Could B&M Enterprises reduce a $6,099.42 New Mexico corporate income tax assessment because airplane crashes and financial setbacks had forced the company out of business?

Plain-English summary

B&M Enterprises could not reduce its $6,099.42 corporate income tax assessment based on financial hardship or the fact that it had gone out of business. The company conceded legal liability, and neither the Department nor the hearing officer had authority to compromise tax, penalty, or interest because the taxpayer could not pay.

B&M did business in New Mexico as New Mexico Flying Services during 1994 and 1995. It ceased operating in February 2000 after two serious airplane crashes and other financial setbacks.

An IRS audit found underpaid federal corporate income tax for fiscal years ending September 30, 1994 and September 30, 1995. After receiving the federal Revenue Agent Report, the Department assessed $6,099.42 of New Mexico corporate income tax, penalty, and interest.

The company conceded the assessment's legal basis

B&M did not dispute that the assessed tax, penalty, and interest were legally due. Its president instead asked for a reduction because the corporation had suffered major financial reversals and no longer operated.

That meant the hearing presented no calculation, classification, or statutory-liability dispute for the hearing officer to resolve.

Inability to pay was not a basis for compromise

Regulation 3.1.6.14 NMAC stated that the secretary "may not compromise a taxpayer's liability because of the taxpayer's inability to pay."

The company's circumstances were unfortunate, but the regulation prevented the Department from using hardship alone to reduce the established liability.

An administrative officer could not create relief

The decision relied on State ex rel. Taylor v. Johnson for the principle that administrative discretion cannot alter, modify, or extend a law created by the Legislature.

The Legislature had not authorized the Department or its hearing officer to adjust tax assessments based on an individual taxpayer's financial or personal situation. The hearing officer's role was limited to deciding whether the liability existed.

Result: protest DENIED. The full $6,099.42 of corporate income tax, penalty, and interest remained due.

What this means for you

Closed or insolvent businesses

Going out of business does not by itself erase an established New Mexico tax liability.

Taxpayers requesting hardship relief

Distinguish a challenge to legal liability from an inability-to-pay request. A protest hearing addresses whether the tax is legally due.

Companies receiving federal audit adjustments

Review the corresponding state impact promptly. Federal changes can flow through to New Mexico corporate income tax.

Businesses appearing at an administrative hearing

Identify a legal or factual error in the assessment. A hearing officer cannot create equitable relief that the Legislature has not authorized.

Common questions

Q: How much did the Department assess?
A: $6,099.42 of corporate income tax, penalty, and interest.

Q: Did B&M dispute that the amount was legally due?
A: No.

Q: Why did the company ask for a reduction?
A: Airplane crashes and other financial reversals had forced it out of business.

Q: Could the secretary compromise liability because B&M could not pay?
A: No. Regulation 3.1.6.14 expressly prohibited that basis for compromise.

Q: Could the hearing officer grant equitable hardship relief?
A: No. The decision found no legislative authority to alter the liability for that reason.

Citations and references

Regulation:

• Regulation 3.1.6.14 NMAC — the secretary may not compromise tax liability because of inability to pay

Case cited:

• State ex rel. Taylor v. Johnson, 1998-NMSC-015, 961 P.2d 768

Source

• Listing: New Mexico Decisions & Orders
• Decision post: B&M Enterprises, Inc.
• Decision PDF: D&O 03-16

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
B&M ENTERPRISES, INC. No. 03-16
ID NO. 85-0314973
ASSESSMENT NO. L0867565568

DECISION AND ORDER

A formal hearing on the above-referenced protest was held July 23, 2003, before Margaret B.

Alcock, Hearing Officer. The Taxation and Revenue Department ("Department") was represented by

Peter Breen, Special Assistant Attorney General. B& M Enterprises, Inc. (“Taxpayer”) was

represented by Bill Ware, its president. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. During 1994 and 1995, the Taxpayer was a corporation doing business in New

Mexico under the name “New Mexico Flying Services.”

2. The Taxpayer ceased doing business in February 2000 after two serious airplane

crashes and other financial setbacks.

3. The Taxpayer was audited by the Internal Revenue Service, which determined that

the Taxpayer had underpaid its corporate income taxes for fiscal years ending 9/30/94 and 9/30/95.

4. After the federal audit was completed, the Department received a Revenue Agent

Report from the IRS notifying the Department of the adjustments that had been made to the

Taxpayer’s federal tax returns.

5. On December 13, 2002, the Department issued Assessment No. L0867565568 to the

Taxpayer in the total amount of $6,099.42, representing corporation income tax, penalty, and interest

due for tax years ending 9/30/94 and 9/30/95.

6. On March 12, 2003, pursuant to an extension of time granted by the Department, the

Taxpayer filed a protest to the Department’s assessment.

DISCUSSION

The Taxpayer does not dispute its legal liability for the tax, penalty, and interest assessed by the

Department. Instead the Taxpayer asks for a reduction in the amount of tax due based on the fact that

the corporation has suffered an unfortunate series of financial reversals and is no longer in business.

As was explained to the Taxpayer’s president at the administrative hearing, these factors are not

something the Department can consider. Department Regulation 3.1.6.14 NMAC specifically states

that the Secretary “may not compromise a taxpayer’s liability because of the taxpayer’s inability to

pay.” Nor does the Hearing Officer have authority to relieve a taxpayer of its statutory liability for tax,

penalty or interest. In State ex rel. Taylor v. Johnson, 1998-NMSC-015 ¶ 022, 961 P.2d 768, 774-

775, the New Mexico Supreme Court made the following observations concerning the power of

administrative agencies:

Generally, the Legislature, not the administrative agency, declares the policy and
establishes primary standards to which the agency must conform. See State ex rel.
State Park & Recreation Comm'n v. New Mexico State Authority, 76 N.M. 1, 13, 411
P.2d 984, 993 (1966). The administrative agency's discretion may not justify
altering, modifying or extending the reach of a law created by the Legislature....

The Legislature has not granted the Department or its Hearing Officer the authority to abate or adjust

tax assessments based on the financial or personal situations of individual taxpayers. The Hearing

Officer’s jurisdiction is limited to determining whether a taxpayer is legally liable for the tax,

penalty, and interest at issue.

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CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. L0867565568, and

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

2. The Taxpayer does not dispute its liability for the tax, penalty, and interest assessed by

the Department.

3. The Hearing Officer does not have authority to override the provisions of New

Mexico’s tax laws to relieve the Taxpayer of its statutory obligation for payment of tax, penalty, and

interest due to the state.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

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