What happens when a Texas combined group's extension, affiliate list and member reports disagree, and how is it put right?

Three records of one membership

The combined group files through its reporting entity, which is the group's choice of the parent, if the parent is part of the group, or the member subject to Texas taxing jurisdiction with the greatest Texas business activity in the first period the group reports (34 Tex. Admin. Code section 3.590(b)(5)). The reporting entity files the combined report and its schedules, its elections bind every member, it remits the group's tax, and a notice mailed to it "shall be deemed to have been mailed to each of the taxable entities" in the group (section 3.590(e)(1)(B), (C), (e)(2)). The members are jointly and severally liable for the combined tax, interest and penalty (section 3.590(g)).

The first record is the extension. The annual report is due before May 16, and an entity extends it to November 15 by requesting the extension by May 15 and remitting either 90 percent of the tax shown due on the November report or 100 percent of the prior year's tax, with a two-step August 15 and November 15 extension for an entity required to pay electronically (Tex. Tax Code section 171.202(b), (c), (e), (f); 34 Tex. Admin. Code section 3.585). The Comptroller's 2026 forms page lists the Extension Request (Form 05-164) and, for combined groups, the Extension Affiliate List (Form 05-165), and states that an extension "will be tentatively granted upon receipt of a valid and timely online extension payment or request." The affiliate list is the group's statement, in May, of who is in the group.

The second record is the report. The Affiliate Schedule "must be filed as part of a combined report filing," and the reporting entity "must be listed as an affiliate" on it (Comptroller, Franchise Tax Notices). The third record is each member's own account. A member does not file its own franchise tax report for a year in which it belongs to a group, because the combined report is filed "in lieu of individual reports" (section 171.1014(a)), but each member organized in Texas or with Texas nexus files its own Public Information Report (Form 05-102) or Ownership Information Report (Form 05-167) (Comptroller, Franchise Tax FAQ, Reports and Payments).

The Comptroller compares the first two records; its notices page names the most common affiliate schedule errors: failing to list the reporting entity on the Affiliate Schedule; failing to include in the report every entity shown on the Extension Affiliate List when an extension was filed; and affiliate accounting period dates that are not the same as, or within, the group's accounting period on page 1 of the report.

Who belongs on the list

Most mismatches begin with a membership error. An affiliated group is one in which a controlling interest is owned by a common owner or owners or by one or more of the member entities (Tex. Tax Code section 171.0001(1)). A controlling interest is more than 50 percent, owned directly or indirectly, of a corporation's combined voting power, of a partnership's capital, profits or beneficial interest, or of an LLC's total membership interest (section 171.0001(8)(A) to (C)). All affiliated entities are presumed to be engaged in a unitary business (34 Tex. Admin. Code section 3.590(b)(6)).

The group includes eligible entities "even if those entities do not have nexus," and it includes partnerships, LLCs taxed as partnerships, disregarded LLCs and S corporations (section 3.590(b)(2)(C), (D)). It excludes passive entities, which are not taxable entities at all (Tex. Tax Code section 171.0002(b)(3); 34 Tex. Admin. Code section 3.590(b)(2)(E)), exempt entities (section 3.590(b)(2)(B)), and a member that conducts business outside the United States with 80 percent or more of its property and payroll assigned outside it (Tex. Tax Code section 171.1014(a)). Membership is also a question of time: each member includes its activity for the same period the group uses (section 171.1014(h)), and "[f]or any accounting period that an entity is not part of a combined group, the entity must file a separate report" (34 Tex. Admin. Code section 3.590(k)(2)(B)(i)). An entity acquired or sold during the year belongs on the list only for the part of the group's accounting period in which it was a member (Comptroller, Franchise Tax FAQ, Combined Reporting).

Three listing errors follow from these rules. An entity owned at 50 percent or less is listed because it shares management or a name. A wholly owned entity is left off because a separate preparer files its returns. And an entity is listed for a year in which it had already left the group, or had ended its Texas activity, which the library's article on ending a Texas franchise tax account addresses from the departing entity's side.

What the end of the No Tax Due Report changed

Before 2024, an entity below the revenue threshold filed a No Tax Due Report, and a member of a combined group owing tax could file one in error. S.B. 3 (Acts 2023, 88th Leg., 2nd C.S., ch. 2, effective January 1, 2024) raised the threshold in section 171.002(d)(2) and amended section 171.204, which now provides that the Comptroller "may not require" a taxable entity that owes no tax because of section 171.002(d)(2) to file a report under section 171.204 (section 171.204(b)), not the Public Information Report of section 171.203. The Comptroller's implementing page states that, for reports due on or after January 1, 2024, an entity at or below the threshold is not required to file a No Tax Due Report, that the form "is not available for any new reporting periods," and that the entity still files a Public Information Report or Ownership Information Report (Comptroller, No Tax Due Reporting for Report Year 2024 and Later). The threshold is $2.65 million for the 2026 report (Comptroller, 2026 franchise tax forms page).

