Could a locum-tenens psychiatrist deduct staffing-company payments when he treated patients for a provider with government health funding but could not trace the payer or program?

Plain-English summary

A child psychiatrist's payments from a locum-tenens staffing company were taxable New Mexico gross receipts because the staffing company was not a qualifying health-plan payer and the doctor could not trace the receipts to a qualifying government program. He also remained a gross-receipts nonfiler despite reporting the income on Schedule C, and his penalty was not excused by tax software or a general legal article.

The Department's May 2019 assessment covered 2013–2016 and totaled $23,017.64 after a $12 credit: $16,740.60 of gross receipts tax, $2,940.92 of interest, and $3,348.12 of penalty.

Dr. James Benvenuti, a New Mexico-licensed psychiatrist specializing in children, provided services to Open Skies Healthcare. Open Skies was a nonprofit behavioral-health provider and received at least some Medicaid, Medicare, and state foster-care funding. But Benvenuti did not contract with Open Skies or its administrative-services organization, Optum Health New Mexico.

His only contract was an assignment letter with Staff Care, Inc., a locum-tenens physician staffing agency. Staff Care placed him at Open Skies, received his timesheets, paid him $115 per hour, and reported the payments on Forms 1099-MISC with Staff Care as payer and Benvenuti as recipient.

The health-practitioner deduction failed

Section 7-9-93 required receipts for qualifying services paid by a managed health care provider or health care insurer under the required contract. Staff Care was a temporary medical-staffing business, not either defined payer, and Benvenuti had no direct contract with Open Skies or Optum.

Even if money could be traced upstream to Open Skies, the record did not identify how much of Benvenuti's own receipts came from particular programs or even how much of his time was clinical rather than supervisory or administrative. His general understanding about Open Skies' funding did not establish the source and amount of deductible receipts.

The government-program deduction also failed

Section 7-9-77.1 applies to specified receipts connected to Medicare, TRICARE, and Indian Health Service programs. Benvenuti could not identify which program funded any particular Staff Care payment. Evidence that he treated children and youth was not proof of Medicare, TRICARE, Indian Health Service, or another covered source.

Staff Care was not an administrator or agent

Submitting timesheets did not make Staff Care a third-party claims administrator. Nor did the Medical Assistance Division's “business agent” regulation prove an agency relationship: there was no evidence about Staff Care's billing and collection process, its authority to bind Benvenuti, or a right for Open Skies to enforce an obligation directly against him. The hearing officer found Staff Care was not Benvenuti's agent.

Schedule C was not a CRS-1 return

Benvenuti argued that he reported the income on his personal income tax returns and that treating 100% of receipts as deductible would look the same as reporting zero. The hearing officer rejected both points. Gross receipts tax has a separate reporting duty: a taxpayer must report total gross receipts and then report deductions on the CRS-1 return, even if the claimed deductions equal all receipts.

Because Benvenuti did not file the required gross receipts returns for 2013–2015, Section 7-1-18(C)'s seven-year assessment period for nonfilers applied instead of the general three-year period. The 2019 assessment was therefore permitted for every year at issue.

Penalty remained

Benvenuti relied on TurboTax for his income-tax returns and a 2007 publication by a local tax attorney. Neither was advice from competent tax counsel or an accountant after full disclosure of his facts. Software does not supply professional judgment, and a general publication cannot evaluate a particular taxpayer's circumstances or bind the Department. The hearing officer found negligence through inaction, erroneous belief, and lack of ordinary business care, even without bad intent.

Result: protest DENIED. The $23,017.64 net assessment of tax, interest, and penalty was upheld.

What this means for you

Identify the entity that actually pays you

For practitioner deductions, an upstream health-plan or government funding source does not replace the need to prove the legal payer, contract, program, and amount tied to your own receipts.

Staffing agencies and health plans are not interchangeable

A locum-tenens company that places and pays physicians does not become a managed health care provider, insurer, or claims administrator merely because the physician works at a health-care organization.

Report gross receipts before claiming deductions

New Mexico requires gross receipts and deductions to be reported separately. Believing every receipt is deductible does not justify omitting the CRS-1 return or reporting no receipts.

Income-tax reporting does not satisfy gross-receipts reporting

Schedule C may disclose business income for income-tax purposes, but it is not the required New Mexico gross receipts return.

Generic information is not individualized professional advice

Penalty relief based on professional reliance requires competent advice addressing the taxpayer's liability after full factual disclosure. Tax software and an informational article did not meet that standard.

Common questions

Q: Was Benvenuti a health care practitioner?
A: Yes. His status as a psychiatrist was undisputed. The deductions failed because his contract, payer, funding proof, and program evidence did not satisfy the statutes.

Q: Why didn't Open Skies' Medicaid or Medicare funding establish the deduction?
A: Staff Care paid Benvenuti, and he could not identify which programs funded particular services or how much of any payment came from a qualifying source.

Q: Was Staff Care treated as Benvenuti's payment agent?
A: No. The record did not prove claims-administration functions, authority to bind him, or the reciprocal enforcement rights needed for an agency relationship.

Q: Why could the Department assess 2013–2015 in 2019?
A: Benvenuti failed to file the required gross receipts returns. That triggered the seven-year nonfiler period rather than the ordinary three-year assessment period.

Q: Did a prior audit without an assessment protect him?
A: No protection was established. The record contained too little information about that earlier audit, its issues, facts, or resolution to determine any effect on this assessment.

Q: Why wasn't penalty abated?
A: TurboTax and a general attorney publication did not constitute competent, individualized advice after full factual disclosure, and the evidence did not show a reasonable, informed mistake of law.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-4, 7-9-3.5(A)(1), and 7-9-5 — gross receipts tax on services performed in New Mexico
• NMSA 1978, § 7-9-93(A), (C) — health care practitioner deduction and defined contract and payer requirements
• NMSA 1978, § 7-9-77.1(A)-(C) — specified Medicare, TRICARE, and Indian Health Service receipts
• NMSA 1978, §§ 7-1-13(A) and 7-1-18(A), (C) — tax liability and assessment periods, including the seven-year nonfiler rule
• NMSA 1978, §§ 7-1-17(C), 7-1-10(A), and 7-1-69(A)-(B) — assessment presumption, recordkeeping, negligence penalty, and good-faith mistake of law
• Regulations 3.2.203.9 and 3.2.241.9 NMAC — reporting deductible gross receipts and third-party claims administrators
• Regulations 3.1.11.10 and 3.1.11.11(D) NMAC — negligence and competent professional-advice reliance
• Regulation 8.302.2.10(A)(2) NMAC — Medical Assistance Division business agents

Cases:

• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021 — assessment burden and essential characteristics of an agency relationship
• Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024 — deductions strictly construed and clearly established by the taxpayer
• TPL, Inc. v. New Mexico Taxation and Revenue Department, 2003-NMSC-007 — strict construction of deductions
• C & D Trailer Sales v. Taxation and Revenue Department, 1979-NMCA-151 — informed consultation and penalty relief
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — negligence penalty for inadvertent error
• Morales v. Commissioner, T.C. Memo 2012-341, aff'd, 633 F. App'x 884 (9th Cir. 2015) (non-precedential) — tax-preparation software is not a negligence defense

Source

• Listing: New Mexico Decisions & Orders
• Decision post: James P. Benvenuti
• Decision PDF: D&O 21-07

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 JAMES P. BENVENUTI
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L0472790192

8 v. Case Number 19.07-149A, D&O No. 21-07

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On September 14, 2020, Hearing Officer Chris Romero, Esq., conducted a hearing on the

12 merits of the protest of James P. Benvenuti (“Taxpayer”) pursuant to the Tax Administration Act

13 and the Administrative Hearings Office Act. Dr. James P. Benvenuti appeared representing

14 himself. Mr. David Mittle, Esq. appeared on behalf of the opposing party in the protest, the

15 Taxation and Revenue Department (“Department”) accompanied by Mr. Nicholas Pacheco,

16 protest auditor.

