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 ceased to exist by operation of law and therefore was granted permission to cease filing Florida consolidated tax returns. 

April 24, 2020

Re: Technical Assistance Advisement 20C1-006 

Corporate Income Tax 

XXXXXX (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 s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the proper filing periods for Florida corporate income tax returns after deconsolidation.

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. 

On XXXXX, Taxpayer requested permission to deconsolidate its return for Florida corporate income tax filing purposes. The Department allowed Taxpayer’s request for deconsolidation and issued TAA 20C1-004 on March 5, 2020.

ISSUE PRESENTED 

On XXXXX, Taxpayer requested correction of the filing periods for it and its affiliated entities’ final consolidated and first separate Florida corporate income tax returns listed in TAA 20C1- 004.

LEGAL AUTHORITY 

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. 

(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 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.)

(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.)

DISCUSSION 

As stated in TAA 20C1-004, reasonable cause was established for the Executive Director to grant Taxpayer permission to cease filing consolidated Florida corporate income tax returns. 

Subsequent to the acquisition, Taxpayer and its affiliated entities will file separate Florida corporate income tax returns for the short taxable year beginning XXXXX, and ending on XXXXX, to conform to Parent Corporation’s 52/53-week year end.

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 affiliated entities (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 (consolidated, consistent with the existing election); the second for taxable year ending XXXXX (separate returns for Taxpayer and its affiliated entities).

The conditions set forth in TAA 20C1-004 have been modified to reflect the correction to the filing periods. Conditions of deconsolidation are as follows: 

1. That the deconsolidation is effective for the tax year beginning on or after XXXXX, 

2. That Taxpayer has no realized but unrecognized income or expense items that may be recognized at a later date, 

3. That Taxpayer’s group does not become part of a consolidated Florida corporate income tax return prior to the tax year ending XXXXX, and 

4. That any deferred gains which are realized for federal purposes, but which have not yet been recognized, must be reported in total, on the income tax return filed by Taxpayer’s group for tax year ending XXXXX.

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 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.

Susan R. Coxwell 

Tax Law Specialist 

Technical Assistance and Dispute Resolution