Kent R. and Gail K. Carter

02-32

The Taxpayers filed a joint New Mexico income tax return in 1993.  The Taxpayers did not file New Mexico income tax returns for tax years 1994 through 1998.  In July 1999, the Department assessed the Taxpayers for personal income tax and interest for tax years 1995 through 1998.  The Department also assessed a 50-percent civil fraud penalty.  The Taxpayers protested the Department’s assessment, raising numerous arguments disputing the right of the federal and state government to tax the earnings of individuals.  A hearing was scheduled on the Taxpayers’ protest, but they failed to appear.  After the hearing was concluded, the Department submitted evidence that a suit the Taxpayers filed in federal district court on essentially the same grounds as those raised in their protest had been dismissed as frivolous.  Held: Because they did not appear to present evidence and legal argument to support their protest, the Taxpayers failed to overcome the presumption of correctness that attaches to the Department’s assessment of tax and interest.  The Department failed to meet its burden of proving, by clear and convincing evidence, that the Taxpayer’s failure to pay personal income tax was motivated by a willful intent to defraud the state.  Protest granted in part and denied in part.