SECTION 3.5. Waiver of Penalty or Interest

(a) The comptroller has discretion to settle penalty or interest on a tax liability if the comptroller determines that the taxpayer exercised reasonable diligence to comply with the tax laws of this state. In determining whether a taxpayer has exercised reasonable diligence to comply with the tax laws of this state, the Audit Division and Revenue Accounting Division will consider the factors set out in subsections (b) and (c), respectively.

(b) Procedure for requesting waiver, audits.

(1) Penalty or interest on an audit liability may be waived if the taxpayer exercised reasonable diligence to comply with the tax laws of this state. A request to waive penalty or interest will be presumed in all cases governed by this subsection.

(2) The comptroller has delegated to the Audit Division the initial authority to waive penalty or interest or both in appropriate cases. At the conclusion of an audit and during the exit conference, the taxpayer will be told whether any penalty or interest will be waived. At this conference the taxpayer may request that the Audit Division reconsider the decision on penalty or interest waiver.

(3) When reviewing a request for penalty waiver, the Audit Division will consider the following factors:

(A) the taxpayer's audit history, including, but not limited to, the errors identified in prior audits;

(B) the tax issues involved;

(C) whether a change in comptroller policy occurred during the audit period;

(D) whether changes in the law took effect during the audit period;

(E) the size and sophistication of the taxpayer;

(F) whether tax was collected but not remitted;

(G) whether returns were timely filed;

(H) the completeness of the taxpayer's records;

(I) the taxpayer's efforts to comply with the recordkeeping requirements of this state, such as maintaining an accrual system for taxable purchases;

(J) delinquencies in other taxes;

(K) reliance on advice provided by the comptroller's office pursuant to §3.10(c) of this title (relating to Taxpayer Bill of Rights); and

(L) the error rate in the current audit.

(4) When reviewing a request for interest waiver, the Audit Division will consider the factors enumerated in subsection (e) of this section.

(5) The taxpayer will be advised of the acceptance or rejection of the request for waiver of penalty or interest in the audit cover letter sent with the copy of the audit schedules.

(6) If a taxpayer's request for waiver is denied at the audit level, the taxpayer may raise the issue as a contested case matter during either a refund or redetermination hearing, or during an independent audit review conference under §3.10(e)(4) of this title.

(c) Procedure for requesting waiver, non-audit.

(1) The comptroller has delegated to the Revenue Accounting Division the initial authority to waive penalty or interest or both on return and report liabilities. Penalty or interest on a non-audit liability may be waived if the taxpayer exercised reasonable diligence to comply with the tax laws of this state.

(2) A written request stating the reasons penalty or interest or both should be waived must be sent to the comptroller's Revenue Accounting Division accompanied by supporting documentation. A single waiver request may address the penalty or interest or both imposed on one annual return or report period, two quarterly returns or report periods, or six monthly returns or report periods. The comptroller may require the production of any additional documentation necessary to evaluate a request.

(3) When reviewing a penalty waiver request under this subsection, the Revenue Accounting Division will consider the following factors regarding a taxpayer's account and will inform the taxpayer of the division's decision to accept or reject part or all of the penalty waiver request:

(A) whether the taxpayer is current in the filing of all returns;

(B) whether the taxpayer is current in the payment of all taxes and fees due the state;

(C) whether penalty has been waived on other occasions for any tax type;

(D) why any previous penalty waiver requests were granted or denied;

(E) whether the taxpayer has a good record of timely filing and paying past returns;

(F) the size and sophistication of the taxpayer;

(G) whether advanced collection actions were initiated on the liability with respect to which the waiver is requested;

(H) whether multiple liabilities are included in the waiver request; and

(I) whether the taxpayer has taken the necessary steps to correct the problem for future filings.

(4) When reviewing an interest waiver request under this subsection, the Revenue Accounting Division will consider the factors enumerated in subsection (e) of this section and will inform the taxpayer of the division's decision to accept or reject all or part of the interest waiver request.

(5) A taxpayer may request an administrative appeal with the Revenue Accounting Division of a denial of all or part of a waiver request within ten calendar days from the date of written notification of the denial. Such a request for an administrative appeal must be in writing and must state the reasons the taxpayer disagrees with the denial of the waiver. New or additional documentation upon which the taxpayer relies for support should be submitted with the written request for an administrative appeal.

(6) The taxpayer will be sent written notification from the Revenue Accounting Division of the disposition of the appeal within 30 days of either the comptroller's receipt of the request for an appeal or the comptroller's receipt of all additional information requested from the taxpayer in relation to the appeal.

(7) If a taxpayer's request for waiver is denied by the Revenue Accounting Division, the taxpayer may raise the issue as a contested case matter during either a refund or redetermination hearing.

(d) Review of penalty waiver. When reviewing the Audit Division's denial of a penalty waiver request during an independent audit review conference under §3.10(e)(4) of this title, the independent audit reviewer will consider the factors enumerated in subsection (b)(3) of this section. When reviewing the Audit Division's denial of a penalty waiver request in a contested case, the comptroller will consider the factors enumerated in subsection (b)(3) of this section. When reviewing the Revenue Accounting Division's denial of a penalty waiver request in a contested case, the comptroller will consider the factors enumerated in subsection (c)(3) of this section.

(e) Interest. When reviewing an interest waiver request under subsection (b) or (c) of this section, in a contested case, or during an independent audit review conference under §3.10(e)(4) of this title, the following factors regarding a taxpayer's account will be considered:

(1) undue delay caused by comptroller personnel;

(2) reliance on advice provided by the comptroller's office pursuant to §3.10(c) of this title; and

(3) natural disasters.

Source Note: The provisions of this §3.5 adopted to be effective March 10, 1992, 17 TexReg 1546; amended to be effective August 7, 1997, 22 TexReg 7059; amended to be effective May 12, 2004, 29 TexReg 4551; amended to be effective October 28, 2014, 39 TexReg 8406