TAA 21C1-003 Consolidated Tax Returns

QUESTION: May a parent company be granted permission to cease filing Florida consolidated tax returns based upon changes in business circumstances? 

ANSWER: The parent company was granted permission to cease filing Florida consolidated tax returns based on provisions of the Florida Administrative Code which address changes in business circumstances. 

June 23, 2021

Technical Assistance Advisement 21C1-003

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. 

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.

FACTS SUPPLIED BY TAXPAYER 

The taxpayer is headquartered in XXX. It files its tax returns on a consolidated basis for both federal and Florida purposes, and has been filing its tax returns on a consolidated basis since making its consolidated filing election for the XXXX tax year. The taxpayer operates XXX.

At the time the taxpayer’s consolidated filing election was made it operated XXX within XXX. Since XXXX, the taxpayer has added an additional XXX. Additionally, from XXXX through XXXX, the taxpayer’s sales have increased from $XXX to $XXX, while its XXX have increased from XXX to XXX. The taxpayer has further expanded its business through acquisitions, introduction of new products, entry into new markets, and expansion of its services, all of which have served to change its business.

Specifically, the taxpayer XXX. In XXXX, it opened XXX. In XXXX, it began XXX. In XXXX, the taxpayer XXX. 

In XXXX, the taxpayer opened XXXX. From XXXX, through XXXX, the taxpayer opened XXX. 

The taxpayer continued its expansion in XXXX, opening XXX. In XXXX, the taxpayer acquired XXX. It also purchased XXX. 

In XXX, the taxpayer had become XXX. By XXXX, XXX of its net sales were generated through XXXX. The taxpayer has plans to expand its operations further XXX.

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 

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."1 The taxpayer contends that the business focus and operations of the affiliated group have changed significantly since XXXX, the tax year for which the taxpayer made its consolidated filing election.

The information provided by the taxpayer shows growth in the consolidated group since the taxpayer made its consolidated filing election for XXXX. The activities conducted by the taxpayer and its product line have expanded greatly between XXXX and XXXX.

The taxpayer’s overall business focus, along with its substantial growth, taken together, are a sufficient basis for granting the taxpayer’s request for deconsolidation.

CONCLUSION 

Based on the following four conditions, the Department grants permission to the taxpayer to discontinue filing consolidated corporate income tax returns beginning with the tax year ended XXXX:

1. That the deconsolidation is effective for the tax year ending on XXXX.
2. That the taxpayer has no realized but unrecognized income or expense items that may be
recognized at a later date.
3. That the taxpayer group does not become part of a consolidated Florida corporate income tax
return prior to the tax year ending XXXX.
4. That any deferred gains which are realized for Federal tax purposes, but which have not yet
been recognized, are required to be reported in total, on the income tax returns filed by the
taxpayers, for the period ending XXXX.

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

(1) The taxpayer estimates that its Florida corporate income tax liability for the XXXX tax year on a separate return basis will be approximately $XXX less than it would have been on a consolidated basis.