Can New Mexico add a 50% fraud penalty when a business owner simply stops filing gross receipts tax returns, without forging documents or hiding assets?

Subject

Judith A. Housley & Associates (D&O 99-28)

(The Department's decision listing dates this order November 4, 1999; the signature line in the PDF reads "the 28th day of November, 1999," which appears to be a typo echoing the case number. This page uses the Department's listing date.)

Plain-English summary

Judith Housley ran a New Mexico business — first as a handwriting analyst, later as a forensic document examiner — continuously from 1982 through 1997. She charged her customers gross receipts tax (about 5.9%), and even understood the tax well enough to correctly not charge it on sales to a government agency and on out-of-state work. But after mid-1988 she stopped filing returns and never remitted the tax she collected. In September 1991 she filed a form to cancel her tax registration, falsely representing that the business had stopped operating in June 1988 — timed to coincide with her clearing up an old assessment and lien. She kept no books or records, financed a sunroom, a jacuzzi, and home improvements in 1996, and admitted she avoided filing "for fear of alerting the Department."

The Department issued estimated assessments for 1988–1997. Housley agreed to the tax and interest (about $30,125 tax and $23,838 interest once trued up) and disputed only the 50% civil-fraud penalty (about $15,062). The Hearing Officer denied the protest and upheld the penalty:

• The 1997 statutory change did not lower the bar. The penalty statute was reworded in 1997 from "intent to defraud the state" (Section 7-1-69(B)) to "willful intent to evade or defeat any tax" (Section 7-1-69(C)). Housley argued this made the penalty easier to impose. The Hearing Officer disagreed, reading the amendment as merely conforming the civil-penalty language to New Mexico's criminal tax-evasion statute (Section 7-1-72), not lowering the standard.
• The state met its burden — clear and convincing evidence. Under Section 7-1-78 the state must prove fraud, and New Mexico applies a clear-and-convincing standard. The Department cleared it.
• New Mexico does not require a federal-style "affirmative act." Housley relied on federal cases (Spies v. United States) holding that mere failure to file, without an affirmative act like false books or hidden assets, can't support a felony evasion conviction. The Hearing Officer rejected that import: New Mexico structures its penalties differently and its courts have declined to follow that federal caselaw (El Centro Villa; State v. Long, where a sophisticated attorney's willful failure to file and pay gross receipts tax he had charged clients was itself sufficient). Housley was a sophisticated taxpayer who charged the tax and didn't pay it — and even if an affirmative act were required, her false cancellation of her registration supplied one.

What this means for you

• A 50% fraud penalty does not require forged documents or hidden assets. In New Mexico, a sophisticated taxpayer's willful failure to file and pay tax it collected can, by itself, support the penalty. You do not have to do something "extra" to be exposed.
• Charging customers tax you never remit is powerful evidence of intent. Collecting gross receipts tax and pocketing it — while understanding the tax well enough to apply exemptions correctly — points squarely at willful evasion.
• Falsely cancelling your registration makes it worse, not better. Telling the Department you've stopped doing business when you haven't is treated as an affirmative act of evasion, on top of the failure to file.
• Agreeing to the tax doesn't end the penalty exposure. Housley conceded the tax and interest but still owed the 50% penalty. The penalty is a separate determination driven by intent, and clear-and-convincing evidence of willfulness will sustain it.

Key questions answered

Can failure to file alone be "fraud" in New Mexico?
Yes, for a sophisticated taxpayer acting willfully. The Hearing Officer followed State v. Long, holding that a willful failure to file and pay gross receipts tax the taxpayer had charged customers is enough — New Mexico does not adopt the federal "affirmative act" requirement from Spies.

Didn't the 1997 rewrite of the penalty statute make it easier to impose?
No. The Hearing Officer read the change from "intent to defraud" to "willful intent to evade or defeat" as conforming the civil penalty to the criminal evasion statute (Section 7-1-72), not lowering the standard. The result is the same under either version.

