Could a partnership electing corporate status be the parent of a Florida consolidated group?

Subject

Partnership Treated as Corporation

Plain-English summary

The partnership could be treated as the corporate common parent of a Florida consolidated group. It had elected under federal regulations to be classified as an association taxable as a corporation, and Florida followed that federal classification for corporate income-tax purposes.

The group could file a Florida consolidated return if it met section 220.131, continued filing the matching federal consolidated return, kept identical component members, and the partnership remained the federal common parent with its corporate election in effect.

What this means for you

State-law partnership form did not control once the entity made the federal corporate-classification election. Ongoing federal status and group alignment remained essential.

Common questions

Q: Was the partnership subject to Florida corporate income tax? Yes, as a federally elected association.

Q: Could it be the consolidated common parent? Yes.

Q: Did permission continue automatically after federal status changed? No.

Citations and references

• Fla. Stat. § 220.02 — federal concepts
• Fla. Stat. § 220.03(1)(e) — corporation and partnership classification
• Fla. Stat. § 220.131 — Florida consolidated returns
• Treas. Reg. § 301.7701-3 — federal entity-classification election
• I.R.C. § 1502 — federal consolidated returns
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-010

Original ruling text

SUMMARY

QUESTION: Can the group file a Florida consolidated return
under s. 220.131(1), F.S., for tax years 2000 and after, or
is the group precluded from filing a consolidated return
because the common parent of the group, "A" is a
partnership treated as a corporation for federal income tax
purposes?

ANSWER - BASED ON FACTS BELOW: Yes, a Florida consolidated
income tax return may be filed as long as the requirements
of s. 220.131, F.S. are met and "A" continues to be
federally considered the common parent of the affiliated
group and continues its federal election to be taxed as a
corporation.

Aug 24, 2000

Re: Technical Assistance Advisement 00C1-010
Corporate Income Tax - Partnership Treated as Corporation
Section 220.03, F.S.
XXX hereinafter referred to as "A"
XXX hereinafter referred to as "B"
XXX hereinafter referred to as "C"

Dear :

Your letter, on behalf of "A," dated XX, requests a Technical
Assistance Advisement concerning whether or not "A" may file a
consolidated corporate income tax return where "A" is a
partnership which has elected to be treated as a corporation
under Treasury Regulation s. 301.7701-3. 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

"A" is a general partnership formed under the laws of Delaware.
The partners of "A" are all located outside the United States.
For federal income tax purposes, "A" has elected to be taxable
as a corporation. "A" is the common parent of an affiliated
group of corporations filing consolidated federal income tax
returns under s. 1502, I.R.C. "A" is a holding company that
owns all of the issued and outstanding stock of "B," and "B" is
a holding company that owns all of the outstanding stock of "C."
"C" is a holding company that owns directly or indirectly
various operating companies, and also has employees that perform
various administrative functions on behalf of the affiliated
group. "C's" personnel also perform the minimal tasks necessary
to maintain the existence of "A" and "B" as holding companies.
Prior to 2000, neither "A," "B," nor "C" conducted business in
Florida, however, some members of the affiliated group filed
Florida income tax returns on a separate basis.

QUESTION

Can the group file a Florida consolidated return under s.
220.131(1), F.S., for tax years 2000 and after, or is the group
precluded from filing a consolidated return because the common
parent of the group, "A," is a partnership treated as a
corporation for federal income tax purposes?

DISCUSSION AND ANALYSIS OF LAW

Section 220.02, F.S., states in part:

(1) It is the intent of the Legislature in enacting this
code to impose a tax upon all corporations, organizations,
associations, and other artificial entities which derive
from this state or from any other jurisdiction permanent
and inherent attributes not inherent in or available to
natural persons, such as perpetual life, transferable
ownership represented by shares or certificates, and
limited liability for all owners. It is intended that any
limited liability company that is classified as a
partnership for federal income tax purposes and formed
under chapter 608 or qualified to do business in this state
as a foreign limited liability company not be subject to

the tax imposed by this code. It is the intent of the
Legislature to subject such corporations and other entities
to taxation hereunder for the privilege of conducting
business, deriving income, or existing within this state.
This code is not intended to tax, and shall not be
construed so as to tax, any natural person who engages in a
trade, business, or profession in this state under his or
her own or any fictitious name, whether individually as a
proprietorship or in partnership with others, or as a
member or a manager of a limited liability company
classified as a partnership for federal income tax
purposes; any estate of a decedent or incompetent; or any
testamentary trust. However, a corporation or other
taxable entity which is or which becomes partners with one
or more natural persons shall not, merely by reason of
being a partner, exclude from its net income subject to tax
its respective share of partnership net income. This
statement of intent shall be given preeminent consideration
in any construction or interpretation of this code in order
to avoid any conflict between this code and the mandate in
s. 5, Art. VII of the State Constitution that no income tax
be levied upon natural persons who are residents and
citizens of this state. (emphasis supplied)

