Must an LLC amend prior No Tax Due franchise-tax reports to carry a business loss from those years to a current report?

Plain-English summary

A limited liability company had filed Form 05-141, Texas Franchise No Tax Due Information Reports, for three years during which it accrued business losses for franchise-tax purposes. It asked whether it had to amend those prior reports in order to carry the business loss forward and use it on a current filing. The Comptroller said no amendment is required.

• No amended reports. The LLC is not required to amend any previous reports to use a business loss from prior years when it files the current Texas Corporation Franchise Tax Report (Forms 05-142 and 05-143).
• Keep documentation. The LLC should keep a worksheet to substantiate its loss carryforwards in case it is ever audited.

Currency note: This is the pre-2008 franchise tax and its business-loss carryforward, replaced by the current margin tax (House Bills 3 and 3928) effective January 1, 2008. Treat as historical.

What this means for you

Small businesses that filed No Tax Due years

If you had lean years reported as No Tax Due but were building up franchise-tax business losses, you did not need to go back and refile those years to claim the losses later. You just needed to keep your own records showing how the carryforward was computed.

Accountants and tax professionals

Carry the business loss forward directly onto the current long-form report (Forms 05-142/05-143) without amending the No Tax Due (Form 05-141) years, and retain a substantiating worksheet for audit. (Recall the related rule that a business loss must be used once there is positive earned surplus and expires after five years.)

Common questions

Q: Do I have to amend my No Tax Due reports to use a prior business loss?
A: No. You can use the prior-year business loss on your current Corporation Franchise Tax Report without amending the earlier No Tax Due reports.

Q: What should I keep?
A: A worksheet substantiating your loss carryforwards, in case of audit.

Citations and references

• Forms 05-141 (No Tax Due Information Report) and 05-142 / 05-143 (Corporation Franchise Tax Report) referenced; no specific statute was cited in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200405572L

Original ruling text

May 7, 2004

To: **

Dear **:

Thank you for your email regarding business loss carryovers for Texas franchise
tax purposes.

The forms I mention below, as well as other related information, can be found
at http://www.window.state.tx.us/taxinfo/franchise/index.html.

You have indicated a limited liability company (LLC) filed Form 05-141, Texas
Franchise No Tax Due Information Reports for three years when the LLC accrued
business losses for Texas franchise tax purposes. You have asked if the LLC
will need to amend these filings in order to carry over the business loss to be
used on a current franchise tax filing.

The LLC will not be required to amend any previous reports to utilize a
business loss from prior years when filing the Texas Corporation Franchise Tax
Report (Forms 05-142 and 05-143) for the current year. You should keep a
worksheet to substantiate your loss carry forwards in case you are every
audited.

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

Our goal is to provide you with prompt, professional service. Please take a
moment to complete our online survey at
http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

If you need any additional information, please feel free to call me at
1.800.531.5441, extension 34629.

Sincerely,

Lowell Olsen Dunn
Tax Policy Division