TAA 21C1-002 Consolidated Tax Returns
QUESTION: May a parent company be granted permission to cease filing Florida consolidated tax returns based upon a change in business circumstances regarding the members of the taxpayer's affiliated group?
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax returns based on provisions of the F.A.C. which address changes in business circumstances regarding the members of the taxpayer's affiliated group.
February 26, 2021
Technical Assistance Advisement 21C1-002
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXX (“the taxpayer”)
FEIN: XXX
Dear XXX:
This is in response to your request dated XXX, 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
Based on the information provided in the TAA request, XXX acquired approximately XXX percent of the taxpayer’s affiliated group in XXXX and acquired the remaining XXX percent ownership interest in the taxpayer in XXXX, which brought the taxpayer into XXX affiliated group. The TAA request asserts that, following the acquisition of the additional ownership interest in the taxpayer by XXX, the taxpayer’s affiliated group ceased to exist, and its consolidated filing election was nullified for both federal and Florida corporate income tax purposes.
The TAA request further asserts that the taxpayer continued filing its tax returns on a consolidated basis in error, as the acquiring parent files its tax returns on a separate basis, never having made a consolidated filing election.
In the telephone conference held on XXX, it was stated that the taxpayer and its affiliated group were included in XXX consolidated federal return beginning with its complete acquisition in XXXX, and that the federal consolidated returns filed with the taxpayer’s Florida returns are pro forma returns.
ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to permit it to stop filing consolidated Florida corporate income tax returns retroactively to the date of its acquisition in XXXX, and allow it to amend its Florida corporate income tax returns for the tax years that remain in statute.
LAW
Section 220.131(1), F.S., states:
(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.
Section 220.131(3), F.S., states:
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(3)(b), F.A.C., provides:
(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.
ANALYSIS
Section 220.131(1), F.S., allows “any corporation subject to tax under this code which corporation is the parent company of an affiliated group of corporations” to elect to consolidate its taxable income with that of all other members of the group. Once such election is made, the consolidated group is required to continue filing a consolidated Florida return as long as it continues to file a consolidated federal return, regardless of whether the parent corporation continues to have nexus in Florida. The language of s. 220.131(1), F.S., clearly indicates that it is the parent corporation that both makes the election to consolidate and files the consolidated return.
As stated in s. 220.131(1), F.S., the parent corporation that makes a consolidated filing election must be subject to Florida corporate income tax, that is, have nexus with Florida, at the time it makes a consolidated filing election. It is not required to maintain nexus in subsequent years, but the group must continue to file a consolidated Florida corporate income tax return in all subsequent years.
The federal tax returns on which the taxpayer’s Florida returns filed with the Department are based, indicate that they have been filed on a consolidated basis, as do the taxpayer’s Florida corporate income tax returns. However, the information provided indicates that the taxpayer’s consolidated filing election was nullified when it was completely acquired by XXX, and that the members of the taxpayer’s former consolidated group were included in the consolidated federal returns of XXX, beginning with the return for the XXXX tax year. Therefore, under the provisions of section 220.131, F.S., the taxpayer should have ceased filing its own consolidated return following its acquisition based on a change in circumstances.
CONCLUSION
The taxpayer’s request for permission to deconsolidate is granted based on a change in circumstances. The taxpayer and the members of its prior consolidated group may amend their returns to correct this filing error for returns for which the statute of limitations has not expired.
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.
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
