When did signing IRS Form 870 trigger Florida's deadline to report federal corporate-tax adjustments?

Subject

Florida Reporting Deadline After Signing IRS Form 870

Plain-English summary

The taxpayer had to report the federal audit adjustments to Florida within 60 days after signing IRS Form 870. Signing the waiver constituted both agreement to and assessment of the federal deficiency for purposes of section 220.23(2), even though the taxpayer had filed refund claims and planned a federal refund lawsuit.

Florida's statute used the earliest of several triggers: agreement or final federal determination, or assessment, payment, or collection of the resulting deficiency or refund. A final court judgment was therefore not required before the reporting duty arose.

The narrow exception for payments made solely to satisfy a court's jurisdictional requirement did not apply. Here, Form 870 had ended the contest over whether the deficiency could be assessed; the later payment and lawsuit sought a refund of tax already assessed.

What this means for you

A pending federal refund claim or lawsuit did not automatically postpone Florida's amended-return deadline. An executed waiver, assessment, or non-excepted payment could start the 60-day clock first.

If later federal litigation changed the adjustments, that later result created another Florida reporting event. The TAA also noted that penalties could be compromised for reasonable cause, including complexity or ambiguity, but did not grant a penalty waiver in the ruling itself.

Common questions

Q: What event started the 60-day period here? The taxpayer's signing of Form 870, which waived restrictions on assessment.

Q: Could the taxpayer wait for its federal refund suit to finish? No. The assessment had already triggered Florida reporting.

Q: Why did the jurisdictional-payment exception not apply? The payment supported a refund action after assessment, not a proceeding contesting whether the deficiency could be assessed.

Q: What if some federal audit items are agreed and others remain contested? The quoted rule required an amended return for agreed items within 60 days, followed by additional amended returns if disputed items were later agreed or became final.

Q: Could late-reporting penalties be reduced? Potentially. The TAA said the cited penalties could be compromised upon a showing of reasonable cause.

Citations and references

• Fla. Stat. § 220.23(2) — timing and contents of reports for federal tax adjustments
• Fla. Admin. Code r. 12C-1.023(5)(c) — limited exception for purely jurisdictional payments
• Fla. Admin. Code r. 12C-1.023(5)(d) — reporting agreed and contested adjustments
• Fla. Stat. §§ 220.801(1), (2), 213.21(3) — penalties and compromise authority
• Fla. Admin. Code r. 12-13.007(3) — reasonable cause
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C1-002

Original ruling text

Apr 03, 1998

Re: Technical Assistance Advisement 98(C)1-002 XXX (Parent Company) XXX (Subsidiary Company) Corporate Income Tax - Filing Requirements for Federal Tax Adjustments (Revenue Agent's Report) s. 220.23(2), F.S.

Dear :

This is in response to your letter dated July 18, 1996, in which you requested a Technical Assistance Advisement ("TAA") regarding the notification or filing requirements for reporting federal adjustments required in computing the taxpayer's net income subject to Florida corporate income tax.

FACTS

Parent Company is a Florida corporation with its principal Florida business address in Tampa, Florida. Parent Company is the common parent of an affiliated group of corporations, and Subsidiary Company is a subsidiary member of such group that files consolidated federal income tax returns and has filed Florida consolidated returns for the years 1986 through 1988. Subsidiary Company is a wholly owned subsidiary of Parent Company, and is a regulated public utility engaged in the production, transmission and distribution of electricity in the State of Florida. Parent Company is a holding company that owns directly or indirectly numerous corporations engaged in businesses that generally have a relationship to the business of Subsidiary Company.

Parent Company's federal corporate income tax returns for the calendar years ending December 31, 1986 through December 31, 1988 were the subject of an examination by the Jacksonville, Florida, District Office of the Internal Revenue Service. The Internal Revenue Service issued an Examination Report dated September 13, 1994. Parent Company executed a Form 870 "Waiver

of Restrictions on Assessment and Collection of Deficiency and Tax and Acceptance of Overassessment" on September 15, 1994, and paid the tax and interest thereon. Parent Company's letter of request for a TAA states that it has filed refund claims with respect to certain of the items that were the subject of the Examination Report. Parent Company states that if the Internal Revenue Service does not approve a refund of substantially all of the amounts claimed, which exceeds the deficiency that it paid, Parent Company intends to sue for a refund in either Federal District Court or the United States Claims Court.

