If a corporation files the No Tax Due Information Report, does it keep its business-loss carryover, and what is the difference between franchise-tax extension forms 05-141 and 05-110?

Plain-English summary

A taxpayer eligible for the 05-141 No Tax Due Information Report asked how it affects a business-loss carryover, and why there are two seemingly identical extension forms (05-141 and 05-110).

• You keep the remaining loss years - but still must use the loss. Under Sec. 171.110(e) a loss carries forward up to five years. Under Rule 3.555(g)(2) a carried-forward loss must be applied against apportioned plus allocated earned surplus in the succeeding year, so even a No Tax Due filer must use a prior-year loss (on line 27 against line 25). No-tax-due status (under $150,000 receipts or under $100 tax) has no bearing on using the loss (Sec. 171.002(d)(2)), and a corporation may file the long form to preserve or add to the carryover.
• The two extension forms are interchangeable. Forms 05-141 and 05-110 are identical, and either may be used. 05-110 is used primarily by EFT (Electronic Funds Transfer) taxpayers, who may extend to August 15 and then to November 15 (few EFT filers would qualify for the short form, so 05-141 is not generally sent to them).
• No reason needed. Filling out the extension form properly, without stating a reason, is enough to temporarily grant an extension to file the annual report.

Currency note: This 2000 letter applies the pre-2008 franchise tax's loss rules, report lines, and extension forms (replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928). Forms, deadlines, and loss treatment have changed; confirm current law.

What this means for you

Small corporations filing a No Tax Due report

Filing No Tax Due did not freeze or protect your loss - the year's earned surplus still consumed it, and the five-year clock kept running - but you did not lose any unused years either. On extensions, you did not need to pick a "right" form (05-141 vs 05-110) or explain why; a properly completed form got you a temporary extension.

Tax professionals

Same loss mechanics as the Comptroller's other 2000 letters (line 27/line 25; Sec. 171.002(d)(2)), plus practical form guidance: 05-141 and 05-110 are the same, 05-110 skews to EFT filers with the Aug 15/Nov 15 sequence, and no reason is required for a temporary extension. All pre-2008; re-verify forms and deadlines under the margin tax.

Common questions

Q: If I file the No Tax Due report, do I lose my business-loss carryover?
A: No. You keep the remaining loss years, but you must still apply the loss against that year's apportioned plus allocated earned surplus.

Q: What's the difference between extension forms 05-141 and 05-110?
A: They are identical; either may be used. 05-110 is used mainly by EFT taxpayers, who may extend to August 15 and then November 15.

Q: Do I have to give a reason for an extension?
A: No. Properly filling out the extension form, without a reason, is enough to temporarily grant it.

Citations and references

Statutes and rule:

• Texas Tax Code Sec. 171.110(e) - business loss carried forward up to five years or until exhausted
• Texas Tax Code Sec. 171.002(d)(2) - no-tax-due thresholds do not bar use of a business loss
• 34 Tex. Admin. Code Sec. 3.555(g)(2) (Franchise Tax Rule 3.555) - a carried-forward loss must be applied in the succeeding year

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200005124L

Original ruling text

May 15, 2000

To: ****

Dear ****:

Thank you for your e-mail concerning the Texas franchise tax.

I have restated your questions and have responded below.

Question 1:
If you are eligible to file the 05-141 No Tax Due Information Report, how does
it affect the business loss carryover? Two scenarios come to mind. First, if
you have a current year loss even though you have no tax due, are you still
permitted to carry forward the loss? Second, if you have a prior year loss
that you don't need to utilize this year because of the no tax due status, do
you still have the remaining years of the loss to be carried forward?

Response:
Texas Tax Code (TTC) Section 171.110(e) states that a business loss shall be
carried forward "...to the year succeeding the loss year...then successively to
the four taxable years after the loss year or until the loss is exhausted,
whichever occurs first, but for not more than five taxable years after the loss
year."

Franchise tax rule 3.555(g)(2) states that "a business loss which is carried
forward to a successive year must be applied to the extent of apportioned plus
allocated taxable earned surplus in that succeeding year." Even though the
taxpayer will owe no franchise tax, they must use the loss from a prior year to
offset the current year's apportioned plus allocated taxable earned surplus.

Based on the information in the TTC and the rule, a corporation may want to use
the long form franchise tax report to preserve a business loss carryover, or
add to it, even if they qualify to file a short form report and will owe not
tax.

A taxpayer with a business loss carryover from prior franchise tax report years
must use that loss on line 27 of the report to reduce any positive amount of
apportioned plus allocated earned surplus on line 25 of the franchise tax
report. The fact that no tax is due because the corporation's gross receipts
from its entire business for both taxable capital and earned surplus are each
less than $150,000 or the corporation's calculated tax liability is less than
$100 has no bearing on the use of a business loss. See Section 171.002(d)(2).

Question 2:
Why are there two identical extension request forms 05-141 and 05-110?

Response:
Form 05-110 is used primarily by Electronic Funds Transfer (EFT) Taxpayers.
EFT filers may request an extension of time to file their report on or before
August 15. They are then allowed to request a second extension of time to file
on or before November 15. Very few, if any, EFT filers would qualify to file a
short form franchise tax report, so form 05-141 is not generally sent to those
taxpayers.

As you pointed out, there are no differences in the forms, so you may use
either form to request an extension.

Question 3:
Do you require that a reason for extension be attached to an extension request
or is merely filling out the form properly sufficient to grant the request?

Response:
Filling out the return without a reason is sufficient to temporarily grant an
extension request for filing an annual franchise tax report.

The statute cites and the rule mentioned above can be found on the
Comptroller's Window on State Government at . Once you
are at the website, click on the heading "Texas Taxes" then on "The Franchise
Tax." At that point you'll see a headings for "Franchise Tax Rules" and
"Chapter 171 of the Texas Tax Code." In addition, the forms mentioned above
may be downloaded from the Comptroller's website. From the "Franchise Tax"
page you'll see a link to "Franchise Tax Forms Online."

This response is based on current law and the facts presented. If there are
different or additional facts, the response may change.

If you have any questions about this or any other franchise tax matter, you may
call me at 1-800-531-5441, extension 3-4612, or e-mail me at the address below.

Sincerely,

Janet Spies

Comptroller of Public Accounts