Texas comptroller revises policy on temporary credit for business loss carryforwards
Multistate Tax alert | August 4, 2017
In this tax alert, we summarize the existing regulatory and statutory guidance affecting the credit, the guidance provided in the comptroller letter, and provide some taxpayer considerations.
On June 30, 2017, the Texas Comptroller of Public Accounts (comptroller) released guidance (hereinafter referred to as comptroller letter) indicating that two existing policies related to the temporary credit for business loss carryfowards1 (hereinafter referred to as the credit) would be revised.2
Policy revision one—Ability to utilize credit on subsequent reports
Under Texas Tax Code (TTC) § 171.111, taxable entities are permitted to utilize the credit by notifying the comptroller in writing of an intent to take the credit
However, a recently released
Under the revised comptroller policy, once a taxable entity has taken the credit on a timely filed report, the taxable entity may claim the credit on any subsequent report, even if the subsequent report is not timely filed. For report years after the credit is initially taken on a timely filed report, a taxable entity may amend any late-filed reports to take a credit not previously claimed or allowed, if the report is within the statute of limitations for refunds.
If the report is beyond the statute of limitations, a taxable entity may carryover the credit not previously claimed or allowed. The comptroller’s letter indicates that Rule 3.594 and any other affected comptroller guidance will be amended to reflect this revised policy.7
Policy revision two—Ability for combined group to utilize credit of departing group member
Under TTC § 171.111(d), a taxable entity may not convey, assign, or transfer a credit. In addition, a taxable entity may not claim the credit if it “changes combined groups.”8 The statute does not specify the reporting period when the entity’s credit is lost. However, Rule 3.594 provides that when a member entity leaves a combined group, the group cannot claim any of the entity’s credit on the report that is based on the accounting period when the entity leaves the group.
Under the revised comptroller policy, if a member entity leaves a combined group during the accounting period on which a report is based, the combined group may claim, subject to credit limitations, the entire amount of the departing member’s credit that is available for that
If a credit from a departing member was previously excluded for the accounting period on which the combined group’s report was based, a combined group may file an amended franchise tax report to claim the credit of a member entity that left the combined group, within the statute of limitations for refunds. The comptroller’s letter indicates Rule 3.594 and any other affected c
Taxpayers that have excluded the credit for previous report years based on the comptroller’s prior policy may wish to consult with a Texas tax specialist in order to determine if an amended return should be filed to properly utilize the credit. Taxable entities considering filing an amended report should keep in mind that the statute of limitations for franchise tax reports filed in 2013 could potentially expire this year.12
If you have questions regarding the Texas temporary credit for business loss carryforwards discussed above or other Texas tax matters, please contact any of the following Deloitte Tax professionals:
Russell Brown, partner, Deloitte Tax LLP, Dallas, +1 214 840 7533
Pamela Downs, partner, Deloitte Tax LLP, Dallas, +1 214 840 7572
Andrew Robinson, partner, Deloitte Tax LLP, Houston, +1 713 982 2960
Robert Topp, managing director, Deloitte Tax LLP, Houston, +1 713 982 3185
Brad Brookner, managing director, Deloitte Tax LLP, Houston, +1 713 982 4897
Lauren Rothman, senior manager, Deloitte Tax LLP, Houston, +1 713 982 2462
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1 As part of the transition from the old Texas franchise tax to the new margin tax in 2008, taxpayers were permitted to convert existing business loss carryforwards (i.e., apportioned net operating losses) to a temporary credit. Eligible taxpayers are able to utilize the credit over a 20-year period. See Tex. Tax Code § 171.111.
2 Texas Comptroller of Public Accounts, Accession No. 201706006L (June 30, 2017), available here (hereinafter referred to as Comptroller Letter-Accession No. 201706006L).
3 SOAH Docket No. 304-15-0575.13, CPA Hearing No. 110,191, Accession No. 201506219H (June 24, 2015), available here (hereinafter referred to as Recent Comptroller Decision-Accession No. 201506219H).
4 Comptroller Letter-Accession No. 201706006L.
5 Recent Comptroller Decision-Accession No. 201506219H.
6 Comptroller Letter-Accession No. 201706006L.
8 Tex. Tax Code § 171.111(d).
9 For numerical examples on
10 See Tex. Tax Code § 171.111(d).
11 Comptroller Letter-Accession No. 201706006L.
12 Generally, a refund claim must be made within the period during which the comptroller may assess a deficiency for the tax, which is typically four years from the date the tax becomes due and payable, including extensions of