated returns under paragraph (b) or (c) of this
subsection; or as long as a federal consolidated return is
filed.

2. The requirement set forth in s. 220.131(1), F.S., that
   the parent company of an affiliated group must be subject
   to the Florida Income Tax Code is a condition that is
   necessary for an affiliated group to make an election to
   file a Florida consolidated return. There is no
   requirement in s. 220.131, F.S., that the parent be subject
   to the Florida Income Tax Code in each subsequent year.
   Therefore, the affiliated group may not break its
   consolidated election because the parent company no longer
   has nexus with Florida.

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 had a substantial

adverse effect on the consolidated tax liability of a 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

In order to be valid, a consolidated filing election must be
made by the parent corporation. The taxpayer has described the
situation as follows. Parent is the parent corporation to Sub A
and Sub A is the parent corporation to Sub B. As a result, the
taxpayer surmises that a timely consolidated filing election was
made by Sub A. Thus, the affiliated group consists of Sub A and
its subsidiary, Sub B. For federal purposes, Parent filed a
consolidated return and included some 40+ subsidiaries,
including Sub A and Sub B. On federal returns, Parent serves as
the parent corporation of the federal affiliated group.
Additionally, the taxpayer has indicated that Parent has been
filing Florida returns, on a separate basis, at least since
1978. Further, there are four other subsidiaries, excluding Sub

A and Sub B, that file separate Florida returns.

It appears that Sub A, as the parent company of an affiliated
group of corporations, made a filing election under the first
sentence of s. 220.131(1), F.S. (1979), to consolidate its
taxable income with other members of the group subject to tax
under Chapter 220, F.S. The merger provides that Sub A no longer
exists as an independent corporation, and accordingly, no longer
remains as a member of the group that had been filing a
consolidated return. Therefore, under s. 220.131(3), F.S.
(1995), a consolidated return is no longer required since the
filing taxpayers no longer remain members of the affiliated
group that had been filing a consolidated return.

In sum, the Department's position is that it would be
inappropriate to require a consolidated return for Parent and
Sub B without including the rest of the federal group. The
Parent has made no indication that it desires to consolidate the
federal group for Florida tax purposes. Moreover, although the
Department has discretion to require a consolidated filing, this
discretion is generally exercised if the separately filed
returns of the group would result in an improper reflection of
taxable income. s. 220.131(2), F.S. However, in the instant
case, no such distortion has been shown to occur.

We believe good cause to discontinue filing consolidated returns
has been shown, and permission to discontinue filing of
consolidated returns is granted for the 1995 tax year and later
years.

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 specific situation summarized above.
You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules
upon 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,

Beverly L. Hayes
Attorney
Technical Assistance and Dispute Resolution

BLH/