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Jamie C. Yesnowitz
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On Nov. 8, 2018, the New Mexico Taxation and Revenue Department released guidance announcing that taxpayers with unreported or underreported taxes may qualify to have penalties and interest waived if they enroll in the Fresh Start Program by Dec. 31, 2018, and pay their liabilities within 180 days.1
Under this tax amnesty program, qualifying taxpayers may be allowed to conduct “self-audits” for taxes subject to the Tax Administration Act.2
This program is similar to New Mexico’s existing managed audit program, but the eligibility and procedural requirements are streamlined.
Acceptance into the amnesty program is not automatic, but taxpayers may apply to participate in the program if they satisfy certain eligibility requirements. The Department has listed some of the criteria that will be considered in determining a taxpayer’s eligibility: (i) the taxpayer demonstrates a willingness and ability to comply with New Mexico tax laws; (ii) the taxpayer demonstrates an acceptable system of internal controls and business records;and (iii) the taxpayer’s resources are available to conduct the self-audit. In contrast, a taxpayer is not eligible for the program if: (i) a tax liability has already been established for the period in question; (ii) the Department has notified the taxpayer that the periods in question are currently under audit; (iii) the Department currently is pursuing collections on the taxpayer for the periods in question; (iv) the taxpayer is already in a legal dispute with the Department over the taxability of transactions for the periods in question; or (v) the taxpayer was part of a criminal investigation. If uncertain about eligibility, taxpayers may contact the Department on an anonymous basis.
Operation of program
Taxpayers must file an application with the Department to participate in the program and select one of two compliance methods.3
Under the general method, the Department and the taxpayer jointly develop an audit plan and must approve in writing a plan summary that includes the audit procedures agreed to be applied during the Fresh Start Program. Under the optional method, the taxpayer prepares the audit work papers with minimum guidance from the Department. The Department will then issue a written statement that the taxpayer may remain subject to audit for the audit period.
The application provides that the taxpayer agrees to submit the final audit report to the Department for review within 60 days after the beginning of the Fresh Start Program. For purposes of the agreement, the commencement date of the audit is the last date on which the agreement is signed by one of the parties. The Department will issue a tax assessment that excludes penalties and interest. In exchange, the taxpayer waives its remedies to dispute its liabilities under an administrative protest,4
by filing a refund claim,5
or seeking an award of costs and fees.6
Participants that complete the program are not subject to penalties and interest that would otherwise be imposed on their tax liabilities assessed by the Department; however, if a taxpayer is unable to pay the balance of the assessment within 180 days, interest will accrue on any remaining tax due from the time that the tax originally was due.
Several states recently have offered tax amnesty programs, but the Fresh Start Program is the first amnesty program that New Mexico has offered since 2010. Unlike the other states that have offered tax amnesty, this program has a self-audit component and is not the result of recent legislation. Also, this program does not provide many details or indicate specific tax periods that are eligible for amnesty. The timing of this program late in the calendar year may encourage increased participation for gross receipts (sales) tax purposes due to higher retail sales during the holiday season. The Department’s release of this guidance may foreshadow New Mexico’s potential implementation of remote seller nexus requirements in response to South Dakota v. Wayfair, Inc
Taxpayers who believe they owe any New Mexico state taxes are advised to consider applying for this program to avoid penalties and interest on their tax liability.
The Fresh Start Program resembles the managed audit program that currently is available in New Mexico.8
Interest and penalties are waived under both programs if the tax liability is paid within 180 days. However, unlike the managed audit program, the Department’s recent guidance notes that it plans to contact taxpayers that may be eligible for the Fresh Start Program by initiating notices of intent to assess. Note that the tax types eligible for the Fresh Start Program are not clear. The guidance indicates that the program applies to “one or more tax programs subject to the Tax Administration Act,”9
but the application requires taxpayers to select among three tax programs: gross receipts tax, personal income tax and weight distance tax. Some of the language in the guidance released by the Department states that this program is for “small businesses” and “individuals.” However, the Department has not defined what the term “small business” actually means, and there do not appear to be any specific application requirements that limit applicants to small businesses and individuals.10
Given the lack of clarity on these issues, taxpayers considering participation in the Fresh Start Program are advised to contact the Department on an anonymous basis to discuss their eligibility. Compared to the managed audit program, the Fresh Start Program has fewer eligibility criteria, as well as simplified agreement requirements and self-audit procedures.11
The temporary streamlining by the Fresh Start Program appears to have been done in an effort to encourage increased participation.
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