Could a Florida consolidated group file separately after a foreign parent acquired it and included the companies in a different federal consolidated group?

Subject

Request for Authority to Discontinue Consolidated Filing

Plain-English summary

The acquired Florida group received permission to stop filing consolidated Florida returns. Its former federal affiliated group ceased to exist after a foreign parent acquired the taxpayer and subsidiaries and included them in the parent's new federal consolidated group. Florida required the state group to mirror the federal component members and would not accept a subset return.

Permission began with the period ending December 31, 2000. The group could have no beneficial unrecognized intercompany or deferred items, had to report any realized but unrecognized federal deferred gains in that period, and could not join another Florida consolidated return before the tax year ending in 2006.

What this means for you

An acquisition can make the old Florida filing group structurally impossible when it no longer matches the federal group, but the Department still protects against deferred benefits and rapid reconsolidation.

Common questions

Q: Was separate filing approved? Yes.

Q: Why? The old affiliated group ended and no longer matched the federal consolidated group.

Q: Were deferred gains carried forward? No. The conditions required recognition in the 2000 period.

Citations and references

• Fla. Stat. § 220.131(1) and (3) — Florida consolidated returns and federal-group mirroring
• Fla. Admin. Code r. 12C-1.0131(3)(b)2.a. — changed circumstances and revocation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C1-007

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated corporate income tax
returns upon changes in business circumstances.

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

Jun 15, 2001

Re: Technical Assistance Advisement 01C1-007
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XX, FEI # XXX (herein referred to as "Taxpayer")
XXX (herein referred to as "Parent")

Dear :

XXX letter of XX, requests 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 authority of s. 213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

Taxpayer is a Florida Corporation that, together with its
consolidated group (the "Taxpayer Group"), currently reports
their income on a consolidated basis for Florida corporate
income tax purposes. The taxpayer group consists of the
taxpayer and XXX corporate entities. The taxpayer group is
engaged in XXX and XXX.

In XX, the Parent, a XXX corporation, acquired Taxpayer and its

XXX subsidiaries. The Parent is a foreign corporation domiciled
in XXX, and does not have nexus in Florida for corporate income
tax purposes. Consequently, the former consolidated group
(Taxpayer & Subsidiaries) no longer exists for filing a Florida
corporate income tax return. Parent states that according to
Subsection 220.131(3), F.S., Taxpayer is no longer permitted to
file a consolidated Florida corporate income tax return.
Therefore, Parent requests permission for Taxpayer and
subsidiaries to deconsolidate, and file separate Florida
corporate income tax returns beginning with the period ending
December 31, 2000.

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 Taxpayer permission to stop filing
consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

The first issue is whether Parent has shown the existence of a
substantial adverse effect by reason of filing consolidated
returns. There are two bases in the Florida Administrative Code
for allowing a taxpayer to revoke its consolidated reporting
election. Rule 12C-1.0131(3)(b) 2., F.A.C., provides that
permission to deconsolidate may be granted "if the net result of
all amendments to the Florida Income Tax Code or the Internal

Revenue Code of regulations... 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". The
taxpayer has not cited any tax law changes as the basis for its
request, and further discussion of the main portion of Rule 12C1.0131(3)(b) 2., F.A.C., is not necessary.

Instead, Parent's request relies on Rule 12C-1.0131(3)(b) 2.a.,
F.A.C., which permits the Executive Director to consider
"changes in law or circumstances, including changes which do not
affect income tax liability". Parent cites a change in
circumstance occurring when they acquired Taxpayer and
Subsidiaries in XX. The Parent will be filing a consolidated
federal corporate income tax return which will include Taxpayer
and its Subsidiaries. Taxpayer has stated that its affiliated
group that had filed a consolidated return for Federal income
tax purposes no longer exists. Taxpayer is now included within
the Parent's affiliated group that will be filing a consolidated
return for Federal income tax purposes. Accordingly, pursuant to
subsection 220.131(3), F.S., the Taxpayer Group no longer is
required to file a consolidated return. In addition, since
Florida statutes require that the Florida consolidated corporate
return "mirror" the federal consolidated corporate return,
Taxpayer and subs are not permitted to file a return consisting
of a subset of the new taxpayer group. Therefore, based on the
following four conditions, the Department grants permission to
discontinue filing consolidated Florida corporate income tax
returns beginning with the period ending December 31, 2000.

1. That the deconsolidation is effective for the income tax
   returns beginning with period ending December 31, 2000;

2. That the Taxpayer Group has no intercompany items
   realized, but not recognized, nor any deferred income or
   expenses that would normally be reported on a consolidated
   basis, but would not be included in separately filed
   corporate income tax returns.

3. That the Taxpayer Group does not become part of a
   consolidated Florida corporate income tax return prior to

the tax year ending in 2006.

4. That any deferred gains which are realized for Federal
   tax purposes, but which have not yet been recognized, are
   required to be reported in total, on the income tax returns
   filed by the taxpayers, for the period ending December 31,
   2000.

CONCLUSION

Taxpayer Group has met the requirements for granting permission
to discontinue the Florida corporate income tax consolidated
filing election. Accordingly, Parent's request for permission
to file separate Florida corporate income tax returns beginning
with the period ending December 31, 2000, is granted subject to
the provisions in the preceding paragraph.

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 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,

Charles J. Dunning
Technical Assistance and Dispute Resolution

Control No.: 45336