Could an affiliated group stop filing Florida consolidated returns after ending its former business and changing its business focus?

Plain-English summary

The Florida Department of Revenue found good cause to let this affiliated group discontinue consolidated Florida corporate-income-tax filing because its business circumstances had changed substantially.

The group had filed consolidated federal and Florida returns since 2007 while operating a healthcare business. It ended that business in 2015, while two Florida-nexus subsidiaries continued in different lines of business. The Department accepted that change in business focus as a sufficient reason for separate filing.

The effective date was not the 2016 year requested. The application missed Rule 12C-1.0131's deadline of 90 days before the return's due date, so permission became effective for the tax year beginning January 1, 2018, subject to the ruling's conditions for deferred gains and unrecognized items.

What this means for you

Affiliated corporate groups

A substantial change in business can support a request to revoke a Florida consolidated election, even when the change does not itself affect income-tax liability.

Corporate tax teams

Calendar the advance application deadline. A meritorious request can still receive a later effective date if it is not filed at least 90 days before the consolidated return is due, including extensions.

Accountants and tax professionals

Plan for deferred gains and realized but unrecognized items when leaving consolidation. Permission was conditional, not an automatic release from prior consolidated-return consequences.

Common questions

Q: Did the Department find good cause?
A: Yes. The group's exit from healthcare and new business focus were sufficient.

Q: Could separate returns begin for 2016?
A: No. The missed deadline delayed the effective date to the year beginning January 1, 2018.

Q: Did deconsolidation erase deferred gains?
A: No. The ruling required specified deferred gains to be reported.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C-002

Original ruling text

Executive
Director
Leon M. Biegalski
X
QUESTION:
HAS SUFFICIENT REASONABLE CAUSE BEEN ESTABLISHED FOR THE
EXECUTIVE DIRECTOR TO GRANT TAXPAYER PERMISSION TO STOP FILING
XXXX
CONSOLIDATED
FLORIDA CORPORATE INCOME TAX RETURNS AS OF THE TAX YEAR
ENDING DECEMBER 31, 2016?

ANSWER: YES. TAXPAYER AND THE MEMBERS OF ITS AFFILIATED GROUP ARE NO
LONGER ENGAGED IN THE BUSINESS THAT THEY WERE IN DURING THE TIME THE GROUP
FILED A CONSOLIDATED FLORIDA CORPORATE INCOME TAX RETURN. THE TAXPAYER
AND ONE SUBSIDIARY CONTINUE TO DO A DIFFERENT KIND OF BUSINESS AND WILL
CONTINUE TO FILE SEPARATE FLORIDA CORPORATE INCOME TAX RETURNS.
February 9, 2017
Re: Technical Assistance Advisement 17C-002
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3) F.A.C.
XXXX (hereinafter “Taxpayer”)
FEIN: XXXX
Dear XXXX:
This is in response to your request dated February 3, 2016, 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
Taxpayer is headquartered in Israel. 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 2007. Taxpayer began in the
healthcare business. Taxpayer discontinued its healthcare business in 2015. Two of the Taxpayer’s
subsidiaries continue to do business in Florida. Neither of the subsidiaries is involved in the healthcare
business.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Page 2
February 10, 2017

ISSUE
Has sufficient reasonable cause been established for the Executive Director to grant Taxpayer permission
to stop filing consolidated Florida corporate income tax returns as of the tax year ending December 31,
2016?
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:
(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.

Page 3
February 10, 2017

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 12C-1.0131, 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 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 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.

Page 4
February 10, 2017

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. 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.”
Taxpayer and its affiliated group filed a consolidated federal income tax return and a consolidated Florida
corporate income tax return for the tax years ending 2007 through 2015, when Taxpayer discontinued its
healthcare business, and the majority of its subsidiaries then had nexus in Florida. However, following the
conclusion of its former business venture conducted in Florida, two of its subsidiaries continued to have
nexus with Florida but were no longer involved with Taxpayer’s former healthcare business.
Taxpayer asserts that the business focus of the affiliated group has changed significantly since 2007, the
year in which Taxpayer made its consolidated filing election. Taxpayer group’s overall change in
business focus is a sufficient basis for granting Taxpayer’s request for deconsolidation.
As was noted in 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 Taxpayer’s request to deconsolidate is dated and postmarked February 3, 2016,
this requirement is not satisfied for the 2016 tax return, for which the extended due date is October 2017.
Therefore, the request for deconsolidation will be granted for Taxpayer’s tax year beginning January 1,
2018.
CONCLUSION

Based on the following four conditions, the Department grants permission to 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 January 1, 2018.
2. Taxpayer’s group has no realized but unrecognized income or expense items that may be
   recognized at later date.
3. Taxpayer group does not become part of a consolidated Florida corporate income tax return
   prior to the tax year ending December 31, 2016.
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 Taxpayer for tax year
   ending December 31, 2016.

Page 5
February 10, 2017

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.
Yours truly,
Charles Catanzaro
Tax Conferee
Technical Assistance and Dispute Resolution
(850) 717-7602
[email protected]
Control number: 209611