Summary
The Texas Comptroller recently issued a notice requiring reporting entities of combined groups that claimed a temporary credit for their business loss carryforward (BLC) to submit additional information about such credit by October 31, 2011. Failure to respond to the notice may result in the loss of any BLC temporary credits claimed on the 2008 through 2011 franchise tax reports and any temporary credits available for use in future report years.
Details
In the September edition of Tax Policy News, released on October 4, 2011, the Texas Comptroller’s Office said it sent a letter on October 1, 2011 to the reporting entities of all combined groups that claimed a temporary credit for BLC on a 2008, 2009 or 2010 franchise tax return.[1] The letter includes a form to be returned to the state with the name and federal employer identification number (or social security number for individuals) of the entity or individual that owned, directly or indirectly, more than 50 percent of all the entities included on those combined reports. Additionally, the form requires an account of the Texas BLC as of January 1, 2008 for each affiliate that filed a preservation form or that was the basis of a temporary credit for a BLC claimed on the franchise tax report. Entities receiving the letter must submit the completed form to the Comptroller’s Office by October 31, 2011 to retain their BLC credit.
Under Texas law, any entity that changed combined groups after June 30, 2007 is not allowed to claim the BLC credit.[2] Through this collection of information, the state hopes to determine if any of its combined filing group member entities have in fact changed combined groups and should therefore not be allowed to use the BLC credit. Failure to respond to the notice 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.”
In addition to the information published, the Comptroller’s Office has informally stated that for those notices not returned as of October 31, 2011, a second mailing may be sent out. Over 16,000 letters have been sent out thus far. The Comptroller’s Office indicated that it may further extend the response deadline to December 31, 2011.
Beginning January 1, 2012, reporting entities for a combined group with a BLC are required to submit “common owner information” as part of the annual filing process, even if a BLC is not claimed on the current year report. This information must be submitted online by the due date for the combined report. The 2012 Franchise Tax Report Instructions, when issued, will provide additional details on this process.