Who has to prove fraud, and to what degree of certainty?
The state. Section 7-1-78 places the burden on the Department, and New Mexico requires clear and convincing evidence of fraud. The Department met that standard here.

What facts convinced the Hearing Officer the evasion was willful?
Housley charged customers the tax but never remitted it, kept no books, admitted she avoided filing to avoid alerting the Department, spent freely in a year she claimed she couldn't pay, and — most tellingly — cancelled her tax registration with a false statement that she had stopped doing business.

Verbatim citations

Failure to file can support the penalty (following State v. Long):

The Court of Appeals expressly declined to follow federal case law. It found that the Defendant had willfully failed to file returns and pay taxes and that this was sufficient to establish the willful evasion of the payment of taxes in violation of Section 7-1-72.

The false cancellation as an affirmative act:

Even if some sort of affirmative act to evade tax were required to establish the basis for the imposition of the penalty at issue herein, Ms. Housley's cancellation of her number under the circumstances outlined would meet such a requirement. Under the facts of this case, the Department has met its burden of proving by clear and convincing evidence the basis for the imposition of the 50% penalty....

The state's burden on fraud:

In any proceeding involving the issue of whether any person has been guilty of fraud or corruption, the burden of proof in respect of such issue shall be upon the director or the state.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Judith A. Housley & Associates
• Decision PDF: D&O 99-28

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
JUDITH A. HOUSLEY, NO. 99-28
ID. NO. 01-181871-00 9, PROTEST TO
ASSESSMENT NOS. 2238427
THROUGH 2232862

DECISION AND ORDER

This matter came on for formal hearing on September 10, 1999 before Gerald B.

Richardson, Hearing Officer. Judith A. Housley, hereinafter, “Taxpayer” was represented by

David G. Housman, Esq., appearing on behalf of David N. Hernandez, Esq. The Taxation and

Revenue Department, hereinafter, “Department”, was represented by Bruce J. Fort, Special

Assistant Attorney General. At the close of the hearing the parties were granted additional time

to submit written legal arguments. The Department submitted its Statement of Authorities on

October 4, 1999 and the matter was considered submitted for determination at that time. Based

upon the evidence and the arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. On March 13, 1998, the Department issued the following provisional or estimated

assessments to the Taxpayer, assessing gross receipts tax, penalty and interest as follows:

Assmt. No. Reporting Period Tax PenaltyInterest Total

2232846 7-88 through 12-88 $ 341.85 $ 170.93 $ 470.04 $ 982.82
2232847 1-89 through 6-89 $3,870.00 $1,935.00 $5,031.00 $10,836.00
2232848 7-89 through 12-89 $3,870.00 $1,935.00 $4,740.00 $10,545.75
2232849 1-90 through 6-90 $3,870.00 $1,935.00 $4,450.50 $10,255.50
2232850 7-90 through 12-90 $4,050.00 $2,025.00 $4,353.75 $10,428.75
2232852 1-91 through 6-91 $4,050.00 $2,025.00 $4,050.00 $10,125.00

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2232852 7-91 through 12-91 $4,140.00 $2,070.00 $3,829.50 $10,039.50
2232853 1-92 through 6-92 $4,140.00 $2,070.00 $3,519.00 $ 9,729.00
2232854 7-92 through 12-92 $4,140.00 $2,070.00 $3,208.50 $ 9,418.50
2232855 1-93 through 6-93 $4,140.00 $2,070.00 $2,898.00 $ 9,108.00
2232856 7-93 through 12-93 $4,140.00 $2,070.00 $2,587.50 $ 8,797.50
2232857 1-94 through 6-94 $4,140.00 $2,070.00 $2,277.00 $ 8,487.00
2232858 7-94 through 12-94 $4,140.00 $2,070.00 $1,966.50 $ 8,176.50
2232859 1-95 through 6-95 $4,140.00 $2,070.00 $1,656.00 $ 7,866.00
2232860 7-95 through 12-95 $4,140.00 $2,070.00 $1,345.50 $ 7,555.50
2232861 1-96 through 6-96 $4,140.00 $2,070.00 $1,035.00 $ 7,245.00
2232862 7-96 through 12-96 $4,140.00 $2,070.00 $ 724.50 $ 6,934.50
2232863 1-97 through 6-97 $4,140.00 $2,070.00 $ 414.00 $ 6,624.00
2232864 7-97 through 12-97 $4,140.00 $2,070.00 $ 103.50 $ 6,313.50