17 The hearing occurred by videoconference pursuant to NMSA 1978, Section 7-1B-8 (H)

18 under the circumstances of the ongoing public health emergency presented by COVID-19, as

19 discussed in greater detail in Standing Order 20-02 which is made part of the record of the

20 proceeding.

21 Taxpayer Exhibits 1, 2.1, 3, 4, 5.1 – 5.2, 5.4, 6.1 – 6.4, 8.1 – 8.2, 9.1 – 9.4, 10, and 25 and

22 Department Exhibits A-042, A-047, A-053, and A-055 were admitted into the evidentiary record.

23 The primary issues presented for consideration were whether Taxpayer was entitled to a

24 deduction from gross receipts pursuant to: (1) NMSA 1978, Section 7-9-93; (2) NMSA 1978,

25 Section 7-9-77.1; and (3) whether Taxpayer was entitled to abatement of penalty under the

26 Assessment. As explained in greater detail in the subsequent discussion, the Hearing Officer

In the Matter of the Protest of James P. Benvenuti
Page 1 of 29
1 determined that Taxpayer did not establish entitlement to any deduction and there were

2 insufficient grounds for the abatement of penalty. Therefore, Taxpayer’s protest should be

3 denied. IT IS DECIDED AND ORDERED AS FOLLOWS:

4 FINDINGS OF FACT

5 Procedural History

6 1. On May 24, 2019, the Department issued a Notice of Assessment of Taxes

7 and Demand for Payment under Letter ID No. L0472790192 in the total amount of

8 $23,017.64 comprised of gross receipts tax in the amount of $16,740.60, gross receipts

9 tax interest in the amount of $2,940.92, gross receipts tax penalty in the amount of

10 $3,348.12, and reflecting a credit or offset in the amount of $12.00 for the periods from

11 January 1, 2013 through December 31, 2016 (hereinafter “Assessment”). [Administrative

12 File]

13 2. On May 29, 2019, the Department received Taxpayer’s Protest to Audit

14 Assessment accompanied by numerous attachments. [Administrative File]

15 3. On May 31, 2019, the Department acknowledged the Taxpayer’s protest

16 of the Assessment under Letter ID No. L1315959984. [Administrative File]

17 4. On July 17, 2019, the Department filed a request for a scheduling hearing

18 in reference to the protest of the Assessment. [Administrative File]

19 5. On July 19, 2019, the Administrative Hearings Office entered a Notice of

20 Telephonic Scheduling Hearing setting a scheduling hearing for August 5, 2018.

21 [Administrative File]

22 6. On July 23, 2019, Taxpayer filed a Brief for Status & Telephonic

23 Scheduling Hearing. [Administrative File]

In the Matter of the Protest of James P. Benvenuti
Page 2 of 29
1 7. A Telephonic Scheduling Hearing was held on August 5, 2019 at which time

2 there was no objection that conducting the scheduling hearing satisfied the 90-day hearing

3 requirement of Section 7-1B-8 (A) while still allowing meaningful time for completion of the other

4 statutory requirements under Section 7-1B-6 (D). [Administrative File]

5 8. On August 6, 2019, the Administrative Hearings Office entered a Scheduling

6 Order and Notice of Administrative Hearing which in addition to establishing various deadlines,

7 set a hearing on the merits of Taxpayer’s protest for January 8, 2020. [Administrative File]

8 9. On August 13, 2019, Taxpayer filed a Prehearing Statement. [Administrative File]

9 10. On December 18, 2019, the Department filed Department’s Prehearing Statement

10 and an Unopposed Motion to Convert Merits Hearing to Scheduling Conference. [Administrative

11 File]

12 11. On December 20, 2019, the Administrative Hearings Office entered an Order

13 Converting Merits Hearing to Telephonic Scheduling Hearing. [Administrative File]

14 12. On January 8, 2020, the Administrative Hearings Office conducted a second

15 scheduling hearing. [Administrative File]

16 13. On January 10, 2020, the Administrative Hearings Office entered a Scheduling

17 Order and Notice of Administrative Hearing which in addition to establishing various deadlines,

18 set a hearing on the merits of Taxpayer’s protest to occur on April 1, 2020. [Administrative File]

19 14. On February 14, 2020, the Administrative Hearings Office entered a Notice of

20 Reassignment of Presiding Hearing Officer. [Administrative File]

21 15. On February 14, 2020, Taxpayer filed a Reply to Notice of Reassignment

22 indicating that he acknowledged the reassignment and expressed no objections. [Administrative

23 File]

24 16. On February 17, 2020, the Department filed a Peremptory Election to Excuse the

In the Matter of the Protest of James P. Benvenuti
Page 3 of 29
1 hearing officer to whom the Taxpayer’s protest was reassigned. [Administrative File]

2 17. On February 20, 2020, the Administrative Hearings Office entered a

3 Notice of Reinstatement of Presiding Hearing Officer in which the undersigned Hearing

4 Officer was reassigned to the protest. [Administrative File]

5 18. On March 11, 2020, the Department filed Department’s Prehearing

6 Statement. [Administrative File]

7 19. On March 11, 2020, Taxpayer filed Protest Hearing: Taxpayer’s List of

8 Exhibits. [Administrative File]

9 20. On March 16, 2020, due to the circumstances of the public health

10 emergency presented by COVID-19, as detailed more fully in Standing Order 20-02 of

11 the Chief Hearing Officer, the Administrative Hearings Office entered a Notice of

12 Videoconference Administrative Hearing which converted the previously set in-person

13 hearing to a remote, videoconference hearing. [Administrative File]

14 21. On March 24, 2020, the Department filed Department’s Objection to

15 Video or Telephonic Conference Under Standing Order #20-02 of the Chief Hearing

16 Officer, Department’s Waiver of Deadlines, and Department’s Unopposed Amended

17 Objection to Video or Telephonic Conference Under Standing Order #20-02 of the Chief

18 Hearing Officer, ultimately requesting that the hearing on the merits be postponed.

19 [Administrative File]

20 22. On March 26, 2020, the Administrative Hearings Office entered an Order

21 Converting Merits Hearing to Telephonic Scheduling Hearing. [Administrative File]

22 23. On March 27, 2020, Taxpayer filed Taxpayer’s Motion for Judgment on

23 the Pleadings. [Administrative File]

In the Matter of the Protest of James P. Benvenuti
Page 4 of 29
1 24. On April 1, 2020, the Hearing Officer conducted a third scheduling hearing and

2 entered a Scheduling Order and Notice of Administrative Hearing which in addition to other

3 various deadlines, set a hearing on the merits of Taxpayer’s protest for September 14, 2020.

