Could a Florida consolidated group stop filing after an unrelated acquisition placed it under a new parent that did not file Florida consolidated returns?

Plain-English summary

A corporation that filed federal and Florida consolidated returns was acquired by an unrelated company. The buyer merged one of its subsidiaries into the taxpayer, paid cash for the taxpayer's stock, and became the taxpayer's new parent. The transaction was not a reverse acquisition.

The acquisition ended the taxpayer's former affiliated group. The taxpayer and its subsidiaries became members of the buyer's federal affiliated group, whose parent was not subject to the Florida Income Tax Code and did not file Florida returns. Because section 220.131 requires a Florida-taxable parent for an initial consolidated election, the new parent could not elect a Florida consolidated return.

Florida granted permission for the acquired taxpayer to stop consolidated filing. The Department treated the complete ownership and group-membership change as good cause under the rule's "changes in law or circumstances" standard.

The approval imposed three published conditions:

1. Deconsolidation began with the redacted tax year stated in the TAA.
2. The taxpayer represented that it had no realized but unrecognized income or expense items that could later benefit a former group member.
3. The taxpayer group could not become part of another Florida consolidated return until the redacted future year specified.

What this means for you

An acquisition can end the group that made the election

This was more than a parent-name change. The original affiliated group disappeared and its members joined an unrelated buyer's group.

The new parent's Florida status matters

The buyer was not subject to Florida corporate income tax, so it was ineligible to make a Florida consolidated election for its new group.

Formal permission was still required

Even though the old group ceased to exist, the taxpayer requested and received the Department's consent to discontinue its prior consolidated filing pattern.

Florida can protect deferred items and future elections

The conditions prevented hidden unrecognized items from escaping the former group and barred an immediate switch back into another consolidated return.

Common questions

Q: Did Florida allow deconsolidation?
A: Yes, because an unrelated acquisition ended the old group and placed the taxpayer under a non-Florida-taxable parent.

Q: Could the new parent elect Florida consolidation?
A: No. It was not subject to the Florida Income Tax Code.

Q: Was the transaction a reverse acquisition?
A: No, according to the facts cited in the ruling.

Q: Were there conditions on the approval?
A: Yes—an effective date, a representation about unrecognized items, and a waiting period before future Florida consolidated filing.

Citations and references

• Fla. Stat. § 220.131(1)-(3) (consolidated election and continued filing)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12C-1.0131(3)(b) (permission and conditions to discontinue consolidated returns)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08C1-008

Original ruling text

Summary
QUESTION: May an affiliated group be granted permission to cease filing Florida consolidated
corporate income tax returns when it is purchased by another company and merged into an existing
affiliated group that has not elected to file Florida consolidated corporate income tax returns?
ANSWER: Yes. The parent company was granted permission to cease filing Florida
consolidated corporate income tax returns based on provisions of the F.A.C. that address changes
in business activities.
September 16, 2008
Re:

Technical Assistance Advisement 08C1-008
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as “Taxpayer”)
XXX (hereinafter referred to as “AA Company”)

Dear:
Your letter of XXX, 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 section 213.22, Florida Statutes.
FACTS
The Taxpayer files consolidated federal and Florida corporate income tax returns. On XXX, the
Taxpayer was acquired by AA Company, an unrelated company. 1 AA Company merged one of
its subsidiaries with and into the Taxpayer. The stock of the Taxpayer was converted into a right
to receive cash (in total, approximately XXX). After the merger, AA Company owned all of the
stock of the Taxpayer and the Taxpayer became a subsidiary of AA Company.
AA Company is now the parent of the Taxpayer. AA Company is not subject to the Florida
Income Tax Code and does not file corporate income tax returns in Florida. Pursuant to section
220.131, F.S., AA Company is not eligible to elect to file with its affiliates on a consolidated
basis in Florida. The Taxpayer’s affiliated group that existed prior to the merger no longer exists
for federal and Florida purposes, and the Taxpayer and its affiliated group have become part of
1 Based upon information contained in the SEC Form 8-K for the Taxpayer and one of the owners of AA Company,
it appears that the AA Company was unrelated to the Taxpayer prior to the acquisition. The transaction did not
qualify as a reverse acquisition. The Taxpayer’s affiliated group became a member of the AA Company affiliated
group.

Technical Assistance Advisement 08C1-008
Page 2
the AA 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 XXX, the date the Taxpayer was
acquired by AA Company.
ISSUE PRESENTED
Whether the Taxpayer should be granted permission to cease filing consolidated Florida
corporate income tax returns?
LEGAL AUTHORITY
Section 220.131(1), F.S., states:
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 this 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:

Technical Assistance Advisement 08C1-008
Page 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.

Technical Assistance Advisement 08C1-008
Page 4

DISCUSSION AND ANALYSIS
The Taxpayer seeks permission to deconsolidate, based upon the acquisition of the Taxpayer by
AA Company. Effective XXX, the Taxpayer became a member of AA Company affiliated
group, and that affiliated group does not file Florida consolidated corporate income tax returns.
Prior to the acquisition, the Taxpayer and AA Company did not share common ownership and
were completely unrelated to each other.
In this case, the Taxpayer’s original Florida affiliated group was acquired by AA Company,
which does not file a Florida consolidated return. There was a change in ownership. The
Taxpayer’s original affiliated group ceased to exist, and the Taxpayer is now bound by the filing
election made by its new parent company, AA Company.
CONCLUSION
Based on the following three conditions, the Department grants the Taxpayer permission to
discontinue filing consolidated corporate income tax returns:

1. That the deconsolidation is effective for the tax year beginning on XXX;
2. That Taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date that 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 until tax years ending on or after XXX.
   As a reminder, Technical Assistance Advisements are based on full disclosure of all relevant
   facts, and the lack of disclosure of a material fact by the Taxpayer may adversely affect the
   response provided in this Technical Assistance Advisement.
   This response constitutes a Technical Assistance Advisement under section 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 section 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

Technical Assistance Advisement 08C1-008
Page 5
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
Record ID: 47660