Could an acquired taxpayer stop filing Florida consolidated returns when its old affiliated group ceased to exist?

Plain-English summary

The Florida Department of Revenue recognized that an unrelated parent's acquisition terminated the taxpayer's former affiliated group by operation of law.

After the acquisition, the taxpayer and its subsidiaries joined the new parent's affiliated group. They could not continue filing a Florida consolidated return as a subgroup and became bound by the new parent's separate-return election for entities with Florida nexus.

The Department allowed separate filing even though the request missed the rule's usual advance deadline, because the old consolidated election had already been nullified by operation of law. Deferred gains, intercompany items, and other deferred income or expenses had to be recognized as directed in the ruling.

What this means for you

Acquired corporate groups

Analyze whether the old federal affiliated group remains in existence after closing. Florida follows the cited federal consolidated-group concepts for this issue.

Corporate tax teams

Do not assume a former subgroup may keep its own Florida consolidated election after joining a new parent's group. Address deferred and intercompany items in the final or short-period returns.

Common questions

Q: Was ordinary discretionary permission the only basis for stopping?
A: No. The Department found the old group ceased to exist by operation of law.

Q: Could the acquired companies file as their own subgroup?
A: No.

Q: Did deconsolidation erase deferred items?
A: No. The ruling required specified deferred gains and intercompany items to be recognized.

Citations and references

• Fla. Stat. §§ 220.02(3), 220.131, and 213.22
• Fla. Admin. Code r. 12C-1.0131
• Treas. Reg. §§ 1.1502-75(d) and 1.1502-76(b)(5)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C1-006

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTIONS: 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 CEASED TO EXIST BY
OPERATION OF LAW AND THEREFORE WAS GRANTED PERMISSION TO CEASE
FILING FLORIDA CONSOLIDATED TAX RETURNS.
July 3, 2017
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement 17C1-006
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section: 220.131, F.S.
Rule: 12C-1.0131, F.A.C.
XXXXX (FEIN: XXXXX) (hereinafter “taxpayer”)
XXXXX (FEIN: XXXXX) (hereinafter “parent corporation”)

Dear XXXXX:
This is in response to your request dated XXXXX, 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 2016 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
On XXXXX, the taxpayer and its affiliates were 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 XXXXX
through XXXXX, period, that will include the taxpayer and its subsidiaries. The taxpayer filed
federal and Florida corporate income tax returns for the short period ended XXXXX. The parent
corporation is incorporated in XXXXX and does not have Florida nexus.
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
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
The taxpayer is requesting permission to deconsolidate its return for Florida corporate income
tax filing purposes.
LEGAL AUTHORITY
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. (Emphasis Supplied)

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:

Technical Assistance Advisement
Page 3
(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.
(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;

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.
   (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 paragraph (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)

Technical Assistance Advisement
Page 5
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.
ISSUE 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?
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 the 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

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 6
Effective XXXXX, 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 XXXXX, 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 filed a consolidated federal income tax return and a
consolidated Florida corporate income tax return for the short tax year ending XXXXX.
Through that date, the taxpayer was the parent of its own affiliated group that consisted of the
taxpayer and the taxpayer’s subsidiaries. On XXXXX, the taxpayer and the taxpayer’s
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) were not eligible to file Florida consolidated corporate income tax returns for
tax years ending XXXXX, and later tax years.
CONCLUSION
The taxpayer and its subsidiaries filed a corporate income tax return in Florida for the tax year
ending XXXXX. The taxpayer filed a separate Florida corporate income tax return for the tax
year ending XXXXX. The Department recognizes that the taxpayer’s affiliated group ceased to
exist on XXXXX, and that the taxpayer and its subsidiaries could no longer file consolidated
corporate income tax returns as an affiliated group for tax years beginning on or after XXXXX.
Any deferred gains which are realized for Federal tax purposes, but which have not yet been
recognized, were required to be reported in total, on the income tax return filed by the taxpayer,
for the period ending XXXXX. 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 XXXXX.
Rule 12C-1.0131(3)(b)1., F.A.C., requires taxpayers to submit requests to deconsolidate “not
later than the 90th day before the due date for the filing of the consolidated return, including
extensions of time.” Although the taxpayer did not submit its request for permission to
deconsolidate its XXXXX, Florida corporate income tax return within the time the rule allows,
the operation of law nullified its consolidated filing election for that short tax year, such that the
taxpayer and its affiliates were ineligible to file on a consolidated basis, and were ineligible to
make a new consolidated filing election. Under those conditions, and provided the requirements
addressed in the previous paragraph are met, the taxpayer’s request to file its Florida tax return
on a separate basis for the short year ended XXXXX, and all subsequent tax years, is granted.

Technical Assistance Advisement
Page 7
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
cc: XXXXX
XXXXX
XXXXX
XXXXX
Record ID: 213288