Tax insight

Texas Comptroller issues guidance on IRC conformity

Insight
5 minute read
December 23, 2025

What happened?

The Tax Policy Division of the Texas Comptroller of Public Accounts recently published a policy memo outlining a significant change in interpretation of conformity of the Texas franchise tax to the Internal Revenue Code (IRC).

[Texas Comptroller of Public Accounts, STAR Accession No. 202512012M, 12/19/2025]

Why is it relevant?

Starting with the 2026 franchise tax report, taxable entities will determine amounts taken from their federal tax returns under the federal tax law in effect for that tax year unless the Texas statutes or rules specifically reference the IRC. Where the Texas statutes and rules specifically reference the IRC, taxable entities must continue to compute those amounts using the IRC as of January 1, 2007 (2007 IRC). This change applies to all components of the franchise tax.

Actions to consider

Taxpayers should re-evaluate their Texas franchise tax calculations for the 2026 franchise tax report, which is based on the accounting period ending date in 2025. Taxpayers particularly should focus on items of total revenue and related subtractions or deductions that previously were not considered due to the general understanding that Texas conformed to the 2007 IRC for all components of the franchise tax. Further, because it is the Comptroller’s statutory interpretation, and the statute has not been amended in this respect, there could be refund opportunities based on applying the IRC then in effect for open years.