12C-1.044. Adjustments to Income

(1) The Executive Director or the Executive Director’s designee is authorized to make adjustments to clearly reflect income in order to arrive at a proper and accurate tax. The Executive Director or the Executive Director’s designee is authorized to exercise such discretion when any agreement, understanding, arrangement, or device, whether by inadvertence or design, improperly or inaccurately reflects Florida income. Adjustments are authorized to be made, but are not limited to, any item or items of income, loss, deduction, apportionment factor, or exclusion and can be made to all or part of any such item or items to the extent required to properly and accurately reflect income. Utilization of this authority by the Executive Director or the Executive Director’s designee shall not be limited to circumstances where the improper or inaccurate reflection of income results from efforts to reduce, avoid, or escape tax.

(2) Examples when such adjustments are authorized to be made include, but are not limited to:

(a) Transactions at more or less than a fair price, which include, but are not limited to:

1. Transfers of property.

2. Loans and advances.

3. Services.

4. Transfers or use of intangible property.

(b) Transactions, arrangements, or agreements with little or no business purpose other than the reduction or avoidance of tax;

(c) Methods of accounting that fail to properly and accurately reflect income such as the inconsistent treatment of items of income, loss, or expense; or

(d) Acquisitions requiring substantial capital investment in Florida resulting in substantial changes in organizational structure and increases in the Florida apportionment fraction of the newly acquired corporation or group of corporations due to increases in the property and payroll factors.

(3)(a) If a taxpayer requests an adjustment under Section 220.44, F.S., pursuant to paragraph (2)(d), such request shall be made by the taxpayer through submission of a request for such adjustment to the Executive Director or the Executive Director’s designee. Whether such adjustment shall be allowed and the amount of any adjustment shall be determined through an analysis that takes into account and balances the factors listed in this rule against the net tax effect of the amount of the adjustment. The taxpayer shall provide information requested by the Executive Director or the Executive Director’s designee that shall be utilized when making the analysis and the determination of whether and to what extent an adjustment is appropriate under Section 220.44, F.S.

(b) When an affiliated group of corporations that is necessitated by regulatory and market requirements to create different legal entities and has never elected to file a Florida consolidated return acquires a separate group of affiliated corporations and:

1. The acquired group of corporations:

a. Is or will continue to be headquartered in Florida;

b. Was properly filing Florida consolidated returns prior to acquisition; and

c. Has substantial debt prior to acquisition, which is paid directly or indirectly by the purchaser as part of the purchase price;

2. The purchaser or its existing affiliates incurred substantial debt in order to effect the acquisition; and

3. The taxpayer demonstrates that substantial net operating losses will occur upon the filing of separate Florida returns by members of the affiliated group, the Executive Director or the Executive Director’s designee is authorized to enter into an agreement with the parent company of the affiliated group for an adjustment to accelerate the deduction of current year net operating losses within the affiliated group for a period not to exceed 5 years. The Executive Director or the Executive Director’s designee is authorized to impose other conditions so that the adjustment is limited to the acceleration of current year net operating losses. Under no circumstances shall a taxpayer be allowed to use more tax preference items than it would have been entitled to use without the acceleration effects of this rule. The tax effect of the acceleration of current year net operating losses in each of the years under the agreement shall not exceed the lesser of ten percent (10%) of the additional Florida investments made in the first three tax years after the acquisition that contribute to the increased payroll and property factor related to the acquired companies, or $2 million.

(c) The agreement shall include provisions for the recapture of any tax benefits resulting from such adjustments should the conditions set forth in this rule or the agreement no longer be met.

(d)1. A taxpayer, any successor entities, or other members of an affiliated group of corporations that includes the taxpayer or any successor entities that have entered into an agreement with the Department under this rule shall not submit a request to revise, amend, or modify the existing agreement unless the taxpayer presents information showing that unforeseen circumstances have arisen with respect to the transaction that is the subject of the agreement.

2. A taxpayer, any successor entities, or other members of an affiliated group of corporations that includes the taxpayer or any successor entities that has entered into an agreement with the Department under this rule shall not submit a request for another agreement under this subsection for a period of 10 years from the date of the existing agreement unless the taxpayer presents information regarding a new transaction that involves a different acquired corporation or group of corporations from those included in the existing agreement.

(e) Should a taxpayer disagree with a decision made by the Executive Director or the Executive Director’s designee on a request for an adjustment made pursuant to this subsection, the taxpayer may request review of the decision by the Governor and Cabinet acting as the head of the Department of Revenue.

(4) A taxpayer shall be required to submit information under oath or affirmation and shall permit examination of books and records as necessary to allow the Executive Director or the Executive Director’s designee to determine whether and to what extent an adjustment is appropriate.

Rulemaking Authority 213.06(1), 220.51 FS. Law Implemented 92.525, 213.35, 213.37, 213.755(2)(b), 220.21, 220.44 FS. History–New 10-4-04.