2. On April 10, 1999 the Taxpayer filed a protest to Assessment Nos. 2232847

through 2232862.

3. Subsequent to the Department’s Assessments, the Taxpayer filed returns reporting

gross receipts and gross receipts taxes for the reporting periods of July, 1988 through December,

1997. The Department has agreed to accept the amounts the Taxpayer self assessed in those

returns as reflecting the amount of gross receipts tax the Taxpayer owes for those periods of time

and will adjust the assessments at issue accordingly. To the amounts of tax the Taxpayer self-

assessed, the Department added interest and a 50% penalty. The Taxpayer disputes the amount

of penalty. The total amount of taxes, penalty and interest the Department now contends is

owing for the reporting periods of July, 1988 through December, 1997 is $30,125.12 in gross

receipts tax, $15,062.44 in penalty and $23,838.36 in interest.

4. The Taxpayer first registered her business with the Department and obtained a

taxpayer identification for her business in 1982. The Taxpayer’s business was that of a

handwriting analyst.

5. Because the Department has purged its records for years 1982 through 1988, it

does not have a copy of the Taxpayer’s application for a tax identification number nor does it

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have any record of the Taxpayer’s filings for gross receipts tax purposes between 1982 and 1988

with one exception, explained in the next finding.

6. The Department does have a record that the Taxpayer filed a return on January 10,

1989 for the January, 1988 through June, 1988 reporting period, reporting a gross receipts tax

liability of $357.75. The Department’s records further indicate that no payment was made at the

time the return was filed. The Department’s records indicate that on February 1, 1989 it issued

Assessment No. 1117070, assessing $357.75 in gross receipts tax, $35.78 in penalty and $26.83

in interest for the January through June, 1988 reporting period. The Department’s records also

indicate that subsequently, the Taxpayer paid $543.60 to pay off that liability, together with

accrued interest and penalty.

7. On May 1, 1992, the Taxpayer wrote to the Department to protest Assessment

No. 1117070 and the Department’s lien, filed on September 4, 1991 to secure that assessment.

On May 21, 1992, the Department responded to the Taxpayer, informing her that because Section

7-1-24 of the New Mexico statutes requires that protests be filed within 30 days, that her protest

was untimely. The Taxpayer had paid the liability assessed by Assessment No. 1117070

sometime in September, 1991, but the Department failed to remove the lien until the Taxpayer

complained to the Department some eight months later.

8. On September 25, 1991, the Taxpayer filled out a Department Form RP-32A to

request the cancellation of Taxpayer Identification No. 01181871009, which was the

identification number for the business named Judith A. Housley & Associates. In the application

form, Ms. Housley requested cancellation of the identification number on the basis that the

business had stopped doing business in New Mexico on June 12, 1988. She requested that the

identification be retired effective June 30, 1988. This date coincides with the ending date of the

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reporting period of the last return Ms. Housley filed with the Department prior to the issuance of

the assessments at issue herein.

9. The business named Judith A. Housley & Associates did not cease doing business

in New Mexico on June 30, 1988. The Taxpayer operated a business under that name in New

Mexico continuously from 1982 through 1997.

10. Prior to issuing the assessments at issue herein, the Department had no records to

indicate that the Taxpayer reported or paid gross receipts tax upon her receipts from engaging in

business in New Mexico for the reporting periods of July, 1988 through December, 1997.

