An Overview of New Mexico Tax Resolution Options
The Taxation and Revenue Department of New Mexico (TRD), a state tax agency, administers all state and city level taxes. These taxes include the state income tax, state gross receipts tax, local gross receipt taxes, state and local property taxes, and other taxes related to the processing or production of natural resources.
The TRD is responsible for the collection of taxes in the state of New Mexico. Before enforced collection, TRD will attempt to notify the taxpayer and collect the tax liability by sending notices, calling the taxpayer, or in some circumstances conducting a field visit. Generally, the TRP conducts field visits at business locations, but an individual taxpayer can be subject to one as well. If the taxpayer is cannot or will not resolve the tax liability with the TRD after it has exhausted these methods, levies, and liens on assets and income usually follow.
In some cases, the TRD will send the account to an outside collection agency. Before this happens, the TRD will mail a notice to the taxpayer informing them that their account is moving to a collection agency. Once that account moves to a collection agency, the taxpayer must work with that collection agency to resolve their tax issues.
How Tax Liabilities Arise Generally
Taxpayers, just like with the IRS and some states, can pursue various options if they owe back taxes to the state of New Mexico. Generally, taxpayers find themselves owing back taxes if they filed a tax return and cannot pay the balance due. Taxpayers may also owe if they were subject to an audit, and the Taxation and Revenue department assessed an additional tax. Furthermore, taxpayers can face tax liabilities if they failed to file a tax return, and the state estimated income tax liability based on information obtained from the IRS.
Taxpayers should not ignore delinquent tax filing and payment issues and the corresponding assessment or collection notices from the state of New Mexico. Furthermore, taxpayers should seek a qualified tax professional to represent them in these matters as well. Past due tax liabilities can become significant problems very quickly as penalty, interest, and collection fees increase the entire balance owed overtime. Finally, if continually ignored, the state will begin enforced collection via liens, levies, and garnishments.
The Taxation and Revenue Department did modify their collection and enforcement actions through the end of August. The modifications included pauses on new liens, seizures, and injunctions through August 31st. Moreover, the TRD provided taxpayers additional deadline extensions on payment plans, and also offered taxpayers more time to produce records for those under field or desk audits. Also, the TRD- suspended the program that garnishes state tax refunds for federal taxes owed, among other relief.
Recently, the TRD provided taxpayers who filed on time or filed an extension until April 15th, 2021 to pay off personal 2019 tax balances without penalties and interest.
A Review of Some NM State Tax Resolution Options
Two solutions for dealing back taxes is to enter into a monthly payment plan or to negotiate a settlement with the state. With that said, there are other additional options available such as:
- penalty abatements
- innocent spouse relief
- temporary hardship status
The options above for taxpayers are not exhaustive, but these courses of action can reduce or resolve tax liabilities in certain circumstances.
Protesting the Assessment
If New Mexico assesses additional tax due against a taxpayer, there are two options available to dispute the assessment. New Mexico makes these options mutually exclusive, meaning that once the taxpayer chooses one option, they cannot pursue the other. The two are options are to:
- forego paying the proposed assessment at this time and file a written protest or
- pay the liability and file a refund claim.
It is important to reiterate that choosing either of these options waives the ability for the taxpayer to challenge the assessment later via the other option.
A taxpayer must file a written protest within 90 days from the date on the notice of assessment. Form ACD-31094 provides instructions and information for submitting the written protest.
Additionally, taxpayers have the option to request both an informal and formal hearing on the issues. If the taxpayer cannot reach a tax resolution, he or she may appeal the Department’s denial ruling to the New Mexico Court of Appeals. Taxpayers must file appeals within 30 days from the date the Department issued its denial or when the hearing officer’s ruling became final. Taxpayers cannot submit new evidence to the Court of Appeals. Therefore, it is critically essential to assert all facts in support of their position in the original protest.
Taxpayers must make a claim for refund after they satisfy the entire tax liability, and within three years from the end of the calendar year the tax was due, or in which the taxpayer paid the additional assessment. For refund claims TRD denies, taxpayers can either file a protest with the TRD in the same manner as discussed above or file a lawsuit in the Santa Fe District Court. The taxpayer must file either appeal option within 90 days from the date of TRD refund denial mailing.
Taxpayer Bill of Rights
Taxpayers should be aware of their rights in dealings with the TRD. New Mexico has codified certain rights that are guaranteed to taxpayers, regardless of whether they hire someone to represent them. These rights are called the Taxpayer Bill of Rights and are as follows:
- The right to available public information and prompt, courteous tax assistance;
- The right to representation by counsel or another qualified representative at any time during your contacts with the TRD or with the Administrative Hearings Office;
- The right to have audits, inspections of records and meetings take place at a reasonable time and place;
- The right to have the Department conduct its audits in a timely and efficient manner and be entitled to the correct calculation of interest as provided in the Tax Administration Act;
- The right to simple, non-technical information explaining procedures, remedies, and rights during an audit, protest, appeals and collection proceedings;
- The right to an explanation of audit results and the basis for audits, assessments or denials of refund that identify tax, interest or penalty due;
- The right to seek review, through formal or informal proceedings, of findings or unfavorable decisions that occur during audit or protest procedures;
- The right for your tax information to remain confidential unless otherwise specified by law;
- The right to abatement (forgiveness) of an assessment of taxes that have been incorrectly, erroneously, or illegally made, and a right to seek a compromise of stated tax liability. When the Secretary of Taxation and Revenue in good faith doubts that you owe us the amount we claim, you have the right to seek compromise if a way exists in your particular case;
- The right to clear information about penalties if a tax assessment is not paid, secured, protested, or otherwise provided for. If you become a delinquent taxpayer, upon notice of delinquency you have the right to timely notice of collection actions that require sale or seizure of your property under the Tax Administration Act, and
- The right to ask to pay your tax obligations by installment agreements.
