Could the banking group stop filing Florida consolidated corporate income tax returns?

Plain-English summary

Florida allowed the banking group to stop filing consolidated corporate income tax returns, subject to three conditions stated in the ruling. The group had grown substantially, changed how it operated and generated business, expanded into new lines, and was affected by banking-law changes that allowed entry into insurance and investment activities.

The Department said neither the legal changes nor the business changes was sufficient alone. Considered together, however, they established enough cause to permit deconsolidation. The ruling's specific years, amounts, and several facts were redacted.

What this means for you

A Florida consolidated-return election generally continues unless the Department consents to separate filing. A group seeking permission should document changes in law or circumstances and be prepared to accept conditions governing the transition.

Common questions

Q: Did the federal banking-law change alone justify deconsolidation? No. The Department relied on the law change together with the group's growth and changed business focus.

Q: Was permission unconditional? No. It depended on three conditions concerning unrecognized items, the redacted tax-liability difference, and when the group could next join a Florida consolidated return.

Citations and references

• Fla. Stat. § 220.131(1) and (3) — consolidated elections and continued filing
• 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 03C1-001

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.

Feb 18, 2003

Re: Technical Assistance Advisement 03C1-001
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 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. The Taxpayer initially made its Florida
consolidated return election in XX.

At the time of its consolidated reporting election, the
Taxpayer's group was composed of three entities: (i) the

Taxpayer, a XXX; (ii) XXX (the "bank"); and (iii) XXX, a Florida
corporation (the "corporation") established for the purpose of
acquiring tax lien certificates issued by various counties in
the state of Florida. The Bank provided traditional retail
banking services through XX bank branches and competed with
other local banks of similar size.

The number of entities in the group has increased by XX%. The
Taxpayer has developed a substantial international customer base
since XX. Its assets have increased over XX% and its deposits
have increased over XX%. The number of branches has increased
from XX to XX. In XX, the Taxpayer only originated XX% of its
loans and bought the rest of its loans on the secondary market.
Today, the Taxpayer originates XX% of its loans.

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. The Taxpayer has expanded into
new lines of business, including annuities, insurance, mutual
funds, and securities. In addition, the Taxpayer also provides
XXX, and XXX.

The Taxpayer's Group will continue to file consolidated federal
income tax returns. The Taxpayer estimates that its Florida tax
liability for tax year ending XX will decrease from $XX on a
consolidated basis to $XX on a separate return basis.

Although some data is provided on the future filing aspects of
the Taxpayer and its affiliated group, the Department is unable
to provide specific guidance on these other years, other than
the general statutory provisions of Chapter 220, F.S., which
require entities to report their share of federal taxable income
modified by the provisions of s. 220.13, F.S.

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

Whether the Taxpayer should be granted permission to cease
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 the insurance and the brokerage businesses.

The information provided by the Taxpayer shows substantial
growth in the consolidated group since XX, when the Taxpayer
first elected Florida consolidated reporting. There have been
numerous changes in the market segments it services. There have
also been numerous changes in the way the Taxpayer operates and
generates its business. As a result, the affiliated group has
undergone changes, the magnitude of which affects the prudence
of continuing to file on a consolidated basis for Florida
corporate income tax purposes.

The Taxpayer contends that changes in the law governing the
banking industry are also a basis for deconsolidation. GrammLeach-Bliley allows banks to compete in the insurance and
investment industries. This is not a change in the law that
directly affects the Taxpayer's Florida consolidated reporting,
even though it does affect the banking industry and the Taxpayer
in general. The Taxpayer has taken affirmative steps to enter

the insurance and investment businesses. These changes in the
banking industry and the Taxpayer's business can be considered
with the Taxpayer's growth and change of business focus. While
neither of the grounds cited by the Taxpayer standing alone is a
sufficient basis for deconsolidation, considering the legal
changes in the banking industry together with the changes in the
Taxpayer's business brought about by growth, these factors
establish a sufficient basis for granting deconsolidation.

CONCLUSION

Based on the following three conditions, permission is granted
for the Taxpayer to discontinue filing consolidated corporate
income tax returns for tax years ending XX, and later years:

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

2. That the difference in tax liability for the tax year
   ended XX, between the separate tax returns filed and a pro
   forma consolidated return for the same period is
   approximately $XX;

3. That the Taxpayer Group does not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year ending 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. 213.22, 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,

Robert DuCasse
Technical Assistance and Dispute Resolution

RCD/rd
Control No.: 53205