TITLE 3: TAXATION
CHAPTER 1: TAX ADMINISTRATION
PART 11: PENALTIES
3.1.11.1 ISSUING AGENCY: Taxation and Revenue
Department, Joseph M. Montoya Building, 1100 South St. Francis Drive, P.O. Box
630, Santa Fe NM 87504-0630
[3/15/96; 3.1.11.1 NMAC - Rn, 3 NMAC 1.11.1, 1/15/01]
3.1.11.2 SCOPE: This part applies to all
taxpayers, their agents and representatives and all persons required to submit
a return or information to the taxation and revenue department under any tax,
tax act or other law administered and enforced pursuant to the Tax
Administration Act.
[3/15/96,
10/31/96; 3.1.11.2 NMAC - Rn, 3 NMAC 1.11.2, 1/15/01]
3.1.11.3 STATUTORY AUTHORITY: Section 9-11-6.2
NMSA 1978.
[3/15/96; 3.1.11.3 NMAC - Rn, 3 NMAC 1.11.3, 1/15/01]
3.1.11.4 DURATION: Permanent.
[3/15/96; 3.1.11.4 NMAC - Rn, 3 NMAC 1.11.4, 1/15/01]
3.1.11.5 EFFECTIVE DATE: 3/15/96, unless a later
date is cited at the end of a section, in which case the later date is the
effective date.
[3/15/96,
10/31/96; 3.1.11.5 NMAC - Rn & A, 3 NMAC 1.11.5,
1/15/01]
3.1.11.6 OBJECTIVE: The objective of this part
is to interpret, exemplify, implement and enforce the provisions of the Tax
Administration Act.
[3/15/96; 3.1.11.6 NMAC - Rn, 3 NMAC 1.11.6, 1/15/01]
3.1.11.7 DEFINITIONS: [Reserved.]
[3/15/96; 3.1.11.7 NMAC - Rn, 3 NMAC 1.11.7, 1/15/01]
3.1.11.8 ASSESSMENT AND PROTEST OF PENALTY:
A. Civil penalty is assessed by the secretary or delegate in
the manner provided for issuing assessments in Paragraph 7-1-17B(2) NMSA 1978
and any regulations thereunder. Any assessment of civil penalty or demand for
payment made by the department is presumed to be correct under Subsection
7-1-17C NMSA 1978.
B. Civil penalty shall be collected in the same manner as,
and concurrently with, the amount of tax to which it relates, in accordance
with Section 7-1-30 NMSA 1978.
C. A taxpayer who has been assessed civil penalty and who
believes that the taxpayer has been neither negligent nor in disregard of rules
or regulations has available all the legal remedies in the Tax Administration
Act that are available for any assessed taxpayer, whether for tax, taxes,
interest or penalty.
D. The effect of the presumption of correctness of
assessment of civil penalty is that the taxpayer has the burden of coming
forward with some evidence showing that the assessment made by the department
is not correct. When not correct, the assessment shall be abated by the
secretary or secretary's delegate as provided by Section 7-1-28 NMSA 1978.
[7/19/67, 11/5/85,
8/15/90, 10/31/96; 3.1.11.8 NMAC - Rn & A, 3 NMAC
1.11.8, 1/15/01]
3.1.11.9 COMPROMISE BY SECRETARY: The secretary
may compromise the assessment of civil penalty by entering into a written
closing agreement if and when the secretary has a good faith doubt of the
taxpayer's liability. The secretary may not compromise the civil penalty
because of the taxpayer's inability to pay. The secretary may not compromise
the civil penalty solely because of the threat of litigation. The secretary may
not compromise the civil penalty solely as an expedient means of disposing of a
controversy.
[11/5/85,
8/15/90, 10/31/96; 3.1.11.9 NMAC - Rn & A, 3 NMAC
1.11.9, 1/15/01]
3.1.11.10 NEGLIGENCE: Taxpayer “negligence” under
Subsection 7-1-69A NMSA 1978 means:
A. failure to exercise that degree of ordinary business care
and prudence which reasonable taxpayers would exercise under like
circumstances;
B. inaction by taxpayers where action is required;
C. inadvertance, indifference, thoughtlessness,
carelessness, erroneous belief or inattention.
