HB0115

HOUSE BILL 115

55th legislature - STATE OF NEW MEXICO - first session, 2021

INTRODUCED BY

Javier Martínez

AN ACT

RELATING TO TAX RETURN PREPARERS; AMENDING THE DEFINITION OF "TAX RETURN PREPARER" IN THE TAX ADMINISTRATION ACT; PROVIDING CERTAIN REQUIREMENTS FOR TAX RETURN PREPARERS; REQUIRING CERTAIN TAX RETURN PREPARERS TO BE PERMITTED BY THE TAXATION AND REVENUE DEPARTMENT; IMPOSING CIVIL PENALTIES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. Section 7-1-3 NMSA 1978 (being Laws 1965, Chapter 248, Section 3, as amended by Laws 2019, Chapter 270, Section 2 and by Laws 2019, Chapter 274, Section 10) is amended to read:

"7-1-3. DEFINITIONS.--Unless the context clearly indicates a different meaning, the definitions of words and phrases as they are stated in this section are to be used, and whenever in the Tax Administration Act these words and phrases appear, the singular includes the plural and the plural includes the singular:

A. "automated clearinghouse transaction" means an electronic credit or debit transmitted through an automated clearinghouse payable to the state treasurer and deposited with the fiscal agent of New Mexico;

B. "business location" means the location where a taxpayer's gross receipts and deductions are required to be reported pursuant to Section 7-1-14 NMSA 1978;

C. "department" means the taxation and revenue department, the secretary or any employee of the department exercising authority lawfully delegated to that employee by the secretary;

D. "electronic payment" means a payment made by automated clearinghouse deposit, any funds wire transfer system or a credit card, debit card or electronic cash transaction through the internet;

E. "employee of the department" means any employee of the department, including the secretary, or any person acting as agent or authorized to represent or perform services for the department in any capacity with respect to any law made subject to administration and enforcement under the provisions of the Tax Administration Act;

F. "financial institution" means any state or federally chartered, federally insured depository institution;

G. "hearing officer" means a person who has been designated by the chief hearing officer to serve as a hearing officer and who is:

(1) the chief hearing officer;

(2) an employee of the administrative hearings office; or

(3) a contractor of the administrative hearings office;

H. "Internal Revenue Code" means the Internal Revenue Code of 1986, as that code may be amended or its sections renumbered;

I. "levy" means the lawful power, hereby invested in the secretary, to take into possession or to require the present or future surrender to the secretary or the secretary's delegate of any property or rights to property belonging to a delinquent taxpayer;

J. "local option gross receipts tax" means a tax authorized to be imposed by a county or municipality upon a taxpayer's gross receipts, as that term is defined in the Gross Receipts and Compensating Tax Act, and required to be collected by the department at the same time and in the same manner as the gross receipts tax;

K. "managed audit" means a review and analysis conducted by a taxpayer under an agreement with the department to determine the taxpayer's compliance with a tax administered pursuant to the Tax Administration Act and the presentation of the results to the department for assessment of tax found to be due;

L. "net receipts" means the total amount of money paid by taxpayers to the department in a month pursuant to a tax or tax act less any refunds disbursed in that month with respect to that tax or tax act;

M. "overpayment" means an amount paid, pursuant to any law subject to administration and enforcement under the provisions of the Tax Administration Act, by a person to the department or withheld from the person in excess of tax due from the person to the state at the time of the payment or at the time the amount withheld is credited against tax due;

N. "paid" includes the term "paid over";

O. "pay" includes the term "pay over";

P. "payment" includes the term "payment over";

Q. "person" means any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, limited liability company, limited liability partnership, joint venture, syndicate, other association or gas, water or electric utility owned or operated by a county or municipality; "person" also means, to the extent permitted by law, a federal, state or other governmental unit or subdivision, or an agency, department or instrumentality thereof; and "person", as used in Sections 7-1-72 through 7-1-74 NMSA 1978, also includes an officer or employee of a corporation, a member or employee of a partnership or any individual who, as such, is under a duty to perform any act in respect of which a violation occurs;

R. "property" means property or rights to property;

S. "property or rights to property" means any tangible property, real or personal, or any intangible property of a taxpayer;

T. "return" means any tax or information return, application or form, declaration of estimated tax or claim for refund, including any amendments or supplements to the return, required or permitted pursuant to a law subject to administration and enforcement pursuant to the Tax Administration Act and filed with the secretary or the secretary's delegate by or on behalf of any person;

U. "return information" means a taxpayer's name, address, government-issued identification number and other identifying information; any information contained in or derived from a taxpayer's return; any information with respect to any actual or possible administrative or legal action by an employee of the department concerning a taxpayer's return, such as audits, managed audits, denial of credits or refunds, assessments of tax, penalty or interest, protests of assessments or denial of refunds or credits, levies or liens; or any other information with respect to a taxpayer's return or tax liability that was not obtained from public sources or that was created by an employee of the department; but "return information" does not include statistical data or other information that cannot be associated with or directly or indirectly identify a particular taxpayer;

