Penalties for franchise tax non-compliance can add substantially to your liability. Late filing penalties, late payment penalties, and other charges accumulate quickly, sometimes exceeding the underlying tax. Penalty relief is available when you can demonstrate appropriate grounds.
Late filing penalties apply when returns are submitted after the due date, including any extensions. The penalty is typically 5% of the tax due for each month or partial month the return is late, up to a maximum of 25%. Even if you eventually file, late filing penalties remain unless you obtain relief.
Late payment penalties apply when tax isn’t paid by the due date. These penalties accrue similarly to late filing penalties and are separate from them. If you file late and pay late, you may face both types of penalties.
Interest is different from penalties. Texas charges interest on unpaid tax balances, and interest cannot be waived under state law. Even if you obtain complete penalty relief, you’ll still owe accumulated interest.
Reasonable cause is the primary basis for penalty abatement. You must demonstrate that you exercised ordinary business care and prudence but were still unable to comply. The Comptroller evaluates reasonable cause claims based on the specific facts you present.
Circumstances supporting reasonable cause include serious illness or death affecting key personnel, destruction of records by fire or disaster, reasonable reliance on incorrect professional advice, and other events beyond your control that prevented compliance. Documentation strengthens any reasonable cause claim.
First-time penalty abatement may be available if you have a clean compliance history. Taxpayers who have filed and paid on time for several years may receive a one-time waiver for an initial compliance failure.
Penalty waiver requests should be submitted in writing with supporting documentation. Explain specifically what happened and why compliance wasn’t possible. Generic requests without factual detail rarely succeed.
If you’re facing franchise tax penalties, schedule a consultation to evaluate your options for relief.
