Could a Florida consolidated group stop filing after acquisition by a new affiliated group?

Plain-English summary

A taxpayer and its affiliates historically filed a Florida consolidated return. A new company acquired them, ending the original affiliated group and placing the taxpayer in a different group that had never filed a Florida consolidated return.

Florida found the ownership change sufficient to permit deconsolidation. The taxpayer was now bound by the acquiring group's filing election.

Approval was conditioned on the specified effective year, the absence of realized but unrecognized income or expense items that could benefit a former group member, and no participation in another Florida consolidated return before the stated later year.

What this means for you

An acquisition can support relief from a continuing consolidated election when the original affiliated group ceases to exist and the buyer has a different Florida filing position. Formal approval and transition conditions still apply.

Common questions

What changed after the acquisition? The original affiliated group ended, and the taxpayer joined a new group that did not file consolidated Florida returns.

Was approval unconditional? No. Florida imposed three conditions addressing timing, deferred items, and future reconsolidation.

Why did the buyer's filing election matter? The ruling stated that the taxpayer became bound by the new affiliated group's election.

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 06C1-002

Original ruling text

SUMMARY
QUESTION: May a parent/subsidiary consolidated filing group be granted permission to cease filing Florida
consolidated tax returns after being purchased by a new owner (parent).
ANSWER - Based on Facts Below: The parent/subsidiary consolidated filing group was granted permission to cease
filing Florida consolidated tax returns based on provisions of the F.A.C. which addresses changes in business
circumstances.

February 16, 2006

Re: Technical Assistance Advisement 06C1-002
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XXX - XXX (hereinafter referred to as "Taxpayer")
XXX - XXX (hereinafter referred to as "AA Company")
XXX - XXX (hereinafter referred to as "BB Company")
Dear:
Your letter of XX, requests permission for the above referenced Taxpayer and the members of its affiliated group,
which include AA Company, to discontinue filing consolidated returns for Florida corporate income tax purposes. In
addition, your letter dated XX, details the changes in circumstance that prompted this 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 SUPPLIED BY BB COMPANY
Taxpayer and its affiliated group have historically filed a consolidated Florida income tax return. On XX, BB Company
purchased Taxpayer and the members of its affiliated group consisting of AA Company.
BB Company is now the parent of Taxpayer and its affiliated group, as well as the original members of the BB
Company affiliated group. BB Company is not subject to the Florida Income Tax Code, and while it files a
consolidated federal corporate income tax return, the BB Company affiliated group has never filed consolidated
Florida returns. Pursuant to s. 220.131, F.S., BB 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 BB 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 BB Company.
BB Company also indicated that it incorrectly filed a consolidated Florida corporate income tax for Taxpayer and its
affiliated group for the period XX, through 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... 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 the Taxpayer to
   cease filing consolidated Florida corporate income tax returns?
   DISCUSSION AND ANALYSIS
   Taxpayer seeks permission to deconsolidate based upon the purchase by BB Company. Effective XX, Taxpayer and
   its affiliates became members of the BB Company affiliated group, and that affiliated group does not file a Florida
   consolidated group return.
   In this case, the original Florida affiliated group was purchased by BB 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 BB 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, subject to the provisions stated 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
   Record ID: 17501