(3) It is the intent of the Legislature that the income tax
imposed by this code utilize, to the greatest extent
possible, concepts of law which have been developed in
connection with the income tax laws of the United States,
in order to:

(a) Minimize the expenses of the Department of Revenue and
difficulties in administering this code;

(b) Minimize the costs and difficulties of taxpayer
compliance; and

(c) Maximize, for both revenue and statistical purposes,
the sharing of information between the state and the
Federal Government.... (emphasis supplied)

Section 220.03, F.S., states in part:

SPECIFIC TERMS.- When used in this code, and when not
otherwise distinctly expressed or manifestly incompatible
with the intent thereof, the following terms shall have the
following meanings:...

(b) "Affiliated group of corporations" means two or more
corporations which constitute an affiliated group of
corporations as defined in s. 1504(a) of the Internal
Revenue Code. (emphasis supplied)

(e) "Corporation" includes all domestic corporations;
foreign corporations qualified to do business in this state
or actually doing business in this state; joint-stock
companies; limited liability companies, under chapter 608;
common-law declarations of trust, under chapter 609;
corporations not for profit, under chapter 617;
agricultural cooperative marketing associations, under
chapter 618; professional service corporations, under
chapter 621; foreign unincorporated associations, under
chapter 622; private school corporations, under chapter
623; foreign corporations not for profit which are carrying
on their activities in this state; and all other
organizations, associations, legal entities, and artificial
persons which are created by or pursuant to the statutes of
this state, the United States, or any other state,
territory, possession, or jurisdiction. The term
"corporation" does not include proprietorships, even if
using a fictitious name; partnerships of any type, as such;
limited liability companies that are taxable as
partnerships for federal income tax purposes; state or
public fairs or expositions, under chapter 616; estates of
decedents or incompetents; testamentary trusts; or private
trusts. (emphasis supplied)

Section 220.131, 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 this 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. (emphasis supplied)

Section 301.7701-3, Federal Tax Regulations, states in part:

(a) In general. A business entity that is not classified
as a corporation under s. 301.7701-2(b)(1), (3), (4), (5),
(6), (7), OR (8) (an eligible entity) can elect its
classification for federal tax purposes as provided in this
section. An eligible entity with at least two members can
elect to be classified as either an association (and thus a
corporation under s. 301.7701-2(b)(2)) or a partnership,
and... (emphasis supplied)

(g) Elective changes in classification. (1) Deemed
treatment of elective change, (I)Partnership to
association. If an eligible entity classified as a
partnership elects under paragraph (c)(1)(I) of this
section to be classified as an association, the following
is deemed to occur: The partnership contributes all of its

assets and liabilities to the association in exchange for
stock in the association, and immediately thereafter, the
partnership liquidates by distributing the stock of the
association to its partners. (emphasis supplied)

Section 220.02, F.S., details the Florida Legislature's intent
to follow, to the greatest extent possible, federal concepts of
law in relation to the imposition of the Florida corporate
income tax. Under the federal income tax regulations, "A," a
partnership, has elected to be treated as an association, and
thus a corporation. By making this federal election, "A" is
deemed to have contributed all of its assets and liabilities to
an association in exchange for the stock of the association, and
the partnership is liquidated by distributing the stock of the
association to its partners. Thus, the partners are deemed to
own the stock of an association and not an interest in a general
partnership for federal income tax purposes.
Florida law under paragraph 220.03(1)(e), F.S., excludes all
partnerships from the Florida corporate income tax. However,
since "A" is deemed an association and its partners are deemed
to own stock in an association for federal income tax purposes,
Florida would follow this federal election and also deem "A" as
an association and not a partnership for Florida income tax
purposes. Thus "A," as an association, is subject to the Florida
corporate income tax.

"A" has been filing consolidated federal income tax returns and
plans to continue filing consolidated federal income returns in
the future. "A" is considered the common parent of an
affiliated group for federal purposes. Florida, likewise,
considers "A" the common parent of the affiliated group. So
long as "A" meets the Florida consolidated filing requirements
in s. 220.131, F.S., "A," as the common parent, may elect to
file a Florida consolidated corporate income tax return for tax
year 2000. "A" will then be required to continue filing Florida
consolidated income tax returns so long as "A" files
consolidated federal income tax returns.

CONCLUSION

So long as "A" is deemed as an association, taxable as a

corporation for federal income tax purposes, Florida will
likewise consider "A" in the same manner subject to the Florida
corporate income tax. "A" may file consolidated Florida
corporate income tax returns as long as it meets the
requirements under s. 220.131, F.S., to do so. "A" will then be
required to continue filing Florida consolidated corporate
income tax returns as long as "A" continues to file consolidated
federal income tax returns.

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, 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,

Robert DuCasse
Technical Assistance and Dispute Resolution

RCD/
Control No.: 42023