QUESTION

Where the taxpayer plans to contest the payment of an assessment through a refund action, is an amended return required to be filed with the Florida Department of Revenue within sixty days of the assessment date or the date the taxpayer pays the deficiency to the IRS, whichever shall first occur? Furthermore is the taxpayer, who contests the payment through refund action in a federal court of law, required to file its amended return within 60 days from the date the refund action is finalized by the federal court or within sixty days from the latter of the assessment date (date of signing Form 870) or the date the deficiency is paid?

DISCUSSION AND ANALYSIS OF LAW

The general thrust of your question concerns the event which should trigger the sixty (60) day requirement for filing an amended Florida corporate return to report federal changes affecting the taxpayer's net income subject to Florida corporate income tax. We turn to the reporting requirements contained in subsection 220.23(2), F.S., which states:

(2) In the event the taxable income, any item of income or deduction, or the income tax liability reported in a federal income tax return of any taxpayer for any taxable year is adjusted by amendment of such return or as a result of any other recomputation or redetermination of federal taxable income or loss, if such adjustment would affect any item or items entering into the computation of such

taxpayer's net income subject to tax for any taxable year under this code, the following special rules shall apply: (a) The taxpayer shall notify the department of such adjustment by filing either an amended return or such other report as the department may by regulation prescribe, which return or report:

1. Shall show the taxpayer's name, address, and employer
   identification number; the adjustments; the taxpayer's revised net income subject to tax and revised tax liability under this code; and such other information as the department may by regulation prescribe;
2. Shall be signed by a person required to sign the
   original return or by a duly authorized representative; and
3. Shall be filed not later than 60 days after such
   adjustment has been agreed to or finally determined for federal income tax purposes, or after any federal income tax deficiency or refund, abatement, or credit resulting therefrom has been assessed, paid, or collected, whichever shall first occur. (b) If the amended return or other report filed with the department concedes the accuracy of a federal change or correction, any deficiency in tax under this code resulting therefrom shall be deemed assessed on the date of filing such amended return or report, and such assessment shall be timely, notwithstanding any other provision contained in part VIII of this chapter. (c) In any case where notification of an adjustment is required under paragraph (a), then notwithstanding any other provision contained in s. 95.091(3):
4. A notice of deficiency may be issued at any time within
   5 years after the date such notification is given; or
5. If a taxpayer either fails to notify the department or
   fails to report a change or correction which is treated in the same manner as if it were a deficiency for federal income tax purposes, a notice of deficiency may be issued at any time;
6. In either case, the amount of any proposed assessment
   set forth in such notice shall be limited to the amount of any deficiency resulting under this code from recomputation of the taxpayer's income for the taxable year after giving effect only to the item or items reflected in the

adjustment.
(d) In any case when notification of an adjustment is required by paragraph (a), a claim for refund may be filed within 2 years after the date on which such notification was due, regardless of whether such notice was given, notwithstanding any other provision contained in s. 220.727. However, the amount recoverable pursuant to such a claim shall be limited to the amount of any overpayment resulting under this code from recomputation of the taxpayer's income for the taxable year after giving effect only to the item or items reflected in the adjustment required to be reported. (emphasis supplied)

The statute is clear on its face and as to the event that triggers the running of the 60 day period for filing the federal audit adjustments with Florida. Such adjustments must be filed at the earlier of when the adjustments are agreed to by the taxpayer and the Internal Revenue Service or when they are finally determined, such as by the federal courts of law. However, where the federal adjustments have not been finally determined (i.e., federal court decision) for federal tax purposes, the adjustments are nevertheless to be reported if the deficiency related to the adjustments has been paid, collected, or assessed. In regard to the assessment of federal tax deficiency, Section 6213(d), Internal Revenue Code, states:

Waiver of Restrictions.--The taxpayer shall at any time (whether or not a notice of deficiency has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency. (emphasis supplied)

Accordingly, the reporting of federal adjustments is required where the related tax has been assessed even though the tax has not been finally determined for federal tax purposes. There would also be situations where a tax deficiency which is paid but not assessed would also trigger the running of the 60 day period.