For a combined group the rule works at the group level. "The no-tax-due threshold applies to the combined group as a whole" (Comptroller, Franchise Tax FAQ, Combined Reporting). A group at or below it files no franchise tax report, no Affiliate Schedule and no Common Owner Information Report for that year, while each member organized in Texas or with Texas nexus still files its own information report (No Tax Due Reporting for Report Year 2024 and Later; Franchise Tax Notices).

The old collision has changed shape rather than disappeared. A member whose own revenue is below $2.65 million files its information report, correctly, but its revenue still belongs in the report of a group above the threshold. The conflicts that remain are between a member's separate long form or E-Z report and the group's combined report, and between the Extension Affiliate List and the Affiliate Schedule.

A worked notice sequence

A Delaware corporation with a calendar year (the parent) owns all of an LLC that operates in Texas (the LLC) and 40 percent of a Texas limited partnership managed by the same officers (the partnership). The parent is the reporting entity. Its own revenue is $90 million; the LLC's is $15 million; the partnership's is $1.5 million.

The group pays franchise tax by electronic funds transfer. In May, the parent requests the first extension, to August 15, pays $400,000, and files an Extension Affiliate List naming itself, the LLC and the partnership; in August it requests the second extension, to November 15, with the payment that extension requires (34 Tex. Admin. Code section 3.585(f), (g)). The partnership is listed because the officers treat it as part of the group; at 40 percent it is not an affiliate (Tex. Tax Code section 171.0001(8)(B)). In November, two things happen on different desks. The LLC's own preparer, unaware of the group extension, files a separate long form report for the LLC and pays $60,000. The parent's preparer, aware of the separate filing, files the combined report with an Affiliate Schedule listing only the parent, and correctly omits the partnership but also omits the LLC.

The first notice: incomplete affiliate data. The Affiliate Schedule omits two entities shown on the Extension Affiliate List. The Comptroller's notices page treats this as the issue "Incomplete Affiliate Data on Affiliate Schedule" and directs a new Form 05-166 after comparing the list filed with the extension to the schedule filed with the report. Webfile cannot be used to resolve it; the page directs the filing methods for paper forms or approved software. For the LLC, the omission is a substantive error, not a schedule error: the LLC is a member, its revenue belongs in the group's total revenue, and the group's report understates the tax. The cure is an amended combined report that includes the LLC's revenue, cost of goods sold or compensation and receipts, with a complete Affiliate Schedule listing the parent and the LLC. The Comptroller's FAQ confirms that an amended report may be filed "to correct a mathematical or other error in a report."

The second problem: the member's separate report. The LLC's separate report and $60,000 sit on the LLC's own account. The Comptroller's FAQ answers the question "What if entities filed separate reports and later determine they should have filed a combined report?": the entity that filed incorrectly submits a letter with its name and taxpayer number stating that the report was filed in error and that the entity will report with a combined group, giving the reporting entity's name and taxpayer number and requesting "a refund or authorization to transfer any tax payment from the member's account to the reporting entity's account." The amended report increases the group's tax, so the group's account shows a shortfall on which penalty and interest can accrue until the transferred payment is applied (Tex. Tax Code sections 111.060, 171.362), and a transfer request filed with the amended report keeps that interval short. The refund or transfer must be claimed before the period for assessing the tax expires (Tex. Tax Code section 111.107(a)), which is four years from the date the tax became due and payable (section 111.201), and a valid extension also extends that due and payable date (Comptroller, Franchise Tax FAQ, Extensions).

The third problem: the entity that never belonged. The partnership appears on the Extension Affiliate List and nowhere else. On the Comptroller's comparison it is an entity the group named in May and dropped in November, and the notices page lists that as one of the most common errors. The Comptroller has published no form for an entity listed on Form 05-165 in error and correctly left off the report, so the evident response is a written explanation from the reporting entity that the partnership is not an affiliate, with the ownership facts that show it, filed with the corrected Affiliate Schedule. The partnership's own obligations are what the listing error obscured: an entity not included in a combined report "must file a separate report if it is doing business in Texas" or is organized in Texas (34 Tex. Admin. Code section 3.590(c)). With $1.5 million of revenue it is below the threshold and owes no tax and no annual report, but as a Texas limited partnership it files its own Public Information Report. If it filed nothing on the belief that the group covered it, its account shows that report as missing.

