News and Insights

Texas Comptroller Issues 30-Day Demand Letters, Requesting Information to Verify Business Loss Carryforward Credits

Tax Development Oct 19, 2011

The Texas Comptroller of Public Accounts (“Comptroller”) mailed letters to the reporting entities of combined groups, requesting information about temporary credits for business loss carryforwards that were taken on the combined group’s 2008 Texas franchise tax report. The information is due by October 31, 2011.

The letter threatens:

Failure to provide the information will result in the loss of any temporary credit claimed on the 2008 through 2011 franchise tax reports and any temporary credit allowed for future franchise tax reports.

Affected taxpayers must provide the following:

  • The name of the entity or individual that owned, directly or indirectly, more than 50% of all entities included on the combined report; and
  • The business loss carryforward as of January 1, 2008, for each affiliate that filed a preservation form in 2008 or that was the basis of a temporary credit for a business loss carryforward claimed on the franchise tax report.

Beginning with reports due after December 31, 2011, the Comptroller will require a combined group with a temporary credit for a business loss carryforward to submit common owner information by the due date of the report.

Ryan is unaware of any statutory authority for the October 31 deadline and believes that this deadline may violate taxpayers’ rights of due process and the Texas Administrative Procedure Act, which requires advance notice and publication of agency rules and the opportunity for public comment. See Combs v. Entertainment Publ’ns, Inc., 292 S.W.3d 712 (Tex. App.—Austin 2009, no pet.).

Ryan recommends that taxpayers obtain and keep proof of compliance with the Comptroller’s demand, such as certified mail receipts or received-stamped copies of the forms.