Could one corporation receive another corporation's Texas business-loss carryover through a merger when state records still showed separate certificates of authority?

Plain-English summary

The claimed merger did not transfer the Texas business loss, and Comptroller records continued to treat the corporations as separately authorized entities.

One entity still had an active Texas certificate of authority and remained responsible for reports. The other received its own certificate on December 23, 1996. The Comptroller had no record of the merger transaction.

Rule 3.555(g)(3) prohibited a corporation from conveying, assigning, or transferring a business loss to another entity, expressly including transfer by merger. Administrative Hearing 36,030 had affirmed that position.

The letter gave the taxpayer 20 days to request an administrative hearing if it disagreed.

Currency note: This is a pre-2008 earned-surplus business-loss ruling. Texas replaced the former tax with the margin tax effective January 1, 2008.

What this means for you

Corporations completing mergers

Federal or corporate-law continuity did not automatically transfer a Texas business loss under the former rule.

Tax professionals

Reconcile merger filings with Comptroller and Secretary of State records and track each entity's separate certificate and filing status.

Common questions

Q: Could the loss move through merger?
A: No.

Q: Did the Comptroller have a merger record?
A: No.

Q: What precedent did the letter cite?
A: Administrative Hearing 36,030.

Citations and references

• 34 Tex. Admin. Code Sec. 3.555(g)(3)
• Administrative Hearing 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/9806528L

Original ruling text

June 11, 1998

RE: **
Texas Taxpayer Number: **
RE: **
Texas Taxpayer Number: **

Dear Ms. **:

Thank you for your recent letter regarding the business loss carryover(s) of
the entities referenced above.

According to our records, ** has an active Certificate of Authority
to transact business in Texas and is still responsible for filing Texas
franchise tax reports. ** was issued a separate Certificate of
Authority to transact business in Texas on December 23, 1996. We have no
record of the merger transaction.

As indicated in the notice that you received, 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 was
affirmed in Administrative Hearing 36,030. I have enclosed a copy of the
hearing for your review.

If you disagree with our position, you may request an administrative hearing.
Please send your written request within twenty (20) days of the date of this
letter to:

Revenue Accounting Division
Post Office Box 13528
Austin, Texas 78711

If you have any questions about hearing procedures, please call our Legal
Services Division at 1-800-531-5441, extension 3-3830. The regular number is
512-463-3830.

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