Had the partnership been listed on the Affiliate Schedule as well, the group's report would carry a non-member's revenue and, on the Comptroller's records, the partnership would share the group's joint and several liability (section 3.590(g)). The cure would be an amended combined report removing it and, if the removal reduced the group's tax, a refund claim, because an amended report that reduces tax "is a request for refund and must meet refund requirements" (Franchise Tax FAQ, Reports and Payments; Comptroller, Refunds).

Notices, members and forfeiture

The members feel the group's problems. The Comptroller's notices page tells a member of a combined group that did not satisfy franchise tax filing requirements that the member is delinquent for that reason, that it need not contact the Comptroller or file anything itself, and that it should contact the entity that reports its information; the non-filing notice "will be resolved automatically when the reporting entity files the missing reports with affiliate forms." The member's own information report remains its own obligation throughout.

Delinquency is the start of the forfeiture process. The Comptroller forfeits the privileges of an entity that fails to file a required report or pay a tax or penalty within 45 days after notice of forfeiture is mailed or provided electronically (Tex. Tax Code section 171.251, as amended by S.B. 61, Acts 2023, 88th Leg., R.S., ch. 1040), and the same reasons and procedures apply to the right of any taxable entity to transact business in Texas (section 171.2515(a)). Forfeiture brings with it the liability of directors and officers for debts created or incurred in Texas after the report, tax or penalty was due and before revival, a liability revival does not undo (sections 171.255(a), (d) and 171.2515(b)). If the entity does not revive within 120 days after forfeiture, the Secretary of State may forfeit its charter, certificate or registration on the Comptroller's certification (section 171.309).

The same open year affects a member that later wants to terminate or withdraw: the Comptroller's sequence requires outstanding reports filed and amounts paid before a certificate of account status (Form 05-359) is requested (Comptroller, Reinstating or Terminating a Business).

Extensions and amended reports after the fact

The extension rules carry their own traps for groups whose membership moves. A combined group may use the 100 percent prior-year payment option "regardless of any changes in combined group members" for reports due on or after January 1, 2017 (34 Tex. Admin. Code section 3.585(c)(3)(B)), and the Comptroller's FAQ confirms it may do so if the group was subject to the tax the year before. An entity that was a member of a combined group for the previous report but files separately for the current year may not use the 100 percent option (section 3.585(c)(3)(B); Franchise Tax FAQ, Extensions). In the example, a separate extension for the LLC on the 100 percent option would have been invalid if the LLC had been in the group the year before. A group is required to pay by electronic funds transfer if any member receives notice of the requirement (section 3.585(f)), and a mandatory EFT filer that fails to secure a valid extension to August 15 cannot reach November 15; its due date stays May 15 (Franchise Tax FAQ, Extensions).

Amended combined reports also arise from federal changes. A taxable entity files an amended report within 120 days after a federal audit adjustment becomes final or after it files an amended federal return that changes its taxable margin, and a member of an affiliated group is treated as having filed an amended federal return when an amended consolidated return is filed for a period in which it was a member (Tex. Tax Code section 171.212(a) to (c)). Failure carries a penalty of 10 percent of the tax not previously reported (section 171.212(d)). Where the federal change is to a consolidated return, the Texas amendment is the reporting entity's combined report with a matching Affiliate Schedule.

Practice notes

The sound annual sequence starts with one membership list built from ownership and dates, not from last year's list or from shared management: each entity, its percentage and the path to it, its period in the group, whether it is passive or exempt, and whether it is organized in Texas or has nexus. That list drives the Extension Affiliate List, the Affiliate Schedule and each member's information report, and every preparer in the structure works from it. Before the report goes out, the Affiliate Schedule is compared line by line to the Extension Affiliate List, with the reporting entity on both. Where a mismatch has already produced a notice, the response depends on which record is wrong: a new Affiliate Schedule where the schedule is incomplete; an amended combined report where a member's revenue is missing or a non-member's is included; the Comptroller's error letter with a transfer request where a member filed separately; and a separate report or information report where an entity never belonged. Each member's account is then checked, because a member carries the group's delinquency until the reporting entity's filing is processed. G&G State Tax Group provides Texas combined group membership reviews, affiliate reconciliations and notice resolution alongside its state and local tax practice.