Could a corporate group stop filing Florida consolidated returns after 15 years of reorganization, divestitures, acquisitions, and changed business lines?

Plain-English summary

The corporate group received permission to stop filing Florida consolidated returns. Over roughly 15 years it had sold former business lines, acquired and grown new ones, and changed its operational and apportionment profile so fundamentally that the original election no longer reflected the business.

Approval was conditioned on the specified effective year, no realized but unrecognized items that could benefit a member, separate-return tax being substantially the same as or greater than the pro forma consolidated tax, and no return to Florida consolidation before the stated later year.

What this means for you

Independent business changes can support deconsolidation even without tax savings. The Department protected the revenue result and deferred-item treatment through express conditions.

Common questions

Q: Was deconsolidation approved? Yes.

Q: Did the group expect to pay less tax? No; it expected the same or more.

Q: What supported reasonable cause? Fundamental changes in business lines, operations, and apportionment factors.

Q: Could the group immediately rejoin a Florida consolidated return? No.

Citations and references

• Fla. Stat. § 220.131(1), (3) — Florida consolidated-return election and continuation
• 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 01C1-012

Original ruling text

SUMMARY

QUESTION: Will the Executive Director grant permission to
the Taxpayer to stop filing consolidated Florida corporate
income tax returns because of changes in the consolidated
group?

ANSWER - Based on the Facts below: Yes. Taxpayer has shown
that a fundamental change in its consolidated group has
occurred over the past fifteen years, and that there are
independent business reasons for its request. The
consolidated group will pay more tax as a result of filing
separate returns.

Oct 31, 2001

Re: Technical Assistance Advisement 01C1-012
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 XX. On XX, XX, and 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

Taxpayer is a 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

in XX. Since that time, Taxpayer has undergone a major corporate
reorganization, whereby Taxpayer sold off XXX of its XXX lines
of business, and then acquired XXX separate lines of business.
Those new lines of business have experienced significant growth
over the past decade and now constitute a majority of Taxpayer's
operations. With the change and growth of these new lines of
business, Taxpayer's apportionment factors have also changed,
and no longer reflect Taxpayer's original business.

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 the 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 32313-7443,
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 it made its
consolidated return election in XX.

Since electing consolidated reporting, Taxpayer has moved into
completely new lines of business, which make up a large part of
Taxpayer's business activities. 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 XX tax
year and later years:

1. That the deconsolidation is effective for the tax year
   ending on 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 Taxpayer Group;

3. That the amount of tax liability for the tax year ended
   XX, for the separate tax returns filed compared to 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 XX.

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 XX, 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 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,

Gary A. Moreland
Technical Assistance and Dispute
Resolution

GAM/gm
Control No. 45834