Could a Florida consolidated group deconsolidate after acquisition by a new parent without Florida nexus?

Plain-English summary

A parent and its subsidiaries had historically filed Florida consolidated returns. After all of the former parent's stock was transferred to a new owner, the old group broke up for consolidated-filing purposes. The new parent had no Florida nexus, and only one acquired subsidiary had Florida nexus for the relevant year.

Florida found that the acquisition and resulting ownership structure were sufficient changed circumstances to permit deconsolidation. The former group could file separate Florida returns subject to the approved effective period and conditions governing intercompany and deferred items, future reconsolidation, and recognition of deferred gains.

What this means for you

An ownership change can support relief from a continuing consolidated-return election when it breaks up the former group and materially changes which entities can or must file in Florida. Department approval is still required and may impose transition conditions.

Common questions

What was the central changed circumstance? A new parent acquired the former group, had no Florida nexus, and could not continue the old Florida consolidated filing.

Was approval automatic after the acquisition? No. Florida evaluated the facts under the rule and granted permission subject to four conditions.

What did the conditions address? Effective timing, intercompany and deferred items, a temporary restriction on reconsolidation, and deferred gains.

Citations and references

• Fla. Stat. § 220.131(1), (3) (consolidated-return election and continuation)
• Fla. Admin. Code r. 12C-1.0131(3)(b)2.a. (permission to discontinue for changed circumstances)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06C1-003

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), that does not have Florida nexus?
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.

June 14, 2006

Re: Technical Assistance Advisement 06C1-003
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XXX (FEIN XX) (hereinafter referred to as "Parent")
XXX (hereinafter referred to as Parent's Consolidated Filing Group)
XXX (FEIN XX) (hereinafter referred to as "New Group")
XXX (FEIN XX) (hereinafter referred to as "New Parent")
XXX (FEIN XX) (hereinafter referred to as "S")
Dear :
Your letter of XX, indicates that you represent the XXX, and request permission for the above referenced Parent and
its subsidiaries, which comprise the Parent's consolidated filing group, and includes the following subsidiary
companies; XXX (XXX), XXX, (XXX), XXX, (XXX), XXX, (XXX), XXX, (XXX), to discontinue filing consolidated returns
for Florida corporate income tax purposes. In addition, you also request that the Department's Technical Assistance
Advisement confirm that XXX ("S"), be permitted to file a separate Florida corporate income tax return for tax year
2004. 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 section 213.22, Florida Statutes.
FACTS SUPPLIED BY REQUESTOR
Parent and subsidiaries listed above formerly comprised the parent's consolidated filing group for both federal and
Florida purposes. Florida Department of Revenue records indicate that the Parent's consolidated filing group filed
consolidated Florida Corporate Income Tax Returns (F-1120's) for all prior years through tax year XX. On XX, both
parent and subsidiaries were acquired by New Parent. The mechanism for the acquisition was the transfer of 100% of
the parent's common stock to New Parent, in a transaction qualifying under I.R.C. Section 351. This transfer was
conducted by a XXX company, which files no U.S. federal return, and owns both Parent and New Parent. The Parent
states that the acquisition caused the breakup of its consolidated filing group due to the change in ownership and