11. Because of the lack of reporting history on the Taxpayer, in issuing its provisional

or estimated assessments, the Department used other information to estimate the Taxpayer’s

taxable gross receipts. The Department had obtained a loan application filled out by Ms.

Housley on August 31, 1997. In that loan application, Ms. Housley represented a monthly

income of $12,000 per month from employment as a forensic document examiner.

12. When asked, as part of the discovery process in the instant protest, to provide all

books of account, including general ledgers, receipts, payment records, balance sheets and profit

and loss statements for calendar years 1993 through 1997, the Taxpayer responded that there

were none.

13. The Taxpayer was able to produce her customer billing records for 1996, 1997

and 1998. Those records demonstrated that the Taxpayer had a very good understanding of the

operation of New Mexico’s gross receipts tax. In general, the Taxpayer’s billings to her

customers reflected a charge to her customers of approximately 5.9% which was variously

designated as “gross receipts”, “NM gross receipts” and “New Mexico Gross Receipts Tax”.

However, in a billing to the New Mexico Public Defender Department, the Taxpayer charged no

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gross receipts tax on copies of enlarged documents she prepared for the customer. New Mexico

does not impose a gross receipts tax on the value of tangible personal property sold to

governmental agencies. Additionally, when billing out of state clients, the Taxpayer did not

charge gross receipts tax for services performed out of state. New Mexico does not impose a

gross receipts tax on services performed out of state.

13. Ms. Housley’s occupation when she first registered her business with the

Department in 1982 was a handwriting analyst. She understood when she first registered her

business that she was registering for the purpose of paying gross receipts tax.

14. Ms. Housley testified that she changed her occupation from a handwriting analyst

to a forensic document examiner or a handwriting identification expert on June 12, 1988.

15. Ms. Housley was informed by Shannon Sandberg, the Department employee she

dealt with when she canceled the business registration for her business as a handwriting analyst

in July of 1991, that if she resumed her business or started a new business, she would need to

apply for a new tax identification number to register her present business as a forensic document

examiner.

16. Ms. Housley did not inform Ms. Sandberg that she was still engaging in business

in New Mexico as a forensic document examiner at the time she canceled her tax identification

with the Department.

17. Ms. Housley never obtained a new taxpayer identification number or business

registration with the Department for any business of any nature after canceling her registration

with the Department for her business named Judith A. Housley & Associates. She did not obtain

a new registration because she claimed that she did not have the money to pay gross receipts

taxes on the gross receipts of her business.

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18. Ms. Housley admitted that she was aware, during the period of 1991 through 1997

that she had an obligation to register her business with the Department and to report and pay

gross receipts tax on her taxable gross receipts from engaging in business in New Mexico.

19. During years 1991 through 1997, the Taxpayer advertised her services in the New

Mexico Bar Bulletin.

20. Ms. Housley charged her customers gross receipts tax during the periods of 1988

through 1997.

21. For tax year 1993, Ms. Housley filed a Federal Schedule C with the Internal

Revenue Service (IRS) reporting that she had $35,532 in gross receipts from her business as a

graphoanalyst.

22. For tax year 1994, Ms. Housley filed a Federal Schedule C with the IRS reporting

that she had $54,808 in gross receipts from her business as a graphoanalyst.

23. For tax year 1995, Ms. Housley filed a Federal Schedule C with the IRS reporting

that she had $62,700 in gross receipts from her business as a graphoanalyst.

24. For tax year 1996, Ms. Housley filed a Federal Schedule C with the IRS reporting

that she had $42,301 in gross receipts from her business as a graphoanalyst.

25. Even when the Taxpayer received payment of a billing from a customer to whom

she had charged gross receipts tax on her professional fees, the Taxpayer made no attempt to

report or pay gross receipts tax on her receipts from that customer.

