HBA-RBT H.B. 2543 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 2543
By: McCall
Ways & Means
4/12/1999
Introduced

BACKGROUND AND PURPOSE 

The Tax Code does not clearly state the standards to be used when
deliberating a penalty waiver request by a taxpayer in either an audit or
non-audit situation, or in taking a filing position with respect to a tax
report.  Tax Code Section 111.061 imposes a mandatory penalty on tax
underpayments that do not exceed 10 percent of the tax owed to the
comptroller.  However, if the taxpayer exercised "reasonable diligence" to
comply with the tax laws, a waiver of the penalty is available under Texas
Tax Code Section 111.103.  There is no statutory definition of "reasonable
diligence" to guide the taxpayer. 

A taxpayer is required regularly to file a tax return contemporaneous with,
or prior to, the Texas court's final resolution of a tax issue involving
another taxpayer.  The taxpayer is forced to choose between a conservative
filing position that may result in an overpayment of taxes without any
interest available for an overpayment, and an aggressive filing position
that will automatically result in penalties and interest.  Historically,
the comptroller has not considered this taxpayer dilemma when deliberating
penalty waiver requests. 

A taxpayer may have a reasonable interpretation of a statute, regulation,
or policy that differs from the comptroller's interpretation.  The taxpayer
should not be penalized for taking such a position if there is appropriate
authority for the position taken, or in the instance in which a taxpayer
has limited authority, the position is fully disclosed on the return. 

In order to provide a taxpayer more certainty when preparing a state tax
return, the Tax Code should incorporate provisions to define "reasonable
diligence" to include a "substantial authority" standard similar to the
standard contained in the federal Internal Revenue Code of 1986 (IRC),
Section 6664; and adequate disclosure of the relevant facts affecting the
item's tax treatment in the tax return or report, similar to the disclosure
standards found in IRC Section 6662. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 111.103, Tax Code, by adding Subsection (b), to
provide that a taxpayer exercises reasonable diligence to comply with the
provisions of this title in relation to a tax item when the taxpayer acts
in good faith with respect to that item and substantial authority for the
tax treatment of that item by the taxpayer existed at the time the taxpayer
acted or at the time the claim is settled or the taxpayer adequately
discloses the relevant facts affecting the item's tax treatment in the
report or in a statement attached to the report and there is a reasonable
basis for that tax treatment. 

SECTION 2.  Effective date: The first day of the first calendar quarterh
beginning on or after  
            the earliest date that it may take effect under Section 39,
Article III, Texas  
            Constitution.
                       Makes application of this Act prospective.

SECTION 3.  Emergency clause.