Texas Comptroller of Public Accounts    STAR System


9601R1385D03 



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 9601762R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX


Section 3.559. Earned Surplus: Temporary Credit. (Tax Code, Section 171.111).

(a) Provisions. The provisions of this section apply to franchise tax reports 
originally due after January 1, 1992.

(b) Definitions. The following words and terms, when used in this section, 
shall have the following meanings, unless the context clearly indicates 
otherwise.

(1) Accounting methods - The method of allocating the cost, benefit, or expense 
of an asset or liability to accounting periods. For purposes of the credit 
under Section 171.111, the accounting method used to calculate the timing 
difference under the Tax Code, Section 171.111, must be in accordance with 
GAAP. A change in accounting method includes the method used to allocate assets 
and liabilities to accounting periods or changes in estimates used in 
calculating the amount of the timing difference under the Tax Code, Section 
171.111(b)(1). The disposition of an asset or liability through a sale, trade, 
abandonment, or other similar situation is not considered a change in an 
accounting method.

(2) Correction of an error - For purposes of computing timing differences under 
this section, the correction of an error resulting from mathematical mistakes, 
mistakes in the application of accounting principles, or an oversight or 
unintentional misuse of facts that existed on the computation date.

(3) Generally Accepted Accounting Principles (GAAP) - For the purposes of this 
title, unless the context clearly requires otherwise, GAAP means those broad 
rules of accounting formally accepted by the American Institute of Certified 
Public Accounts (AICPA) or its designees through publication of a statement, 
opinion, interpretation, research bulletin, and the like.

(4) Timing differences - Temporary differences as defined in Statement of 
Financial Accounting Standards No. 96 (SFAS 96) as amended effective January 1, 
1992, which will reverse at some future date.

(A) Events and transactions which do not result in differences between the 
basis of an asset or liability for financial and income tax purposes do not 
qualify as timing differences even if a provision for income tax is required 
under generally accepted accounting principles.

(B) A timing difference is considered to reverse at some future date if such 
difference results in income, deductions, expenses, or credits for financial 
accounting or federal income tax purposes which offset the difference in basis 
in future accounting years. Differences whose reversal are under the control of 
the taxpayer do not qualify as timing differences.

(C) For the purposes of this section, deferred investment tax credits, 
allowance for funds used during construction, and basis differences for which 
tax provisions are not required under SFAS 96, as amended effective January 1, 
1992, do not qualify as timing differences.

(c) Notice of intent.

(1) The notice of intent to preserve the right to claim the temporary credit 
under the Tax Code, Section 171.111, must be submitted to the comptroller on 
forms specified by the comptroller. The form must be filed on or before March 
2, 1992 (because March 1, 1992, falls on a Sunday). The postmark date (or 
meter-mark date, if there is no postmark) on the envelope in which the form is 
received determines the date of filing.

(2) The corporation must submit with the notice of intent the amount of timing 
differences determined under the Tax Code, Section 171.111(b)(1). The amount of 
such differences may be estimated if no final determination of such amount is 
available at the date of filing of the notice of intent. Although corrections 
of errors (as defined in this section) in calculating such timing differences 
may be made on reports within the period of limitations, changes in accounting 
methods will not be considered a correction of an error in calculating such 
differences. The corporation will be liable for any applicable penalty and 
interest if the amount of timing differences determined results in an 
underpayment of tax.

(3) The preservation of the right to claim the credit may not be conveyed, 
assigned, or transferred to another entity.

(d) Electing the credit.

(1) The election to claim the credit is a one-time election. If the election is 
revoked, the credit may not be claimed on any reports originally due on or 
after the date the election is revoked.

(2) A corporation elects the credit by:

(A) properly taking the credit in computing the tax on earned surplus and 
paying the additional tax due under the Tax Code, Section 171.111(h), on a 
report filed on or before the original due date; or

(B) electing the credit on a timely filed extension request and complying with 
the requirements of subparagraph (A) of this paragraph on the report filed on 
or before the extended due date of the report.

(3) If a corporation elects the credit on a report on which the corporation was 
ineligible for the credit based on the provisions of this rule or the Tax Code, 
Chapter 171, the corporation is treated as though the election was not made. 
The corporation will be liable for any applicable penalty and interest for 
underpayment of tax.

(4) The allowable credit on reports due within the limitation period as 
specified in the Tax Code, Chapter 111, Subchapter D is subject to adjustment 
even if the initial election to take the credit is outside the period of 
limitations under the Tax Code, Chapter 111, Subchapter D.

(e) Computation of the credit.

(1) If the credit under the Tax Code, Section 171.111, is claimed, the 
corporation is required to use the GAAP method in computing taxable capital. In 
other words, the corporation may not use the federal income tax method in whole 
or in part in computing taxable capital.

(2) The amount subject to the credit determined under the Tax Code, Section 
171.111(b)(1), is the excess of the basis of qualifying assets minus 
liabilities in accordance with generally accepted accounting principles over 
the basis of qualifying assets minus liabilities for federal income tax 
purposes as of the accounting year end in 1991. Amounts not allowed as timing 
differences under this section or Tax Code, Section 171.111, shall be excluded 
from the computation of the amount subject to credit. The corporation must 
include all assets and liabilities in computing the credit under the Tax Code, 
Section 171.111 (i.e., the corporation can not compute the differences for only 
certain assets and/or liabilities).

(f) Revocation of the election. Unless otherwise provided in subsection (g) of 
this section, the election to claim the credit under the Tax Code, Section 
171.111, is revoked at the earliest of the following occurrences:

(1) after making a valid election:

(A) the corporation notifies the comptroller in writing that the election is 
revoked;

(B) the corporation fails to claim the credit on a subsequent report or fails 
to report the additional tax due under the Tax Code, Section 171.111(h), on a 
subsequent report; or

(C) the corporation uses the federal income tax method in reporting taxable 
capital; or

(2) when calculating taxable capital, the corporation changes the accounting 
method for any asset or liability used in determining the timing differences 
under the Tax Code, Section 171.111(b)(1); or

(3) the corporation is the nonsurvivor of a merger or consolidation or the 
corporation terminates its existence for any other reason.

(g) Correction of error. The election will not be revoked under subsection 
(f)(1)(B) or (C) of this section if the corporation files, within 60 days from 
the date of notice of the revocation, an amended report correcting the error 
which caused the revocation.

(h) Changes in accounting methods. A corporation, otherwise precluded from 
changing accounting methods under the Tax Code, Section 171.109, may change 
accounting methods on its first report due on or after January 1, 1992, to the 
methods used to account for qualifying assets and liabilities on its financial 
statements for the accounting year ended in 1991, if the timing differences 
computed under the Tax Code, Section 171.111(b)(1), are based on the methods 
used on such 1991 financial statements. A corporation that changes methods 
under this section is considered to have made a change in accounting methods 
for purposes of the Tax Code, Section 171.109. For the purposes of this 
section, other changes in accounting methods for qualifying assets and 
liabilities are allowed only with the written consent of the comptroller.

(i) Temporary credit. The temporary credit is not available when computing the 
additional tax under the Tax Code, Section 171.0011.


Effective Date: January 4, 1996
Filed with Secretary of State: December 14, 1995




ACCESSION NUMBER: 9601762R   
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 01/04/1996
TAX TYPE: FRANCHISE