26. The Taxpayer admitted that even in months when she could have made payment

of taxes, she did not report or pay gross receipts taxes to the Department because she was not

registered with the Department and she was afraid to file for fear of alerting the Department to

the non-payment of her tax obligations.

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27. Although the Ms. Housley claimed that she could not afford to pay gross receipts

tax on her gross receipts, in 1996 she spent $2,700 on a jacuzzi and $8,000 on home

improvements. In that year, she also financed a new sunroom on her house for $33,800, for

which she pays $326.45 per month.

28. Ms. Housley cancelled her tax registration and identification number with the

Department with the intention of defrauding the State of New Mexico of the payment of gross

receipts taxes.

29. Ms. Housley cancelled her tax registration and identification number with the

Department with the intention of evading or defeating the payment of gross receipts taxes.

30. Ms. Housley failed to report and pay gross receipts tax to the Department from her

receipts from engaging in business in New Mexico with the intention of defrauding the State of

New Mexico of the payment of gross receipts taxes.

31. Ms. Housley failed to report and pay gross receipts tax to the Department from her

receipts from engaging in business in New Mexico with the intention of evanding or defeating

the payment of gross receipts taxes.

DISCUSSION

The issue to be determined herein is whether the Taxpayer is liable for the penalty

assessed. The Taxpayer has agreed to the amount of tax and interest as reflected in the

Department’s adjustments of the assessments as set forth in Finding No. 3.

The Taxpayer was assessed a penalty in the amount of 50% of the tax assessed for tax

years 1988 through 1997. The penalty statute was amended during the years covered by the

Department’s assessments. For the 1988 through 1996 tax years, the Taxpayer was assessed

penalty pursuant to § 7-1-69(B) NMSA 1978 which provided:

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In the case of failure, with intent to defraud the state, to pay when
due any amount of tax required to be paid, there shall be added to
the amount fifty percent of the tax or a minimum of twenty-five
dollars ($25.00), whichever is greater, as penalty.

This provision was amended by Laws 1997, ch. 67, § 8, effective July 1, 1997, to read:

In the case of failure, with willful intent to evade or defeat any tax,
to pay when due any amount of tax required to be paid, there shall
be added to the amount fifty percent of the tax or a minimum of
twenty-five dollars ($25.00), whichever is greater, as penalty.

Section 7-1-69(C) NMSA 1978 (1998 Repl. Pamp.)

The first matter to be determined is the effect of the statutory amendment. The

amendment to the statute changed the basis for imposition of the 50% penalty from establishing

an intent to defraud the state to establishing a willful intent to evade or defeat any tax. The

Taxpayer argues that by this amendment, the legislature intended to lower the standard for

imposing the 50% penalty from applying only to instances where fraud can be proven to cover

instances where a more generalized intent to evade or defeat a tax can be proven.

The Taxpayer cites to no authority for her argument that the legislature was intending to

lower the standard for imposing the 50% penalty. I, for one, have a difficult time discerning any

significant difference between the two provisions. I find it significant, however, that at all

relevant times to this case, the language in the statutory provision which imposes a criminal

felony penalty for failure to pay tax, was essentially the same as adopted in the 1997 amendment

to the civil penalty. Specifically, § 7-1-72 NMSA 1978 provides :

Any person who willfully attempts to evade or defeat any tax or
the payment thereof is, in addition to other penalties provided by
law, guilty of a felony and, upon conviction thereof, shall be fined
not less than one thousand dollars ($1,000) nor more than ten
thousand dollars ($10,000), or imprisoned not less than one year
nor more than five years, or both such fine and imprisonment,
together with the costs of prosecution. (emphasis added).

