On January 14, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2009 and December 31, 2012. On February 12, 2016, the Taxpayer protested the Department’s assessment. In the protest letter, the Taxpayer made arguments related to the acceptance of nontaxable transaction certificates (NTTCs), but abandoned that argument at the hearing in favor of an argument related to bankruptcy, an issue not raised in the protest letter. The Taxpayer was a sole proprietorship. During the period at issue there is no evidence that the Taxpayer timely filed CRS-1 returns for any of the relevant periods. At some unspecified point in 2013, the owner and his wife filed for bankruptcy. On January 24, 2014, the United States Bankruptcy Court issued an order discharging debt under section 727 of title 11 of the United States Code. The back of the order clearly states that the order generally did not discharge most tax debt. Through its Schedule C mismatch program with the IRS, the Department detected that the Taxpayer had reported business income on its Federal Schedule C not reported as New Mexico gross receipts on a CRS-1 return. As a result of this, the Department issued the assessment. The Taxpayer’s only argument at hearing was that, in light of the bankruptcy, he was not liable for the assessed tax. Under title 11 of the Unites States Code, several types of tax debt are listed as not dischargable. Pertinent to this situation, those include tax debt related to tax “on or measured by income or gross receipts” as well as tax debt when no return was filed or was filed late. The Taxpayer’s protest was denied.
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