4 [Administrative File]

5 25. On April 16, 2020, the Department filed Department’s Motion for Summary

6 Judgment and Department’s Response to Motion for Judgment on the Pleadings. [Administrative

7 File]

8 26. On April 29, 2020, Taxpayer filed Taxpayer’s Reply to Department’s Motion for

9 Summary Judgment. [Administrative File]

10 27. On May 21, 2020, the Department filed Department’s Notice of Supplemental

11 Authority. [Administrative File]

12 28. On August 5, 2020, the Administrative Hearings Office entered an Order Denying

13 Taxpayer’s Motion for Judgment on the Pleadings and Department’s Motion for Summary

14 Judgment. [Administrative File]

15 29. On August 17, 2020, the Taxpayer filed Taxpayer’s Prehearing Statement.

16 [Administrative File]

17 30. On August 24, 2020, the Department filed a Notice indicating that it would not be

18 amending or supplementing its previous Prehearing Statement, filed on March 11, 2020.

19 [Administrative File]

20 31. On September 8, 2020, the Administrative Hearings Office entered an Amended

21 Notice of Administrative Hearing which converted the previously scheduled in-person hearing to

22 a remote video conference hearing, once again under the circumstances presented by the public

23 health emergency as discussed more fully in Standing Order 20-02 of the Chief Hearing Officer.

In the Matter of the Protest of James P. Benvenuti
Page 5 of 29
1 [Administrative File]

2 Merits of Taxpayer’s Protest

3 32. Dr. James P. Benvenuti is a medical doctor in the field of psychiatry. He

4 has been a physician for more than 50 years specializing in child psychiatry. [Direct

5 Examination of Dr. Benvenuti; Dept. Ex. A-053]

6 33. During all times relevant to the protest, he was licensed in New Mexico

7 and practiced in Albuquerque. [Direct Examination of Dr. Benvenuti; Dept. Ex. A-053]

8 34. Dr. Benvenuti practiced in California for an unspecified number of years

9 prior to relocating to New Mexico. [Direct Examination of Dr. Benvenuti]

10 35. At some point after relocating to New Mexico but prior to the events

11 giving rise to the present assessment and protest, the Department initiated an audit of

12 Taxpayer’s receipts. [Direct Examination of Dr. Benvenuti]

13 36. Taxpayer has never paid gross receipts taxes on receipts deriving from

14 performing professional medical services in New Mexico. [Direct Examination of Dr.

15 Benvenuti]

16 37. The Department apparently determined that Taxpayer’s documentation in

17 that audit was sufficient to conclude the audit without the assessment of any additional

18 tax, interest, or penalty. [Direct Examination of Dr. Benvenuti]

19 38. Because the prior audit was concluded without assessment of any tax

20 liability, Taxpayer presumed there were no issues with his tax accounting, reporting, or

21 payment methods. [Direct Examination of Dr. Benvenuti]

22 39. There is no further information on which to evaluate the issues or facts

23 underlying the previous audit or its eventual resolution and what effect it could have had

In the Matter of the Protest of James P. Benvenuti
Page 6 of 29
1 on the issues presented under the present Assessment and resulting protest.

2 40. For all relevant periods, Optum Health New Mexico was the Administrative

3 Services Organization for the State of New Mexico. [Direct Examination of Dr. Benvenuti;

4 Taxpayer Ex. 1]

5 41. Optum Health New Mexico ceased acting in that capacity on or about July 1,

6 2017. [Direct Examination of Dr. Benvenuti; Taxpayer Ex. 1]

7 42. Optum Health New Mexico contracted with Hogares, Inc. to provide behavioral

8 health services for the district in which Albuquerque was situated. [Direct Examination of Dr.

9 Benvenuti; Taxpayer Ex. 2]

10 43. Open Skies Healthcare, a 501(c)(3) non-profit organization, succeeded Hogares,

11 Inc. as the district provider after Hogares, Inc.’s contract ended in or about 2013. [Direct

12 Examination of Dr. Benvenuti]

13 44. Open Skies Healthcare engaged in the business of providing children and youth

14 with behavioral health services, which included psychiatric services. [Direct Examination of Dr.

15 Benvenuti]

16 45. Due to the nature of its operations and standing within the overarching behavioral

17 health services framework of the State of New Mexico, Taxpayer’s understanding was that Open

18 Skies Healthcare received most, if not all funding from the Social Security Administration (SSA)

19 and the Medical Assistance Division (MAD) of the Human Services Department of the State of

20 New Mexico, owing at least in part to its contractual association with Optum Health New

21 Mexico. [Direct Examination of Dr. Benvenuti; Taxpayer Ex. 7]

22 46. Taxpayer’s professional association with Open Skies Healthcare began in 2013

23 and continued there during all times relevant to the audit and protest. [Direct Examination of Dr.

In the Matter of the Protest of James P. Benvenuti
Page 7 of 29
1 Benvenuti; Taxpayer Ex. 5.4]

2 47. Taxpayer’s relationship to Open Skies Healthcare was that of an

3 independent contractor having been placed by a third-party physician staffing service

4 called Staff Care, Inc. [Direct Examination of Dr. Benvenuti]

5 48. Staff Care, Inc. “operates as a locum tenens staffing company.” [Dept. Ex.

6 A-055]

7 49. Taxpayer was not an employee of Open Skies Healthcare but performed

8 services for Open Skies Healthcare through is placement by Staff Care, Inc. [Direct

9 Examination of Dr. Benvenuti; Cross Examination of Dr. Benvenuti; Taxpayer Ex. 9]

10 50. Taxpayer’s assignment to Open Skies Healthcare was formalized with an

11 Assignment Confirmation Letter between Staff Care, Inc. and Taxpayer. [Direct

12 Examination of Dr. Benvenuti; Taxpayer Ex. 8]

13 51. Taxpayer provided psychiatric services to Open Skies Healthcare patients,

14 including children or youth experiencing conditions such as Attention-

15 Deficit/Hyperactivity Disorder, Bipolar Disorder, and Schizophrenia. [Direct

16 Examination of Dr. Benvenuti; Taxpayer Ex. 8]

17 52. Taxpayer recorded the time devoted to providing services to Open Skies

18 Healthcare on time sheets provided by, and submitted to, Staff Care, Inc. [Direct

19 Examination of Dr. Benvenuti; Dept. A-047]

20 53. Taxpayer was compensated exclusively by Staff Care, Inc. for his

21 services. [Direct Examination of Dr. Benvenuti; Dept. A-047]

22 54. Open Skies Healthcare was compensated, at least in part, through

23 Medicaid and Medicare funds managed through the Human Services Department of the

In the Matter of the Protest of James P. Benvenuti
Page 8 of 29
1 State of New Mexico. It was also compensated directly by the Children, Youth, and Families

2 Department of the State of New Mexico for children and youth in foster care. [Direct

3 Examination of Dr. Benvenuti; Taxpayer Ex. 7]

4 55. Taxpayer was compensated for his services through Staff Care, Inc., the physician

5 service provider, at a rate of $115 per hour. [Direct Examination of Dr. Benvenuti]

6 56. Income that Taxpayer derived from Staff Care, Inc. for services provided to Open

7 Skies Health Care was reported by Staff Care, Inc. on Forms 1099-MISC in each relevant year.

8 Staff Care Inc. was consistently identified as “Payer” and Taxpayer was identified as “Recipient”

9 in each applicable year. [Cross Examination of Dr. Benvenuti; Taxpayer Ex. 9]

