New Mexico Administrative Code › Title 3 - TAXATION › Chapter 1 - TAX ADMINISTRATION › Part 11 - PENALTIES › Section 3.1.11.18 - WILLFUL ATTEMPT TO EVADE OR DEFEAT TAX

Current through Register Vol. 35, No. 13, July 16, 2024
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.