New Mexico TRD Tax Audit Response and Position Statement

NEW MEXICO TRD AUDIT RESPONSE AND POSITION STATEMENT

TABLE OF CONTENTS

1. Caption and Filing Information
2. Introduction and Reservation of Rights
3. Taxpayer Background
4. Scope of Audit and Periods Under Examination
5. Response to Information Document Request
6. Position Statements on Identified Issues
7. Statute of Limitations and Records Retention
8. Confidentiality and Privilege
9. Request for Conference and Managed Audit Consideration
10. Schedule of Documents Produced and Privilege Log
11. Signature, Power of Attorney, and Service Block
12. New Mexico Audit Practice Notes
13. Sources and References

1. CAPTION AND FILING INFORMATION

STATE OF NEW MEXICO

TAXATION AND REVENUE DEPARTMENT — AUDIT AND COMPLIANCE DIVISION

TAXPAYER'S WRITTEN RESPONSE PURSUANT TO NMSA 1978 §§ 7-1-10, 7-1-11

2. INTRODUCTION AND RESERVATION OF RIGHTS

2.1. Taxpayer [NAME] ("Taxpayer"), through undersigned counsel, submits this Response and Position Statement to the Audit Notice / Information Document Request dated [__/__/____] issued by the New Mexico Taxation and Revenue Department, Audit and Compliance Division ("Department" or "TRD").

2.2. Taxpayer files this Response without waiver of, and expressly reserving, all defenses available under (a) the New Mexico Tax Administration Act, NMSA 1978 §§ 7-1-1 through 7-1-83; (b) the Taxpayer Bill of Rights, NMSA 1978 § 7-1-4.2; (c) the New Mexico Constitution; and (d) the United States Constitution, including the Due Process, Commerce, and Equal Protection Clauses.

2.3. Taxpayer reserves the right to file a formal protest under NMSA 1978 § 7-1-24 within 90 days after the mailing of any Notice of Assessment, demand for payment, or denial of refund claim arising from this audit.

2.4. Nothing in this Response constitutes an admission of fact or liability or a waiver of the statute of limitations under NMSA 1978 § 7-1-18.

3. TAXPAYER BACKGROUND

3.1. Taxpayer is a [type of entity — corporation / LLC / sole proprietor / partnership] organized under the laws of [STATE] and [registered to do business / domiciled] in New Mexico.

3.2. Taxpayer's principal place of business is [ADDRESS, COUNTY, NEW MEXICO].

3.3. Taxpayer's primary line of business is [NAICS [____] — describe products/services], and its New Mexico activity consists of [describe operations, locations, employees, real property, customers].

3.4. Taxpayer reports state taxes through CRS account number [__], filing on a [monthly / quarterly / semiannual] basis.

3.5. Tax compliance is internally managed by [name/title] and externally by [CPA firm / counsel].

4. SCOPE OF AUDIT AND PERIODS UNDER EXAMINATION

4.1. Per the Audit Notice, the audit covers tax periods [__/__/____] through [__/__/____] for [tax type(s)].

4.2. Taxpayer requests written confirmation of the audit scope, the issues identified at engagement, and the audit methodology pursuant to NMSA 1978 § 7-1-11.2 and the Taxpayer Bill of Rights, § 7-1-4.2(C) (right to written explanation).

4.3. Taxpayer [does / does not] consent to expansion of audit scope to include periods or tax types beyond those identified in the Audit Notice. Any expansion must be supported by separate notice and is subject to the limitations of NMSA 1978 § 7-1-18.

4.4. Taxpayer objects to the inclusion of periods barred by NMSA 1978 § 7-1-18(A) (three-year limitations period for filed returns) and reserves the right to object item-by-item if assessment is proposed for any such period.

5. RESPONSE TO INFORMATION DOCUMENT REQUEST

5.1. Items Produced. Taxpayer produces herewith the documents identified in the Schedule at Section 10 (Bates-stamped TP-000001 through TP-[######]), responsive to IDR Items [__] through [__].

5.2. Items Withheld on Privilege. Taxpayer withholds the documents listed on the Privilege Log at Section 10 on grounds of attorney-client privilege, attorney work-product doctrine, and/or the federally-authorized tax practitioner privilege recognized in NMSA 1978 § 7-1-4.2(L) and IRC § 7525 (to the extent applicable).

5.3. Items Subject to Objection. Taxpayer objects to the following IDR Items and produces no documents responsive thereto, without prejudice:

5.4. Items Pending Production. Taxpayer is gathering additional records responsive to IDR Items [__] and will produce on a rolling basis no later than [__/__/____].

5.5. Method of Production. Documents are produced in [native electronic / PDF / paper] form via [secure file transfer / encrypted USB / TAP upload / hand delivery], consistent with confidentiality protections under NMSA 1978 § 7-1-8.

6. POSITION STATEMENTS ON IDENTIFIED ISSUES

6.1. Issue One — [ISSUE NAME]

6.1.1. Department's Position (as understood): [Summarize auditor's tentative position from audit narrative or workpapers.]