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Because both the civil and criminal penalties for tax evasion now require a willful intent to evade

or defeat the payment of tax, a more probable legislative intent for the amendment at issue is that

the legislature was merely conforming the language for the imposition of the civil and the

criminal penalties for tax evasion. This conclusion is further supported by common sense. To

interpret the 1997 amendment as the Taxpayer does, to impute a legislative intent to lower the

standard as to the grounds for imposing the 50% penalty, when that standard is essentially the

same as the one contained in the criminal penalty statute, would suggest that the legislature had

always intended a lower standard to impose criminal penalties upon tax evaders than to impose

civil penalties.

Prior to considering the evidence and whether it meets the standards for imposing the

50% tax evasion penalty, the burden of proof and the standard of proof should be discussed.

Section 7-1-78 of the Tax Administration Act provides as follows:

In any proceeding involving the issue of whether any person has
been guilty of fraud or corruption, the burden of proof in respect of
such issue shall be upon the director or the state.

Although § 7-1-69(C) NMSA 1978 (1998 Repl. Pamp.) does not specifically use the words

“fraud” or “corruption”, it is the successor to § 7-1-69(B), which did refer to defrauding the state.

As noted above, the amended provision, which imposes a steep penalty for failure to pay tax with

willful intent to evade or defeat the payment of such tax, should not be read to change the

standard for imposition of the penalty and can fairly be characterized as a fraud penalty.

Although § 7-1-78 does not specify the standard or degree of proof required for the state to meet

its burden of proof, the common law rule in New Mexico is that proof of fraud in a civil action

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must be established by clear and convincing evidence. First National Bank in Albuquerque v.

Abraham, 97 N.M. 288, 291, 693 P.2d 575 (1982).

There are no New Mexico cases decided under either version of New Mexico’s civil tax

evasion penalty to guide us in determining whether the evidence in this case is sufficient to

support the imposition of the 50% penalty. The Taxpayer argues that in this absence, we should

look to federal cases interpreting what must be established to support a criminal conviction of

attempting to evade or defeat tax under § 7201 of the Internal Revenue Code, 26 USCA § 7201.

Specifically, Taxpayer relies upon Speis v. United States, 317 U.S. 492 (1943) and Sansone v.

United States, 380 U.S. 343 (1965) for the proposition that the mere failure to file tax returns,

without some affirmative act of evasion, is insufficient to establish a violation of § 7201. In

Speis, the Court suggested various affirmative acts, such as the keeping of double books, making

false bookkeeping entries or false supporting documents, destruction of books or records,

concealment of assets or sources of income, as examples which would meet the requirement of

an affirmative act of evasion. In this case, the Taxpayer argues that there is only evidence of the

Taxpayer’s omission to file returns, and no evidence of the sorts of affirmative acts required

under the federal cases and thus no basis for the imposition of the 50% penalty.

The basis for the Court’s decision requiring affirmative acts to support a conviction for

tax evasion in Speis was that the Court was trying to distinguish between §§ 145(a) and 145(b) of

the Internal Revenue Code of 1939. Section 145(a) made the willful failure to pay tax when due

punishable as a misdemeanor, and Section 145(b) made the willful attempt to evade or defeat a

tax a felony. The Court concluded that to support a conviction of the more serious felony

offense, affirmative acts to evade the tax are required.

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Speis and its federal progeny are distinguishable on the basis that New Mexico’s criminal

sanctions are structured quite differently than those the Court was construing. New Mexico does

not provide for a misdemeanor penalty corresponding to the federal misdemeanor penalty for

mere failure to file a return.

Additionally, New Mexico’s courts have rejected similar entreaties by taxpayers to follow

the federal caselaw with regard to the imposition of statutory penalties for failure to report and

pay taxes, whether the penalties be civil or criminal. In El Centro Villa Nursing Center v.

