Could a student-loan group end its Florida consolidated-return election after federal law eliminated its former primary business?

Plain-English summary

The Florida Department of Revenue allowed a student-loan corporation and its subsidiaries to stop filing consolidated Florida corporate-income-tax returns beginning with the year ended December 31, 2011.

Since the original election, the group had diversified, acquired businesses, discontinued lending lines, and then lost its former primary FFELP loan-origination business after a change in federal law. The resulting restructuring, Florida office closure, reduced Florida activity, and new business model were sufficient changes in law and circumstances.

Approval required no unrecognized intercompany or deferred items that would disappear on separate returns, barred the group from joining another Florida consolidated return before the year ending in 2016, and required specified federal deferred gains to be reported in full for the period ending December 31, 2011.

What this means for you

Corporate groups

Major regulatory and operating changes can support deconsolidation, but the request needs a factual record connecting those changes to the original filing circumstances.

Return preparers

Inventory deferred gains, intercompany items, income, and expenses before changing filing methods and track any waiting period imposed by the Department.

Common questions

Q: Did Florida approve separate filing?
A: Yes, beginning with the 2011 year.

Q: Could the group quickly return to consolidated filing?
A: No. The advisement imposed a bar through years before the year ending in 2016.

Citations and references

• Fla. Stat. §§ 220.131 and 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-003

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: May a parent/subsidiary consolidated filing group be granted permission to cease filing
Florida consolidated tax returns due to changes in federal law and business circumstance?
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 address changes in law and
business circumstances.
May 08, 2013

XXX
XXX
XXX

Re:

Technical Assistance Advisement 13C1-003
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”)

Dear XXX:
This is in response to your resubmitted request dated XXX, for a Technical Assistance Advisement (TAA)
pursuant to s. 213.22, F.S., and Rule 12-11, F.A.C., regarding permission to discontinue filing
consolidated Florida corporate income tax returns. An examination of your letter has established that you
have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the
Department is hereby granting your request for a TAA.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is a corporation headquartered in XXX. The Taxpayer and its subsidiaries file consolidated
federal and Florida corporate income tax returns, and have filed consolidated Florida returns since 2000 or
earlier. Taxpayer was incorporated in XXX to service student loans for two local banks, and it later
became an originator, holder, and servicer of federal student loans originated under the Federal Family
Education Loan Program (FFELP).

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Technical Assistance Advisement 13C1-003
Page 2

At the time of Taxpayer’s first consolidated filing election, the company was engaged almost exclusively
in originating, purchasing, and servicing federally-insured student loans. Taxpayer became a public
company in XXX. Subsequent to that initial public offering, Taxpayer significantly changed its business
operations by diversifying its product and service offerings, acquiring several independent companies, and
divesting itself of certain core components of its historical business areas (discontinued originating private
FFELP education consolidation loans).
New or significantly expanded operations since the XXX initial public offering include the following:
software outsourcing/internet-based software hosting services, tuition payment services, campus
commerce technology services, payment processing services, college marketing services, publishing test
preparation study guides, developing and operating student loan resource centers, direct marketing
services for colleges and universities, and publishing the XXX for middle/high school students.
The company states that its revenues from student loan/guaranty servicing have significantly decreased as
a percentage of it total revenues since it elected consolidated filing in Florida. In XXX, revenues from
those activities were $XXX and represented XXX of its total revenues. In XXX, those revenues reached
$XXX, but represented only XXX of Taxpayer’s total revenues. As of XXX, its student loan and
guaranty servicing revenues were $XXX, but represented only XXX of its total revenues.
Beginning in XXX, Taxpayer exited the business of originating private student loans and sold nearly its
entire private student/consolidation loan portfolio by the end of XXX. On March 30, 2010, The Health
Care and Education Reconciliation Act of 2010 (reconciliation act) was signed into law. Effective July 1,
2010, this law prohibits new student loan originations under FFELP and requires that all new federal
student loan originations be made through the Federal Direct Loan Program. As a result of the
reconciliation act, Taxpayer is now prohibited from originating new FFELP loans, since the act requires
all new federal student loans to be originated through the Federal Direct Loan Program. Taxpayer’s
revenue from this activity will continue to decline over time, as those program loan portfolios are paid
down.
Taxpayer has diversified and significantly expanded its Software and Information Technology Services,
and in XXX it earned $XXX from those products and services, which represents an increase of nearly
XXX. Since XXX Taxpayer has consistently expanded those services and made several significant
acquisitions. As its business activities shifted from student loans to Software and Information Tech
services, and its geographic footprint changed, Taxpayer’s tech operations were moved from XXX to
XXX and its data center in XXX, was moved to XXX.
Taxpayer’s tuition payment processing and campus commerce services, which did not exist at the time of
its consolidated election filing, were greatly expanded in both range and scope during XXX. The
Taxpayer acquired XXX companies to provide college campuses with those business activities. In
addition, in XXX, Taxpayer made acquisitions to increase Taxpayer’s relationships within certain
geographic regions, as well as developing new software solutions that provided, among other things, a
XXX on college campuses. During XXX, Taxpayer made additional acquisitions to further grow the
tuition payment processing and campus commerce business, including the XXX tuition payment market.

