Tax Alert: Eligibility for Tax Amnesty

February 06, 2002

Summary
The New Mexico Court of Appeals has held that New Mexico's Secretary of Taxation and Revenue acted without statutory authority when he limited access to the tax amnesty the legislature provided for in 1999. State of New Mexico ex rel. Shell Western E & P, Inc. v. Chavez, Opinion No. 2002-NMCA-0005 (November 21, 2001), cert. denied, January 9, 2002.

The New Mexico Court of Appeals has held that New Mexico's Secretary of Taxation and Revenue acted without statutory authority when he limited access to the tax amnesty the legislature provided for in 1999. State of New Mexico ex rel. Shell Western E & P, Inc. v. Chavez, Opinion No. 2002-NMCA-0005 (November 21, 2001), cert. denied, January 9, 2002.

The 1999 New Mexico Legislature enacted legislation (1999 N.M. Laws ch. 10; not compiled in New Mexico Statutes Annotated) providing for a limited period tax amnesty that allowed the Secretary to waive penalty and interest for: 1) taxes due and not assessed on the day the amnesty began; and, 2) taxes due, assessed and not paid the day the amnesty began. After enactment, the Secretary announced the time period for the amnesty and published "guidelines" that, among other things, did not permit participation in the amnesty for taxpayers who had been assessed a civil fraud penalty. About this time, there appeared to be a rise in civil fraud penalty assessments issued by the Taxation and Revenue Department.

Prior to enactment of the amnesty legislation, Shell Western had been assessed a 50% civil fraud penalty on allegedly due and owing oil and gas severance taxes. Shell Western filed an administrative protest to the assessment, still pending at the time of the amnesty. Shell Western disagreed with the Secretary's interpretation of the amnesty legislation and, without admitting liability, submitted a check for the full amount of tax assessed and offered to dismiss its protest if the Department accepted its payment and accorded it relief under the amnesty. The Department returned Shell Western's check and informed it that it did not qualify for the amnesty.

Shell brought suit in the district court (trial court) for Santa Fe County for an alternative writ of mandamus ordering the Secretary to accept its payment and grant it the relief provided for under the amnesty legislation. The district court granted the writ and ordered the secretary to show cause why the Secretary should not accept the check and allow relief under the amnesty. After considering the Secretary's response to the writ, the trial court quashed the writ and dismissed the matter. Shell Western appealed to the New Mexico Court of Appeals.

The Court of Appeals held that the Secretary had no statutory authority to eliminate access to the amnesty program for those who were under a civil fraud assessment. While the legislation expressly allowed the Secretary discretion in determining when to declare the amnesty, and granted authority to waive penalty and interest, it did not grant the Secretary authority to distinguish between types of penalties as a basis for granting amnesty relief. Rather, the Secretary had a "clear and indisputable duty to include Shell in the amnesty program." Accordingly, the court remanded the case to the district court for entry of a peremptory writ of mandamus requiring the Secretary to grant amnesty to Shell Western. On January 9, 2002, the New Mexico Supreme Court denied the Secretary's Petition for Writ of Certiorari.

While time will tell, the Shell Western decision may mark a turning point in the New Mexico Court of Appeals' acceptance of unilateral actions of the Taxation and Revenue Department either beyond its statutory authority or without undertaking a formal rulemaking process to allow public participation and notice to the public of its policies. Given the increase in civil fraud penalty assessments about the time of the amnesty, there may be other taxpayers who faced a similar predicament and might be able to take advantage of the Shell Western decision.