10 57. Taxpayer has no agreements with Optum Health New Mexico or Open Skies

11 Healthcare and lacks standing to enforce contractual obligations of either entity, if for example

12 they denied payment for services performed. Taxpayer’s agreement to provide services was

13 exclusively with Staff Care, Inc. [Cross Examination of Dr. Benvenuti; Dept. Ex. A-042]

14 58. Taxpayer did not have access to any contract establishing the terms or conditions

15 of the relationship between Staff Care, Inc. and Open Skies Healthcare or Optum Health New

16 Mexico which may have explained the process through which Staff Care, Inc. was compensated

17 for its services. [Cross Examination of Dr. Benvenuti]

18 59. Taxpayer did not have personal firsthand knowledge enabling him to identify the

19 specific programs funding the precise services he provided. Consequently, there was no evidence

20 to establish the source or amounts of receipts derived from any particular program, including

21 Medicaid, Medicare, or other sources. [Cross Examination of Dr. Benvenuti]

22 60. Taxpayer did not have personal firsthand knowledge capable of establishing the

23 process actually employed for billing his services. There was no evidence available to Taxpayer

In the Matter of the Protest of James P. Benvenuti
Page 9 of 29
1 to establish how Staff Care, Inc. was compensated or the source of the funds remitted to

2 Staff Care, Inc. [Cross Examination of Dr. Benvenuti]

3 61. Taxpayer assertedly stopped work when he was assessed so that he could

4 focus on the issues subject of the Assessment and resulting protest. [Direct Examination

5 of Dr. Benvenuti]

6 62. Nicholas Pacheco is a Protest Auditor for the Department. He has been

7 employed in that capacity for six years as of the date of the hearing. [Direct Examination

8 of Mr. Pacheco]

9 63. Taxpayer came to the Department’s attention through a Schedule C

10 mismatch which indicated that Taxpayer’s reported income on Schedule C of his federal

11 tax returns was inconsistent with Taxpayer’s CRS-1 filings with the Department for the

12 same periods of time. [Direct Examination of Mr. Pacheco]

13 64. Mr. Pacheco reviewed the protest and concluded that Taxpayer was

14 compensated as an independent contractor by Staff Care, Inc. His compensation was

15 reported on IRS Forms 1099-MISC which typically reflect compensation to non-

16 employee independent contractors. [Direct Examination of Mr. Pacheco]

17 65. Mr. Pacheco observed, consistent with Taxpayer’s admissions, that there

18 was no way of knowing which specific programs or sources, such as Medicaid, Medicare,

19 or other sources, funded the services Taxpayer provided. [Direct Examination of Mr.

20 Pacheco]

21 66. Taxpayer failed to report gross receipts deriving from Staff Care, Inc. in

22 all years relevant to the protest. [Taxpayer Ex. 10]

23 67. Taxpayer relied on TurboTax and the publication of a local attorney in

In the Matter of the Protest of James P. Benvenuti
Page 10 of 29
1 making the determination that he would not incur a New Mexico gross receipts tax liability

2 associated with receipts from providing services to, or through Staff Care, Inc. [Direct

3 Examination of Dr. Benvenuti; Cross Examination of Dr. Benvenuti]

4 DISCUSSION

5 Taxpayer asserted that his receipts from services provided to Open Skies Healthcare, and

6 paid by Staff Care, Inc., should be deductible and not taxable as gross receipts. The central issue is

7 therefore whether Taxpayer was entitled to deductions under NMSA 1978, Section 7-9-93 or

8 Section 7-9-77.1 for receipts paid by Staff Care, Inc. for services provided to Open Skies

9 Healthcare. Taxpayer also asserted that Staff Care, Inc. was his agent, but that inquiry will be

10 addressed subsequent to the broader discussion of the specific deductions claimed.

11 Taxpayer also presents secondary issues which the Hearing Officer will summarize as

12 follows: whether Taxpayer was a non-filer in tax years 2013 – 2015; and whether penalty should be

13 abated because any failure to report was based upon a mistake of law on good faith and on

14 reasonable grounds or may otherwise come within the definition of non-negligence.

15 The Department contends that Taxpayer is not entitled to either deduction because

16 Taxpayer’s receipts derived from a staffing agency, not pursuant to a contract with a managed

17 health care provider or health care insurer. The Department further asserts that Taxpayer’s claim to

18 relief should be denied because Taxpayer’s evidence failed to establish the sum of receipts that

19 derived from eligible funds, since each deduction requires that the deductible receipts derive from

20 specific sources.

21 Prior to addressing Taxpayer’s claims, however, it is necessary to discuss the burden which

22 Taxpayer must overcome in order to prevail.

In the Matter of the Protest of James P. Benvenuti
Page 11 of 29
1 Presumption of Correctness

2 Pursuant to NMSA 1978, Section 7-1-17 (C) (2007), the Assessment of tax issued in this

3 case is assumed correct and unless otherwise specified, for the purposes of the Tax Administration

4 Act, “tax” includes interest and civil penalty. See NMSA 1978, Section 7-1-3 (X) (2013). Therefore,

5 under Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C) also

6 extends to the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc. v. State

7 ex rel. Dep’t of Taxation & Revenue, 2006-NMCA-050, ¶16, 139 N.M. 498, 134 P.3d 785 (agency

8 regulations interpreting a statute are presumed proper and are to be given substantial weight).

9 As a result, the presumption of correctness in favor of the Department requires that

10 Taxpayer carry the burden of presenting countervailing evidence or legal argument to show that

11 he is entitled to abatement of the Assessment. See N.M. Taxation & Revenue Dep’t v. Casias

12 Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated statements that [an] assessment

13 is incorrect cannot overcome the presumption of correctness.” See MPC Ltd. v. N.M. Taxation &

14 Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d 308; See also Regulation 3.1.6.12

15 NMAC. If a taxpayer presents sufficient evidence to rebut the presumption, then the burden

16 shifts to the Department to re-establish the correctness of the assessment. See MPC, 2003-

17 NMCA-021, ¶13.

18 In circumstances where a taxpayer’s claim for relief relies on the application of an

19 exemption or deduction, as in the case at hand, “the statute must be construed strictly in favor of

20 the taxing authority, the right to the exemption or deduction must be clearly and unambiguously

21 expressed in the statute, and the right must be clearly established by the taxpayer.” See Wing

22 Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735, 809

23 P.2d 649 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-

In the Matter of the Protest of James P. Benvenuti
Page 12 of 29
1 NMSC-007, ¶9, 133 N.M. 447, 64 P.3d 474.

2 It was apparent that Taxpayer had devoted countless hours preparing for his hearing. He

3 was primed with citations to supporting authority and had given careful and meticulous thought

4 to the facts he intended to present, and to the manner in which he wanted to present them.

5 Overall, the depth of Taxpayer’s preparation was admirable. However, rather than providing live

6 testimony, Taxpayer merely read prepared, written testimony into the record. Taxpayer’s

7 insistence on reading testimony into the record undermined the reliability and credibility of that

8 testimony, particularly as it relates to credibility and overcoming the presumption of correctness.