Taxation & Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989), the Court of

Appeals rejected the taxpayer’s arguments that New Mexico should look to the federal caselaw

applying the federal civil penalty for failure to report or pay taxes due to willful neglect when

interpreting the application of New Mexico’s statute imposing a civil penalty for negligent failure

to report or pay taxes or to file a return. Even more pertinent to the case at hand is the Court of

Appeals decision in State v. Long, 121 N.M. 333,d 911 P.2d 227 (Ct. App. 1995) cert. denied,

212 N.M. 119, 908 P.2d 1387 (1996). In that case, the state prosecuted an attorney for tax

evasion under § 7-1-72. The attorney was the sole shareholder and director of a professional

corporation and was the sole person responsible for filing gross receipts tax reports. He was

charged with tax evasion based upon the fact that during 1990, his corporation had gross receipts

in excess of $95,000 and the attorney admitted that he did not file gross receipts returns or pay

gross receipts taxes for that year even though he was aware of the requirement to do so and he

charged the tax when billing his clients. The attorney made the precise argument raised herein

when challenging his conviction under § 7-1-72 for the willful attempt to evade or defeat tax or

its payment. He argued that the mere failure to file returns, without evidence of an affirmative

act such as those listed in Speis, was insufficient to support a conviction under § 7-1-72.

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The Court of Appeals expressly declined to follow federal case law. It found that the

Defendant had willfully failed to file returns and pay taxes and that this was sufficient to

establish the willful evasion of the payment of taxes in violation of § 7-1-72. State v. Long, 121

N.M. at 334-336.

Given the close similarity of the language of the criminal sanction found at § 7-1-72 and

the civil penalty at issue herein found at § 7-1-69(C) NMSA 1978 (1998 Repl. Pamp.) and my

previous determination that the 1997 amendment of § 7-1-69 did not change the standard for

imposing the 50% penalty, State v. Long clearly supports the conclusion that the evidence in this

case is sufficient to establish a violation of either version of the 50% penalty provisions at issue

herein. As in State v. Long, we have a sophisticated taxpayer who clearly understood the

obligation to report and pay gross receipts taxes on her receipts. In both instances, the taxpayers

charged their customers gross receipts tax and failed to file reports of their gross receipts or pay

over the taxes they collected. In this instance, we have even more evidence to support a

conclusion that the Taxpayer willfully intended to evade tax. Although Ms. Housley attempted

to explain her cancellation of her tax registration and identification number with the Department

as something she was required to do when she changed her occupation from a hand-writing

analyst to a forensic document examiner, I find nothing in the Department’s statutes, regulations

or on the application form to cancel the identification number to indicate such a requirement.

The form (Department Exhibit 6) makes no reference to occupation. It asks for the name of the

taxpayer’s business and Ms. Housley, by signing the application, declared that the business

named Judith A. Housley & Associates stopped doing business on June 12, 1998, when in fact

she continued to do business under that name for all of the tax periods in question. I find it more

than mere coincidence that Ms. Housley filled out this application at the same time, September,

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1991, when she was attempting to clear up an assessed liability and obtain a release of the

Department’s lien securing that liability. Ms. Housley was aware at the time she canceled her tax

identification number that she was still engaging in business and was subject to tax, yet she made

no attempt to obtain a new identification number at the time she canceled her old number. Even

if some sort of affirmative act to evade tax were required to establish the basis for the imposition

of the penalty at issue herein, Ms. Housley’s cancellation of her number under the circumstances

outlined would meet such a requirement. Under the facts of this case, the Department has met its

burden of proving by clear and convincing evidence the basis for the imposition of the 50%

penalty imposed under either § 7-1-69(B) or its subsequent version, § 7-1-69(C).

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely protest to the assessments at issue herein and

jurisdiction lies over both the parties and the subject matter of this protest.

2. The Department has established by clear and convincing evidence that the

imposition of the 50% penalty imposed under § 7-1-69(B) NMSA 1978, as it applied during tax

years 1988 through June, 1997 and § 7-1-69(C) NMSA 1979, effective July 1, 1997, was proper.

For the foregoing reasons, the Taxpayer’s protest IS HEREBY DENIED.

DONE, this 28th day of November, 1999.

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