taxes

Franchise Tax Frequently Asked Questions

Temporary Credit for Business Loss Carryforwards

If I elect to file using the E-Z Computation, can I still take the credit for business loss carryforwards?

No. For any report year in which the E-Z Computation is used, the business loss carryforward credit for that year is lost and may not be carried over to subsequent years. Texas Tax Code 171.1016(c).

Is a combined group eligible to take the credit for business loss carryforwards?

A taxable entity that is a combined group may claim the temporary credit for each eligible member of the combined group. An eligible member is one subject to the franchise tax on May 1, 2006, and that preserved the right to take the credit on or before the due date of its 2008 report.

Can a combined group take a credit for business loss carryforwards if a member leaves the group?

If a combined group member leaves the combined group during a tax period, the combined group may claim the departing member's entire amount of credit and the member's entire available credit carryover for the report year. For subsequent reports, the departed member's credit will no longer be available to the combined group, and the combined group's credit carryover must be adjusted to remove the portion of carryover related to the departed member.

Example: Entities A, B and C each have business loss carryforwards and are members of combined group ABC, a calendar year tax filer. If Group ABC sells member C during the 2015 accounting period, Group ABC may claim C's credit and share of the carryover on the combined group's 2016 franchise tax report. For subsequent reports, C's credit and share of the carryover are no longer available to the combined group. A and B's credits remain with the combined group.

What happens to the credit for business loss carryforwards if one member of a combined group merges into another member of the same combined group?

If one member of a combined group merges into another member of the same combined group, that nonsurviving member's business loss carryforward will remain with the group.

Can a combined group continue to take a credit for business loss carryforwards if it adds a member to the combined group?

If a combined group expands from within, there is no effect on the temporary credit of the combined group. If a combined group adds an existing entity to the group, that new member's temporary credit is lost.

Example: If Group ABC acquires D after June 30, 2007, then A, B and C's credits remain. D's credit, if any, is lost.