9 Whether Taxpayer is a Non-Filer

10 Although Taxpayer devotes most of his arguments to claiming deductibility of relevant

11 receipts, he also raised some dispute in reference to the Department’s assertion that “Taxpayer

12 failed to report” and for that reason, it had authority to assess for years 2013, 2014, and 2015.

13 The Hearing Officer understands Taxpayer’s argument on this topic as disputing the

14 authority of the Department to assess tax, interest, or penalty beyond the period of time provided

15 by NMSA 1978, Section 7-1-18 (A). That statute provides that, “no assessment of tax may be made

16 by the department after three years from the end of the calendar year in which payment of the tax

17 was due[.]” However, NMSA 1978, Section 7-1-18 (C) provides an exception to the general rule

18 stating that “[i]n case of the failure by a taxpayer to complete and file any required return, the tax

19 relating to the period for which the return was required may be assessed at any time within seven

20 years from the end of the calendar year in which the tax was due[.]”

21 In disputing the Department’s assertion that he is a non-filer, Taxpayer contends he

22 reported the receipts at issue with his personal income taxes. Although it may be entirely

23 accurate that Taxpayer’s personal income tax returns incorporated the receipts specifically now

In the Matter of the Protest of James P. Benvenuti
Page 13 of 29
1 at issue, that does not necessarily satisfy the obligation to report under the New Mexico Gross

2 Receipts and Compensating Tax Act.

3 A separate obligation arises to report gross receipts and remit gross receipts tax under the

4 New Mexico Gross Receipts and Compensating Tax Act. See NMSA 1978, Section 7-1-13 (A)

5 (“Taxpayers are liable for tax at the time of and after the transaction or incident giving rise to tax

6 until payment is made. Taxes are due on and after the date on which their payment is required

7 until payment is made.”). Regardless of whether Taxpayer filed personal income tax returns,

8 Taxpayer did not meet the separate requirement to file CRS-1 returns to report gross receipts

9 taxes.

10 In addition to, or perhaps in the alternative, Taxpayer also argued that he did report, but

11 that because he claimed deductions equaling 100 percent of his total gross receipts, his reporting

12 would have resembled a failure to report, but that it should have satisfied his reporting

13 requirements. In other words, Taxpayer asserts that reporting zero gross receipts would have the

14 same outward appearance as not reporting anything at all.

15 The Hearing Officer remains unpersuaded. Regulation 3.2.203.9 NMAC specifically

16 requires:

17 Persons engaging in business, except those persons all of whose
18 receipts are exempted by the provisions of Sections 7-9-13 through
19 7-9-42 NMSA 1978 or other law, must register and report their
20 gross receipts to the department even if such receipts are
21 deductible under one or more provisions of Sections 7-9-46
22 through 7-9-78.1 or 7-9-83 through 7-9-90 NMSA 1978.

23 [10/21/86, 11/26/90, 11/15/96; 3.2.203.10 NMAC - Rn, 3 NMAC 2.45.10 & A,
24 5/31/01]

25 Although the regulation does not specifically identify Section 7-9-93, it did include every

26 deduction provided by the New Mexico Gross Receipts and Compensating Tax Act as of the date it

27 was promulgated in 2001. The original version of Section 7-9-93 was enacted in 2004, and although

In the Matter of the Protest of James P. Benvenuti
Page 14 of 29
1 the regulation has not been updated since 2001 to include Section 7-9-93 or other deductions

2 enacted since, the Department’s reporting requirements have remained consistent ever since 2001.

3 Department publication, FYI-105, Gross Receipts & Compensating Taxes: An Overview (Rev.

4 07/2020 at Page 13), instructs:

5 A deduction from gross receipts, like an exemption, results in an
6 amount not subject to tax. However, unlike an exemption, YOU
7 MUST REPORT ON THE FORM CRS-1 BOTH THE GROSS
8 RECEIPTS RECEIVED (in Column D) AND THE AMOUNT
9 OF DEDUCTIONS YOU ARE ELIGIBLE TO CLAIM
10 AGAINST THOSE GROSS RECEIPTS (in Column E).
11
12 [Emphasis in Original]

13 For this reason, even if it is accurate that Taxpayer intended to claim a deduction from gross

14 receipts totaling 100 percent of his gross receipts, he was still required to report his total gross

15 receipts before claiming any deductions, not to mention satisfying any special reporting

16 requirements associated with the deduction. See e.g. FYI-105, Gross Receipts & Compensating

17 Taxes: An Overview (Rev. 07/2020 at Pages 22 - 24)

18 But moreover, and for reasons previously mentioned, the Hearing Officer did not find

19 Taxpayer’s testimony on this issue to be credible. Any suggestion by Taxpayer that he intentionally

20 and knowingly equated not reporting with claiming a deduction totaling 100 percent was simply not

21 credible. In any regard, reporting zero gross receipts, or in the alternative, not reporting at all,

22 constituted a clear failure to report under the law.

23 Hence, the Department’s perception that Taxpayer did not report in years 2013 through

24 2015 was legally and factually accurate. The Department was well within its authority to assess tax,

25 interest, and penalty for all years relevant to the protest. See NMSA 1978, Section 7-1-18 (C).

26 Computing Taxable Gross Receipts

27 As a practical matter, one of the initial steps in any audit is to compute or verify the amount

In the Matter of the Protest of James P. Benvenuti
Page 15 of 29
1 of gross receipts. A subsequent step is to subtract from the taxpayer’s total gross receipts those

2 amounts which are deductible or exempt. The difference between total gross receipts and any

3 applicable deductions or exemptions is the amount of taxable gross receipts.

4 For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

5 receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2002). Under

6 NMSA 1978, Section 7-9-3.5 (A) (1) (2007), “gross receipts” is defined to mean:

7 the total amount of money or the value of other consideration
8 received from selling property in New Mexico, from leasing or
9 licensing property employed in New Mexico, from granting a right to
10 use a franchise employed in New Mexico, from selling services
11 performed outside New Mexico, the product of which is initially
12 used in New Mexico, or from performing services in New Mexico.
13
14 [Emphasis Added]

15 Accordingly, under the Gross Receipts and Compensating Tax Act, all gross receipts of a

16 person engaged in business are presumed taxable. See NMSA 1978, Section 7-9-5 (2002).

17 As previously stated, however, a taxpayer’s actual obligation may be reduced by any

18 number of applicable deductions or exemptions, or by presenting evidence that its receipts are

19 excludable from taxation under NMSA 1978, Section 7-9-3.5 (e.g. services performed outside of

20 New Mexico).

21 Where a taxpayer’s claim for relief relies on the application of an exemption or

22 deduction, then “the statute must be construed strictly in favor of the taxing authority, the right to

23 the exemption or deduction must be clearly and unambiguously expressed in the statute, and the

24 right must be clearly established by the taxpayer.” See Wing Pawn Shop v. Taxation and Revenue

25 Department, 1991-NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649 (internal citation omitted); See

26 also TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-NMSC-007, ¶9, 133 N.M. 447, 64 P.3d

27 474.

