Could an acquired Florida corporate group stop consolidated filing, and who kept deferred depreciation subtractions?

Plain-English summary

The Florida Department of Revenue recognized that the taxpayer's old affiliated group ceased to exist when an unrelated new parent acquired the taxpayer and its subsidiaries. After the short tax year ending at acquisition, the former subgroup could not continue filing its own Florida consolidated return and instead became bound by the new parent's separate-return election for Florida-nexus entities.

The ruling also allocated remaining Florida subtractions for bonus depreciation and excess section 179 expense. Each entity that originally purchased the asset kept the related subtraction. Because only the taxpayer was being merged out of existence, only its subtractions transferred to the surviving parent; each subsidiary retained the subtractions it created.

The Department also required the departing group to recognize specified deferred gains and intercompany or deferred items on the final return where they otherwise would escape the later separate returns.

What this means for you

Corporate tax departments

An acquisition can terminate the seller's affiliated group by operation of the federal consolidated-return rules followed by Florida. Determine the final short-period return and the buyer's Florida filing election before assuming the acquired subgroup can remain consolidated.

Depreciation and fixed-asset teams

Track bonus-depreciation and section 179 additions and subtractions by the entity that bought each asset. Deconsolidation does not automatically pool or transfer every remaining subtraction to the new parent.

Common questions

Q: Could the acquired subgroup continue its old Florida consolidated filing?
A: No. The old group ceased to exist, and the acquired entities became subject to the new parent's filing election.

Q: Who retained the remaining depreciation subtractions?
A: The original asset purchasers, except that the merged-out taxpayer's own subtractions transferred to the surviving parent.

Citations and references

• Fla. Stat. §§ 220.02(3), 220.13(1)(e)4., 220.131, and 213.22
• Fla. Admin. Code rr. 12C-1.013(14)(b) and 12C-1.0131
• Treas. Reg. §§ 1.1502-75(d)(1) and 1.1502-76(b)(5)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-011

Original ruling text

Executive
Director
Marshall Stranburg

QUESTIONS: MAY THE TAXPAYER BE GRANTED PERMISSION TO CEASE FILING
FLORIDA CONSOLIDATED TAX RETURNS BASED UPON CHANGES IN BUSINESS
CIRCUMSTANCES?
HOW WILL THE DECONSOLIDATION AFFECT SUBTRACTIONS OF BONUS
DEPRECIATION ADDED BACK IN PRIOR TAX YEARS?
ANSWER:
THE TAXPAYER’S AFFILIATED GROUP CEASED TO EXIST BY
OPERATION OF LAW AND THEREFORE WAS GRANTED PERMISSION TO CEASE
FILING FLORIDA CONSOLIDATED TAX RETURNS.
THE ENTITIES THAT ORIGINALLY PURCHASED THE PROPERTY FOR WHICH
BONUS DEPRECIATION OR SECTION 179, I.R.C., EXPENSES WERE PREVIOUSLY
ADDED BACK MAY CONTINUE WITH THE SUBTRACTIONS PROVIDED FOR IN
PARAGRAPH 220.13(1)(E), F.S.
September 4, 2014
Re:

Technical Assistance Advisement 14C1-011
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXXXXX (hereinafter “taxpayer”)
XXXXXX (hereinafter “parent corporation”)

Dear XXXXXX:
This is in response to your request dated XXXXXX, for a Technical Assistance Advisement
(TAA) pursuant to section 213.22, Florida Statutes (F.S.), and Rule Chapter 12-11, Florida
Administrative Code (F.A.C.), regarding Taxpayer’s request to discontinue filing consolidated
Florida corporate income tax returns for the 2013 tax year. An examination of your letter has
established that you have complied with the statutory and regulatory requirements for issuance of
a TAA. Therefore, the Florida Department of Revenue (hereinafter “the Department”) is hereby
granting your request for a TAA.
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

FACTS SUPPLIED BY TAXPAYER
On XXXXXX, the taxpayer was acquired by a new parent corporation. Prior to the acquisition,
the taxpayer and the new parent corporation were completely unrelated entities. The new parent
corporation will file a federal consolidated income tax return for the XXXXXX through
XXXXXX, period, that will include the taxpayer and its subsidiaries. The taxpayer will file
federal and Florida corporate income tax returns for the short period ended XXXXX. The parent
corporation is a newly formed holding company incorporated in XXXXXX and domiciled in
XXXXXX. The parent corporation does not have Florida nexus.
The taxpayer is requesting permission to deconsolidate its return for Florida corporate income
tax filing purposes.
LEGAL AUTHORITY
Subparagraph 220.13(1)(e)4., F.S., states:
Subtractions available under this paragraph may be transferred to the surviving or
acquiring entity following a merger or acquisition and used in the same manner and
with the same limitations as specified by this paragraph.
Section 220.131, F.S., lists the conditions to be met for an affiliated group of corporations to file
a consolidated Florida corporate income tax return. Section 220.131, F.S., also lists the
conditions to be met for an affiliated group of corporations to stop filing a consolidated corporate
income tax return. Specifically, s. 220.131, F.S., states, in pertinent part:
(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.