[11/5/85,
8/15/90, 10/31/96; 3.1.11.10 NMAC - Rn & A, 3
NMAC 1.11.10, 1/15/01]
3.1.11.11 INDICATIONS OF NONNEGLIGENCE: The
following situations may indicate that a taxpayer has not been negligent or in
disregard of rules and regulations and the secretary will consider these
circumstances in deciding whether to assess civil penalty as provided by
Section 7-1-69 NMSA 1978, or whether to abate assessed civil penalty as
provided by Section 7-1-28 NMSA 1978:
A. the taxpayer proves the taxpayer was affirmatively misled
by a department employee;
B. the taxpayer, disabled because of injury or prolonged
illness, demonstrates the inability to prepare a return and make payment and
was unable to procure the services of another person to prepare a return
because of the injury or illness;
C. the taxpayer shows that physical damage to the taxpayer's
records or place of business caused a delay in filing a return or making
payment of tax;
D. the taxpayer proves that the failure to pay tax or to
file a return was caused by reasonable reliance on the advice of competent tax
counsel or accountant as to the taxpayer's liability after full disclosure of
all relevant facts; failure to make a timely filing of a tax return, however,
is not excused by the taxpayer's reliance on an agent;
E. a taxpayer, within twelve months of the filing of a
return by the original due date or by the extended due date and without action
of the secretary or delegate, files an amended return reflecting tax due or
additional tax due and full payment of any tax due accompanies the amended
return;
F. with regard to income tax returns only, the internal
revenue service abates federal penalty originally assessed for the same or
similar reason as the New Mexico penalty.
If the taxpayer, however, without requesting and receiving an extension
of time in which to file under the provisions of Subsection 7-1-13E NMSA 1978,
has failed to timely file and pay additional income tax due within the time
required in Subsection 7-1-13C NMSA
1978, the penalty will be assessed;
G. with regard to oil and gas tax returns only, the taxpayer
receives final approval from the appropriate government agency of the
taxpayer's participation in production from a state or federal property and
pays all oil and gas taxes due on production from the property attributable to
the taxpayer no later than the twenty-fifth day of the second month following
the month in which the approval is received; or
H. with regard to an out-of-state business when a good faith
doubt exists as to whether the taxpayer has established nexus with New Mexico
and whether the state has jurisdiction over the taxpayer and its transactions
into New Mexico for current or prior reporting periods, the business volunteers
to enter into an agreement with the department to register, report and pay
gross receipts tax, corporate income tax or franchise tax or to collect and
remit compensating tax as an agent under the provisions of Section 7-9-10 NMSA
1978.
[11/5/85,
1/4/88, 5/24/90, 9/20/93, 2/9/95, 3/15/96, 4/15/98; 3.1.11.11 NMAC - Rn &
A, 3 NMAC 1.11.11, 1/15/01]
3.1.11.12 FAILURE TO FILE A RETURN: If a taxpayer
does not file a return on the date on which payment of tax is due, as required
by Subsection 7-1-13B NMSA 1978, the minimum penalty of $5.00 imposed by
Section 7-1-69 NMSA 1978 will apply only once per return, regardless of the
number of tax programs included in the return.
[11/5/85,
8/15/90, 10/31/96; 3.1.11.12 NMAC - Rn & A, 3
NMAC 1.11.12, 1/15/01]
3.1.11.13 FRAUDULENT RETURN FILED WHEN NO TAX IS DUE:
When a taxpayer files a return with intent to defraud the state by making a
claim for a tax credit or rebate, and no amount of tax is required to be paid
on the return, the provisions of Section 7-1-69 NMSA 1978 will not apply.
Nothing in Section 3.1.11.13 NMAC, however, shall be construed to prohibit
criminal prosecution of such person for false statement and fraud under Section
7-1-73 NMSA 1978.
[11/5/85,
8/15/90, 10/31/96; 3.1.11.13 NMAC - Rn & A, 3
NMAC 1.11.13, 1/15/01]
3.1.11.14 APPLICATION OF PENALTY PROVISIONS TO
GOVERNMENTS:
A. Penalty with respect to the unpaid portion of a tax
indebtedness or with respect to the failure to file a return by the date required
is due to the state of New Mexico when the tax indebtedness is owed by any
agency, institution, instrumentality or political subdivision of the state of
New Mexico.
B. To the extent permitted by the constitution, treaties and
laws of the United States, penalty with respect to the unpaid portion of a tax
indebtedness or with respect to the failure to file a return by the date
required is due to the state of New Mexico when the tax indebtedness is owed by
any other state, any Indian tribe, nation or pueblo, the United States, any
alien government or any agency, institution, instrumentality or political
subdivision of any of the foregoing.
