Texas Comptroller Update: The Insider’s Panel

March 7, 2014
Curtis Osterloh moderated a panel discussion with Comptroller personnel regarding the Comptroller’s dispute resolution process and new policy and procedural developments.   The panel consisted of Robin Robinson, Deputy General Counsel of the Hearings Section, Hearings Section team leads Bob Frederick and Richard Clark, and Teresa Bostick, manager of Tax Policy.  Important highlights from the discussion include:

Changes to the letter ruling process.  The Comptroller has substantially reduced the number of letter rulings being released to the public and eliminated detrimental reliance for any guidance not released under the new private letter ruling policy.  Under the new policy the Comptroller has issued just a handful of responses in 2013 compared to the thousands of responses that were released in prior years.

Rule 3.1 establishes two new procedures for responding to letter ruling requests and the Comptroller gets to choose which procedure it will use.   First, the Comptroller may issue a nonbinding general information letter that only provides the applicable tax laws, rules, or resources without applying them.  Second, the Comptroller may issue a private letter ruling (binding prospectively) – a written determination on the application of relevant tax laws, rules, or policies to a specific set of facts submitted in a proper request.  In order to obtain the private letter ruling, a taxpayer must usually reveal its identity.  The ruling is also only binding as to the individual taxpayer who requested ruling, and may be modified, revoked, or become invalid due to change in law.

In conjunction with the adoption of Rule 3.1, the Comptroller also amended the Taxpayer’s Bill of Rights in Rule 3.10. The amended rule provides that detrimental reliance applies to private letter rulings to the extent they are binding and valid under Rule 3.1. Given the Comptroller has only released three private letter rulings in the last year, detrimental reliance has been effectively eliminated.  Although the Comptroller’s desire for consistent rulings is understandable, the unfortunate consequence is that taxpayers get fewer definitive rulings.

Increased Reliance on 180 Day Letters.  Texas Tax Code § 111.105 allows the Comptroller to issue a written demand that all evidence to support the claim for refund must be produced before the expiration of a specified date in the notice (not earlier than within 180 days from the date of the claim).  In addition, the Comptroller may not consider evidence produced after the specified date in the notice in an administrative hearing.  Both the Comptroller’s Audit Division and the Hearings Section have increased the issuance of 180 Day Letters.  The Hearing Section is only using the notices after the taxpayer declines to provide support for the refund claim.  The Audit Division, however, has used the notices more frequently during the refund review process.  Taxpayers that fail to respond will have their documents barred from administrative review.

Dispute Resolution Processes.  The panel explained in detail the various dispute resolution options available to taxpayer.  The following is summary of the pros, cons and special details taxpayers should pay attention to as they attempt to resolve their disputes.

The single best place to resolve your dispute is with auditor:
  1. Develop a good working relationship
  2. Timely deliver documents/respond to questions
  3. Open lines of communication
  4. Don’t let frustration show—always be respectful
  5. Everything gets recorded in the Auditor’s work file -all correspondence and auditor’s notes. The audit file can be accessed by any level in the Comptroller’s office
Audit Division (informal appeal within the audit division)
  1. Auditor (if unsuccessful ask to speak with Auditor’s supervisor)
  2. Auditor supervisor (if unsuccessful ask to speak with Office Manager)
  3. Office Manager (if unsuccessful ask to speak with Audit Headquarters)
  4. Audit Headquarters (direct appeal to Audit Headquarters)
Independent Audit Review conference (IAR)

PROS
  • Informal (available for most audits but there are exceptions)
  • At your place of business
  • Former audit supervisor with extensive experience
CONS
  • Not necessarily binding unless approved
  • Good for facts but not legal arguments
  • Can impact later settlement efforts
  • Can be lengthy process and interest continues to run
New Dispute Resolution Coordinator (DRC)
  • Referral must come from within Agency (via Audit Division or Tax Division)
  • Referral after 60 day process has concluded
  • Must be a FULL resolution
  • If referred and no resolution matter will go forward in hearing process without future settlement option
  • No referral for HB11 matters
  • Discretion to take into account legal and factual arguments
  • New position and additional guidance will hopefully be  released soon
  • One of goals of DRC is get the Audit Division out of the case resolution settlement business (but door remains open for fundamental fairness arguments and black and white issues)
Final Thoughts on Dispute Resolution:
  • There must be a basis for the resolution apart from just a lump-sum allocation of the amount in dispute [50/50 offers will fail].
  • Know your audience-get in front of the person that is both capable and willing to make a decision.
  • What can you offer the State as part of the resolution.
  • Patience, patience, and more patience.  There are many steps along the settlement road from your exit conference to walking into the Austin Court of Appeals and settlement remains an option in most cases.
The information in this article and any attached or referenced pages have been written or gathered for informational purposes only, are not legal advice, and may now be outdated. Persons receiving information from this article should not act upon the information without seeking professional legal counsel.

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