6.1.2. Taxpayer's Position: [State Taxpayer's contrary position with reference to applicable statute (e.g., NMSA § 7-9-[__]), regulation (e.g., 3.2.[__] NMAC), and TRD published guidance (FYI / Bulletin).]

6.1.3. Supporting Authority:

• NMSA 1978 § [__]
• 3.[__].[__] NMAC
• TRD Ruling [NO.]
• [CASE NAME], [Decision and Order No. __]

6.1.4. Supporting Evidence: Exhibits [__] demonstrate [describe].

6.2. Issue Two — [ISSUE NAME]

(Repeat structure for each issue.)

6.3. Penalty Position

6.3.1. To the extent any deficiency is sustained, no civil negligence penalty is warranted under NMSA 1978 § 7-1-69. Taxpayer's positions were taken in good faith reliance on [professional advice / Department guidance / federal treatment / industry practice] and were supported by substantial authority. Reasonable cause exists to abate any penalty under 3.1.11 NMAC.

6.4. Interest Position

6.4.1. If any deficiency is sustained, interest under NMSA 1978 § 7-1-67 should be computed only from the original due date of the affected return through the date of payment, applying the rate schedule then in effect, with appropriate offset for any overpayments in adjacent periods.

7. STATUTE OF LIMITATIONS AND RECORDS RETENTION

7.1. Under NMSA 1978 § 7-1-18(A), the Department may assess tax within three (3) years from the end of the calendar year in which the tax was due. Limited extensions apply: (i) seven (7) years for non-filers (§ 7-1-18(B)); (ii) ten (10) years for fraudulent returns (§ 7-1-18(C)); and (iii) six (6) years where gross receipts or income is understated by 25 percent or more (§ 7-1-18(D)).

7.2. Taxpayer maintains books and records consistent with NMSA 1978 § 7-1-10 in a manner permitting accurate computation of state taxes. Records for periods within the statute of limitations are preserved and available for inspection at [LOCATION].

7.3. Taxpayer declines to execute Form RPD-41096 (Waiver of Statute of Limitations) at this time. Any future request for waiver will be evaluated on a case-by-case basis and limited to specific issues, as appropriate.

7.4. Note on records retention citation. This template references NMSA 1978 § 7-1-10 (taxpayer records) and NMSA 1978 § 7-1-18 (limitations on assessment) as the operative records-retention framework. Practitioners are cautioned that NMSA 1978 § 7-1-4.4 is titled "Notice of potential eligibility required" and concerns notice obligations regarding eligibility for certain tax credits, not records retention.

8. CONFIDENTIALITY AND PRIVILEGE

8.1. All return information produced in this audit is confidential under NMSA 1978 § 7-1-8 and may be disclosed only as authorized by §§ 7-1-8.1 through 7-1-8.11. The Department's auditors and contractors are bound by these confidentiality provisions.

8.2. Taxpayer asserts attorney-client privilege and the work-product doctrine over all communications with counsel and materials prepared in anticipation of litigation or in connection with this audit.

8.3. Taxpayer asserts the federally-authorized tax practitioner privilege under NMSA 1978 § 7-1-4.2(L) (insofar as applicable) and IRC § 7525 over qualifying communications with [CPA / enrolled agent].

8.4. The privilege log at Section 10 identifies each withheld document by date, author, recipients, general subject matter, and basis for the privilege asserted.

8.5. Taxpayer reserves the right to claw back any inadvertently produced privileged document under the doctrines articulated in [New Mexico authority] and Fed. R. Civ. P. 26(b)(5)(B) (as persuasive authority).

9. REQUEST FOR CONFERENCE AND MANAGED AUDIT CONSIDERATION

9.1. Pursuant to NMSA 1978 § 7-1-11.2 and the Taxpayer Bill of Rights, § 7-1-4.2(D), Taxpayer requests an exit conference with the assigned auditor and audit supervisor prior to issuance of any Notice of Proposed Adjustment.

9.2. Taxpayer requests that the auditor provide written audit narratives, workpapers, and the basis for any proposed adjustment a reasonable time before the conference.

9.3. ☐ Taxpayer requests consideration of a Managed Audit Agreement under NMSA 1978 § 7-1-11.1, which would permit Taxpayer to self-audit identified issues with Department oversight, with corresponding abatement of penalty and interest if any resulting tax is paid within 180 days of assessment. Taxpayer requests information regarding eligibility and the form Managed Audit Agreement.

9.4. ☐ Taxpayer requests consideration of a closing agreement under NMSA 1978 § 7-1-20 to resolve all open audit issues.

9.5. ☐ Taxpayer requests an installment agreement under NMSA 1978 § 7-1-21 if any liability is sustained.

