If you have been audited by the Texas Comptroller’s Office and been incorrectly assessed taxes or denied a credit/refund you have the right to file for a REDETERMINATION OR REFUND HEARING. I have been a Texas Comptroller auditor and then a consultant for over 30 years, and I have the following comments addressing what you might expect to go through the Texas Comptroller hearings process.
I don’t want to discourage anyone from exercising their right to a Redetermination Hearing (or what I like to call an “Administrative Hearing”), but it is well known that taxpayers (petitioners) receive an adverse decision in close to 90% of these hearings. Anyone can research the redacted versions of these hearings on the Texas Comptroller’s STAR database at https://star.comptroller.texas.gov/.
Warning: Texas Comptroller Hearings can often be filled with complex and confusing legal jargon with many rabbit holes you can fall into (i.e., tax statutes, rules, other hearings, and public court decisions). But don’t worry. In future articles, I plan to break down a few hearings so you can try navigating them yourself.
I also want to warn you about taking on the Texas Comptroller in an Administrative Hearing. You may be right about your argument(s) and have evidence to support your claim. You might be thinking: “If I just had a chance to talk to a hearings attorney or an administrative law judge (ALJ) then they would surely listen.”
Wrong. If you cannot “prove” your case by a “preponderance of evidence” (judges LOVE this term), then you will lose. You must prove that the auditor made a mistake, or you will owe the assessment or be denied a credit or refund claim.
In my opinion, (even with taxable service issues), the agency does not have to prove you owe the tax or should be allowed a credit or refund. Their job is to complete the audit and send you a tax bill or refund denial. At that point, they occupy the high ground. It would be best if you realized that this is not like a normal court. The Texas Comptroller does NOT have to prove his case.
This court is not a traditional “clean slate” trial court that begins with an impartial jury. You are being judged by a former Texas Comptroller Hearings Attorney who has been elevated to work as a judge for the SOAH (State Office of Administrative Hearings).
From the first moment of contact with an auditor, hearings attorney, or administrative law judge, the burden is on you to prove your innocence/case. And that is why I am writing this series of articles. I believe the hearings process is generally unfair to an inexperienced business owner and most tax consultants.
Keep in mind that if you do not (or cannot) pay your tax assessment, then the Texas Comptroller can (in some instances) take aggressive collection actions such as: asking the Texas Attorney General’s Office to sue the business, transfer the audit liability, place liens on your home, and even sue you individually as well (i.e., fraud audits or forfeited charters). More on that in future articles (stay tuned).
But first a shameless plug.
Texas Tax Group has filed over 400 administrative hearings since 2007 regarding audit assessments or denied refund requests. I can tell you there is no “cakewalk” easy administrative hearing. Some we settle while others we get dismissed (partial or all). Some we win, and some we lose.
Going through the hearings process is difficult for even my experienced ex-Texas Comptroller auditors and other support staff. Since 2007 I have had five ex-auditors quit working for me because they could not deal with the stress of an agency administrative hearings process.
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One more thing before we start. I want to make you all aware of a Policy Change that penalizes you for filing for a hearing.
ADDITIONAL 10% Penalty
Please note that if you decide to file for a hearing and do not pay the audit assessment, the Texas Comptroller will penalize you or your company with an additional 10% penalty.
OK. Back to the hearings process. Note: I will explain the entire hearings process in general. Future articles will then get into more detail (there are lots of details).
THE REDETERMINATION/ADMINISTRATIVE HEARING PROCESS
1. YOU RECEIVE A TAX BILL OR REFUND DENIAL
The hearings process starts with you receiving a tax bill or refund denial (see Sample Tax Bill – attachment
2. YOU FILE FOR A HEARING
You will then file a STATEMENT OF GROUNDS (SOG) FOR AN ADMINISTRATIVE/REDETERMINATION HEARING (see Sample Hearing Request – attachment #2). Remember, there are rules to request a hearing.
Here is what is found on page 2 of your tax bill: Hearings Requests must include a Statement of Grounds that describes, in detail, the reasons you believe the determination is incorrect. Your statement should describe, as clearly as possible, the fact and the provisions of the tax laws and Comptroller rules upon which you are relying.
3. YOU ARE GRANTED A “90-DAY PERIOD” (MORE TIME WITH AUDITOR)
After the Comptroller grants a hearing, you are then given a 90-day period to work again with your auditor (to provide additional documentation or certificates). This is an example of a 90-DAY PERIOD LETTER (see attachment #3).