With respect to the argument that the Florida rules do not

require the reporting of federal adjustments where the payment is made as part of a jurisdictional requirement for judicial review, Rule 12C-1.023(5)(c), F.A.C., states:

Amounts paid solely for the purpose of satisfying a jurisdictional requirement for contesting an assessment in court will not be deemed to have been "paid" for purposes of this subsection. (emphasis supplied)

The determined tax deficiency or proposed assessment can be paid at any time; before the waiver of restrictions on assessment (Form 870), before the taxpayer appeal rights have expired, at the time of filing a petition in Tax Court, after a petition in Tax Court has been filed but before the decision of the Court has become final. In all of these instances, we should assume that there has not been any agreement as to the tax and the restrictions on assessment are still applicable. Nevertheless, the intent of the statute is to provide that where there is payment of some portion of the tax deficiency then, as a general rule, there is sufficient agreement to require the taxpayer to report those agreed adjustments. In this regard, Rule 12C1.023(5)(d), F.A.C., states:

When some federal audit adjustments are agreed to and some are contested, the taxpayer must file an amended return reflecting the changes for which there is agreement within 60 days from that agreement or from when the additional tax is paid. Additional amended returns for the items in dispute will be required if the taxpayer subsequently agrees to the changes or the assessment of those items becomes final. (emphasis supplied)

The lone exception is where there obviously is no agreement to the proposed deficiency and where the payment is made only for purposes of continuing the appeal of the tax assessment through a court of law (judicial jurisdictional requirement for contesting an assessment). Where tax is paid for jurisdictional purposes and the restrictions on assessment have not been waived, then the payment does not trigger the 60 day reporting period. However, under the facts in this advisement, the assessment of the tax has become final as a result of the waiver

of restrictions on assessment and thus there is no judicial appeal of a tax assessment. The assessment of tax, in itself requires a reporting of the federal audit adjustments, however the payment of the assessed tax cannot be claimed to have been made as a jurisdictional requirement of an appeal or contest a tax assessment in a court of law. The payment might be made for jurisdictional purposes; however, it is to contest a denial of a refund of tax claimed to be overpaid and not to contest whether the tax should be assessed and is due. Accordingly, the payment in this advisement does not fall under the rule exception (Rule 12C-1.023(5)(c), F.A.C.), and the payment of the assessment could also trigger a reporting requirement.

The taxpayer is correct in stating that until there is a federal court decision the proposed assessment or tax deficiency is not final and conclusive. However, subparagraph 220.23(2)(a)3., F.S., does not require a "final determination" for federal tax purposes in order for the federal adjustments to be required to be reported to the Florida Department of Revenue. The federal tax adjustments are required to be reported when there is an assessment of the deficiency (i.e., Form 870 executed) as is the case herein, or when the additional tax is paid, even though the assessment of those items has not become final.

In this advisement there is not only the payment of the tax deficiency but also the assessment of the deficiency by agreement (execution of Form 870). Therefore, the assessment of the tax precludes the payment of the deficiency from becoming an issue. It should be pointed out that the exception stated in Rule 12C-1.023(5)(c), F.A.C., is a limited exception. Where the payment of tax deficiency is for purposes of satisfying the jurisdictional requirement for contesting an assessment, such payment does not trigger the 60 day reporting period. However, where the taxpayer is no longer in the process of contesting the proposed assessment, such as where it has executed a Form 870 to waive restrictions on assessment, and the tax would otherwise be due, it can't be argued that the payment is for jurisdictional purposes such as to petition for Tax Court review.

The review the taxpayer now seeks is a refund claim of what it has paid and what has already been determined to be owed and

due. The refund action will provide the taxpayer with another Florida tax requirement under subsection 220.23(2), F.S., to report whatever changes are made by the Claims Court. The taxpayer will have two years and 60 days from the time that court decision becomes final to file a refund claim for any overpayment determined from that litigation.

With respect to the penalties provided in subsection 220.801(1), F.S., and subsection 220.801(2), F.S., these penalties may be compromised upon the showing of "reasonable cause" by the taxpayer. See subsection 213.21(3), F.S. Certainly, the complexity of the issue where the statute or rule is somewhat ambiguous is a basis for penalty compromise. See Rule 1213.007(3), F.A.C.

RESPONSE

The signing of the Form 870 "Waiver of Restrictions on Assessment and Collection" constitutes the agreement and assessment of tax referred to in paragraph 220.23(2)(a), F.S. The payment of the tax is not an issue, because the assessment of tax constitutes the triggering of the reporting period. Additionally, the exception stated in Rule 12C-1.023(5)(c), F.A.C., is not applicable to jurisdictional payments required after an assessment of the deficiency is made and the proposed deficiency is no longer being contested. The jurisdictional payment is made in this case to claim a refund of an amount of tax already assessed which is outside the exception provided for in Rule 12C-1.023(5)(c), F.A.C. In this instance, the due date for filing the Florida amended return for the federal audit adjustments is not 60 days after the date the refund action is finalized, but rather 60 days after the date the Form 870 is signed, 60 days after September 13, 1994.

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
Tax Policy and Dispute Resolution

HAB/hb
Control No: 26083
Enclosure