Donald and Lori Breuer

99-22

Taxpayer, who had wages from employment in New Mexico, filed New Mexico PIT returns reporting zero income and requesting a refund of taxes withheld by his employer. The Department estimated the Taxpayer’s income based on prior years’ returns and issued assessments that included the 50 percent civil fraud penalty. Taxpayer protested, claiming 1) the wages are not taxable because they are not derived from a taxable source; 2) he does not come within the definition of an “employee” set out in IRC § 3401(c); 3) he was not required to file a federal income tax return because Form 1040 is not listed by the Office of Management and Budget as a form required to be filed under Treasury Regulation § 1.1-1. Taxpayer’s arguments are without merit. Taxpayer is liable for payment of New Mexico income tax, adjusted to reflect the actual wages and withholding shown on his W-2 forms. Taxpayer is not liable for the 50 percent fraud penalty because the Department failed to show that Taxpayer filed zero returns with willful intent to evade or defeat tax. Protest granted in part and denied in part.