NOTE: Two ANTI-TAXPAYER hearing process changes have occurred within the last 5+ years.
Note: Another Negative Change – Cancellation of Right to an IARC (Independent Audit Review Conference) during 90 Day Period
On June 20, 2015 all Texas Taxpayers lost an important right after filing for a hearing: the right to request an IARC (Independent Audit Review Conference – see attachment #4). This important right was denied in a simple internal memo letter (“IARC Conferences”) issued on June 20, 2015 by the Texas Comptroller’s Office. I would like to see legislation bring back the right to an IARC during the 90-day period since some taxpayers are either not made aware of this option during the field audit or were convinced by the auditor not to seek this remedy.
Usually, the auditor will not grant any tax reductions or adjustments during the 90-day period. They have little incentive to do so. That is mainly because after the 90-day period expires, the State sends the audit (with no amendments) to the Hearings Division and then assigns a tax hearing. At this point, the auditor cannot be contacted directly by the taxpayer anymore.
Even if you provide additional records or tax research to the auditor during this period, the auditor will deny your arguments 90% of the time. IMO this 90-day period is nothing more than a formality before you are turned over to a hearing attorney.
RESALE, EXEMPTION, DIRECT PAY, or MULTISTATE CERTIFICATES
One important item that can be accomplished during the 90-day period is to provide missing or corrected certificates (i.e., resale, exemption, multi-tate, or direct pay permits). This additional documentation is important because no certificates will be accepted after the 90-day period deadline. After the 90-day period expires, you will then be assigned to a Texas Comptroller Hearing Attorney. This process could take weeks to months from the end of the 90-day period.
4. YOU WILL BE ISSUED A POSITION LETTER FROM THE ASSIGNED HEARING ATTORNEY
Eventually, the hearings attorney will issue a POSITION LETTER (see Sample Position Letter – attachment #5). Often this letter denies all of your contentions and offers little to no reduction. If any reduction is granted, it will be listed in this document.
5. YOU MUST ISSUE A “RESPONSE TO THE POSITION LETTER” WITHIN 45 DAYS
If you disagree with the POSITION LETTER, you will have 45 days to REPLY TO THE POSITION LETTER. If you do not reply to the Position Letter within 45 days or request an extension to reply, your case could be dismissed for “Want of Prosecution” (lack of a valid response). Building a strong case with your Reply to the Position Letter is important. It is always best to continue to develop your “body of evidence” to support your case with additional accounting records, research documents, and written contention(s) development. This is your last “best” opportunity to build your case in writing and through direct contact with the hearing attorney. However, do not expect a sympathetic ear since hearings attorneys will deny all or most of your contentions over 90% of the time. And remember that interest is being added on a daily basis.
6. YOU WILL RECEIVE A “RESPONSE TO THE REPLY TO THE POSITION LETTER”
The hearings attorney will eventually issue a RESPONSE TO THE PETITIONERS REPLY TO THE POSITION LETTER (see attachment #6). This document will respond to all contentions and written evidence you or your representative provided. In most cases, the hearings attorney will deny your arguments. If any concessions are granted, they will be included in this RESPONSE.
The attorney’s REPLY will include a request as to whether you would still like to proceed with a hearing. And if so, would you want an ORAL (via online video) HEARING or a WRITTEN SUBMISSIONS HEARING.
7. YOU WILL RECEIVE “ORDER #1” (FORMAL HEARINGS INSTRUCTIONS)
If you ask for either a written or oral hearing, the Administrative Law Judge (ALJ) will email you an important notice titled ORDER #1 – SETTING ORAL (or WRITTEN) SUBMISSION HEARING (see attachment #7). This document outlines the basic requirements that the agency hearings attorney and the Petitioner (you) are expected to understand about the hearing. It is important that you read and understand what is contained in the general order #1. At this point you may want to ask yourself if you are prepared to handle your case.
If you are representing yourself, you should refer to the agency document titled Guide to the Self-Represented Litigants (see attachment #8). Several actions must be taken to protect your rights, including (but not limited to): issuing final pleadings/contentions, optional discovery requests, providing final exhibits, providing witness list, stipulations, and setting motions. The Comptroller requires you to do all this electronically.
I would strongly suggest requesting the ORAL HEARING option. Keep in mind that before COVID, all ORAL HEARINGS were held in person. But for now, they are all held via video unless an exception is made. ORAL HEARINGS give you the chance to cross-examine the auditor and any other experts the Comptroller decides to present at hearings. In my opinion, it is always better to request an ORAL HEARING. But it is also important to know that they can swear in and question anyone you have listed as a witness.