Offer in Compromise
The enacted Taxpayer Bill of Rights, as provided above, states that it is a right of the taxpayer to be allowed to seek a compromise of tax debt. However, this language is curtailed by the subsequent sentence, which states, “When the Secretary of Taxation and Revenue in good faith doubts that you owe us the amount we claim, you have the right to seek compromise if a way exists in your particular case.”
It is a relatively high standard to reach and likely will not apply to most taxpayers with a delinquent tax liability. Contrary to this position, and with respect to the IRS and most other states, an Offer in Compromise (OIC) program provides relief to taxpayers who do not have the income or assets available to repay the liability. It is beneficial for all involved, as the IRS or state will be able to collect something on the tax debt owed but will not waste resources trying to obtain an amount that is impossible to ever secure. The taxpayer gets the opportunity for a fresh start. It puts the taxpayer in a much better position to not becoming delinquent again in the future.
Taxpayers who are unable to challenge an additional assessment successfully or are unable to pay a specific tax liability in full should enter into a payment plan. While interest and penalties will normally continue to accrue while the taxpayer is in a payment plan, forced collection activities will be not be initiated as long as the taxpayer sets up a payment plan for 12 months or less and remains current in the approved payment plan. If the taxpayer sets a payment plan for longer than 12 months, it will generally come with a tax lien.
The TRD offers two types of payment plans:
Short-term payment plan
An Installment Agreement
The TRD offers flexible monthly payment terms for both types of payment plans. Taxpayers can agree to equal monthly payments, fluctuating payments (intending to accommodate those with seasonal income), or increased monthly payments throughout the length of the agreement. Generally, the TRD will ask to review the taxpayer’s financial information before accepting a payment plan.
You can read more about NM state payment plans here.
Penalties and Interest
New Mexico charges delinquent taxpayers both penalty and interest on past-due tax liabilities. The tax penalty is 2% per month of the unpaid principal tax liability up to 20%. Interest accrues daily on the outstanding principal tax liability and is updated regularly by the TRD. The interest rate is the same rate set by the Internal Revenue Code for individual income tax. Additionally, New Mexico also assesses a late filing or late payment penalty for tax returns or tax payments that a taxpayer does not pay in a timely fashion. This penalty is 2% of the tax due for each month or part of a month the return is not filed, or the payment is not paid, up to a maximum of 20%.
Taxpayers can seek abatement of any penalty assessed by the TRD via the same process discussed above for protesting an assessment. Taxpayers must provide supporting evidence that they were not acting negligently in failing to file or pay the delinquent tax liability that caused the TRD to assess the penalty. Generally, this means that the taxpayer was acting in good faith and would have otherwise been compliant if not for an event occurring outside of the taxpayer’s control. The TRD will not consider abatement of interest under any circumstance.
Innocent Spouse Relief
New Mexico will allow the spouse of a delinquent taxpayer to seek relief from the liability under certain circumstances. The TRD, like the IRS, refers to this as “innocent spouse relief.” The TRD uses the same legal basis for making innocent spouse relief determinations as those published by the IRS (ie, on a case by case basis). Generally, a taxpayer who has already been granted innocent spouse relief by the IRS will have their New Mexico request accepted as well. While the TRD reserves the right to make innocent spouse decisions on a case by case basis, they provide the following factors that are weighed heavily in making the determinations:
- Did the spouse or former spouse know about the tax liability at the time it arose?
- Did the spouse or former spouse have a meaningful opportunity to contest the assessment of tax at the time the assessment was made?
- Has the spouse or former spouse cooperated with the Department in collection and compliance efforts?
- Can the state protect its interests without pursuing active collection efforts against the spouse or former spouse, including collection efforts against the other spouse or former spouse?
The IRS requires that taxpayers meet the following requirements to qualify for innocent spouse relief, which is also a threshold requirement for New Mexico.
- The taxpayer filed a joint return.
- There is an understated tax on the return that is due to erroneous items of your spouse (or former spouse).
- The taxpayer can show that when they signed the joint return, they did not know and had no reason to know that the understated tax existed (or the extent to which the understated tax existed).
- Taking into account all the facts and circumstances, it would be unfair to hold the innocent taxpayer liable for the understated tax.
Temporary Hardship Status
Taxpayers that demonstrate to the TRD that they do not currently have the ability to pay their tax obligations can look to be put into a temporary hardship status. Taxpayers can call the TRD for more information and submit an application if they can prove they cannot currently make payments.
New Mexico has a program called the Taxpayer Advocate Program. It helps taxpayers who have legitimate issues in communication or dealing with the TRD. The Taxpayer Advocate Program has a long-term goal to identify systemic problems within the TRD and to recommend long term solutions for solving those problems. The New Mexico Taxpayer Advocate Program can help taxpayers by coordinating communications between them and the TRD. They can ensure that taxpayer rights are upheld under the Taxpayer Bill of Rights. Moreover, they can advocate on the taxpayers’ behalf for a resolution.
Reading this article does not create an attorney-client relationship. This article should not be used as a substitute for the advice of a competent attorney or tax professional.