Could a transformed corporate parent discontinue Florida consolidated filing because separate returns better reflected its changed business?

Plain-English summary

Since electing Florida consolidation, the parent had substantially changed its business lines, products, operations, revenues, and workforce. The Department found that separate Florida returns would better reflect its current business activities and operating structure.

Permission to discontinue consolidated filing began with the tax year ending December 31, 2010.

The approval required that intercompany, unrecognized, or deferred items not escape the separate returns; prohibited the group from joining another Florida consolidated return before the 2015 tax year; and required federally realized but unrecognized deferred gains to be reported in full for the period ending December 31, 2009.

What this means for you

A major business transformation can support deconsolidation, but the transition may accelerate deferred items and restrict a quick return to consolidated filing.

Common questions

When did separate filing begin? With the tax year ending December 31, 2010.

Could the group reenter consolidation immediately? No, not before the 2015 tax year.

How were specified deferred gains handled? They had to be reported in full for the 2009 period.

Citations and references

• Fla. Stat. § 220.131(1) and (3) and Fla. Admin. Code r. 12C-1.0131(3)(b), as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-001

Original ruling text

Executive Director
Lisa Vickers

TAX: Corporate Income Tax
TAA NUMBER : 12C1-001
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 parent company be granted permission to cease filing Florida consolidated
tax returns based upon changes in business circumstances.
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax
returns based on provisions of the F. A. C. which addresses changes in business circumstances.
January 09, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement 12C1-001
Request for Authority to Discontinue Consolidated Filing
Requestor: XXX., hereinafter referred to as “the taxpayer”
FEIN: XXX
Section 220.131, Florida Statutes (F.S.)
Rule 12C-1.0131(3) (b), Florida Administrative Code (F.A.C.)

Dear XXX:
Your letter of XXX, 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
The taxpayer is an XXX and was incorporated in XXX in XXX. From XXX through XXX, it
expanded its business through internal growth and through the acquisition of XXX. In XXX, the
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Technical Assistance Advisement 12C1-001
Page 2

taxpayer began to focus on products targeting the XXX and expanded its offerings to this market
throughout the XXX’s. At the time its consolidated filing election was made for the XXX, tax
year, the taxpayer’s business was divided into four segments consisting of the XXX, XXX, and
XXX segments, which represent XXX, as well as the XXX and XXX segment.
Also, at the time the consolidated filing election was made, the taxpayer had net revenues of
$XXX, and XXX employees. The taxpayer was filing XXX income tax returns for XXX entities
on a separate basis, of which XXX were Florida corporate income tax returns. The consolidated
filing election was made to increase compliance efficiency.
From XXX to the present, the taxpayer has continued to expand its operations through the
acquisition of additional XXX, and in XXX, it began to shift from offering XXX to focusing on
XXX. Additionally, in XXX, the taxpayer’s XXX offerings became substantial enough to be
reported as a separate business segment. The XXX, passed in XXX, further served to expand the
taxpayer’s product lines by allowing it to offer XXX. In XXX and XXX, the taxpayer added
XXX to its line of products.
From XXX, to the present, the taxpayer’s business segments have consisted of XXX – XXX,
XXX, XXX, XXX, and XXX, showing the transition from XXX prior to the time of the
taxpayer’s consolidated filing election into XXX. In XXX, the taxpayer sold its XXX to another
XXX, after which the taxpayer was no longer responsible for the XXX and XXX, enabling it to
offer only XXX.
Since the initiation of its Florida consolidated filing election, the taxpayer has undergone
significant changes in its business lines and in the size of its operations. These changes have
resulted in a significant difference in the size and business activities of the taxpayer.
Consequently, taxpayer believes filing Florida corporate income tax returns on a separate basis
would create a better reflection of the taxpayer’s business activities within the state along with
being more indicative of how its business lines are operated.
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

Technical Assistance Advisement 12C1-001
Page 3

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:
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:

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:

Technical Assistance Advisement 12C1-001
Page 4

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 taxpayer
and its subsidiaries 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, the 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 that do not affect
income tax liability." The taxpayer indicates that since 2000, when it first elected to file its
consolidated Florida corporate income tax return, it has experienced major changes in its
business circumstances, reflected in significant changes in its operations and in its business lines.
These changes have dramatically altered many key aspects of the company’s business, including
its product lines.
At the time the consolidated filing election was made, the taxpayer had net revenues of $XXX,
and XXX employees. The taxpayer was filing XXX income tax returns for XXX entities on a
separate basis, of which XXX were Florida corporate income tax returns.
As a result of the changes in its lines of business and its expanded operations the taxpayer’s
annual net revenues have grown from approximately $XXX in XXX, to $XXX in XXX. Its

Technical Assistance Advisement 12C1-001
Page 5

employment increased from XXX in XXX, to XXX in XXX. The taxpayer evolved from a
XXX, offering XXX, into a XXX.
Since the initiation of the taxpayer’s Florida consolidated filing election, it has undergone
significant changes in its business lines and environment, resulting in a significantly different
business organization from that which originally made the consolidated filing election. Filing
Florida corporate income tax returns on a separate basis should create a better reflection of the
taxpayer’s business activities within the state, and be more indicative of how the taxpayer
operates its lines of business. Therefore, based on the following four conditions, the Department
grants permission to discontinue filing consolidated Florida corporate income tax returns for the
taxable years ending on or after December 31, 2010.

1. That the deconsolidation is effective for the income tax returns for the taxable
   years ending on or after December 31, 2010.
2. That the taxpayer 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 taxpayer group does not become part of a consolidated Florida
   corporate income tax return prior to the tax year ending in 2015.
4. That any deferred gains which are realized for Federal tax purposes, but which
   have not yet been recognized, are required to be reported in total, on the income
   tax returns filed by the taxpayers, for the period ending December 31, 2009.
   CONCLUSION
   The taxpayer has met the requirements for granting permission to discontinue the Florida
   corporate income tax consolidated filing election. Accordingly, the taxpayer’s request for
   permission to file separate Florida corporate income tax returns for the taxable years beginning
   with the return for its tax year ending December 31, 2010, is granted subject to the provisions
   provided.
   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.

Technical Assistance Advisement 12C1-001
Page 6

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,

Suzanne C. Paul
Technical Assistance and
Dispute Resolution

SCP/tlf
Control No.:

110725