10. SCHEDULE OF DOCUMENTS PRODUCED AND PRIVILEGE LOG

10.1. Documents Produced

10.2. Privilege Log

11. SIGNATURE, POWER OF ATTORNEY, AND SERVICE BLOCK

Date: [__/__/____]

Respectfully submitted,

[LAW FIRM / CPA FIRM NAME]

By: [________________________________]

[ATTORNEY / CPA NAME], [NM Bar No. / NM CPA No.] [####]

Authorized Representative for Taxpayer

[STREET ADDRESS]

[CITY, STATE ZIP]

Telephone: [__________]

Email: [__________]

Power of Attorney: Form ACD-31102 (Tax Information Authorization Tax Disclosure) executed by Taxpayer on [__/__/____] and on file with the Department authorizes the foregoing representative to act on Taxpayer's behalf in this audit.

Service. Original delivered to assigned auditor at [ADDRESS / SECURE PORTAL]; copy to Audit Bureau Chief at [ADDRESS]; copy retained.

12. NEW MEXICO AUDIT PRACTICE NOTES

• Audit notice and engagement. The Department's first audit communication is typically a Notice of Audit Commencement followed by an opening conference and an Information Document Request (IDR). Confirm scope, periods, and tax types in writing. Reference Audit and Compliance Division process: https://www.tax.newmexico.gov/about-us/audit-and-compliance-division/
• Information Document Requests. TRD's IDRs operate similarly to IRS Form 4564. Track each item, response date, and production status. Negotiate reasonable extensions in writing.
• Auditor workpapers. Request auditor narratives and workpapers under NMSA § 7-1-4.2(C). The taxpayer is entitled to a written explanation of any audit adjustment.
• Managed audit. NMSA 1978 § 7-1-11.1 allows a written Managed Audit Agreement with the Secretary that abates penalty and interest if liabilities are paid within 180 days of assessment. See FYI-404 and Department Managed Audit page.
• Statute of limitations. Three years standard; six years for 25 percent understatement; seven years for non-filers; ten years for fraud (NMSA § 7-1-18). Do not execute waivers without considered evaluation — Form RPD-41096.
• Records retention. NMSA § 7-1-10 requires records sufficient for accurate computation of tax, with no fixed retention period stated; practical retention is the longer of the applicable § 7-1-18 limitations period or seven years.
• Confidentiality. Returns and return information are confidential under NMSA § 7-1-8. Auditors must not disclose to third parties absent statutory authority or written taxpayer consent.
• Taxpayer Bill of Rights. NMSA § 7-1-4.2 enumerates rights including representation, written explanation, prompt processing, recording of in-person interviews (24-hour notice required to TRD), and freedom from harassment. Cite specifically when invoking.
• Penalty abatement. Under NMSA § 7-1-69 and 3.1.11 NMAC, penalty is abated for reasonable cause, including good-faith reliance on advice or published Department guidance.
• Path to protest. If audit findings are not resolved informally, the Department issues a Notice of Assessment. From that mailing date, 90 days runs to file a formal protest under NMSA § 7-1-24 with the Protest Office; the matter is then heard by the independent Administrative Hearings Office under NMSA §§ 7-1B-1 et seq.
• Closing agreements. NMSA § 7-1-20 closing agreements are final and conclusive; consider where the audit involves recurring issues across multiple periods.

13. SOURCES AND REFERENCES

• NMSA 1978, Chapter 7, Article 1 (Tax Administration Act) — https://nmonesource.com/
• NMSA 1978, Chapter 7, Article 1B (Administrative Hearings Office Act) — https://nmonesource.com/
• 3.1 NMAC (TRD General Tax Administration regulations) — https://www.srca.nm.gov/
• 3.1.4 NMAC (Audits and Records) — https://www.srca.nm.gov/parts/title03/03.001.0004.html
• TRD Audit and Compliance Division — https://www.tax.newmexico.gov/about-us/audit-and-compliance-division/
• TRD FYI-400 (Tax Audits and Protest Procedures) — https://www.tax.newmexico.gov/wp-content/uploads/sites/6/2020/10/FYI-400-Tax-Audits-and-Protest-Procedures-1.pdf
• TRD FYI-404 (Managed Audits) — https://www.tax.newmexico.gov/tax-professionals/wp-content/uploads/sites/6/2024/10/FYI-404.pdf
• TRD FYI-405 (Taxpayer Bill of Rights) — https://www.tax.newmexico.gov/wp-content/uploads/sites/6/2020/10/FYI-405-Taxpayer-Bill-of-Rights-1.pdf
• TRD Form ACD-31102 (Tax Information Authorization) — https://www.tax.newmexico.gov/forms-publications/
• Managed Audit Agreement page — https://www.tax.newmexico.gov/tax-professionals/e-filing-mandates-overview/request-a-managed-audit/

Disclaimer: This template is provided for informational purposes only and does not constitute legal or tax advice. A New Mexico-licensed tax attorney or CPA must review and customize this document before submission. Audit responses can have substantial collateral consequences; do not rely solely on this template.