Technical Assistance Advisement
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. (Emphasis Supplied)

Rule 12C-1.013(14)(b), F.A.C., states:
(b) Subtractions allowed for special 50 percent bonus depreciation and s. 179, I.R.C.,
expense previously added back:

1. In each of the seven tax years commencing with the year the addition is made under
   Section 220.13(1)(e), F.S., taxpayers may subtract one-seventh of the amount of excess
   s. 179, I.R.C., expense and one-seventh of the special 50 percent bonus depreciation
   that is added back under Section 220.13(1)(e), F.S.
2. The total amount that may be subtracted over the seven-year period should equal, but
   may not exceed, the amounts of s. 179, I.R.C., expense and special 50 percent bonus
   depreciation that have been added back to Florida taxable income under Section
   220.13(1)(e), F.S.
3. Subtractions may be transferred to the surviving company in a merger or acquisition.
   Otherwise, if a taxpayer ceases to do business during the seven-year period, it may not
   accelerate, transfer, or otherwise utilize a subtraction.
   Rule 12C-1.0131, F.A.C., provides further information on when an affiliated group of
   corporations may stop filing a consolidated corporate income tax return. Specifically, Rule 12C1.0131, F.A.C., provides, in pertinent part:
   (1) Unless otherwise distinctly expressed, the terms used in this section shall have the
   same meaning as when used in a comparable context in the federal income tax
   regulations for consolidated returns. The term “common parent” as used in the federal
   regulations shall have the same meaning for Florida corporate tax purposes, and all
   references to the “Commissioner” or “District Director” in the federal regulations shall
   be construed to mean “the Executive Director or the Executive Director’s designee” for
   purposes of these rules.

Technical Assistance Advisement
Page 4

(a)1. An affiliated group of corporations, as defined in these rules, which did not file a
Florida consolidated return for the immediately preceding taxable year, may file a
consolidated return in lieu of separate returns for the taxable year, provided the common
parent is subject to the Florida Income Tax Code and each corporation which has been a
member during any part of the taxable year for which the consolidated return is to be
filed consents, in the manner provided in paragraph (e) of this subsection, to be bound
by the provisions of these requirements and all applicable sections of the federal
consolidated returns regulations.

2. A subgroup of the affiliated group may not file a consolidated return.

(3)(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 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.

Technical Assistance Advisement
Page 5

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.
   (c) The Executive Director or the Executive Director’s designee may grant all groups
   or a particular class of groups permission to discontinue filing consolidated returns if
   any provision of the Florida Income Tax Code or the Internal Revenue Code or
   regulations has been amended and such amendment is of the type which could have a
   substantial adverse effect on the filing of consolidated returns by substantially all
   groups or all such groups, as the case may be, relative to the filing of separate returns.
   Ordinarily, the permission to discontinue shall apply to the taxable year which includes
   the effective date of such amendment.
   (d) If a group has permission under paragraphs (b) or (c) of this subsection to
   discontinue filing consolidated returns for any taxable year and such group wishes to
   exercise such election, then the common parent must file a separate return for such year
   on or before the last day prescribed by law including extensions of time for the filing of
   the consolidated return for such year.
   (e) A group shall be considered as remaining in existence, for the purposes of these
   rules, in accordance with the rules prescribed in s. 1.1502-75(d) of the Federal Income
   Tax Regulations.

(h) The taxable year of members of the group, including rules for changing to the
parent’s taxable year, income to be included in the consolidated return, income to be
included in and the time for making separate returns for periods not included in a
consolidated return for the purposes of these rules shall be in accordance with the rules
prescribed in the federal income tax regulations. (Emphasis Supplied)
Treasury Reg. s. 1.1502-75(d)(1), provides:
General rule. A group remains in existence for a tax year if the common parent remains
as the common parent and at least one subsidiary that was affiliated with it at the end of
the prior year remains affiliated with it at the beginning of the year, whether or not one
or more corporations have ceased to be subsidiaries at any time after the group was
formed. Thus, for example, assume that corporation P acquires the sole outstanding
share of stock of S on January 1, year 1, and that P and S file a consolidated return for
the year 1 calendar year. On May 1, year 2, P acquires the sole outstanding share of
stock of S1 and, on July 1, year 2, P sells the S share. The group (consisting originally
of P and S) remains in existence in year 2 because P remained the common parent and,
S, a subsidiary that was affiliated with P at the end of year 1, remained affiliated with P
at the beginning of year 2.

