News and Insights

Texas Comptroller Revises Managed Audit Program to Limit Refund Opportunities

Tax Development Jan 15, 2003

On Wednesday, January 15, 2003, the Texas Comptroller of Public Accounts ("Comptroller") announced that the managed audit program for Texas sales and use tax audits has been revised to limit refund opportunities that taxpayer participants are otherwise entitled to under Texas law.

The managed audit program, enacted by the Texas Legislature in 1999 (See Texas Tax Code "TTC" §151.0231), allows the Comptroller to authorize Texas taxpayers to conduct a managed audit or self audit within certain parameters and guidelines. In exchange for the taxpayer's performance of the managed audit, the Comptroller may waive penalty and interest on any deficiency determined to be due.

The Agency reports that it has completed approximately 50 managed audits with another 120 underway. Although the program has apparently been very successful, Comptroller's representative, Mr. Tony Luna, Audit Division Assistant Manager, announced that future Managed Audit agreements would contain a new Section 8, which provides:

8. Except as provided by the Texas Tax Code, Section 111.104(f), Taxpayer is entitled to a refund of any tax overpayment disclosed by completion of the managed audit. Taxpayer's failure to identify and claim a refund of an overpayment of tax for any period within this Agreement before the managed audit or the deficiency determination resulting from the managed audit becomes final is a waiver of any demand against the Comptroller for an alleged overpayment of tax, except as follows: Taxpayer may file a refund claim for tax, subject to the applicable limitations period, if a court invalidates a statutory provision, rule, or agency policy or if the Comptroller invalidates or modifies a rule or agency policy. (Emphasis added).

Mr. Luna indicated that the change was being made in a effort to make the managed audit program more efficient. However, the new managed audit agreement forces taxpayers to surrender statutory rights to refund in order to participate in the managed audit program. Essentially, any tax refunds not identified during the performance of a managed audit are forfeited, unless such refunds resulted from a tax policy or law change. Furthermore, managed audits typically have a limited scope that does not include all potential refunds to which the taxpayer may be entitled. According to Comptroller representative Luna, refunds outside the managed audit scope would be lost as well if not presented during the course of the managed audit.

Taxpayers should carefully consider whether to enter into the managed audit program under this new requirement. Failure to identify tax refunds within the relatively short time period of a managed audit will result in the loss of those refunds.

If you have any questions regarding the matters discussed above, or require any assistance concerning Texas tax matters, please contact Mr. G. Brint Ryan, Managing Principal, at 972.934.0022. You can also reach Mr. Ryan by e-mail.