1. (a) Procedure for requesting waiver, audits.

   1. (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. (2) The comptroller has delegated to the audit manager the initial authority to waive penalty and interest in appropriate cases. At the exit conference, the taxpayer will be told whether any penalty or interest will be waived. At this conference the taxpayer may request the audit manager to reconsider his/her decision on penalty or interest waiver.
   3. (3) The taxpayer will be advised of the audit manager's 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.
   4. (4) 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.

2. (b) Procedure for requesting waiver, non-audit.

   1. (1) The comptroller has delegated to the Revenue Accounting Division the initial authority to waive penalty and interest when returns and reports are filed past the due dates.
   2. (2) 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. A written request stating the reasons penalty and interest should be waived must be sent to the comptroller's Revenue Accounting Division accompanied by supporting documentation. The comptroller may require the production of any additional documentation necessary to evaluate a request.

   3. (3) The Revenue Accounting Division will inform the taxpayer of the division's decision regarding the penalty waiver request after considering:

      1. (A) whether the taxpayer is current in the filing of all returns;
      2. (B) whether the taxpayer is current in the payment of all taxes and fees due the state;
      3. (C) whether penalty has been waived on other occasions;
      4. (D) why penalty was previously waived or denied;
      5. (E) whether the taxpayer has a good record of timely filing and paying past returns; and
      6. (F) whether the taxpayer has taken the necessary steps to correct the problem for future filings.
   4. (4) The Revenue Accounting Division will inform the taxpayer of the division's decision regarding the interest waiver request after considering the factors listed in subsection (d) of this section.
   5. (5) A taxpayer may request an administrative appeal with the Revenue Accounting Division of a denial 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 contain all new or additional documentation upon which the taxpayer relies.
   6. (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. (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.

3. (c) Penalty. When reviewing a penalty waiver request under subsection (a) of this section or in a contested case, the following factors regarding a taxpayer's account will be considered:

   1. (1) the taxpayer's audit history;
   2. (2) the tax issues involved;
   3. (3) a change in comptroller policy during the audit period;
   4. (4) size and sophistication of the taxpayer;
   5. (5) whether tax was collected but not remitted;
   6. (6) whether returns were timely filed;
   7. (7) completeness of records;
   8. (8) delinquencies in other taxes; and
   9. (9) reliance on advice provided by the comptroller's office which caused imposition of penalty and interest.

4. (d) Interest. When reviewing an interest waiver request under subsections (a) or (b) of this section or in a contested case, the following factors regarding a taxpayer's account will be considered:

   1. (1) undue delay caused by comptroller personnel;
   2. (2) reliance on advice provided by the comptroller's office which caused imposition of penalty and interest; and
   3. (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.