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

BLH/kh