In the Matter of the Protest of James P. Benvenuti
Page 16 of 29
1 Application of Sections 7-9-93 and 7-9-77.1

2 NMSA 1978, Section 7-9-93 permits a deduction for the receipts of health care practitioners

3 under specific circumstances. Subsection A states in relevant part:

4 Receipts of a health care practitioner for commercial contract
5 services or medicare part C services paid by a managed health care
6 provider or health care insurer may be deducted from gross receipts
7 if the services are within the scope of practice of the health care
8 practitioner providing the service. Receipts from fee-for-service
9 payments by a health care insurer may not be deducted from gross
10 receipts.
11
12 [Emphases Added]

13 There is no dispute that Taxpayer is a health care practitioner. However, the statute goes on to

14 define critical terms, such as “commercial contract services” which means “health care services

15 performed by a health care practitioner pursuant to a contract with a managed health care provider

16 or health care insurer other than those health care services provided for medicare patients pursuant

17 to Title 18 of the federal Social Security Act or for medicaid patients pursuant to Title 19 or Title 21

18 of the federal Social Security Act[.]” See Section 7-9-93 (C) (1).

19 In this case, Taxpayer never asserted that he contracted directly with Open Skies Health

20 Care or even Optum Health New Mexico. In fact, he readily admitted that the only contract in

21 which he was a party was between himself and Staff Care, Inc. However, Staff Care, Inc. is a

22 staffing agency, not a “managed health care provider” or “health care insurer” as those terms are

23 defined at Section 7-9-93 (C)(2) or (4).

24 For example, a “managed health care provider” means “a person that provides for the

25 delivery of comprehensive basic health care services and medically necessary services to

26 individuals enrolled in a plan through its own employed health care providers or by contracting with

27 selected or participating health care providers. ‘Managed health care provider’ includes only those

28 persons that provide comprehensive basic health care services to enrollees on a contract basis,” and

In the Matter of the Protest of James P. Benvenuti
Page 17 of 29
1 goes on to enumerate certain organizations, associations, plans, and systems, none of which include

2 physician staffing services such as Staff Care, Inc.

3 The same is true for the definition of “health care insurer” which means “a person that: (a)

4 has a valid certificate of authority in good standing pursuant to the New Mexico Insurance Code to

5 act as an insurer, health maintenance organization or nonprofit health care plan or prepaid dental

6 plan; and (b) contracts to reimburse licensed health care practitioners for providing basic health

7 services to enrollees at negotiated fee rates[,]” which once again does not include staffing services

8 such as Staff Care, Inc.

9 Taxpayer nevertheless asserts that he is still entitled to the deduction since the receipts

10 eventually remitted to him by Staff Care, Inc. are traceable to their point of origin, Open Skies

11 Healthcare, which he claims is “a managed health care provider.” Even if so, Taxpayer’s argument

12 still contradicts the requirements of the deduction because Taxpayer did not have a contract with

13 Open Skies Healthcare contrary to the requirements expressed in Section 7-9-93 (C) (1) which

14 requires that services be performed and compensated “pursuant to a contract with a managed health

15 care provider or health care insurer.” Taxpayer contracted with Staff Care, Inc., submitted his

16 billable hours for services provided to Staff Care, Inc., and was paid by Staff Care, Inc. Meanwhile,

17 Staff Care, Inc., at all times relevant to the protest was a staffing agency placing medical

18 professionals on a temporary basis to fill temporary staffing shortages. Taxpayer has never had any

19 direct contractual relationship with Open Skies Healthcare or Optum Health New Mexico.

20 Moreover, Staff Care, Inc. is simply not a “managed health care provider” or a “health care

21 insurer.” See NMSA 1978, Section 7-9-93 (C) (2) & (4). Instead, as seen in the example of

22 Taxpayer’s own association with Staff Care, Inc., it is engaged in the business of providing

23 temporary placement of medical professionals. The Assignment Confirmation Letters clearly stated

In the Matter of the Protest of James P. Benvenuti
Page 18 of 29
1 that Taxpayer was providing “locum tenens coverage.” The Latin term, locum tenens, generally

2 means, “one filling an office for a time or temporarily taking the place of another —used especially

3 of a doctor or clergyman[.]” See Merriam-Webster.com Dictionary, s.v. “locum tenens,” accessed

4 March 23, 2021, https://www.merriam-webster.com/dictionary/locum%20.

5 Since Staff Care, Inc. was the entity with which Taxpayer had a contract, and because Staff

6 Care, Inc. was neither a “managed health care provider” or a “health care insurer,” Taxpayer has not

7 established eligibility to a deduction under Section 7-9-93.

8 However, even if the Hearing Officer agreed with Taxpayer that receipts from Staff Care,

9 Inc. should nevertheless be deductible because they could have originated from a “managed care

10 provider” or a “health care insurer,” the Hearing Officer would nevertheless still find that Taxpayer

11 has failed to meet his burden. The evidence fails to show how much of Taxpayer’s receipts derived

12 from services within the scope of Taxpayer’s practice, as well as the specific source of the funds.

13 Taxpayer readily admitted that he was not capable of identifying specific programs through which

14 he was paid for services. Moreover, as the only physician among several psychologists, there is

15 no way of knowing how much of Taxpayer’s time, if any, was devoted to supervisory or

16 administrative functions.

17 However, the predominant issue precluding the application of Section 7-9-93 is that

18 Taxpayer’s receipts were not “paid by a managed health care provider or health care insurer” as

19 those terms are defined in the law.

20 Next, Taxpayer asserts that Staff Care, Inc. is a “third party claims administrator” under

21 Regulation 3.2.241.9 NMAC which permits deductions under Section 7-9-93 for payments by third

22 party claims administrators. However, Taxpayer presented no evidence to establish that Staff Care,

23 Inc. is a third party claims administrator. The fact that Taxpayer submitted time sheets to Staff Care,

In the Matter of the Protest of James P. Benvenuti
Page 19 of 29
1 Inc. does not transform it from a locum tenens staffing agency into a third party claims

2 administrator. See e.g. NMSA 1978, Section 59A-12A-2 (B) (defining the terms “administrator”

3 and “third party administrator” under the New Mexico Insurance Code).

4 The evaluation of Section 7-9-77.1 follows a similar course. As with Section 7-9-93, the

5 critical inquiry is once again the precise source of Taxpayer’s receipts. Once again, all receipts

6 were remitted by Staff Care, Inc. Moreover, Taxpayer again readily admitted that he was unable

7 to establish the specific program funding any of his payments. In absence of such evidence, there

8 is insufficient evidence to establish any of the critical elements underlying the application of

9 Section 7-9-77.1 since that deduction depends significantly on identifying the specific programs

10 funding the services provided.

11 For example, Taxpayer established that the services he provided for Open Skies

12 Healthcare through Staff Inc, Inc. concentrated on behavioral health services to children and

13 youth. This conclusion falls short of establishing that the receipts originated from “the United

14 States government or any agency thereof for provision of medical and other health services … to

15 medicare beneficiaries pursuant to the provisions of Title 18 of the federal Social Security

16 Act[.]” See NMSA 1978, Section 7-9-77.1 (A); 42 U.S.C.A. §1395 et seq. (providing “Health

17 Insurance for Aged and Disabled”).

18 The same observation is made for other subsections of Section 7-9-77.1. For example,

19 there is no evidence to establish that Taxpayer generated receipts from the federal TRICARE

20 program, a “comprehensive managed health care program for the delivery and financing of

21 health care services in the Military Health System.” See Section 7-9-77.1 (B); 10 USC Sec. 1072

22 (7); 32 CFR §199.17.

