SECTION 3.3. Contract Examination Program

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

(1) Applicant--A person that submits a Statement of Qualifications in response to the comptroller's Request for Qualifications.

(2) Contract Examination Program--A program that the comptroller creates under Tax Code, §111.0045, in which the comptroller contracts with qualifying persons or accounting firms to perform tax examinations for the State of Texas.

(3) Contract examiner--A person who performs a tax compliance examination or special examination project under the Contract Examination Program.

(4) Orientation--Information provided by the comptroller to familiarize contract examiners with policies, procedural rules, recent developments in Texas tax laws, and other materials that may be pertinent to possible assignments.

(5) Project manager--An employee of the comptroller whom the manager of Audit Division appoints to oversee the Contract Examination Program.

(6) Request for Qualifications--An announcement that the comptroller issues, which states the availability of a contract under the Contract Examination Program and solicits submissions of written responses from qualifying applicants.

(7) Selection committee--A committee within the comptroller's office that will review Statements of Qualifications.

(8) Statement of Qualifications--A written statement that an applicant submits in response to a Request for Qualifications.

(b) Selection procedures for contract examiners.

(1) Contracts that are awarded under the Contract Examination Program are governed by procedures of Government Code, Chapter 2254, Subchapter A. The comptroller will use the selection process that is described in this section and that complies with Chapter 2254, Subchapter A, and other applicable law.

(2) The comptroller will publish from time to time in the Texas Register and/or post on the Texas Marketplace a Request for Qualifications that announces that the comptroller seeks contract examiners to perform examinations in sales and use tax, motor vehicle sales tax, mixed beverage tax, fuels tax, or International Fuel Tax Agreement. The comptroller may expand the Contract Examination Program to other taxes that are not enumerated if the comptroller determines that doing so would be in the best interest of the state. Any such Request for Qualifications will be published for a period no less than 30 days or other applicable statutory period prior to the date for submission of responses and will solicit a Statement of Qualifications from applicants who are interested in contracting with the comptroller to perform examinations under the Contract Examination Program.

(3) The Request for Qualifications will require an applicant to submit a Statement of Qualifications that contains, at a minimum and without limitation, the following information:

(A) transmittal letter that describes specific experience and qualifications of both the firm and each individual in the conduct of state tax examinations;

(B) physical address of the firm's or individual's business offices and each local office and the primary contract person;

(C) educational background and tax experience of each individual who will perform examinations. Each individual who will perform examinations must have at least one year of experience in Texas tax examining, preparation, or other Texas tax services and must either have graduated from an accredited senior college or university with a minimum of 24 hours of accounting, including six hours of intermediate accounting and three hours of audit or be licensed as a certified public accountant by the Texas State Board of Public Accountancy;

(D) summary of work experience of each individual who will perform examinations, including identification of specific skills;

(E) states in which the individuals who will perform examinations are licensed and the license number in each state, if any;

(F) statement that the applicant understands and agrees with the proposed fee structure and with the proposed contract;

(G) proposed work plan (timeline, tasks and deliverables) including:

(i) methods for deployment of personnel and equipment to perform the examinations timely and otherwise in accordance with each contractual requirement;

(ii) methods for making personnel available for orientation and examination, if any;

(iii) methods for conducting checks regarding actual or potential conflict of interest, and notification to the comptroller of any conflicts prior to beginning an assignment; and

(iv) date of availability;

(H) disclosures of any partner, associate, employee, or individual practitioner who has been an employee of the comptroller within 12 months from the date of submission of the Statement of Qualifications;

(I) information on efforts that the firm or individual has made to comply with the historically underutilized business requirements of the contract, by applicable law or rule including, without limitation, §1.345 of this title (relating to Historically Underutilized Businesses);

(J) confirmation of willingness to comply with the policies, directives, rules, procedures, and guidelines of the comptroller in connection with the conduct of the assigned examinations, and to adhere to the terms and conditions of the contract as posted on the Texas Marketplace;

(K) execution of Statement of Qualifications form; and

(L) any other documents that the comptroller determines are appropriate in response to the Request for Qualifications.

