May a Florida consolidated corporate group stop filing consolidated returns after an unrelated parent acquires the group?

Plain-English summary

The Florida Department of Revenue found reasonable cause for an acquired corporate group to stop filing consolidated Florida income tax returns. An unrelated parent corporation acquired the taxpayer and its subsidiaries, ending the taxpayer's former affiliated group under the federal consolidated-return rules Florida uses for this analysis.

After the acquisition, the taxpayer and its subsidiaries became a subgroup of the new parent's affiliated group. The parent had elected to file separate Florida returns for group members with Florida nexus. Because a subgroup may not make its own Florida consolidated-return election, the acquired companies were no longer eligible to continue filing their old consolidated return.

The ruling authorized two redacted short-year returns for the acquisition year and separate Florida returns for later years. The dates are redacted in the public copy, so this page cannot state the specific cutoffs.

What this means for you

Corporate groups involved in acquisitions

An acquisition can terminate the acquired group's consolidated-return identity even though the acquired corporations continue to exist. The new parent's federal group structure and Florida filing election then control the filing posture.

Tax directors and return-preparation teams

Do not assume an old Florida consolidated election simply follows the acquired subsidiaries. Determine whether the former common parent and subsidiary group remains in existence under Treasury Regulation § 1.1502-75(d), and whether the new group files consolidated or separate Florida returns.

Accountants and tax professionals

The ruling treats the unrelated-parent acquisition as reasonable cause for discontinuing the prior consolidated filing. It also illustrates the need to coordinate short-period returns around the acquisition date, although the operative dates in this public copy are redacted.

Common questions

Q: Is a Florida consolidated-return election normally permanent?
A: It generally continues for later years while the filing corporations remain members of the affiliated group, unless the Executive Director consents to separate returns or the group ceases to exist under the applicable rules.

Q: Why did the old group end here?
A: The taxpayer and its subsidiaries were acquired by a previously unrelated parent. Under the federal consolidated-return rules applied in the TAA, the taxpayer's former affiliated group ceased to exist and its members joined the parent's group.

Q: Could the acquired companies file a consolidated return as their own subgroup?
A: No. Rule 12C-1.0131 says a subgroup of the affiliated group may not file a consolidated return.

Q: What returns were required after the acquisition?
A: The ruling approved two short-year returns for the acquisition year and separate Florida returns for subsequent years. The public copy redacts the exact dates.

Q: Why does the ruling body show "19C1-0XX"?
A: The public letter redacts part of the number in its heading. The official Tax Law Library document is published as TAA 19C1-001.

Citations and references

• Fla. Stat. §§ 220.02(3), 220.131(1), and 220.131(3)
• Fla. Stat. § 213.22
• Fla. Admin. Code r. 12C-1.0131(3)
• Treas. Reg. §§ 1.1502-75(d)(1) and 1.1502-76(b)(5)
• I.R.C. § 1504(a)(2)
• Rev. Rul. 69-163, 1969-1 C.B. 217

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19C1-001

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Jim Zingale
Executive Director

floridarevenue.com

July 12, 2019
XXXXX
XXXXX
XXXXX
XXXXX

Re:

Technical Assistance Advancement 19C1-0XX
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section (s.) 220.131, F.S.
Rule 12C-1.0131, F.A.C.
XXXXX
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.
FACTS SUPPLIED BY TAXPAYER
On XXXXX, Taxpayer and its affiliates were acquired by Parent Corporation. Prior to the
acquisition, Taxpayer and Parent Corporation were unrelated entities.
Taxpayer is requesting permission to deconsolidate its return for Florida corporate income tax
filing purposes.
ISSUE PRESENTED
Has sufficient reasonable cause been established for the Executive Director to grant Taxpayer
permission to cease filing consolidated Florida corporate income tax returns?

XXXXX
July 12, 2019
Florida Department of Revenue
Page 2

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:

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July 12, 2019
Florida Department of Revenue
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. (e.s.)

(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

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July 12, 2019
Florida Department of Revenue
Page 4

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.
   (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. (e.s.)

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July 12, 2019
Florida Department of Revenue
Page 5

(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. (e.s.)
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.
DISCUSSION
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

1
2

See s. 220.131(3), F.S.
See s. 220.02(3), F.S.

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July 12, 2019
Florida Department of Revenue
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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 XXXXX, Parent Corporation acquired Taxpayer and 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 IRC s. 1504(a)(2). Under
s. 1.1502-75(d)(1) of the Treasury Regulations, Taxpayer's affiliated group (consisting of
Taxpayer and Taxpayer's subsidiaries) ceased to exist on XXXXX, and Taxpayer and its
subsidiaries became part of Parent Corporation's affiliated group (with Parent Corporation as
the common parent).
At that time, Taxpayer became bound by the filing election of Parent Corporation, the parent
corporation, whose election is to file separate income tax returns for those entities within
Parent Corporation's affiliated group that have nexus in Florida.
Therefore, reasonable cause has been established for the Executive Director to grant Taxpayer
permission to cease filing consolidated Florida corporate income tax returns.
CONCLUSION
On XXXXX, Taxpayer's affiliated group ceased to exist, and Taxpayer was no longer the parent
corporation of an affiliated group. As a result, Taxpayer and Taxpayer's subsidiaries (a subgroup
of Parent Corporation's affiliated group) are not eligible to file Florida consolidated corporate
income tax returns for tax years ending after XXXXX. Taxpayer plans to file two short year
returns for XXXXX: the first for taxable year ending XXXXX; the second for taxable year ending
XXXXX. For subsequent years, Taxpayer and Taxpayer’s subsidiaries will file separate returns for
Florida tax purposes.
This response constitutes a Technical Assistance Advisement under section 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 section 213.22, F.S. Our response is based on those facts and
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the statutes or rules upon this advice is
based may subject future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are
public records under Chapter 119, F.S., and are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information must be deleted before public
disclosure. In an effort to protect confidentiality, we request you provide the undersigned with
an edited copy of your request for Technical Assistance Advisement, the backup material and
3

See Rev. Rul. 69-163, 1969-1 CB 217.

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July 12, 2019
Florida Department of Revenue
Page 7

this response, deleting names, addresses and any other details which might lead to
identification of the taxpayer. Your response should be received by the Department within 15
days of the date of this letter.
Sincerely,
Jennifer M. Ensley

Jennifer M. Ensley
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-7659
Activity: 221335