Could a corporate group stop filing consolidated Florida returns after major divestitures, acquisitions, growth, and a changed business focus?

Plain-English summary

The Florida Department of Revenue allowed a corporate group to stop filing consolidated Florida corporate income-tax returns after acquisitions, divestitures, a substantial change in business focus, and operational growth.

Those changes established good cause. However, the group missed the rule's deadline of 90 days before the applicable return due date, including extensions, so deconsolidation became effective in a later tax year rather than the first year requested.

Permission carried four conditions addressing the effective year, realized-but-unrecognized income or expense items, a waiting period before joining another Florida consolidated return, and recognition of deferred gains.

What this means for you

Consolidated corporate groups

Material operational changes can support deconsolidation, but timing the request is essential.

Corporate tax teams

File before the 90-day deadline and inventory deferred or intercompany items before requesting separate filing.

Common questions

Q: Did the business changes establish good cause?
A: Yes.

Q: Did permission apply to the first year requested?
A: No, because the request was late for that year.

Q: Was deconsolidation unconditional?
A: No. Four stated conditions applied.

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 14C1-012

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: MAY THE TAXPAYER BE GRANTED PERMISSION TO CEASE FILING
FLORIDA CONSOLIDATED TAX RETURNS BASED UPON CHANGES IN BUSINESS
CIRCUMSTANCES?
ANSWER: THE TAXPAYER’S AFFILIATED GROUP WAS GRANTED PERMISSION TO
CEASE FILING FLORIDA CONSOLIDATED TAX RETURNS.
October 14, 2014
Re:

Technical Assistance Advisement 14C1-012
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXXX (hereinafter “the taxpayer”)

Dear XXXX:
This is in response to your request dated XXXX, 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 the taxpayer’s request to discontinue filing consolidated
Florida corporate income tax returns for the XXXX 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.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is headquartered in XXXX. 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 at
least XXXX. On XXXX, the taxpayer purchased all of the outstanding stock of a XXXX
company in a taxable transaction. Prior to its purchase by the taxpayer, the acquired corporation
and its subsidiary were not required to file income tax returns in Florida.
On XXXX, the taxpayer purchased all of the outstanding stock of a XXXX corporation in a s.
338(h)(10), I.R.C., election. Prior to its purchase by the taxpayer, the acquired corporation was
not required to file a Florida corporate income tax return.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes,Interim Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2

Additionally, on XXXX, the taxpayer sold all outstanding stock of XXXX subsidiaries it owned
at the beginning of XXXX, to an unrelated entity in a s. 338(h)(10), I.R.C., election. The result
of the sale of these corporations along with the acquisition of the XXXX corporations purchased
earlier in XXXX was to change a substantial portion of the taxpayer’s business from XXXX to
XXXX. In addition, its consolidated apportionment factor for Florida dropped to less than a
third of what it was when the consolidated election was made.
The taxpayer is building a XXXX in Florida and will continue to have nexus for Florida
corporate income tax purposes. None of the taxpayer’s subsidiaries have nexus in Florida and
therefore, on a separate stand-alone basis, would not be required to file Florida corporate income
tax returns. However, on a consolidated basis, the income and apportionment factors of the
subsidiaries are included in the Florida corporate income tax return. As a result, the taxpayer is
requesting permission to deconsolidate and file separate corporate income tax returns in Florida.
The Taxpayer also provided information asserting substantial growth in the affiliated group from
the time of its election to consolidate to the XXXX tax year.
Item
Gross Receipts
Total Assets
Total Property
Total Payroll

of Companies

Increase Percentage
XX%
XX%
XX%
XX%
XX%
ISSUE

Has sufficient reasonable cause been established for the Executive Director to grant the Taxpayer
permission to stop filing consolidated Florida corporate income tax returns as of the tax year
ending XXXX?
LAW
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:

Technical Assistance Advisement
Page 3

(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.

(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, 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:
(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;

Technical Assistance Advisement
Page 4

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.
   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 The 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.” 2
   The taxpayer and its affiliated group filed a consolidated federal income tax return and a
   consolidated Florida corporate income tax return for the tax year ending XXXX. Through
   XXXX, when the taxpayer sold all of the outstanding stock of XXXX subsidiaries, and following
   the acquisition of XXXX corporations acquired during XXXX, the taxpayer and the majority of
   its subsidiaries had nexus in Florida. However, following the divestiture of its original
   subsidiaries, only the taxpayer had nexus in Florida.
   The taxpayer asserts that the business focus of the affiliated group has changed significantly
   since XXXX, the year for which the taxpayer made its consolidated filing election. In addition,
   the numbers provided by the taxpayer show that its business has grown since the time of making
   its election to file consolidated corporate income tax returns in Florida.
   The taxpayer group’s overall change in business focus, along with its change in business and
   growth in operations, taken together, are a sufficient basis for granting the taxpayer’s request for
   deconsolidation.
   As was noted in the taxpayer’s request to deconsolidate its tax return, Rule 12C-1.0131(3)(b)1.,
   F.A.C., requires that the request to cease filing consolidated Florida corporate income tax returns
   be filed no later than the 90th day before the due date, or extended due date if an extension was
   filed, for filing of the consolidated return. As the taxpayer’s request to deconsolidate is dated
   and postmarked XXXX, this requirement is not satisfied for the XXXX tax return, for which the
   extended due date is XXXX. Therefore, the request for deconsolidation will be granted for the
   taxpayer’s tax year beginning XXXX.
   1

See s. 220.131(3), F.S.
The taxpayer estimates that its Florida corporate income tax liability for the XXXX tax year on a separate return
basis will be approximately $XXXX less than it would have been on a consolidated basis, as its separate return
would reflect a net operating loss of approximately $XXXX.

2

Technical Assistance Advisement
Page 5

CONCLUSION
Based on the following four conditions, the Department grants permission to the taxpayer and its
affiliated group to discontinue filing Florida consolidated corporate income tax returns provided
that:

1. The deconsolidation is effective for the year beginning XXXX.
2. The taxpayer’s group has no realized but unrecognized income or expense items that
   may be recognized at a later date.
3. The taxpayer group does not become part of a consolidated Florida corporate income
   tax return prior to the tax year ending XXXX.
4. 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 XXXX.
   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: 175623