Did Florida allow a reorganized corporate group to stop filing consolidated returns?

Subject

Authority to Discontinue Consolidated Filing

Plain-English summary

Florida allowed the affiliated group to stop filing consolidated corporate income tax returns for 1999 and later years. The parent had undergone a major reorganization, changed its core business, and acquired a large group whose accounting system was not fully integrated with its own.

The Department found sufficient changed circumstances under Rule 12C-1.0131(3)(b). It also relied on the group's expectation that separate returns would produce the same or more Florida tax.

What this means for you

A prior consolidated-return election was not freely revocable. This approval depended on the group's specific operational changes and four conditions: the change began with the year ended December 31, 1999; no realized but unrecognized items could later benefit a group member; the separate-return tax for 1999 had to be substantially the same as or greater than the pro forma consolidated tax; and the group could not join another Florida consolidated return before the year ended December 31, 2005.

Common questions

Q: Did the Department approve separate Florida returns? Yes, for 1999 and later years, subject to the four conditions.

Q: Why was continued consolidated filing burdensome? The acquired group was headquartered far away, had historically filed separate returns, and used a different accounting system that was not fully integrated.

Q: Could the group quickly elect consolidated filing again? No. The approval required it to remain outside a Florida consolidated group through the stated 2005 restriction.

Citations and references

• Fla. Stat. § 220.131(1) — consolidated-return election
• Fla. Stat. § 220.131(3) — continued consolidated filing unless the director consents
• Fla. Admin. Code r. 12C-1.0131(3)(b) — permission and good-cause factors for discontinuing consolidated returns
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-007

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns based upon
major business changes, and the acquisition of a subsidiary
utilizing a different accounting system?

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 address
changes in business activities, and difficulties in
reconciling two new accounting systems. Taxpayer will pay
the same or more tax based upon separate return filing.

Jun 20, 2000

RE: Technical Assistance Advisement 00C1-007
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
s. 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "Taxpayer")

Dear :

Your letter of XX, requests permission to discontinue filing
consolidated returns for Florida corporate income tax purposes
for the tax year ended December 31, 1999. On XX, you provided
additional information relating to your request. This response
to your request constitutes a Technical Assistance Advisement
under Chapter 12-11, Florida Administrative Code, and is issued
to you under authority of s. 213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

Taxpayer is a XXX corporation that currently reports its income
on a consolidated basis for Florida corporate income tax
purposes as the parent of an affiliated group (the "Taxpayer
Group"). Taxpayer made its election to file Florida consolidated

returns a number of years prior to XX. Taxpayer underwent a
major corporate reorganization in XX, whereby Taxpayer was split
off from its corporate group, and operated as a separate
business, with only one integrated business subsidiary. After
the corporate reorganization, both the Taxpayer and its single
subsidiary continued to operate in the State of Florida and
Taxpayer continued to file consolidated Florida corporate income
tax returns. Recently, Taxpayer acquired a large corporate group
headquartered across the country from Taxpayer's commercial
domicile. This large corporate group traditionally files
separate state returns, and its accounting systems are different
from those of Taxpayer. Taxpayer and its affiliated group
members have a relatively small presence within the State of
Florida.

The Taxpayer Group has no realized but unrecognized income or
expense items that may be recognized at a later date which would
benefit any member of the Taxpayer Group, and which have been
included on Taxpayer's consolidated Florida corporate income tax
returns. If the Taxpayer Group files on a separate return
basis, rather than a consolidated basis, it is expected to pay
the same or more in Florida corporate income taxes for the
foreseeable future. The Taxpayer Group will continue to file
consolidated federal income tax returns.

LEGAL 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.

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.

ISSUE PRESENTED

Has sufficient reasonable cause been established for the
Executive Director to grant permission to Taxpayer to stop
filing consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

Taxpayer has relied upon Rule 12C-1.031(3)(b)2.a., F.A.C., which
permits the Executive Director to consider "[c]hanges in law or
circumstances, including changes which do not affect income tax
liability." Taxpayer contends that the business of the
affiliated group has changed significantly since XX, and that
continued filing of consolidated returns would be unduly
burdensome because of incompatible accounting systems.

Since electing consolidated reporting, Taxpayer has
substantially reorganized its affiliated group. Taxpayer's core
business has effectively changed, and it has moved into
completely new lines of business. Taxpayer's deconsolidation
request also is founded in Taxpayer's recent acquisition of a
large corporate group headquartered across the country. That
corporate group filed separate Florida returns, and the two
accounting systems are not fully integrated. The filing of a
Florida consolidated return would require the compilation of
information from two distant geographic locations. It would
also require the combination of that information, and a special
change in the accounting systems of the Taxpayer group. The
Taxpayer Group will pay the same or more tax by filing separate
returns.

Therefore, based on the following four conditions, the
Department grants permission to the Taxpayer to discontinue
filing consolidated corporate income tax returns for the 1999
tax year and later years:

1. That the deconsolidation is effective for the tax year
   ending on December 31, 1999;

2. That Taxpayer has no realized but unrecognized income or
   expense items that may be recognized at a later date which
   would benefit a member of the Taxpayer Group;

3. That the difference in tax liability for the tax year
ended December 31, 1999, between the separate tax returns
filed and a pro forma consolidated return for the same
period is substantially the same or greater than the amount
of tax on the pro forma consolidated return;

4. That the Taxpayer Group does not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year ending December 31, 2005.

CONCLUSION

Taxpayer has met the requirements for granting permission to
discontinue the Florida corporate income tax consolidated filing
election. Accordingly, Taxpayer's request for permission to
file separate income tax returns for the tax year ended December
31, 1999, is granted.

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 future transactions to a
different treatment than expressed in this response.

You are further advised that this response, your request and
related back-up 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 that 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 the
identification of the Taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Gary A. Moreland
Technical Assistance and Dispute Resolution

GAM/gm
Control No. 41117