Could a banking group stop filing Florida consolidated corporate income-tax returns after major legal and business changes?

Plain-English summary

The banking group received permission to stop filing Florida consolidated corporate income-tax returns. Since making its election, the group had changed ownership, grown substantially, shifted its customer and business focus, and added services such as ATMs, telephone banking, Internet banking, and credit cards.

The Department applied the rule allowing deconsolidation for good cause based on changes in law or circumstances and business activities. The group also represented that it had no realized but unrecognized income or expense items that could emerge later. Permission to file separate returns was granted for the tax year ended December 31, 2001.

What this means for you

A Florida consolidated election generally continues until the Department consents to separate filing. Material operational change can support consent, but the ruling was a fact-specific approval, not an automatic right to revoke.

Common questions

Q: Did the group receive permission to deconsolidate? Yes.

Q: What supported good cause? Combined legal changes and fundamental changes in ownership, size, customers, services, and operations.

Q: Did the group continue filing a federal consolidated return? Yes.

Citations and references

• Fla. Stat. § 220.131(1), (3) — 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 02C1-003

Original ruling text

SUMMARY

QUESTION: May a consolidated group be granted permission to
cease filing Florida consolidated corporate income tax
returns based upon changes in law combined with fundamental
changes in business operations?

ANSWER - Based on Facts Below: The consolidated group was
granted permission to cease filing Florida consolidated
corporate income tax returns based on the Rule provisions
which address changes in law and changes in business
activities.

Apr 25, 2002

Re: Technical Assistance Advisement 02C1-003
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 for the Taxpayer 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

The Taxpayer, along with its consolidated group, currently
reports its income on a consolidated basis for Florida corporate
income tax purposes. Taxpayer initially made its Florida
consolidated return election in XX.

At the time of its consolidated reporting election, Taxpayer's

group was composed of three entities: (i) the Taxpayer, a XXX
company; (ii) XXX, a XXX (the "Bank"); and (iii) XXX, an entity
that provides XXX and other support services to the Bank. The
Bank provided traditional retail banking services through XXX
branches and competed with other local commercial banks of
similar size.

The Bank XXX from XX until XX, and then Taxpayer was acquired by
a XXX. Taxpayer has since used its affiliation with its XXX
parent to develop a large deposit base amongst XXX. Taxpayer is
now XX times as large as when it made its consolidated reporting
election in XX, and the focus of its banking business has
changed. Also, since XX, the Bank (like most other banks) has
added services such as ATM machines, telephone banking, Internet
banking, and credit card services. Taxpayer has XXX.

The Taxpayer Group has no realized but unrecognized income or
expense items that may be recognized at a later date. 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 relies 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. In addition, Taxpayer cites
changes in the law relating to the banking industry, including
the passage of the Gramm-Leach-Bliley Act of 1999, which allows
banks to expand into insurance and the brokerage business, and
the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994.

The information provided by Taxpayer shows substantial growth in
the consolidated group since XX, when Taxpayer first elected
Florida consolidated reporting. Taxpayer has grown XX-fold
since making its initial election, and there have been changes
in XXX. As a result, the affiliated group has undergone changes,
the magnitude of which affect the prudence of continuing to file
on a consolidated basis for Florida corporate income tax
purposes. Taxpayer has also added services such as ATM machines,
telephone banking, Internet banking, and credit card services.
These additional services are part of the normal growth of the
banking industry, and they are not a basis for deconsolidation.

Taxpayer contends that changes in the law governing the banking
industry are also a basis for deconsolidation. Gramm-LeachBliley allows banks to compete in the insurance and investment
industries. The Riegle-Neal Interstate Banking and Branching
Efficiency Act provides additional opportunities for banks to do
business beyond the borders of a single state. This is not a
change in the law that directly affects Taxpayer's Florida
consolidated reporting, even though it does affect the banking
industry and Taxpayer in general. Taxpayer has taken
affirmative steps to XXX. These changes in the banking industry
and Taxpayer's business can be considered with Taxpayer's growth
and change of business focus. While neither of the grounds cited
by Taxpayer standing alone is a sufficient basis for
deconsolidation, considering the legal changes in the banking
industry together with the changes in Taxpayer's business

brought about by growth, these factors establish a sufficient
basis for granting deconsolidation.

Therefore, based on the following four conditions, the
Department grants permission to the Taxpayer to discontinue
filing consolidated corporate income tax returns for the 2001
tax year and later years:

1. That the deconsolidation is effective for the tax year
   ending on December 31, 2001;

2. That Taxpayer has no realized but unrecognized income or
   expense items that may be recognized at a later date;

3. That the amount of tax liability for the tax year ended
   December 31, 2001, 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, 2006.

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, 2001, 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