Were employees titled vice president treated as officers for the former compensation add-back if they could not legally bind the corporation?

Plain-English summary

A vice-president title did not make an employee an officer for the compensation add-back if the employee lacked legal authority to bind the corporation.

Rule 3.558 governed the former earned-surplus compensation add-back. The Comptroller said employees called vice presidents were not officers when the corporation could prove they had no authority to execute contracts or other legal documents binding the corporation to third parties.

If the corporation had treated them as officers on a prior report, it could file a refund claim before the limitations period expired. The letter described that period as generally four years and required documents substantiating the employees' lack of legal authority.

Currency note: This ruling concerns the former officer-compensation add-back. Texas replaced the old franchise tax with the margin tax effective January 1, 2008; confirm current refund deadlines and tax rules.

What this means for you

Corporations with broad vice-president titles

Job title was not conclusive. Actual legal authority to bind the corporation was the decisive fact under this response.

Tax professionals reviewing old reports

A refund required both timely filing and evidence. Organizational documents, delegations of authority, contract-signing policies, and actual practice may matter.

Common questions

Q: Were all vice presidents officers?
A: No.

Q: What fact controlled?
A: Whether the employee had legal authority to bind the corporation to third parties.

Q: Could prior reports be corrected?
A: A refund claim could be filed before limitations expired, generally four years, with supporting documentation.

Citations and references

• 34 Tex. Admin. Code Sec. 3.558

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9905707L

Original ruling text

May 3, 1999

TO: **

Dear **:

Thank you for your recent tax help inquiry. You have asked for clarification
of the Franchise Tax Rule 3.558 definition of "officer" as it pertains to two
questions.

1. If a corporation has employees designated as "vice-presidents", but they do
   not have the power to bind the corporation with third parties, are they to be
   considered "officers" for purposes of this compensation add-back?

Response:

If a corporation can factually establish that it has employees designated as
"vice-presidents" who do not have legal authority to bind the corporation with
third parties by executing contracts or other legal documents, then these
employees would not be considered "officers" for purposes of the compensation
add-back.

2. If the answer to question 1 is no, and a corporation has included these
   employees and their compensation as "officers" in a prior year, what are their
   options to correct this? Can amended returns be filed? If so, for how many
   years?

Response:

A refund claim is permitted at any time before the expiration of the statute of
limitations, which is generally four years. Before any refund could be
considered, a submission of documentation establishing and substantiating the
factual claim that the employees designated as "vice-presidents" do not have
legal authority to bind the corporation with third parties would be required.

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

If you have further franchise tax questions, please write me or call me
toll-free at 1-800-531-5441, extension 3-3958.

Sincerely,

Teresa Comer
[email protected]
Tax Policy Division