C. Section 3.1.11.14 NMAC is retroactively applicable on
July 1, 1992.
[7/3/92,
10/31/96; 3.1.11.14 NMAC - Rn & A, 3 NMAC
1.11.14, 1/15/01]
3.1.11.15 APPLICATION OF PENALTY UPON EXPIRATION OF
EXTENSION: Penalty for failing to file a required return or, if tax is due,
to pay tax by an extended due date will be computed beginning with the first
day following the extended due date.
[9/20/93,
10/31/96; 3.1.11.15 NMAC - Rn, 3 NMAC 1.11.15,
1/15/01]
3.1.11.16 DEFINITION OF BAD CHECK: A bad check is
a check or draft to the order of the department which the bank, as drawee,
dishonors upon presentment by the department. “Dishonor” means the bank refuses
to pay the amount of the check to the order of the department. The burden is on
the taxpayer to prove that the taxpayer was not responsible for the bank's
dishonoring of the check. “Bank” includes any financial institution upon which
a check or draft is drawn.
[7/19/67,
11/5/85, 8/15/90, 10/31/96; 3.1.11.16 NMAC - Rn, 3
NMAC 1.11.16, 1/15/01]
3.1.11.17 IMPOSITION OF PENALTY ON BAD CHECKS:
A. A penalty in the amount of twenty dollars ($20.00) will be
imposed under Section 7-1-70 NMSA 1978 for each instance in which a check
tendered to the department is not paid upon presentment. This penalty is in
addition to any penalty imposed under Section 7-1-69 NMSA 1978.
B. This version of Section 3.1.11.17 NMAC is applicable
January 1, 1995.
[7/19/67,
11/5/85, 8/15/90, 10/28/94, 10/31/96; 3.1.11.17 NMAC
- Rn & A, 3 NMAC 1.11.17, 1/15/01]
3.1.11.18 WILLFUL ATTEMPT TO EVADE OR DEFEAT TAX
A. “WILLFUL ATTEMPT
TO EVADE OR DEFEAT” DEFINED:
(1) As used in the Tax Administration Act, the
term “willful attempt to evade” or “willful attempt to evade or defeat” means
conscious awareness of the obligation to pay taxes coupled with either reckless
disregard for, or gross negligence with respect to, whether the tax obligation
is paid. A willful attempt to evade or a willful attempt to evade or defeat may
occur either with respect to the obligation to report or the obligation to pay.
(2) A willful attempt to evade or defeat may
include, but is not limited to:
(a) engaging in business while not filing tax
returns coupled with the knowledge that the business is subject to tax;
(b) filing tax returns without payment for an
extended period of time while staying in business and paying other creditors;
(c) knowingly completing false tax returns or
claiming exemptions, deductions, credits or other reductions of taxable amounts
or taxes to which the taxpayer knows he is not entitled;
(d) hiding or transferring assets to hinder
collection activity of the department; or
(e) advising or counseling any of the
foregoing in the course of one’s business as an attorney, accountant,
bookkeeper, business consulting firm or tax preparer.
(3) The following are examples of a willful
attempt to evade or defeat a tax or to cause or attempt to cause the evasion of
another’s tax.
(a) A is the primary shareholder, controlling
officer and sole employee of B, a closely held corporation. B is engaged in an
on-going business and, on its billings to its customers, separately states and
collects an amount denominated “gross receipts tax”. B has not filed monthly
gross receipts returns for eight consecutive months. B, however, has received
frequent notices from the department and has received telephone calls from
department personnel requesting that the returns be filed for the non-filed
months and any tax due be paid. As a result of the frequent contact from the
department, B files the gross receipts tax returns, each of which shows tax
due, but refuses to pay the outstanding tax, penalty and interest due and does
not protest the tax due. B is willfully evading or defeating the gross receipts
tax due and A is willfully causing B to evade that tax.
(b) C is the primary shareholder and
controlling officer of D, a corporation. D hires the services of a professional
accounting firm. The firm prepares D’s tax returns and forwards them to C. C
receives the returns but simply stores them. D never files the tax returns or
pays the taxes due. C has willfully caused the evasion of D’s taxes.
(c) B keeps C’s books. C is a corporation. E
is the primary shareholder and controlling officer of C. B prepares the tax
returns for C and drafts checks for E to sign. E signs the returns and the checks.
B never sends the returns or checks to the department but endorses the checks
to himself. B intercepts all mail and telephone calls from the department. When
E becomes aware of what B is doing, E promptly contacts the department to make
arrangements for the filing of the returns and payment of the taxes. Making the
payments, however, proves unfeasible and C goes out of business. B has
willfully caused C to evade its taxes but E has not.