(4) Statements of Qualifications will be excluded on the following grounds:

(A) Statement of Qualifications was not properly and timely submitted. An original and 10 copies of each Statement of Qualifications must be hand delivered to and received in the General Counsel Division, Contracts Section, at the address specified in the Request for Qualifications, no later than the date and time specified in the Texas Register in which the Request for Qualifications is published;

(B) Statement of Qualifications is incomplete. Although the comptroller may request clarification of submitted information, the applicant bears responsibility to submit correct and complete information. The comptroller reserves the right to consider applicants based strictly on the information that is originally submitted;

(C) Statement of Qualifications does not adequately establish that each individual who will work on examinations meets the requirements of paragraph (3)(C) of this subsection.

(5) The comptroller reserves the right to accept or reject any or all Statements of Qualifications that are submitted in response to a Request for Qualifications. The comptroller is not obligated to execute any contract or contracts as a result of issuing a Request for Qualifications. No minimum amount of examinations or compensation is guaranteed to any selected contract examiner. The comptroller further reserves the right to issue additional Requests for Qualifications or other solicitations at any time as the comptroller determines necessary to ensure an adequate number of examiners for any assigned examinations under the Contract Examination Program. The comptroller shall pay no costs or any other amounts that an applicant incurs in response to a Request for Qualifications.

(6) All qualifying Statements of Qualifications that are received timely will be evaluated based on qualifications, experience, work plan, and agreement to the approved contract and fees. The selection committee will perform the evaluation, and the comptroller has sole discretion to make the final selections in the best interest of the State of Texas. Disagreements with professional judgments exercised by the selection committee in evaluating any subjective criteria are not grounds for re-evaluation or appeal. Notice of contract awards will be posted on the Texas Marketplace after all contracts, if any, that result from the Statement of Qualifications are fully executed.

(c) Other prerequisites. To be considered for a contract, an applicant must meet, or agree to meet, the following terms:

(1) be willing to certify that during the 36-month period that immediately precedes the signing of a contract, neither the applicant nor the firm with which the applicant is associated has performed accounting, auditing, management consulting, or tax services for any taxpayer or person that is a subsidiary, parent, or other affiliate of the taxpayer on which the applicant or firm is requested to perform a tax compliance examination or special examination project pursuant to a contract with the comptroller;

(2) be willing to certify that the applicant and the firm with which the applicant is associated will not perform accounting, auditing, management consulting, or tax services for any taxpayer or person that is a subsidiary, parent, or other affiliate of the taxpayer on which the applicant or firm performed a tax compliance examination or special examination project, for a period of 36 consecutive calendar months following the date on which the comptroller's assessment of tax due becomes final, the date when a "no change" examination becomes final, the date when refund or denial of refund becomes final, or the date when the comptroller affirms in writing that the special examination project is complete, whichever date occurs later;

(3) be willing to sign a confidentiality contract with the comptroller by which the applicant acknowledges and accepts legal responsibility not to disclose tax information that is obtained pursuant to the contract;

(4) not have any unpaid Texas tax liability and be in compliance with Texas revenue laws. This provision applies to any business entity that the applicant owns or controls, or to which the applicant is related, including a parent, subsidiary, or other affiliated entity;

(5) comply with the orientation requirements established by the comptroller;

(6) comply with all other requirements that are stated in the contract; and

(7) not have been excluded from a contract award based on any of the following:

(A) knowingly and intentionally supplying false or misleading information in order to appear responsive to the Request for Qualifications;

(B) knowingly and intentionally conferring or offering to confer any gift, gratuity, favor, or advantage, present or future, upon any employee of a state agency who exercises any official responsibility for the contract;

(C) conviction of any felony charge of fraud, bribery, collusion, conspiracy, federal or state antitrust laws, or other criminal offense in connection with the award of or performance of any contract with any state agency;

(D) violation of state ethics laws;

(E) subject of a notice of suspension or debarment activities from other governmental entities; or

(F) any other cause indicating that the person or accounting firm is not a responsible party to contract with the State of Texas.

