Could a Florida corporate group end consolidated filing after its businesses, revenue mix, and membership changed?

Plain-English summary

The Florida Department of Revenue gave another parent corporation and its subsidiaries permission to discontinue Florida consolidated corporate income tax filing.

Since the original election, most original group members had left, the group had acquired and divested numerous businesses, its revenue mix had shifted toward a growing service line, and its facilities and workforce had declined. The Department treated the overall change in business focus and substantial service growth as good cause under Rule 12C-1.0131(3)(b).

The approval imposed four conditions: a specified effective year, no realized but unrecognized income or expense items, no participation in a Florida consolidated return before a stated later year, and full reporting of federally realized but deferred gains for the deconsolidation year.

What this means for you

Corporate groups with old filing elections

Compare the present group with the business and members that existed when the election was made. Changes in operations, revenue sources, acquisitions, divestitures, facilities, and group membership can be relevant.

Tax compliance teams

Separate-return permission is prospective and conditional. Build the effective date and deferred-item requirements into return preparation.

Common questions

Q: Did the Department permit deconsolidation?
A: Yes, based on the group's changed business focus and circumstances.

Q: Could the group immediately join another Florida consolidated return?
A: No. One approval condition barred reentry until the specified later tax year.

Citations and references

• Fla. Stat. §§ 220.131(1) and (3), and 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-010

Original ruling text

Executive Director
Marshall Stranburg

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 ADDRESS CHANGES IN BUSINESS CIRCUMSTANCES.
August 11, 2014
Re:

Technical Assistance Advisement 14C1-010
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXXXX and Subsidiaries (“Taxpayer”) FEIN: XXXXX

Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement
(“TAA”) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding permission to
discontinue filing consolidated 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
The taxpayer is headquartered in XXXXX. The taxpayer files as part of a consolidated group for
both federal and Florida purposes, and has been filing as part of a consolidated group since
XXXXX. The taxpayer began as a XXXXX and has expanded its business to include XXXXX
services and analytics for XXXXX, XXXXX design and other XXXXX related services,
XXXXX and other XXXXX, XXXXX and XXXXX services, electronic XXXXX, XXXXX and
XXXXX, XXXXX services, and other services.
Of the XXXXX companies included in the consolidated group when the consolidated filing
election was made, XXXXX were liquidated and XXXXX. The taxpayer purchased over
XXXXX service businesses from XXXXX to XXXXX, and has divested itself of at least
XXXXX of those. While the taxpayer’s revenues from XXXXX and XXXXX have decreased
over the last XXXXX years, its revenues from XXXXX services have steadily increased (more
than XXXXX percent), now representing more than XXXXX percent of the taxpayer’s total
revenues for XXXXX. Taxpayer facilities have decreased from XXXXX to XXXXX. It has
also reduced the number of employees from XXXXX in XXXXX to less than XXXXX in
XXXXX.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2
ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to
permit it to stop filing consolidated Florida corporate income tax returns?
LAW
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 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(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., provides:
(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.

Technical Assistance Advisement
Page 3

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 has a substantial
   adverse effect on the consolidated tax liability of the 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.
   ANALYSIS
   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 which do not affect income tax
   liability.” 1 Taxpayer contends that the business focus of the affiliated group has changed
   significantly since XXXXX, the year for which the taxpayer made its consolidated filing
   election.
   The information provided by the taxpayer shows growth in the consolidated group since
   XXXXX, and that only XXXXX of the corporations included in the initial consolidated return
   remains in the current consolidated group. While its XXXXX services revenues have decreased
   by more than XXXXX percent from XXXXX through XXXXX, and its XXXXX XXXXX
   revenues have decreased by approximately XXXXX percent from its XXXXX revenues from
   that business segment, its XXXXX services revenues have grown steadily by more than XXXXX
   percent and, in XXXXX, represented XXXXX percent of the taxpayer’s total revenues.
   The taxpayer’s overall change in business focus, along with its substantial growth in its XXXXX
   services, taken together, are a sufficient basis for granting the taxpayer’s request for
   deconsolidation.

1

Taxpayer estimates that based on XXXXX tax return data, its Florida corporate income tax liability on a
consolidated basis of XXXXXwould have decreased to XXXXXon a separate return basis.

Technical Assistance Advisement
Page 4
CONCLUSION
Based on the following four conditions, the Department grants permission to the taxpayer to
discontinue filing consolidated corporate income tax returns beginning with tax year ended
XXXXX:

1. That the deconsolidation is effective for the year ending on XXXXX.
2. That the taxpayer has no realized but unrecognized income or expense items that may
   be recognized at a later date.
3. That the taxpayer group does not become part of a consolidated Florida corporate
   income tax return prior to the tax year ending XXXXX.
4. That any deferred gains which are realized for Federal tax purposes, but which have
   not yet been recognized, must be reported in total, on the income tax return filed by the
   taxpayers for tax year ending XXXXX.
   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 the
   specific situation summarized above. You are advised that subsequent statutory or administrative
   rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based,
   may subject similar 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,

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794

SCP/
Control No.: 171533