(d) L is an attorney who is familiar with
business and tax law and is the primary shareholder in PC, a professional
corporation. PC has reported and paid gross receipts tax in the past. PC stops
reporting and paying gross receipts tax; L is aware of this. L has willfully
caused the evasion of PC’s taxes.
(e) N is the primary shareholder and
controlling officer of C, a corporation. C is assessed a substantial amount of
tax as the result of an audit. N causes C to cease operations. N’s brother, M,
who has also worked in the business forms a new corporation D. D takes over C’s
business and assets, including C’s customer lists, employees and goodwill. D
operates at C’s place of business, with strictly cosmetic changes in signs and
stationery. Both N and M know of C’s tax obligations and intended the change in
form to strip the tax liability from the on-going business. Both N and M have
willfully caused C to evade taxes.
(f) O is a company that researches tax liens.
It contacts businesses with tax trouble as indicated by the existence of tax
liens. It advises businesses in the use of techniques to avoid holding balances
in bank accounts, thereby defeating any levy by the department on the
business’s bank accounts. O is willfully causing or attempting to cause another
to evade or defeat taxes owed and may be assessed for the amount its clients
acting owe in tax.
(4) The following examples illustrate
situations which do not give rise to a willful attempt to evade or defeat tax.
(a) G is the primary shareholder and principal
officer of C, a corporation. C is audited and is assessed a substantial amount
of tax. C had never reported or paid gross receipts tax because G erroneously
believed C’s business was exempt from gross receipts tax. C files bankruptcy
under Chapter 11 and attempts to resolve the tax liability under the bankruptcy
laws. While in bankruptcy, C reports and pays its current gross receipts tax
obligations. Regardless of the outcome of the bankruptcy proceedings, G has not
willfully caused C to evade tax.
(b) H owns C, a corporation. C encounters
considerable cash flow problems. It becomes obvious that C is insolvent. C
files three monthly tax returns without payment before going out of business. H
has not willfully caused C to evade tax.
B. BURDEN OF PROOF:
(1) The department has the burden of proving
tax evasion or the causing or attempting to cause another to evade tax.
(2) In a protest before a department hearing
officer pursuant to Section 7-1-24 NMSA 1978, the hearing officer must find by
a preponderance of the evidence that either the taxpayer or other person who
has been assessed for causing or attempting to cause the evasion of another’s
tax knew of the obligation to pay tax. The issue of whether the taxpayer or the
other person actually knew of the obligation to pay tax can be proved by
reasonable inference from circumstantial evidence, and notwithstanding
testimony to the contrary which the hearing officer finds not credible.
(3) The issue of whether the taxpayer or other
person exercised gross negligence or willful disregard for whether taxes were
paid is an objective standard to be determined by the facts and circumstances.
C. INTEREST CONTINUES
TO RUN ON ORIGINAL PRINCIPAL OF TAX ATTEMPTED TO BE EVADED: Although
interest does not run ordinarily on penalty pursuant to Subsection 7-1-67D NMSA
1978, interest continues to run on the penalty imposed under Section 7-1-72.1
NMSA 1978 to the extent of the unpaid principal of the underlying tax liability
because Section 7-1-72.1 NMSA 1978 specifically authorizes the assessment of penalty
and interest upon the tax which was evaded or attempted to be evaded.
[6/15/98; 3.1.11.18 NMAC - Rn & A, 3 NMAC 1.11.18, 1/15/01]
3.1.11.19 [RESERVED]
[3.1.11.19 NMAC
- N, 1/31/05; A, 11/30/05; Repealed, 1/31/08]
HISTORY OF
3.1.11 NMAC:
Pre-NMAC History: The material in this part was derived from
that previously filed with the State Records Center:
BOR 67-1, Tax
Administration Act, 7/19/67, filed 7/28/67.
R.D./OGAD Rule
No. 1985, Regulations Pertaining to the Tax Administration Act, filed 11/5/85.
TRD Rule TA-90,
Regulations Pertaining to the Tax Administration Act, Sections 7-1-1 to 7-1-82
NMSA 1978, filed 8/15/90.
History of
Repealed Material: [RESERVED]
NMAC History:
3 NMAC 1.11, Tax
Administration - Penalties, filed 3/4/96.
3.1.11 NMAC, Tax
Administration - Penalties, filed 1/4/2001.