(d) Orientation.

(1) Before any contract examiner may work on contract examinations, the contract examiner must complete, at a minimum, all procedural orientation courses required by the comptroller.

(2) The comptroller may determine and specify other required orientation courses that contract examiners must attend to continue working on contract examinations.

(3) The selected contract examiner will bear all costs of orientation materials, registration fees, and associated travel expenses and per diem.

(e) Contract examiner authority.

(1) The contract examiner is authorized to review and examine the accounts, books, or records of any taxpayer whom the comptroller has designated and assigned to the contract examiner for examination under the Contract Examination Program, for the purpose of ascertaining the accuracy of tax obligation.

(2) The contract examiner may inspect such books and records as are necessary to ascertain the designated taxpayer's compliance with the revenue laws of this state. The comptroller will issue authorization in writing to the contract examiner, and this authority shall begin on the date on which the comptroller issues the authorization. The authorization shall cease to be effective on the date that the authority is rescinded in writing by the comptroller or the date that the subject contract expires, whichever is earlier.

(f) Performance of examination services. Except as otherwise provided in the contract, a contract examiner shall:

(1) conduct examinations of taxpayers whom the comptroller designates, in accordance with the procedures, terms, and circumstances stipulated in the contract;

(2) use a tax examination work plan that the contract examiner prepares and the comptroller approves for the conduct of assigned examinations. The contract examiner may make recommendations to the comptroller for amending the work plan;

(3) conduct an entrance conference and an exit conference;

(4) provide the comptroller with the original complete file of work papers that are developed during the tax examination. The examination must contain the revisions necessary to comply with the examination review notes that the comptroller's review staff has prepared;

(5) maintain all work papers, examination planning documents, files and other materials associated with the examination in a restricted area of the contract examiner's office. Access to all work papers, examination planning documents, files, and other materials shall be strictly limited to those employees whose duties and responsibilities require them to have access, and who have signed a confidentiality agreement. All documents that the contract examiner receives, maintains, compiles, generates or produces in any way in connection with an examination are documents of the comptroller.

(6) Nothing contained in this section authorizes the disclosure of any information that is prohibited by federal or state law from being disclosed.

(g) Compensation.

(1) Contract examiners shall be compensated based on a percentage of examinations that the comptroller has reviewed and accepted, as specified in the contract.

(2) Nothing in this section shall be construed to authorize any compensation of contract examiners that is contingent on the amount assessed, the liability revealed, or the refund denied.

(h) Confidentiality.

(1) Each contract that is negotiated will specifically obligate the selected contract examiner to comply with the applicable state statutes and comptroller rules on confidentiality requirements. Contract examiners will not be provided any tax information on any taxpayer until the examiner signs a contract with the comptroller.

(2) Contract examiners and their employees who have access to confidential information are bound by the confidentiality requirements and subject to the penalties for disclosure as provided in the Tax Code.

(3) Violations of the confidentiality provisions by contract examiners are punishable as provided by law.

(4) Contract examiners shall in no way use or benefit from information of any type that is obtained during the course of a tax examination.

(5) Contract examiners who, during the performance of examinations, discover tax information that may be of interest to other taxing jurisdictions shall report such tax information to the comptroller, but shall not report such information to the affected jurisdiction.

(i) Performance evaluation. The project manager or the project manager's designee(s) will complete a performance evaluation for each contract under the Contract Examination Program. The contract examiner will be evaluated in the manner specified in the contract.

(j) Scope of professional services rendered. Contract examiners' tax examination services will be strictly limited to revenue tax compliance examination functions or special examination projects that the comptroller has approved. Contract examiners will not perform an attestation function and will not render an opinion of any nature.

(k) General administrative provisions. Requests for information regarding the comptroller's Contract Audit Program should be directed to Audit Division, Contract Examination Project Manager, P.O. Box 13528, Austin, Texas 78711-3528.

Source Note: The provisions of this §3.3 adopted to be effective February 28, 2002, 27 TexReg 1334; amended to be effective October 13, 2004, 29 TexReg 9550