United States

Texas: Policy Changes Affect the Temporary Credit for Business Loss Carryforwards

Jul 31, 2017
From KPMG TaxWatch

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When the Texas franchise tax was significantly revised over a decade ago, the Legislature allowed taxpayers to claim, as a temporary credit, business loss carryforwards that had been earned prior to January 1, 2008. To preserve the credit, the taxpayer had to notify the Comptroller of the amount of the credit on its first report filed under the revised regime and make an election to claim the credit. A regulation further required taxpayers to elect on an annual basis to take the credit on a timely-filed report. In a 2015 decision, an Administrative Law Judge determined that the rule impermissibly added requirements to the statute- notably the requirement that the taxpayer make an annual election and that the report be timely-filed as a condition of taking the credit. As a result of this determination, the Comptroller’s office recently announced that it was changing its policy. Once a taxpayer has preserved the credit and taken the credit on a timely filed report, the taxpayer may claim the credit on any subsequent report, even if the subsequent report is not timely filed. For open tax years, a taxpayer may amend reports to take a credit that was not previously claimed or allowed on a late-filed report. If the report year is beyond the statute of limitations, the taxpayer can carryover the credit that was not allowed.

The Comptroller has also revised its policies with respect to what happens to the credit when group member leaves the combined group. Under its prior policy, the combined group could not claim any of a departing member’s credit on the report based upon the accounting period in which the member left. Under the revised policy, if a member leaves a combined group during the accounting period on which a report is based, the combined group may claim, subject to credit limitations, the departing member's entire amount of credit and available credit carryover for that report year. For subsequent reports, the departed member's credit is no longer available to the combined group, and the combined group's credit carryover must be adjusted to remove the portion of carryover related to the departed member.  Please contact Doug Maziur at 713-319-3866 with questions on Texas Policy Letter Ruling, No. 201706006L.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.