23 There is also no evidence to conclude that any of the receipts at issue derived from the

In the Matter of the Protest of James P. Benvenuti
Page 20 of 29
1 “Indian health service of the United States department of health and human services for the

2 provision of” services to its beneficiaries. See NMSA 1978, Section 7-9-77.1 (C).

3 In contrast, similar to the conclusion reached in reference to Section 7-9-93, the evidence

4 could only establish that Taxpayer’s receipts derived from Staff Care, Inc., a locum tenens

5 staffing agency, and there was no further detail provided to determine the particular source of

6 those funds or their eligibility under either deduction.

7 Consideration of Regulation 8.302.2 NMAC as Part of Analysis

8 Taxpayer asserts as a final contention that Staff Care, Inc. should be afforded the

9 distinction of his business agent under Regulation 8.302.2.10 (A) (2) which permits MAD to

10 make payment to a provider or to specified individuals or organizations for services, including “a

11 business agent, such as billing service or accounting firm that provides statements and receives

12 payment in the name of the provider; the agent’s compensation must be related to the cost of

13 processing the claims and not based on a percentage of the amount that is billed or collected or

14 dependent upon collection of the payment.”

15 The effect would be to create a direct payment link from a health care insurer or managed

16 health care provider through his asserted business agent to Taxpayer. However, Taxpayer’s

17 assertion that Staff Care, Inc. is his business agent is misplaced. There is simply no evidence

18 proffered upon which to conclude that Staff Care, Inc. is a “business agent” within the meaning

19 of the cited regulation, promulgated by the New Mexico Human Services Department governing

20 benefits administered by MAD.

21 Conversely stated, finding that Staff Care, Inc. was Taxpayer’s business agent would rely

22 entirely on speculation since there is no evidence on the record to explain how Staff Care, Inc.

23 went about billing and collecting for the services it provided, or how it paid its locum tenens

In the Matter of the Protest of James P. Benvenuti
Page 21 of 29
1 providers. For example, did Staff Care, Inc. submit claims directly to MAD or other programs, or

2 was it paid instead by its clients such as Open Skies Healthcare who handled the claim process

3 separately? Even though Taxpayer attempted to present testimony on the procedures Staff Care,

4 Inc. utilized to bill for services, the testimony was largely based on speculation. Moreover,

5 Taxpayer’s insistence on reading testimony into the record undermined the reliability and

6 credibility of that testimony.

7 All the same, it is unlikely that the New Mexico Human Services Department intended its

8 definition to have any effect on issues relating to taxation. Implementing the tax laws of this state

9 or formulating tax policy is well beyond the scope of the authority granted to the Human

10 Services Department. In contrast, the authority to implement and enforce the tax laws of this

11 state are granted exclusively to the Department. See NMSA 1978, Section 9-11-6.

12 However, the Hearing Officer will still consider whether Staff Care, Inc. is a business agent

13 for other purposes, not specifically under Regulation 8.302.2 NMAC. “The majority rule is that

14 the manner in which the parties designate a relationship is not controlling, and if an act done by

15 one person on behalf of another is in its essential nature one of agency, the one is the agent of the

16 other, notwithstanding he is not so called.” See Chevron Oil Co. v. Sutton, 1973-NMSC-111, ¶4,

17 85 N.M. 679, 515 P.2d 1283; See also Robertson v. Carmel Builders Real Estate, 2004-NMCA-

18 056, 135 N.M. 641, 92 P.3d 653.

19 The New Mexico Supreme Court has acknowledged that “[t]he common law emphasizes

20 the fiduciary nature of the agency relationship, which does not arise until ‘one person (a

21 “principal”) manifests assent to another person (an “agent”) that the agent shall act on the

22 principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise

23 consents so to act.’” See Maes v. Audubon Indem. Ins. Grp., 2007-NMSC-046, ¶17, 142 N.M. 235,

In the Matter of the Protest of James P. Benvenuti
Page 22 of 29
1 164 P.3d 934 quoting Restatement (Third) of Agency §1.01 (2006); See also Hydro Res. Corp. v.

2 Gray, 2007-NMSC-061, ¶40, 143 N.M. 142, 173 P.3d 749; Santa Fe Techs., Inc. v. Argus

3 Networks, Inc., 2002-NMCA-030, ¶26, 131 N.M. 772, 42 P.3d 1221.

4 Our courts have, on several occasions, considered the existence and consequence of the

5 agency relationship on the taxability of receipts generated amid that relationship. In MPC Ltd. v.

6 New Mexico Taxation & Revenue Dept., 2003-NMCA-021, ¶ 37, 133 N.M. 217, 225, 62 P.3d 308,

7 316, the court defined the essential elements of an agency relationship within the issue of state

8 taxation, particularly within the meaning of Section 7-9-3.5(A) (3) (f) and Regulation 3.2.1.19 (C)

9 (1) NMAC. The court noted the following characteristics of the agency relationship:

10 (1) the agent has the authority to bind the principal… to an obligation…
11 created by the agent, and (2) the beneficiary of that obligation… is informed
12 by contract that he or she has a right to proceed against the principal… to
13 enforce the obligation.

14 In this protest, the evidence failed to establish any authority for Staff Care, Inc. to bind Taxpayer

15 to obligations to any third party, such as Open Skies Healthcare. Although, Taxpayer might

16 characterize his Assignment Confirmation Letter to provide services to Open Skies Healthcare as

17 a binding agreement, there is no evidence that Open Skies Healthcare enjoys the ability to proceed

18 directly against Taxpayer for any reason. Moreover, to the extent Taxpayer testified to the presence

19 of various elements indicative of an agency relationship, Taxpayer’s testimony was unreliable and

20 not credible for the reasons previously explained.

21 Based on the limited information on the record, the Hearing Officer could presume that

22 Taxpayer’s failure to perform for Open Skies Healthcare may give rise to an action between Open

23 Skies Healthcare and Staff Care, Inc., and Staff Care, Inc. might even proceed against Taxpayer,

24 but there is nothing on the record to establish that Open Skies Healthcare enjoyed the ability to

25 bypass Staff Care, Inc. and proceed directly against Taxpayer.

In the Matter of the Protest of James P. Benvenuti
Page 23 of 29
1 This observation is consistent with Taxpayer’s testimony that he is not aware of any

2 provisions that would permit him to proceed directly against Open Skies Healthcare, and there is

3 nothing apparent from the evidence that would permit Open Skies Healthcare to proceed directly

4 against Taxpayer. For these reasons, Staff Care, Inc. is not Taxpayer’s agent.

5 For these reasons, Taxpayer has failed to carry his burden of establishing entitlement to a

6 deduction under Sections 7-9-93 or 7-9-77.1, as required by applicable case law. See Wing Pawn

7 Shop, 1991-NMCA-024, ¶16 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation &

8 Revenue Dep’t, 2003-NMSC-007, ¶9.

9 Penalty

10 When a taxpayer fails to pay taxes due to the State because of negligence or disregard of

11 rules and regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

12 (2007) requires that:

13 there shall be added to the amount assessed a penalty in an amount equal to
14 the greater of: (1) two percent per month or any fraction of a month from
15 the date the tax was due multiplied by the amount of tax due but not paid,
16 not to exceed twenty percent of the tax due but not paid.

17 (italics added for emphasis).

