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