Could a Florida corporate parent stop filing consolidated income-tax returns after all subsidiaries merged into it or dissolved?

Plain-English summary

The taxpayer had filed consolidated Florida corporate income-tax returns with four wholly owned subsidiaries. Those subsidiaries later merged into the parent or dissolved, their assets transferred to the parent, and the business or financing purposes for the separate entities ended.

Florida found sufficient changed circumstances and granted permission to discontinue consolidated filing for the specified tax year. The parent had to ensure that it no longer qualified as a federal affiliated group under Internal Revenue Code section 1504.

If the parent later acquired subsidiaries and the IRS did not require a new federal consolidated-return election, Florida consolidated filing would again be required. If federal law required a new election, the taxpayer could make a new Florida election under section 220.131.

What this means for you

A Florida consolidated-return election does not simply disappear when a group restructures. The taxpayer obtained express permission based on the complete elimination of its affiliated group and remained subject to conditions if subsidiaries returned.

Common questions

Why did Florida permit discontinuance? All four subsidiaries had merged or dissolved, leaving the parent outside an affiliated group.

Was the permission unconditional? No. The parent had to cease qualifying as a federal affiliated group, and later acquisitions could change its filing duty.

What controlled a future election? Whether the IRS required a new federal consolidated-return election.

Citations and references

• Fla. Stat. § 220.131 and Fla. Admin. Code r. 12C-1.0131(3)(b), as quoted or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11C1-002R

Original ruling text

Executive Director
Lisa Vickers

TAX: Corporate Income Tax
TAA Number: 11C1-002R
ISSUE: Request for Authority to Discontinue Consolidated Filing
STATUTE CITES: SS. 220.131(1), and 220.131(3), F.S.
RULE CITES: Rules 12C-1.013(3)(b), F.A.C.
QUESTION: May a consolidated CIT filing group (parent/subsidiaries) be granted permission to cease filing Florida
consolidated tax returns after all subsidiaries are merged and dissolved and no longer exist.
ANSWER: 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. Parent is only remaining entity.

April 4, 2011
XXX
XXX
XXX
Re:

Technical Assistance Advisement (TAA) 11C1-002R
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b), F.A.C.
XXX. (FEIN: XXX) (hereinafter referred to as “Taxpayer”)
XXX.(herein referred as “Corporation One”)
XXX (herein referred to as “Corporation A, B and C”)

Dear XXX:
Your letter of XXX, states that the Taxpayer requests permission 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
Taxpayer is a rural XXX headquartered in Florida. This XXX only has XXX members. Taxpayer and its
affiliated group are engaged in the XXX, XXX and XXX of XXX and essentially related activities.
Taxpayer is a taxable XXX, as referenced under IRC Section XXX, and files a federal form 1120.
Taxpayer is the parent and 100% owner of the former affiliated group. Taxpayer is a calendar year filer,
and it has filed consolidated Florida corporate income tax returns since XXX.

Child Support Enforcement – Ann Coffin, Director z General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director z Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 11C1-002R
Page 2

The Taxpayer’s affiliated group (both federal and Florida) consisted of the Taxpayer and four (4) whollyowned subsidiaries. The first subsidiary, Corporation One, was a regular “C” corporation that had no
employees. It was formed for non-tax business and financing purposes and owned a piece of land in XXX
and XXX Counties. The entirety of this property was leased to an unrelated entity, a XXX, which in turn
constructed and continues to operate XXX on the site. Taxpayer purchases some of the XXX produced by
this XXX under a long-term agreement. In XXX, Taxpayer’s financing structure changed, and there was
no longer a need for the land to be held by a subsidiary. Therefore, on XXX, Corporation One was
merged into Taxpayer and ceased to exist. The ownership and leasehold interest in the land was also
transferred to Taxpayer, which now reports the lease income on its sales tax returns.
The other three subsidiaries, identified as Corporations A, B and C, were also special purpose entities that
had no employees and were formed solely to hold certain real property rights in connection with
Taxpayer’s XXX in XXX. These entities were required to exist and hold these rights under a leaseleaseback financing arrangement with respect to the XXX. This financing arrangement was terminated in
XXX, and the subsidiaries were dissolved on XXX.
As of XXX, the Taxpayer’s four subsidiaries had been merged or dissolved and were no longer in
existence. Taxpayer’s federal and state consolidated group ceased to exist, and the group filed its last
consolidated returns in tax year XXX. As a result, Taxpayer hereby requests permission to file a separate
Florida corporate income tax return for the tax year beginning XXX.
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:

Technical Assistance Advisement 11C1-002R
Page 3

(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 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 11C1-002R
Page 4

ISSUE PRESENTED
Has sufficient reasonable cause been established for the Executive Director to grant Taxpayer permission
to stop filing consolidated Florida corporate income tax returns?
DISCUSSION AND ANALYSIS
In its request for permission to discontinue filing a consolidated Florida corporate income tax return,
Taxpayer 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." Taxpayer
cites a change in circumstance occurring when its four subsidiaries ceased to exist, which eliminated its
federal and state consolidated filing group.
The business and financing purposes for which Taxpayer’s subsidiary entities were originally formed no
longer exist. All assets held by the subsidiaries were transferred to the Taxpayer when the entities merged
into Taxpayer or dissolved.
Taxpayer’s subsidiaries, which comprised its former consolidated group for both federal and Florida taxes,
have all been dissolved or merged. As a result, Taxpayer is not part of an affiliated group.
CONCLUSION
The Department grants the Taxpayer permission to discontinue filing consolidated Florida corporate
income tax returns for the tax year ending XXX. However, the Taxpayer must ensure:

1. The Taxpayer no longer qualifies as a federal affiliated group per I.R.C. s. 1504.
2. If the Taxpayer later obtains new subsidiaries and the I.R.S. does not require a new
   election, then the Taxpayer will be required to file a Florida consolidated return. If the
   I.R.S. requires a new election to file a federal consolidated return, the Taxpayer will be
   entitled to make a new Florida election as per s. 220.131, F.S.
   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.

Technical Assistance Advisement 11C1-002R
Page 5

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
Tax Law Specialist
Technical Assistance and Dispute Resolution

Record ID: 99507