Technical Assistance Advisement
Page 6

ISSUES PRESENTED
Has sufficient reasonable cause been established for the Executive Director to grant the Taxpayer
permission to stop filing consolidated Florida corporate income tax returns?
How will the deconsolidation affect subtractions of bonus depreciation added back in prior tax
years?
DISCUSSION AND ANALYSIS
Florida law provides that once a taxpayer makes an election to file a corporate income tax return
on a consolidated basis, that taxpayer must continue to file on a consolidated basis in future
years. 1 However, s. 220.131(3), F.S., goes on to provide that such election shall remain in effect
“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)1., F.A.C., and Rule 12C-1.0131(3)(e), F.A.C., reflect this exception from
the requirement to continue filing on a consolidated basis. They provide that the Florida
consolidated filing requirement is eliminated if the taxpayer is no longer considered to remain in
existence under the rules described in s. 1.1502-75(d) of the Treasury Regulations.
Florida follows federal tax concepts in the interpretation and administration of its corporate
income tax. 2 Under Treasury Regulation s. 1.1502-75(d)(1), a consolidated group is deemed to
remain in existence only so long as the common parent and at least one subsidiary remain
affiliated with each other. Treasury Regulation s. 1.1502-76(b)(5), and the examples thereunder,
provide that the acquisition of a consolidated group by an unrelated entity filing on a separate
return basis causes the termination of that consolidated group. 3
Effective XXXXXX, the parent corporation acquired the taxpayer and the taxpayer’s
subsidiaries. Prior to this acquisition, the parent corporation and the taxpayer were unrelated and
the parent corporation did not meet the 80 percent voting control requirement of I.R.C. s.
1504(a)(2). Under s. 1.1502-75(d)(1) of the Treasury Regulations, the taxpayer’s affiliated
group (consisting of the taxpayer and the taxpayer’s subsidiaries) ceased to exist on XXXXXX,
and the taxpayer and its subsidiaries became part of the parent corporation’s affiliated group
(with the parent corporation as the common parent).
The taxpayer and its affiliated group will file a consolidated federal income tax return and a
consolidated Florida corporate income tax return for the short tax year ending XXXXXX.
Through that date, the taxpayer was the parent of its own affiliated group that consisted of the
taxpayer and the taxpayer’s subsidiaries. On XXXXXX, the taxpayer and the taxpayer’s
1

See s. 220.131(3), F.S.
See s. 220.02(3), F.S.
3
See Rev. Rul. 69-163, 1969-1 CB 217.
2

Technical Assistance Advisement
Page 7

subsidiaries were acquired and became part of the parent corporation’s affiliated group. The
taxpayer’s affiliated group ceased to exist, and the taxpayer was no longer the parent corporation
of an affiliated group. At that time, the taxpayer became bound by the filing election of the new
parent company, the parent corporation, whose election is to file separate income tax returns for
those entities within the parent corporation’s affiliated group that have nexus in Florida. As a
result, the taxpayer and the taxpayer’s subsidiaries (a subgroup of the parent corporation’s
affiliated group) are not eligible to file Florida consolidated corporate income tax returns for tax
years ending XXXXXX, and later tax years.
The next question deals with the bonus depreciation and excess Section 179, I.R.C., expenses
required to be added back and subtracted by the taxpayer and its affiliated group on the
consolidated tax returns covering periods prior to the acquisition and how the subtractions will
flow into separate Florida corporate income tax returns. Subparagraph 220.13(1)(e)4., F.S., Rule
12C-1.013(14)(b)3., F.A.C., and related Emergency Rules indicate that subtractions are
transferred to the surviving company in a merger or acquisition. Therefore, since only the
taxpayer is being merged out of existence, only the subtractions earned by the taxpayer are
transferred to the parent corporation. Subtractions earned by the taxpayer’s subsidiaries are not
transferred to the parent corporation and will remain with each subsidiary that created the initial
addition requirement (i.e. the entity within the group that initially purchased the asset upon
which bonus depreciation or excess Section 179, I.R.C., expenses were taken). As indicated in
the statute, rule, and emergency rules, if a taxpayer ceases doing business in Florida during the
seven-year subtraction period, it may not accelerate, transfer or otherwise use the subtraction.
However, it should be noted that the subtraction can create a Florida net operating loss.
CONCLUSION
The taxpayer and its subsidiaries will file a corporate income tax return in Florida for the tax
year ending XXXXXX. The Department recognizes that the taxpayer’s affiliated group ceased
to exist on XXXXXX, and that the taxpayer and its subsidiaries may no longer file consolidated
corporate income tax returns as an affiliated group for tax years beginning on or after XXXXXX.
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 return filed by the taxpayer, for
the period ending XXXXXX. In addition, if the taxpayer group has intercompany items
realized, but not recognized, or 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, the taxpayer must recognize the income for these items on the income tax return filed by
the taxpayer, for the period ending XXXXXX.
The entities that originally purchased the property for which bonus depreciation or Section 179,
I.R.C., expenses were previously added back may continue with the subtractions provided for in
paragraph 220.13(1)(e), F.S.

Technical Assistance Advisement
Page 8

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
Record ID: 175148