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RULE §1.30Settlement in a Contested Case Based on Insolvency

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

  (1) Insolvent--The taxpayer's liabilities exceed the taxpayer's assets or the taxpayer is unable to pay the taxpayer's debts as they become due.

  (2) Insolvency settlement--Settlement based on Tax Code, §111.102 made in the contested case process.

(b) Eligibility for insolvency settlement. The comptroller may settle a claim for a tax, penalty, or interest imposed by Tax Code, Title 2, State Taxation, only if the taxpayer proved by a preponderance of evidence that:

  (1) collection of the total amount due would make the taxpayer insolvent and the taxpayer has submitted all financial records including income tax reports and an inventory of all property owned, wherever located; or

  (2) the taxpayer has no property that may be seized by the courts of this or another state or the value of the taxpayer's property is less than the total amount due and the amount of debts against the property; and the taxpayer:

    (A) is insolvent;

    (B) is in liquidation; or

    (C) has ceased to do business.

(c) An insolvency settlement proposal must be submitted in a redetermination proceeding after a hearing number has been assigned and before a notice of hearing has been issued.

(d) The insolvency settlement proposal must specify the basis of eligibility for an insolvency settlement and propose specific settlement terms, including the total amount to be paid and the terms of any payment plan.

(e) The insolvency settlement proposal must include copies of the following documents, which will be treated as confidential taxpayer information pursuant to Tax Code, §111.006:

  (1) all federal income tax returns from the year immediately prior to the date of assessment to the most recent federal income tax return;

  (2) financial statements from the year immediately prior to the date of assessment to the year of the most recent federal income tax return, and year-to-date financial statements for the period following the taxpayer's most recent federal income tax return;

  (3) bank statements for the six months immediately prior to the date of the insolvency settlement request; and

  (4) documentation of assets (including inventory of all property owned, wherever located), liabilities, ongoing financial obligations, and proof of any claimed insolvency, liquidation, or business cessation.

(f) If the comptroller does not accept a taxpayer's insolvency settlement proposal, the taxpayer may request that the comptroller refer the matter to SOAH. The comptroller will refer to SOAH only factual disputes regarding whether the taxpayer met the insolvency requirements stated in subsection (b) of this section, whether the settlement request met the specificity of offer requirements of subsection (d) of this section, and whether the settlement request met the documentation requirements of subsection (e) of this section. The comptroller will not include the amount, payment schedule, or other terms of a proposed settlement agreement in a Notice of Hearing. The parties retain discretion to reach agreement on the specific terms of a proposed settlement agreement, and discretion to decline to enter into a proposed settlement agreement, notwithstanding any recommendations on settlement contained in a proposal for decision.

(g) The comptroller may consider all relevant factors in determining whether to enter into an insolvency settlement agreement, including but not limited to:

  (1) whether an additional penalty has been assessed under Tax Code, §111.061(b);

  (2) whether the taxpayer is liable for outstanding amounts in other periods or in other taxes;

  (3) whether the taxpayer has complied with the terms of previous resolution agreements;

  (4) whether the assessment includes tax collected but not remitted;

  (5) whether the settlement may hinder collection of the amounts owed from other parties who may also be liable for the amounts owed pursuant to Tax Code, §§111.016, 111.0611, 111.020, 111.024, and 171.255, or other law;

  (6) whether the taxpayer is out of business;

  (7) whether the taxpayer has started a new business; and

  (8) whether the taxpayer has previously entered into an insolvency settlement.

Source Note: The provisions of this §1.30 adopted to be effective January 1, 2019, 43 TexReg 8126

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