Could a Florida financial-services group stop filing consolidated corporate income tax returns after major business changes?

Plain-English summary

Florida granted the parent permission to stop filing consolidated corporate income tax returns, subject to four conditions stated in the ruling. The group had shifted from a traditional savings-and-loan business toward commercial banking, adopted a holding-company structure, added affiliates, expanded outside Florida, and entered additional financial-service markets.

The Department found no substantial adverse effect or material distortion from continued consolidated filing. It nevertheless treated the extensive business and industry changes as circumstances supporting permission to revoke the election. The conditions addressed the effective year, unrecognized income or expense items, the tax-liability comparison, and a period before rejoining a Florida consolidated return; key dates and amounts were redacted.

What this means for you

A prior consolidated election generally continued into later years unless the Department consented to separate returns. This ruling shows that substantial changes in business activities and structure could support consent, but only with Department-imposed conditions.

Common questions

Q: Did the group automatically terminate its election? No. It requested and received Department permission.

Q: Was tax distortion the reason? No. The ruling said no material distortion was shown; the permission rested on the broader business and industry changes.

Q: Were the exact effective dates and tax difference public? No. Those details were redacted in the published ruling.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99C1-004

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns based on
changes in their organizational structure?

ANSWER - Based on Facts Below: The parent company was
granted permission to cease filing Florida consolidated tax
returns based on the provisions of the F.A.C., which
addresses changes in business activities.

Oct 05, 1999

Re: Technical Assistance Advisement 99(C)1-004
Request For Authority to Discontinue Consolidated Filing
s. 220.131, F.S., Consolidated Filing Election
XXX ("Parent")

Dear :

Your letter of XXX, 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, F.S.

FACTS AS PRESENTED BY THE TAXPAYER

Your letter of XXX, states that Parent is the parent corporation
of an affiliated group of corporations. Parent is domiciled in
Florida and has historically filed consolidated federal and
Florida corporate income tax returns. Parent (formerly known as
XXX) operated from XXX as a traditional savings and loan
association. During the years immediately preceding XXX, Parent
had, among other impediments, a thin capital base, low levels of
fee income, poorly structured interest rate swaps, outdated
computer systems and a loan portfolio consisting of long-term

fixed rate mortgages.

In XX, XXX acquired control of Parent. As Parent moved to
activities more closely related to commercial banking, Parent
converted to a federal savings bank and changed its name. Since
XXX, Parent has converted to a holding company structure, with
Parent as the ultimate parent and has added XXX new corporate
affiliates.

Lastly, since XXX, regulatory and legal restrictions have been
liberalized and provide an environment where banks are able to
compete with non-bank financial institutions. With this in
mind, Parent has been able to increase its assets by XXX since
XXX. Additionally, it has expanded and continues to expand
outside of Florida. Further, its international banking
department is active in the XXX markets. Moreover, with the
acquisition of a XXX-based brokerage and investment firm, Parent
has broadened its business to include non-traditional bank
products.

Parent stipulates that there are no inter-company transactions,
deferred income or expense items that may be recognized at a
later date which would normally be included on a consolidated
return but would not be included on separately filed returns.
Additionally, Parent states that the appropriate extension of
time to file a corporate income tax return was filed for the
calendar year ended XXX. Further, the Parent asserts that the
submission was made within the required 90 days of the extended
due date of the return.

STATUTORY AND 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 (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, Technical Assistance 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 provided does not show that continuing to file
consolidated Florida corporate income tax returns would have a
substantial adverse effect on the consolidated group. Moreover,
the filing of a consolidated return would not produce a material
distortion of income apportioned to Florida. Further, the
Department is unaware of any changes in the Florida Income Tax
Code or the Internal Revenue Code that would negatively affect
the consolidated group.

However, the information provided by Parent shows that numerous
changes have occurred in the business group. The shift appears
to have been evolving since the XXX calendar year. Furthermore,
the taxpayer has demonstrated that the banking industry, in
recent years, has been substantially restructured as a result of

deregulation and various industry-friendly federal regulations.
As a result, such reorganization has created a set of
circumstances that might affect the prudence of a consolidated
filing election.

Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for the XXX tax year and later
years:

1. That the deconsolidation be effective for tax years
   ending on XXX, and

2. That Parent has no realized but unrecognized income or
   expense items that may be recognized at a later date which
   would benefit any member of the Parent affiliated group,
   and

3. That the difference in tax liability for the tax year
   ended XXX, between the separate tax returns filed and a pro
   forma consolidated return for the same period is
   approximately XXX, and

4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year ending XXX.

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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the

conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

SCP/kh