The bottom line is that hearings are complicated. There is also an option called INSOLVENCY (see attachment #9) which, although hard to prove, can reduce the audit if the judge agrees. I have reviewed 100s of hearings decisions, and rarely have I seen a reduction based on an insolvency claim. This is because it is very difficult to provide all the financial documents that the agency considers relevant to reducing your audit based on an insolvency request.
8. YOU WILL ATTEND A HEARING: ORAL (VIDEO CONF) OR VIA WRITTEN SUBMISSIONS
I could write ten pages for this section. I do suggest watching some YouTube clips from an old black and white TV show called Perry Mason. Remember that you do not get to have any informal type of conversation with the judge (unless he engages in direct conversation with you or your witnesses while on the stand). And there is no jury.
You must submit formal exhibits and a list of anyone that will testify on your behalf (including yourself – see attachments #7 and #8). Each side calls their own witnesses. You or your representative must act on your own behalf.
You should definitely write out all the questions you intend to ask your witnesses as well as the auditor. If you were audited by a “contract auditor” then you are out of luck. All these audits (if a hearing is requested) are assigned to an internal employee auditor who is sometimes not completely informed regarding all aspects of the audit.
Remember that you or any witnesses testifying on your behalf will be sworn in and be asked questions by the hearings attorney. You or your rep may also question the auditor or any expert witnesses the agency calls up to the stand.
All hearings are audio recorded. I strongly suggest that you ask for both a recording of the proceedings and a written copy if one is available.
9. YOU WILL RECEIVE A “PROPOSED HEARING DECISION”
The hearing can last up to four hours. The judge listens to all testimony and accepts all exhibits (unless objections are provided and sustained by either side). They then adjourn the hearing and can sometimes allow additional time for either side to provide further evidence or documentation. The judge will eventually issue a PROPOSED HEARINGS DECISION (see attachment #10).
10. YOU THEN SUBMIT “EXCEPTIONS TO PROPOSED ADMINISTRATIVE HEARING DECISION”
You are granted an opportunity to provide additional arguments/evidence related to all existing contentions. This is called submitting EXCEPTIONS TO THE PROPOSED HEARING DECISION (see attachment #11).
However, be aware that there are specific rules for what can be argued or provided. New issues or arguments cannot be addressed. Please – COMPLETE INCOMPLETE SENTENCE
11. FINAL ADMINISTRATIVE HEARING DECISION
The judge will then issue their final decision. If you win, then the Texas Comptroller’s will adjust your audit, and you will receive a final amended notification of audit results. If the ALJ rules against you, you will receive a copy of the FINAL ADMINISTRATIVE HEARING DECISION. Usually, this is the end of the process. However, if you choose, you may also file what is termed a REQUEST FOR RE-HEARING.
12. REQUEST FOR RE-HEARING (Optional)
The deadline to file for a Re-Hearing is usually 20 days from the date of the Final Hearings Decision. In 30 years, I have rarely seen a judge change a decision based on a Request for a Re-Hearing. That is the end of the general description of the hearings process.
OPTIONS DURING A HEARINGS PROCESS
MOTION TO DISMISS
Remember that during the hearings process (hearings attorney assigned), you can always agree to any concessions offered by the hearings attorney (if any). If there are none, you can also withdraw from the hearings process voluntarily. In either case, the hearings attorney will issue a MOTION TO DISMISS (see attachment #12).
The last option is to seek a SETTLEMENT before you are near the final hearing date. It is important to note that the Texas Comptroller does not “make deals,” such as agreeing to be paid 50 cents on the dollar. I have never seen that done.
However, the Texas Comptroller may consider settlement options before a hearing on a case-by-case basis. TEXAS TAX GROUP has a Settlement Coordinator (Margie Merwin) to discuss the specific available settlement terms/options based on your particular case.
If you are being audited or already in the hearings process, let us help. We will review your audit or hearing at no cost and give you our initial opinion. Please note that TEXAS TAX GROUP has negotiated over 400 SETTLEMENTS during the hearings process over the last 15 years.
Dino Marcaccio, President (ex-Texas Comptroller Auditor, 16 Years)
TEXAS TAX GROUP, INC.
9950 Westpark Drive, Ste 430
Houston, Texas 77063
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