Technical Assistance Advisement 13C1-003
Page 3

As a result of its tuition payment and campus commerce services expansion, Taxpayer now employs XXX
associates that are dedicated to this area of its operations, which are all outside Florida. Since XXX,
Taxpayer’s tuition processing and campus commerce business has grown from $XXX and XXX of its
total revenues to $XXX in XXX, representing XXX of its total revenues.
Taxpayer has also expanded its enrollment services, which offer products and services that are focused on
helping colleges recruit and retain students through interactive and list marketing services. These
interactive services include record services, qualified inquiry generation, pay per click services, and other
serivces. The list marketing services include providing lists to help higher education institutions and
businesses reach the XXX, and young adult market places. Since XXX, Taxpayer has made a series of
acquisitions and has expanded and diversified its role in the enrollment services industry. Taxpayer’s
enrollment services business has grown from $XXX and XXX its total revenues to revenues of $XXX,
which represent XXX of its total revenues. The enrollment services business now has XXX associates
that operate primarily outside Florida.
Historically, Taxpayer operated an office in XXX that in XXX employed XXX of the company’s XXX
employees, comprised over $XXX of its total buildings and other depreciable property ($XXX), and
incurred over $XXX of Taxpayer’s $XXX in annual rent expense for facilities. As of XXX, due to the
federal prohibition against Taxpayer’s origination of FFELP loans, which was its XXX business activity,
the company has ceased operations at the XXX office, and it now has zero employees at that office.
Taxpayer still has a lease on the XXX data center through XXX, and a lease on the office space through
XXX. That property is, however, idle and the rent expense is for unused office space.
Since the closing of the XXX office, the Taxpayer’s consolidated apportionment fraction has gone from
XXX (XXX) to XXX (XXX) to an estimated XXX (XXX). Taxpayer cites the above changes in its
apportionment factors and fractions as part of the evidence that it has experienced significant changes in
circumstance brought on by a change in federal law (reconciliation act). As stated previously, Taxpayer is
now barred from originating new FFELP loans and is experiencing substantial decreases in its income
from servicing loans and interest income from its existing FFELP loan portfolio, as those loans are paid
off.
Taxpayer estimates that the tax effect of deconsolidation for the XXX and XXX tax years will be an
increase in Florida corporate income tax of approximately $XXX per year.
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

Technical Assistance Advisement 13C1-003
Page 4

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 323147443 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;

Technical Assistance Advisement 13C1-003
Page 5

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 Taxpayer permission
   to stop filing consolidated Florida corporate income tax returns?
   DISCUSSION AND ANALYSIS
   At the time of Taxpayer’s Florida consolidated filing election (2000 or earlier), it was engaged almost
   exclusively in originating, purchasing, and servicing federally-insured student loans. In addition, at the
   time of that election, the company was operating under a completely different set of facts and
   business/regulatory environment. Since then, the company has made significant business shifts and begun
   growing and diversifying its revenue streams. These investments and acquisitions expanded Taxpayer’s
   business into multiple service lines ranging from XXX.
   In 2008, Taxpayer discontinued originating private and consolidation student loans, and in 2010, it
   experienced, due to a change in federal law, the complete elimination of its former primary source of
   income, originating FFELP loans. The elimination of its primary historical business segment resulted in
   major restructuring of its operations, the closing of its Florida office, and a significant decrease in its
   Florida business activity. Furthermore, the subsequent changes to Taxpayer’s overall business model,
   and its entrance into and its significant growth in new business lines, indicate major changes in
   circumstances have occurred. In requesting permission to discontinue consolidated Florida filing,
   Taxpayer, relies on Rule 12C-1.0131(3)(b) 2.a., F.A.C., which permits the Executive Director to consider
   "[c]hanges in law or circumstances, including changes that do not affect income tax liability.”
   CONCLUSION
   Based on the foregoing discussion and analysis, Taxpayer has experienced changes in federal law and
   business circumstance, sufficient for the Department to grant its request to discontinue filing Florida
   consolidated corporate income tax returns. After deconsolidation, Taxpayer and its former consolidated
   group of companies will file separate Florida corporate income tax returns, beginning with the tax year

Technical Assistance Advisement 13C1-003
Page 6

ending December 31, 2011. Therefore, based on the following four conditions, the Department grants
permission to discontinue filing consolidated Florida corporate income tax returns.

1. That the deconsolidation is effective for tax years ending 12/31/2011;
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 2016.
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 Taxpayer, for the period ending December 31, 2011.
   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 predicated 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 documents are public records under
   Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S.
   Your name, address, and any other details, which might lead to identification of the taxpayer, must be
   deleted before disclosure. In an effort to protect the confidentiality of such information, we request you
   provide the undersigned with an edited copy of your request for Technical Assistance Advisement, backup
   material and response within fifteen days of the date of this advisement.
   Sincerely,

Charles J. Dunning, MBA
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 141385