IMPORTANT UPDATE: DOR - Florida Corporate Income Tax 2018 and 2019 Taxable Years Reporting of Additional Required Information

On August 26, the Florida Department of Revenue issued Tax Information Publication (TIP) 19C01-03 regarding “Florida Corporate Income Tax 2018 and 2019 Taxable Years Reporting of Additional Required Information”.  See TIP Here The FICPA is aware of the challenges this poses to our members and their clients. We have been communicating regularly with the Department in order to address the concerns and seek any relief available to you. 

A new law created section 220.27, F.S. and it requires taxpayers filing a Florida corporate income/franchise tax return Form F-1120 or F-1120A for taxable years beginning during the 2018 and 2019 calendar years report additional information to the Florida Department of Revenue. The law change was a result of the Florida Legislature's desire to determine the overall impact of the Tax Cuts and Jobs Act on Florida taxpayers. To make this determination the legislation, HB7127, required the Department to collect the additional data from taxpayers by September 3, 2019. 

While initial notice to taxpayers was provided by the Department on July 31, 2019 (TIP 19C01-01) , many taxpayers would not receive the additional guidance with reporting instructions until after August 26,2019 or even after the actual due date of September 3, 2019. At the urging of the FICPA and our State Tax Committee members, the Department worked to provide additional guidance on their designated website with a specific “Questions and Answers”. View website here. The FICPA has communicated to the Department and Cabinet the challenges and hardships the reporting timeline has caused for our members and asked for additional guidance to assist our members, particularly in light of the state of emergency declared by Governor DeSantis in preparation for Hurricane Dorian. 

In an effort to address the reporting concerns generated by the new law due to the threat of Hurricane Dorian’s approach, The Department posted the following guidance on their website on August 29. The FICPA will continue to stay actively engaged with the Department and encourages members to contact us (govaffairs@ficpa.org) with any additional concerns about this new requirement.

The Department recognizes the efforts of taxpayers to provide information on or before September 3, 2019, may be substantially impacted by Hurricane Dorian which is anticipated to impact Florida. Section 220.27, Florida Statutes, authorizes the Department to settle or compromise any penalty imposed by the statute if the Department determines that the noncompliance is due to reasonable cause and not to willful negligence, willful neglect, or fraud. The Department will use this statutory authority to work with taxpayers in a fair and efficient manner that achieves the highest levels of voluntary compliance while recognizing the circumstances imposed by Hurricane Dorian. The Department will further review this issue after any impact from Hurricane Dorian has been evaluated.

In addition to the relief provided by the Department, the FICPA submitted a request to the Department, Governor Ron DeSantis and Cabinet (Attorney General Ashley Moody, CFO Jimmy Patronis and Agriculture Commissioner Nikki Fried), to grant additional relief authorized by Governor DeSantis’s Executive Order. See FICPA letter here.

Additionally, as part of our ongoing communication with the Department, we asked for additional guidance for our members to address several questions and concerns we received. The FICPA received a response today with the following information:

1.     FLDOR had previously instructed tax return preparers to no longer file Form F-1120 in their first year of filing Federal Form 1120S because FLDOR confirms their Federal filing status through information sharing with the Internal Revenue Service. Is that information sharing process no longer in place, and should Form F-1120 be filed by S-Corporations in their first year? 

There is no Florida corporate income tax filing requirement for an S-corporation unless the S-corporation is liable for federal income tax. This includes an initial or final tax return. 

The Department continues to have information sharing with the IRS, and receives information as the IRS provides it.

Some corporations that eventually make a federal election to become an S-corporation file Form F-7004 (Tentative Income/Franchise Tax Return and Application for Extension of Time to File Return) with the Department.  The filing of a request for an extension of time creates an expectation that the taxpayer is going to file a Florida corporate income/franchise tax return with the Department.  When a return is not filed, the delinquency process is initiated. Taxpayers can avoid the delinquency process by updating their account when an S-election is made after an extension of time is filed.

The delinquency process may also be initiated when a corporation registers with the Department for other taxes that would normally indicate nexus with Florida for corporate income tax.  The corporation may subsequently make an S-election after registration.

Over 255,000 active corporate income tax accounts were mailed TIP 19C01-03, but it is estimated about 220,000 of those active accounts will actually file a corporate income tax return. This could indicate that approximately 35,000 accounts may need to update their filing status. Some of these accounts are for corporations that ultimately made an S-corporation election; some are no longer in business; some are corporations that have not started conducting business; and others are entities that are not required to file a Florida corporate income tax return for other various reasons. 

2.     Our corporation has had a valid S-Corporation election in effect with the Internal Revenue Service. It has never had a requirement to file Form F-1120. How do I know if I need to update its status with FLDOR? 

An S-corporation that has been in existence for years without any contact from the Department regarding Florida corporate income tax does not have a registration issue and does not need to update its account.   

3.     Is the requirement for S-Corporations to make status updates considered part of the additional required information under Section 220.27, F.S., such that it is subject to the imposition of the $1,000 penalty if the S-Corporation fails to update its status?

No.  

4.     TIP 19C01-03 states the additional required information must be filed within 10 days of the due date of Form F-1120. Does this also apply to the S-Corporations requirement to make status updates, or is there otherwise a due date? What about S-Corporations that do not file Form F-1120 and accordingly do not have a due date?

If an S-corporation files a 2018 or 2019 Florida corporate income/franchise tax return, it must submit the additional required information.  Conversely, if an S-corporation does not file a Florida corporate income/franchise tax return, there is no requirement for that S-corporation to submit the additional information under section 220.27, Florida Statutes.

There is no due date for the approximately 35,000 accounts to update their Florida corporate income tax filing status.  However, at some point the delinquency process will begin and those corporations whose accounts have not been updated will be contacted.   

5.     Has this TIP already been mailed out? If so, was it mailed to all corporations registered with the Division of Corporations or all taxpayer corporate accounts in your database not showing S-Corporation status?

Tax Information Publication 19C01-03 has been mailed out.  The TIP was mailed to all corporations that the Department expects to file a 2018 or 2019 Florida corporate income/franchise tax return.  The Division of Corporations database was not used for mailing purposes. No known S-corporations were mailed the TIP.

The FICPA is continuing to advocate for additional relief from the September 3 deadline and other upcoming reporting deadlines to assist our members. We know and understand the disruption caused by Hurricane Dorian has exponentially impacted your ability to comply with an already challenging reporting deadline. We are working diligently to ensure that the Department hears the concerns of our members and we expect they are using all their resources to address those concerns. We will continue to keep you informed of our progress and provide you with any updates that we receive in a timely manner. 

If you are not a current member of the FICPA CONNECT State Tax Group, please sign up today. We will post any updates we receive there first.