Gecko Southwest Homes, Ltd.

02-20

In May 1996, Gerald Tabet started a construction business, which was operated as a sole proprietorship under the name Gecko Southwest Homes, Ltd.  Mr. Tabet registered Gecko for payment of New Mexico CRS taxes and filed returns for a few months.  Mr. Tabet stopped filing returns at the same time that Gecko sold its first home and generated its first taxable receipts. Even after Mr. Tabet stopped filing returns, Gecko continued to include gross receipts tax in its charges to customers and on cost estimates submitted with its loan applications. Gecko also issued NTTCs to its suppliers without paying tax on its receipts from the final construction projects.  During the period that Gecko failed to pay its gross receipts taxes, Mr. Tabet withdrew substantial sums of money from the business as “management fees.” In 1999, the Department began a field audit of Mr. Tabet’s business. When the Department’s auditor asked Mr. Tabet for a list of homes built during the audit period, Mr. Tabet failed to disclose seven of the eleven homes ultimately found to be subject to gross receipts or compensating tax. The audit also determined that in November 1996, Mr. Tabet formed a corporation with the same name as his sole proprietorship. Mr. Tabet subsequently used his individual name, the name of his proprietorship, and the name of the corporation to conduct his business.  When the audit started, Mr. Tabet gave the Department a letter stating that Gecko had always operated as a sole proprietorship and that “the corporation was never funded nor intended to be in business.” Mr. Tabet later changed his position, maintaining that his earlier statement was false and that Gecko had actually operated as a corporation.  In March 2000, the Department assessed Mr. Tabet’s sole proprietorship for unpaid gross receipts and compensating taxes, plus interest and a 10 percent negligence penalty. The assessment was subsequently amended to impose the 50 percent civil fraud penalty.  Mr. Tabet filed timely protests to both assessments, asserting (1) that the Department incorrectly assessed his sole proprietorship for taxes owed by his corporation, and (2) that the failure to report or pay tax was not the result of his willful intent to evade or defeat that tax.  Held:  There was substantial evidence to support Mr. Tabet’s written admission that his construction business never operated as a corporation, and the Department’s assessment was correctly issued against the sole proprietorship. There was clear and convincing evidence that Mr. Tabet’s failure to pay the taxes at issue was motivated by the willful intent to evade and defeat those taxes, and the 50 percent civil penalty was properly assessed pursuant to Section 7-1-69 NMSA 1978.  Protest denied.