On July 23, 2009, the Taxpayers were assessed for personal income tax principal, plus penalty and interest for the 2003, 2004 and 2005 tax years. The Taxpayers filed a written protest only as to the penalty and interest of the assessments, and paid the income tax principal on the assessments. The Taxpayers filed timely returns for the tax years in question. Because of a decision by the IRS that certain contributions ruled to be deductible were no longer deductible; the Taxpayers’ federal income tax returns were adjusted. The Taxpayers did not amend their New Mexico returns upon being notified by the IRS that their deductions were disallowed. The Departments’ assessments were based on the federal adjustments. The hearing officer determined that penalty should be abated because the Taxpayers had been informed in writing by the IRS that certain contributions were deductible. The IRS eventually allowed the deductions, but not in the amounts initially filed by the Taxpayers. The Department’s assessments were not reduced based on the adjusted federal amounts. The hearing officer ruled that the Taxpayers were not negligent when they initially filed their returns because they had been advised by the IRS and an accountant on the deductibility of the contributions. Taxpayers were not negligent and not subject to penalty when they failed to file amended returns because they made a mistake of law made in good faith based on reasonable grounds. However, interest must be assessed on taxes not paid when due. The Taxpayer’s protest was granted in part and denied in part.
Mark & Debra StangerMark & Debra Stanger