When a corporation gets a franchise-tax extension but doesn't file by November 15, does the statute of limitations run from May 15 or November 15?

Plain-English summary

This internal Tax Policy memo answers an auditor's question about the interaction of a franchise-tax extension, a missed November 15 filing, and the statute of limitations (SOL) start date. The answer turns on which kind of extension the corporation obtained.

• Extension by paying 100% of the prior period's tax (Sec. 171.202(c)(2)(B)). The Comptroller "shall" grant an extension if it is timely requested and the corporation pays 100% of the tax reported in the prior period. Because that condition was met, the extension stands even if the corporation fails to file a report on or before November 15. The statute of limitations begins to run from November 15.
• Extension by paying 90% of the current period's tax (Sec. 171.202(c)(2)(A)). Here the statute requires payment of 90% "of the amount of tax reported as due on the report filed on or before November 15." That language requires a report to actually be filed. If the corporation fails to file by November 15, the prerequisite is not satisfied, so there is no valid extension. The original due date of May 15 governs, and the statute of limitations runs from May 15.
• The general rule the auditor asked about. If a corporation fails to meet the prerequisite condition for an extension, there is no extension, and the original May 15 due date controls. That rationale applies to the 90% path but not to the 100%-prior-period path, which does not depend on filing a report.

Currency note: This letter describes the pre-2008 franchise tax (replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928). Extension and limitations rules differ under the current tax; confirm present law.

What this means for you

Corporations relying on a franchise-tax extension

How you qualified for the extension determines whether a late (or missing) report costs you the extension. A 100%-of-prior-year payment locks in the extension regardless of when you file, pushing the limitations clock to November 15. A 90%-of-current-year extension is fragile - it depends on a report actually being filed by November 15.

Auditors and tax professionals fixing the limitations date

Identify the basis of the extension before setting the SOL start. The two paths in Sec. 171.202(c)(2) produce different limitations start dates (November 15 vs. May 15) on otherwise identical facts.

Common questions

Q: Does a 100%-prior-year extension survive a missed November 15 filing?
A: Yes. Under Sec. 171.202(c)(2)(B) the extension is mandatory once timely requested with the 100% payment, and the statute of limitations runs from November 15.

Q: What about a 90%-current-year extension?
A: It requires a report filed on or before November 15. If none is filed, there is no valid extension; the May 15 due date controls and the limitations period runs from May 15.

Citations and references

Statutes:

• Texas Tax Code Sec. 171.202(c)(2)(B) - extension granted on timely request plus payment of 100% of the prior period's reported tax
• Texas Tax Code Sec. 171.202(c)(2)(A) - extension granted on payment of 90% of the tax reported as due on a report filed on or before November 15

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200204947L

Original ruling text

April 10, 2002

Subject: Extension of due date and SOL

Question: A corporation timely submitted a request for an extension to file
its franchise tax report by November 15 and paid 100% of the tax reported in
the previously calendar year. However, the corporation failed to file a report
on or before November 15. Is the due date for determining the beginning date
for the statute of limitations May 15 or November 15? If a corporation
obtains an extension, but it comes to light the corporation did not meet the
requirements of the extension (100% of prior period or 90% of current year
tax), then our policy is to say that the due date reverts back to May 15. Does
the same rationale apply?

Answer: If a corporation fails to meet the prerequisite condition to obtain an
extension, then there is no extension; thus, the original due date of May 15 is
the due and payable date. However, Tax Code provides that the comptroller
"shall" grant an extension for filing a report if the request for extension is
timely made and if a payment of 100% of the tax reported in prior period is
made. See Texas Tax Code Section 171.202(c)(2)(B). Thus, if a corporation
obtains a valid extension by paying 100% of the tax reported in the prior
period, then the extension of the due date stands even if that corporation
fails to file a report on or before November 15. The statute of limitations
begins to run from November 15.

There is a different answer if the extension was based on the payment of 90% of
the tax due in the current tax period. Tax Code provides that an extension
shall be granted if it is timely requested and if a payment of 90% "of the
amount of tax reported as due on the report filed on or before November 15" is
made. (emphasis added). See Texas Tax Code Section 171.202(c)(2)(A). To
obtain a valid extension, a report has to be filed. Thus, a corporation's
failure to timely file a franchise tax report on or before November 15 negates
the satisfaction of the prerequisite condition for an extension. The original
due date of May 15 is the due and payable date, and the statute of limitations
begins to run from May 15.