Could a surviving corporation inherit former Texas business-loss carryforwards from corporations merged into it?

Plain-English summary

A merger survivor could not take over the non-surviving corporations' former Texas business losses.

The surviving corporation amended its 1996 franchise-tax report and sought a refund using business losses belonging to two entities that had merged into it.

Rule 3.555(g)(3) stated that a corporation could not convey, assign, or transfer a business loss to another entity, including by merger. The Comptroller therefore denied the refund claim and cited Administrative Hearing No. 36,030.

The letter offered a refund hearing if requested in writing within 20 days, a historical taxpayer-specific deadline.

What this means for you

Merger survivors reviewing historical losses

Legal succession in the merger did not carry the non-survivors' former Texas business-loss deductions into the survivor.

Tax professionals

Track business losses by the corporation that generated them and treat the hearing deadline as case-specific and historical.

Common questions

Q: Did the losses transfer in the merger?
A: No.

Q: Was the refund allowed?
A: No.

Q: What authority did the letter cite?
A: Rule 3.555(g)(3) and Administrative Hearing No. 36,030.

Citations and references

• Texas Tax Code Sec. 171.110(e)
• 34 Tex. Admin. Code Sec. 3.555(g)(3)
• Administrative Hearing No. 36,030

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9701116L

Original ruling text

January 24, 1997

Dear **:

I have reviewed the amended franchise tax report for the 1996 report year that
you recently submitted. Your refund claim has been denied.

It appears that your company is the survivor of a merger transaction. The two
entities that were merged into your company had business losses as defined in
Section 171.110(e) of the Texas Tax Code (TTC). You asked in your letter that
we transfer the business losses from the non-survivors to your company.

Franchise tax rule 3.555(g)(3) states that "A corporation may not convey,
assign, or transfer a business loss to another entity including, but not
limited to, by merger." This position has been upheld recently in our
administrative hearing number 36,030. I have enclosed an edited copy of the
decision for your review.

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

You are entitled to a refund hearing. If you would like to request one, please
send your written request within twenty (20) days of the date of this letter to
the Audit Processing Section of Revenue Accounting. This request must be
accompanied by a copy of this letter and any documentation needed to support
your claim.

If you have any questions about this or any other franchise tax matter, please
call me at
1-800-531-5441, extension 34612. My direct number is (512) 463-4612. You may
write me at Tax Policy Division, Comptroller of Public Accounts, Austin, Texas
78774.

Sincerely,
Janet Spies
Tax Policy Division