Could a Florida corporate group stop filing consolidated returns after a major banking reorganization?

Subject

Permission to Discontinue Florida Consolidated Returns

Plain-English summary

The Department allowed the affiliated banking group to stop filing Florida consolidated corporate income tax returns beginning with the year ending December 31, 1997. It found good cause based on the group's substantial mergers and restructuring after interstate banking law changed.

The Department granted permission even though the information did not show that continued consolidation would substantially harm the group's tax liability. In fact, the pro forma analysis indicated that separate returns would increase tax. A change in business circumstances, not a tax savings, supported the approval.

Permission carried four conditions:

• deconsolidation was effective for the tax year ending December 31, 1997;
• no parent or group member had realized but unrecognized income or expense that could later benefit a formerly consolidated member;
• the stated pro forma separate-versus-consolidated liability difference applied; and
• the former group members and successors could not elect Florida consolidated filing before the tax year ending December 31, 2002.

Source amount note: the analysis says separate returns increased liability by approximately $436,424, while condition 3 says the difference was approximately $434,424. Both figures are preserved below; the ruling does not reconcile them.

What this means for you

A Florida consolidated election generally continued into later years unless the Department consented to separate returns. Permission required a timely application, good cause, and agreement to the Department's conditions and adjustments.

The rule considered changes in law or circumstances, including changes that did not directly affect income-tax liability. This ruling shows that a major operational reorganization could support good cause even when separate filing cost more tax.

Common questions

Q: Could the group stop filing consolidated returns on its own? No. The statute and rule required Department consent.

Q: Did the group show consolidated filing caused an adverse tax result? No. The pro forma return showed separate filing increased liability.

Q: Why did the Department still grant permission? It found good cause in the substantial banking reorganization and changed business circumstances.

Q: When did separate filing begin? For the tax year ending December 31, 1997.

Q: When could the group elect consolidated filing again? Not before the tax year ending December 31, 2002, under the ruling's condition.

Q: Which liability difference is correct? The official text is inconsistent: $436,424 in the analysis and $434,424 in condition 3.

Citations and references

• Fla. Stat. § 220.131(1), (3) — consolidated election and continued filing requirement
• Fla. Admin. Code r. 12C-1.0131(1)(a)2, (3)(a), (b) — consolidated groups and permission to discontinue
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C1-001

Original ruling text

Jan 14, 1998

Re: Technical Assistance Advisement 98(C)1-001 Request For Authority to Discontinue Consolidated Filing XXX ("Parent") s. 220.131, F.S., Consolidated Filing Election

Dear :

Your letter of August 6, 1997, requested a Technical Assistance Advisement to seek permission to discontinue filing consolidated returns for Florida corporate income tax purposes. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

FACTS PRESENTED BY THE TAXPAYER

Your letter of August 6, 1997, states that Parent is the parent corporation of an affiliated group of corporations domiciled in North Carolina, and since 1994 has filed consolidated Florida corporate income tax returns. Parent claims that beginning this year, 1997, it has experienced a substantial reorganization of its business.

In June 1997, Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("RNIBBEA") became effective, allowing banks to merge across state lines. Prior to the enactment of this legislation, banks could only merge across state lines if their headquarters were within 30 miles of each other. In order to take advantage of this legislative change, Parent launched a bank consolidation plan which began on June 1, 1997. The thrust of the bank consolidation efforts included mergers and restructurings designed to increase customer convenience and to enhance competitiveness in the financial services market.

REGULATORY AUTHORITY

Section 220.131(1), F.S., 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 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

The information furnished does not show that continuing to file consolidated Florida corporate income tax returns would have a substantial adverse effect on the consolidated group. On the contrary, the pro forma return provided for the 1997 tax year indicates that Parent will incur an additional tax liability of approximately $436,424 by filing separate returns.

The information furnished by Parent shows that Parent is in the

midst of a substantial reorganization of its business group. Although the enactment of the RNIBBEA represents a change in law, it does not directly bear on the Parent's consolidated corporate income tax filing election. Rather, in the case at bar, there is a change in circumstance which does not appear to adversely affect tax liability for the consolidated group.

However, the Department finds that good cause to discontinue filing consolidated tax returns has been shown. Therefore, based on the following four conditions, the Department grants permission to discontinue filing consolidated corporate income tax returns for the 1997 and later years:

1. That the deconsolidation be effective for tax years
   ending on December 31, 1997;
2. That the Parent or other members of the affiliated
   group have no realized but unrecognized income or expense items that may recognized at a later date which would benefit any member of the affiliated group that has been included within the consolidated Florida corporate income tax returns that have been filed;
3. That the difference in tax liability for the tax year
   ended December 31, 1997, between the pro forma separate tax returns and a pro forma consolidated return for the same period is approximately $434,424; and
4. That the members of the affiliated group that have
   been included within the consolidated Florida corporate income tax returns or successors to these members not elect to file a consolidated Florida corporate income tax return prior to the tax year ending December 31, 2002.

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 Office of General Counsel

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