How broadly does the Tax Code Sec. 111.206 exception to the statute of limitations reach - only to a regulatory final determination, or to any refund from that period?

Plain-English summary

This is an internal Comptroller memo resolving a disagreement between the Audit Division and the Tax Policy Division about how far Tax Code Sec. 111.206 reaches. Section 111.206 is an exception to the general statute of limitations, triggered by a regulatory or judicial proceeding.

• The two readings. The Audit Division read the exception narrowly - it only keeps limitations open for refunds/liabilities related to the adjustments a regulatory agency made. The Tax Policy Division read it more broadly - keeping the period open for any refund claim from the period of the proceeding, based on the word "investigation" in subsections (c) and (d).
• The conclusion. The author agrees with the narrow (Audit Division) reading. Section 111.206(a) says the section "applies only to a final determination" from a regulatory administrative or judicial proceeding, and subsections (c) and (d) do not expand that express limit.
• Why. The 60-day report duty in Sec. 111.206(b) and the one-year clock in (c)/(d) both key off the final determination, not a free-standing "investigation." The predecessor statute, Taxation-General Article 1.045(F), ties "investigation" to the final determination as well.
• Result. The Audit Division should continue applying its existing policy.

What this means for you

Taxpayers coming out of a regulatory proceeding

If a regulatory agency's final determination changes your tax picture, Sec. 111.206 can extend the limitations window - but only for items tied to that determination. Under this reading, you cannot use the proceeding to reopen unrelated refund claims from the same years.

Tax professionals

The memo is an internal statutory-interpretation position, not a taxpayer-specific ruling. Its takeaway: read Sec. 111.206 as bounded by the "final determination" in subsection (a), with "investigation" in (c)/(d) understood as investigation of that determination or the 60-day report - not an independent basis to keep limitations open. Note Sec. 111.206 is a general limitations statute, so the analysis is not confined to the franchise tax.

Common questions

Q: Does a regulatory proceeding reopen all my refund claims for those years?
A: Under this memo, no. Sec. 111.206 keeps limitations open only for amounts tied to the regulatory final determination.

Q: What does "final determination" mean here?
A: A determination from a regulatory administrative proceeding, or a judicial proceeding arising from one, as described in Sec. 111.206(a).

Q: Is this a ruling I can rely on?
A: It is an internal Tax Policy Division memo interpreting the statute, not a letter ruling issued to a taxpayer; treat it as guidance to the divisions and confirm current policy.

Citations and references

Statutes:

• Texas Tax Code Sec. 111.206(a) - the exception applies only to a final determination from a regulatory administrative or judicial proceeding
• Texas Tax Code Sec. 111.206(b) - taxpayer must report tax due within 60 days of the final determination
• Texas Tax Code Sec. 111.206(c) and (d) - limitations period runs one year from receipt of the 60-day report or discovery of the final determination
• Taxation-General Article 1.045(F) - predecessor statute non-substantively codified as Sec. 111.206

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200109582L

Original ruling text

September 28, 2001

To: David Rock

From: Eleanor Kim

Re: Texas Tax Code 111.206

In your memo dated September 20, 2001, you state that Audit Division and Tax
Policy Division have an inconsistent interpretation of Tax Code 111.206 and ask
that I review the issue.

Tax Code 111.206 provides for an exception to the general statute of
limitations. Audit Division's position is Section 111.206 narrowly applies to
keep the statute of limitations open for refunds related to adjustments that
were made by a regulatory agency. You indicate Tax Policy Division agrees that
no exception to the limitations exists if no adjustments were made by the
regulatory agency, but takes the position 111.206 keeps the limitations period
open for the period involved in the regulatory administrative or judicial
proceeding for any refund claims even if they are unrelated to the regulatory
adjustments in the final determination. Tax Policy Division's position is
based on the term "investigation" which is used in subsections (c) and (d) of
111.206.

There is no dispute that Tax Code 111.206 creates some contradiction by the use
of the term "investigation" in subsections (c) and (d). However, after
reviewing the issue in detail, it is my opinion that Audit Division's position
is more consistent with the statutory intent of Tax Code 111.206.

Tax Code 111.206(a) provides that the section "applies only to a final
determination" that results from a regulatory administrative proceeding or a
judicial proceeding arising from a regulatory proceeding. The literal reading
of this subsection demonstrates that the legislature unequivocally intended to
limit the application of 111.206 to "final determination." It is difficult to
argue that subsections (c) and (d) expand that express restriction.

Additionally, other provisions in the statute further support the evidence of
the legislature's intent. First, Tax Code 111.206(b) requires a taxpayer to
report to the comptroller any tax liability that may be due within 60 days of
the final determination. No similar requirement exists for tax liability that
might be due as a result of an investigation. Second, Tax Code 111.206(c) and
(d) provide for a limitations period that begins one year from the day the
60-day report is received or from the day that the final determination is
discovered. No similar provision exists for tax liability that might be due as
a result of an investigation. Thus, "investigation" as used in Tax Code
111.206(c) and (d) cannot be unrelated or discrete from "final determination."
If they are related, then the logical conclusion is that the tax liability or
refund resulting from an investigation must also be limited to the adjustments
made in the final determination.

The predecessor statute to Tax Code 111.206 lends support to my conclusion and
gives us some insight as to what the legislature meant by "investigation." Tax
Code 111.206 was a non-substantive codification of Taxation-General, Article
1.045(F). In Article 1.045(F)(1), a taxpayer was required to report to the
comptroller any determination made by a regulatory agency that affects the
taxpayer's tax liability within 60 days after the determination became final.
Article 1.045(F)(2) provided:

If, from such report or from investigation, it shall appear that the tax
liability affected by such final determination has not been fully assessed, the
Comptroller shall, within one year after the receipt of such report or within
one year of discovery of such final determination, if unreported, assess the
deficiency, with penalties and interest.

This provision seems to suggest that the Comptroller can assess if the
Comptroller can tell from the filed report, from investigation of the filed
report or from investigation of the final determination that the taxpayer had
not fully paid the tax liability due as a result of the final determination.
In other words, it is the investigation of the report or the final
determination that can lead to an assessment or refund. Under either approach,
investigation must relate to the results of a final determination.

There are additional arguments that might lend further support to my
conclusion, but I will stop here for the sake of brevity.

It is my opinion that Audit Division should continue to apply the policy that
it has.