18 The statute’s use of the word “shall” makes the imposition of penalty mandatory in all

19 instances where a taxpayer’s actions or inactions meet the legal definition of “negligence.” See

20 Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24, 32

21 (use of the word “shall” in a statute indicates that a provision is mandatory absent clear indication to

22 the contrary).

23 Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to

24 exercise that degree of ordinary business care and prudence which reasonable taxpayers would

25 exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

In the Matter of the Protest of James P. Benvenuti
Page 24 of 29
1 “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” In this

2 case, Taxpayer was negligent under all three definitions. Taxpayer failed to exercise a degree of

3 ordinary business care and prudence which a reasonable taxpayer would exercise under like

4 circumstances with regard for understanding his gross receipts tax obligations. As a result, Taxpayer

5 failed to take action to report and pay gross receipts, a failure which was caused in part by erroneous

6 belief or inattention.

7 In instances where a taxpayer might fall under the definition of civil negligence subject to

8 penalty, Section 7-1-69 (B) provides an exception in that “[n]o penalty shall be assessed against a

9 taxpayer if the failure to pay an amount of tax when due results from a mistake of law made in

10 good faith and on reasonable grounds.” Here, there is no evidence that Taxpayer made an informed

11 judgment or determination based on reasonable grounds that gross receipts tax did not apply to

12 him when he failed to report and pay gross receipts tax. See C & D Trailer Sales v. Taxation and

13 Revenue Dep’t, 1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where there was no evidence

14 that the taxpayer “relied on any informed consultation” in deciding not to pay tax). Consequently,

15 this mistake of law provision of Section 7-1-69 (B) does not mandate abatement of penalty.

16 The other grounds for abatement of civil negligence penalty are found under Regulation

17 3.1.11.11 NMAC. That regulation establishes eight indicators of non-negligence where penalty

18 may be abated. Based on the argument of Taxpayer and the evidence presented, only one factor

19 under Regulation 3.1.11.11 NMAC is potentially applicable in this proceeding:

20 D. the taxpayer proves that the failure to pay tax or to file a return was
21 caused by reasonable reliance on the advice of competent tax counsel or
22 accountant as to the taxpayer's liability after full disclosure of all relevant
23 facts; failure to make a timely filing of a tax return, however, is not excused
24 by the taxpayer's reliance on an agent;

25 First, Taxpayer used TurboTax software to complete his federal and New Mexico personal

26 income tax returns. Generally speaking, the software requests input of certain information and

In the Matter of the Protest of James P. Benvenuti
Page 25 of 29
1 computes a taxpayer’s liability and any amount owed or due for refund. The software, although a

2 helpful tool, does not substitute for “competent tax counsel or accountant.” The Hearing Officer

3 concurs with the observations of the United States Tax Court in Morales v. Comm’r, T.C. Memo

4 2012-341, 2012 Tax Ct. Memo LEXIS 342, 104 T.C.M. (CCH) 741, affirmed, 633 Fed. Appx. 884

5 (9th Cir. 2015) (non-precedential), which held that the use of tax preparation software is not a

6 defense to negligence penalties.

7 Taxpayer also relies on a 2007 publication by a local attorney who is known to practice in

8 the area of state taxation. However, while reference to a third-party publication is often helpful, that

9 in itself also does not substitute for the advice of competent tax counsel or accountant as to the

10 taxpayer's liability after full disclosure of all relevant facts. First, the publication does not speak

11 on behalf of the Department, and cannot therefore bind the Department. Second, the author of the

12 publication had no opportunity to consider the consequence of Taxpayer’s specific

13 circumstances. This is the reason why attorney publications will usually be accompanied by

14 some notification that the information provided is for general informational purposes only and

15 readers should seek advice from a tax professional for advice regarding specific tax issues. This

16 is because truly informed advice requires a full disclosure of relevant facts, something that a

17 general publication is incapable of providing.

18 The Department did not allege that the Taxpayer’s inaction was with the intent to evade or

19 defeat a tax. In contrast, there was no dispute that the issue giving rise to this protest was the result

20 of Taxpayer’s inadvertence, erroneous belief, or inattention. In other words, Taxpayer did not act

21 with bad intentions. Yet, El Centro Villa Nursing established that the civil negligence penalty is

22 appropriate for inadvertent error and Regulation 3.1.11.11 (D) NMAC does not provide grounds

23 for abatement of the penalty.

In the Matter of the Protest of James P. Benvenuti
Page 26 of 29
1 Having considered all of the evidence and arguments presented, including tangential issues

2 that may have been raised but not specifically addressed herein, the Hearing Officer was persuaded

3 that Taxpayer’s protest should be DENIED.

4 CONCLUSIONS OF LAW

5 A. Taxpayer filed a timely, written protest to the Department’s assessments, and

6 jurisdiction lies over the parties and the subject matter of the protest.

7 B. A hearing was timely set and held within 90 days of Taxpayer’s protest under

8 NMSA 1978, Section 7-1B-8 (2015).

9 C. Taxpayer carries the burden to present countervailing evidence or legal argument

10 to show that it is entitled to an abatement of an assessment. See Casias Trucking, 2014-NMCA-

11 099, ¶8.

12 D. If a taxpayer presents sufficient evidence to rebut the presumption, then the

13 burden shifts to the Department to re-establish the correctness of the assessment. See MPC Ltd.,

14 2003-NMCA-021, ¶13.

15 E. Taxpayers have a legal obligation to retain records capable of accurately

16 computing state taxes as required by NMSA 1978, Section 7-1-10 (A).

17 F. Where a taxpayer’s claim for relief relies on the application of an exemption or

18 deduction, “the statute must be construed strictly in favor of the taxing authority, the right to the

19 exemption or deduction must be clearly and unambiguously expressed in the statute, and the

20 right must be clearly established by the taxpayer.” See Wing Pawn Shop v. Taxation and Revenue

21 Department, 1991-NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649 (internal citation omitted); See

22 also TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-NMSC-007, ¶9, 133 N.M. 447, 64 P.3d

23 474.

In the Matter of the Protest of James P. Benvenuti
Page 27 of 29
1 G. Taxpayer did not rebut the statutory presumption of correctness that attached to the

2 assessment under NMSA 1978, Section 7-1-17 and the burden did not therefore shift to the

3 Department to re-establish the correctness of its assessment.

4 For the foregoing reasons, Taxpayer’s protest should be DENIED.

5 DATED: April 9, 2021

6
7 Chris Romero
8 Hearing Officer
9 Administrative Hearings Office
10 P.O. Box 6400
11 Santa Fe, NM 87502

12 NOTICE OF RIGHT TO APPEAL

13 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

14 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

15 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

16 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

17 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

18 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

19 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

20 Hearings Office may begin preparing the record proper. The parties will each be provided with a

21 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

22 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

23 statement from the appealing party. See Rule 12-209 NMRA.

In the Matter of the Protest of James P. Benvenuti
Page 28 of 29
1 CERTIFICATE OF SERVICE

2 On April 9, 2021, a copy of the foregoing Decision and Order was submitted to the parties

3 listed below in the following manner:

4 EMail EMail
5
6 INTENTIONALLY BLANK
7
8
9 John D. Griego
10 Legal Assistant
11 Administrative Hearings Office
12 Post Office Box 6400
13 Santa Fe, NM 87502
14 PH: (505)827-0466
15 FX: (505)827-9732
16 [email protected]

In the Matter of the Protest of James P. Benvenuti
Page 29 of 29