One of the most important elements in determining your rights as a Texas taxpayer is the applicable statute of limitations. At the most basic level, the statute of limitations represents a time period during which the Texas Comptroller may make an assessment of tax, or during which you may file a refund claim for tax amounts you believe you overpaid. The applicable statute of limitations differs based on various factors, including the procedural status of the taxes at issue, and whether the claim involves a refund or assessment. The limitations period may also be extended, or “tolled,” in some cases.
General Statute of Limitations
The Texas Tax Code provides for three types of applicable statutes of limitations:
- Assessments – “No tax imposed by [Title 2 of the Texas Tax Code] may be assessed after four years from the date that the tax becomes due and payable.” [1]
- Collections – “At any time within three years after a deficiency or jeopardy determination has become due and payable or within three years after the last recording of a lien, the comptroller may bring an action in the courts of this state, or any other state, or of the United States in the name of the people of the State of Texas to collect the amount delinquent together with penalties and interest.” [2]
- Refunds – “A claim for refund must…be filed before the expiration of the applicable limitation period as provided by this code or before the expiration of six months after a jeopardy or deficiency determination becomes final, whichever period expires later.” [3]
The “due and payable” date generally refers to the day after the last day on which a payment is required by the chapter imposing the tax at issue. [4] However, the definition of this phrase is somewhat nuanced and warrants its own future post.
Exceptions to the Statute of Limitations
As mentioned, there are several exceptions to the general limitations periods discussed above. Some of the more commonly-applied exceptions are discussed below:
Agreements to Extend
The Comptroller and a taxpayer may enter into an agreement to extend the statute of limitations. [5] The agreement must be entered into before the expiration of the applicable limitations period, and must contain the reasons the Comptroller and the taxpayer wish to extend the period. [6] The Comptroller typically uses its prescribed form for this type of agreement that satisfies the requirements of the Texas Tax Code.
Tolling
The statute of limitations may also be suspended, or “tolled,” for several reasons [7], including but not limited to:
- During the pendency of a refund lawsuit wherein a tax payment is made under protest;
- During the pendency of a judicial proceeding to determine the amount of tax due;
- During the pendency of an administrative redetermination or refund hearing before the Comptroller; and
- During the pendency of a Title 11 bankruptcy case.
If any tolling provision applies, the running of the applicable limitations period is basically frozen until the tolling is stopped. However, with respect to the first three tolling provisions listed above, Texas Tax Code states that the tolling only applies with respect to issues that were contested under the lawsuit or proceeding. [8] So, for example, if a taxpayer challenges a Comptroller assessment via a redetermination hearing, the statute of limitations will be tolled under Texas Tax Code § 111.207, but only with respect to the issues contested by the taxpayer. This leaves broad room for interpretation regarding whether an item is or is not too attenuated to be considered “contested.”
No Limitations Period
Finally, there are some scenarios in which there is no statute of limitations on assessment at all. [9] This may occur where:
- The Comptroller asserts the taxpayer filed a false or fraudulent tax report with intent to evade tax;
- The taxpayer did not file a tax report or
- The report contains a “gross error” (defined as an error resulting in the amount of tax due, after correcting the error, exceeding the reported amount by at least 25%).
Knowing whether the statute of limitations has expired or when it will expire can be crucial to determining your rights as a taxpayer. The above provides a general framework for making such a determination. However, a proper analysis involves considering several additional factors and can become quite complex.
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[1] Tex. Tax Code § 111.201 (emphasis added).
[2] Tex. Tax Code § 111.202 (emphasis added).
[3] Tex. Tax Code § 111.104(c)(3) (emphasis added).
[4] Tex. Tax Code § 111.204.
[5] See Tex. Tax Code § 111.203.
[6] Id.
[7] Tex. Tax Code § 111.207(a).
[8] Tex. Tax Code § 111.207(b).
[9] Tex. Tax Code § 111.205.
