New Mexico Back Taxes
Scenario: You get a new accountant who reviews your tax returns and business records. This accountant informs you your previous accountant failed to properly allocate income and expenses related to a number of transactions in prior years. Your accountant informs you the statute of limitations has not yet passed for assessment of substantial additional tax by the State of New Mexico. If you are audited and assessed, you will owe a substantial amount in interest and penalties in addition to the tax itself. What should you do?
This situation is fairly common. There are many options for your business. The best strategy for your business may depend upon factors specific to its situation, including whether it continues to engage taxable activity in New Mexico.
Assuming your business continues to engage in the business activity subject to New Mexico tax, the chances are that the liability will be discovered and assessed. If the tax is assessed for tax periods extending back a number of years, the penalties and interest due in addition to the base tax can be quite significant.
Is it a realistic to do nothing and hope the tax liability is not discovered before the statute of limitations run out? Or should you rush to pay right now?
What is a Managed Audit?
Fortunately, the New Mexico Tax Administration Act provides a mechanism that is intended to encourage a business in this position to come forward and voluntarily report its taxable activities. It’s called a “Managed Audit”. This name may have been chosen intentionally to hide the program from taxpayers or may be just a poor choice, as most people do not seek out the opportunity to be audited by a taxing authority. In any case, the program is essentially a self-audit by the taxpayer.
Can You Get a Managed Audit?
You are not eligible for a managed audit if the tax has already been assessed or if you have not filed tax returns for all periods for which they are due.
To get a managed audit, a company example will apply to the New Mexico Taxation and Revenue Department for a managed audit. If the audit is approved, the taxpayer and the Department will enter into a Managed Audit Agreement. In order to be eligible, the taxpayer must not be under any audit by the Department or subject to any assessments for taxes for which it seeks the audit. The essence of the agreement is that the taxpayer will report its taxable transactions for the audit periods and agree to pay the taxes due in accordance with the agreement. In exchange, the Department will waive penalties and interest on the tax liability.
Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later.