Could a Florida consolidated group deconsolidate after an unrelated company acquired over 80% of its parent and merged it into a different affiliated group?

Subject

Request for Permission to Deconsolidate

Plain-English summary

The acquired group received permission to stop filing Florida consolidated returns. An unrelated buyer and its wholly owned subsidiary acquired more than 80% of the former parent's shares through a cash tender offer, then merged the taxpayer and its affiliates into the buyer's group. The original affiliated group ceased to exist, and the former parent became a subsidiary.

The buyer's group had never filed Florida consolidated returns and was not eligible to do so under the stated facts. Deconsolidation applied after the specified year, required no deferred income or expense items that would benefit a former group member, and barred the taxpayer group from joining another Florida consolidated return until the stated future year. The Department accepted the usual consolidated method for the final consolidated year.

What this means for you

A genuine acquisition and group-level change could justify ending the old election when the original affiliated group disappeared and the new controlling group had a different Florida filing position.

Common questions

Q: Was permission granted? Yes.

Q: What changed? Ownership, parent status, and the identity of the affiliated group.

Q: Was a final consolidated return still allowed? Yes, for the specified final year.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C1-009

Original ruling text

SUMMARY

QUESTION: May an affiliated group be granted permission to
cease filing Florida consolidated corporate income tax
returns when it is purchased by another company and merged
into an existing affiliated group?

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 activities.

Sep 11, 2001

Re: Technical Assistance Advisement 01C1-009
Corporate Income Tax
Request for Permission to Deconsolidate
s. 220.131, F.S.; Rule 12C-1.0131, F.A.C.
XXX ("AA Company")
XXX ("ZZ Company")
XXX ("Taxpayer")

Dear :

This letter is in response to your request for permission to
discontinue filing a consolidated Florida income tax return for
the tax year beginning after XX. Taxpayer will file
consolidated Florida income tax returns for the tax years ending
XX. This response 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.

STATEMENT OF FACTS

Taxpayer and its affiliated group have historically filed a
consolidated Florida income tax return. On XX, AA Company and
its direct wholly owned subsidiary, ZZ Company, purchased
greater than 80% of the outstanding shares of Taxpayer. AA

Company and ZZ Company acquired the shares of Taxpayer through a
cash tender offer. Subsequently, Taxpayer and its affiliated
group were merged into ZZ Company and Taxpayer became a
subsidiary of AA Company.

AA Company is now the parent of Taxpayer and its affiliated
group, as well as the original members of the AA Company
affiliated group. AA Company is not subject to the Florida
Income Tax Code, and while it files a consolidated federal
corporate income tax return, the AA Company affiliated group has
never filed consolidated Florida returns. Pursuant to s.
220.131, F.S., AA Company and its affiliated group is not
eligible to file in Florida on a consolidated basis. The
affiliated group of which Taxpayer is now a member no longer has
the same affiliated members with which Taxpayer previously filed
its federal consolidated tax return, and Taxpayer is no longer
the parent of that affiliated group. In short, Taxpayer's
affiliated group no longer exists, and Taxpayer and its
affiliated group have become part of the AA Company affiliated
group. Due to the changes in facts surrounding the members of
Taxpayer's affiliated group, Taxpayer requests permission to
discontinue filing Florida consolidated tax returns for tax
years beginning on or after XX, the date it was acquired by AA
Company.

Taxpayer also indicated that it incorrectly completed its
extension of time to file its Florida corporate income tax
return for the tax period ending XX. Specifically, Taxpayer did
not include the statement with the names, addresses, and FEIN of
each affiliated group member included in the consolidated
return. Taxpayer requests that the Department accept its
consolidated return filing method for the tax year ending XX.

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(2), F.S., states:

Subject to subsection (5), the director may require a
consolidated return for those members of an affiliated
group of corporations which are subject to tax and which
would be eligible to elect to consolidate their incomes
under subsection (1), if the filing of separate returns for
such corporations would improperly reflect the taxable
incomes of such corporations or of such group.

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 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

Taxpayer seeks permission to deconsolidate based upon the
purchase of 80% or more of its outstanding shares by AA Company.
Effective XX, Taxpayer and its affiliates became members of the
AA Company affiliated group, and that affiliated group does not
file a Florida consolidated group return. Taxpayer was a
competitor of AA Company prior to its purchase by AA Company,
and, more importantly, prior to the purchase, the two entities
did not share common ownership and were completely unrelated to
each other.

In this case, the original Florida affiliated group was
purchased by AA Company, which does not file a Florida
consolidated return. There was a change in ownership. The
original affiliated group ceased to exist, and the Taxpayer is
now bound by the filing election made by AA Company.

Therefore, based on the following three conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for tax years beginning after XX,
and later years:

1. That the deconsolidation is effective for the tax year
   beginning after XX;

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 affiliated group;

3. That the Taxpayer group does not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year ending XX.

CONCLUSION

For this reason, Taxpayer is granted permission to cease filing
consolidated Florida corporate income tax returns for tax years
beginning after XX. In addition, Taxpayer's usual consolidated
filing method will be accepted for its final consolidated
Florida corporate income tax return for the tax year ending on
XX.

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. 213.122, 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,
Florida Statutes, 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 materials and this response,
deleting the 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,

Gary A. Moreland
Technical Assistance and
Dispute Resolution

GAM
Control No. 45706