circumstance. In addition, New Parent, has never had nexus or conducted business in Florida, and along with its
newly acquired subsidiaries, could not file a consolidated Florida Corporate Income Tax Return (F-1120). Following
the acquisition, Parent and its subsidiaries continued to exist in XX, and for that year filed their federal income tax
returns as part of the New Parent consolidated group. For the XX Florida corporate filing requirement, only "S" had
Florida nexus, and for that year filed a separate Florida corporate income tax return prior to seeking permission to
deconsolidate. Furthermore, Parent has stated in a separate faxed letter dated XX, that upon termination of its federal
affiliated group on XX, there were no realized, but unrecognized deferred gains between members of the group.
Parent indicates that by late XX, the parent no longer had nexus, and it did not know the proper way to file the Florida
return under the new ownership circumstances. In addition, Parent indicates that the XXX business entity
configuration was only for one year. Effective XX, the XXX parent reorganized its direct and indirect wholly owned
U.S. entities. This reorganization begins with a new holding company, named New Group, which is a XXX corporation.
This is the new parent of an affiliated group of corporations that is comprised of the former businesses operated as
the Parent and its consolidated subsidiaries and affiliates. New Group is a Florida taxpayer for 2005, and future years,
and has made its 1st, 2nd, and 3rd 2005 Florida estimated tax payments. New Group states that it will determine
whether to elect to file a Florida consolidated corporate income tax return, by the extended due date of its 2005 F1120.
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... 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 the Parent's consolidated filing
   group permission to stop filing consolidated Florida corporate income tax returns?
   DISCUSSION AND ANALYSIS
   This request for deconsolidated corporate filing relies on Rule 12C-1.0131(3)(b) 2.a., F.A.C., which permits the
   Executive Director to consider "changes in law or circumstances, including changes which do not affect income tax

liability." Parent cites a change in circumstance occurring on 12/31/03, when it and its subsidiaries were acquired by
New Parent. The mechanism for the acquisition was the transfer of 100% of the parents' common stock to New
Parent, in a transaction qualifying under I.R.C. Section 351. This transfer was conducted by a XXX company, which
files no U.S. federal corporate income tax return, and owns both the Parent and New Parent. Taxpayer states that the
acquisition caused the breakup of the parent's consolidated filing group due to the change in ownership. In addition,
New Parent, has never had nexus or conducted business activity in Florida, and along with its newly acquired
subsidiaries, could not file a consolidated Florida Corporate Income Tax Return (F-1120). Following the acquisition,
Parent and its subsidiaries continued to exist in 2004, and for that year filed their federal income tax returns as part of
the New Parent consolidated group. For the XX Florida corporate filing requirement, only "S" had Florida nexus, and
for that year filed a separate Florida corporate income tax return. Furthermore, Taxpayer has stated that the XXX
business entity configuration was only for one year, and on XX the XXX parent reorganized its direct and indirect
wholly owned U.S. entities. This reorganization begins with a new holding company, named New Group, which is a
XXX corporation. It is the new parent of an affiliated group of corporations that is comprised of the former businesses
operated as the Parent and its consolidated subsidiaries.
Based on the facts and circumstances, and pursuant to subsection 220.131(3), F.S., we have determined that the
Parent has met the requirements necessary for the granting of deconsolidated filing of its Florida corporate income tax
return. In addition, the Parent has provided written confirmation stating there were no realized, but unrecognized
deferred gains between members of the Parent's consolidated group on XX. Therefore, subject to the following four
conditions, the Department grants permission to the Parent and Subsidiary consolidated filing group to discontinue
filing a consolidated Florida Corporate Income Tax return beginning with the period ending XX:

1. That the deconsolidation is effective for the income tax returns beginning with the period ending XX;
2. That the Parent and Subsidiary Consolidated Filing Group has no intercompany items realized, but not recognized,
   nor any deferred income or expenses that would normally be reported on a consolidated basis, but would not be
   included in separately filed corporate income tax returns.
3. That the Parent and Subsidiary Consolidated Filing Group does not become part of a consolidated Florida
   corporate income tax return prior to the tax year ending in XX.
4. That any deferred gains which are realized for Federal tax purposes, but which have not yet been recognized, are
   required to have been reported in total, on the income tax returns filed by the taxpayers, for the period ending XX.
   CONCLUSION
   The Parent and Subsidiary Consolidated Filing Group have met the requirements for granting permission to
   discontinue the Florida Corporate Income Tax consolidated filing election. Accordingly, Parent and Subsidiary's
   request for permission to file separate Florida Corporate Income Tax returns for the tax year ended XX, is granted,
   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: 20396