V. "secretary" means the secretary of taxation and revenue and, except for purposes of Subsection B of Section 7-1-4 NMSA 1978, also includes the deputy secretary or a division director or deputy division director delegated by the secretary;

W. "secretary or the secretary's delegate" means the secretary or any employee of the department exercising authority lawfully delegated to that employee by the secretary;

X. "security" means money, property or rights to property or a surety bond;

Y. "state" means any state of the United States, the District of Columbia, the commonwealth of Puerto Rico and any territory or possession of the United States;

Z. "tax" means the total amount of each tax imposed and required to be paid, withheld and paid or collected and paid under provision of any law made subject to administration and enforcement according to the provisions of the Tax Administration Act, including the amount of any interest or civil penalty relating thereto; "tax" also means any amount of any abatement of tax made or any credit, rebate or refund paid or credited by the department under any law subject to administration and enforcement under the provisions of the Tax Administration Act to any person contrary to law, including the amount of any interest or civil penalty relating thereto;

AA. "tax return preparer" means a person who prepares for others for compensation, or who employs one or more persons to prepare for others for compensation, [any return of income tax, a substantial portion of any return of income tax, any claim for refund with respect to income tax or a substantial portion of any claim for refund with respect to income tax; provided that a person shall not be a "tax return preparer" merely because such person] an income tax return or claim for refund of income tax or a substantial portion of an income tax return or claim for refund of income tax. "Tax return preparer" does not include:

(1) a person or firm licensed or permitted to practice public accountancy pursuant to the 1999 Public Accountancy Act;

(2) an employee of a person or firm described in Paragraph (1) of this subsection that prepares a return under the supervision of a person described in that paragraph;

[(1)] (3) a person who furnishes typing, reproducing or other mechanical assistance;

[(2) is] (4) an employee who prepares an income tax return or claim for refund with respect to an income tax return of the employer, or of an officer or employee of the employer, by whom the person is regularly and continuously employed; or

[(3)] (5) a person who prepares as a trustee or other fiduciary an income tax return or claim for refund with respect to income tax for any person; and

BB. "taxpayer" means a person liable for payment of any tax; a person responsible for withholding and payment or for collection and payment of any tax; a person to whom an assessment has been made, if the assessment remains unabated or the amount thereof has not been paid; or a person who entered into a special agreement pursuant to Section 7-1-21.1 NMSA 1978 to assume the liability of gross receipts tax or governmental gross receipts tax of another person and the special agreement was approved by the secretary pursuant to the Tax Administration Act."

SECTION 2. Section 7-1-71.1 NMSA 1978 (being Laws 1985, Chapter 65, Section 19, as amended) is amended to read:

"7-1-71.1. TAX RETURN PREPARERS--REQUIREMENTS--CIVIL PENALTIES.--

A. The secretary [may] shall require by [regulation any] rule a tax return preparer, with respect to any return of income tax or claim for refund with respect to income tax, to:

(1) sign [such] the return or claim for refund; and

[B. The secretary may require by regulation any tax return preparer with respect to any return of income tax or claim for refund with respect to income tax to]

(2) furnish the tax return preparer's federal preparer tax identification number on [such] the return or claim for refund.

[C. Any] B. A tax return preparer [with respect to any return of income tax or claim for refund with respect to income tax who is required by regulations promulgated by the secretary to sign a return or claim for refund or to furnish an identification number on such return or claim for refund and] who fails to sign such return or claim for refund or to furnish an identification number on such return or claim for refund pursuant to Subsection A of this section shall pay a penalty of [twenty-five dollars ($25.00)] fifty dollars ($50.00) for such failure unless it is shown that such failure is due to reasonable cause and not due to willful [neglect] or reckless conduct. The penalty that may be imposed on a tax return preparer with respect to income tax returns or claims for refund filed during any calendar year shall not exceed twenty-five thousand dollars ($25,000) per tax return preparer.

C. In a court of competent jurisdiction, the secretary may commence suit to enjoin a tax return preparer from further engaging in conduct described in Subsection B of this section or from further action as a tax return preparer.

D. In an action commenced pursuant to Subsection C of this section, the court may enjoin the tax return preparer from further engaging in conduct specified in Subsection B of this section if the court finds that injunctive relief is appropriate to prevent the recurrence of the conduct. The court may enjoin conduct when a tax return preparer has been shown to have:

(1) prepared an income tax return or claim for refund that includes an understatement of a taxpayer's liability due to an unreasonable position;

(2) prepared an income tax return or claim for refund that includes an understatement of a taxpayer's liability due to the tax return preparer's willful or reckless conduct;

(3) where required, failed to furnish a copy of the income tax return or claim for refund;

(4) where required, failed to sign the income tax return or claim for refund;

(5) where required, failed to furnish the tax return preparer's identification number;

(6) where required, failed to retain a copy of the income tax return;

(7) where required by due diligence requirements imposed by department rule, failed to be diligent in determining eligibility for tax benefits;

(8) negotiated a check issued to a taxpayer by the department without the permission of the taxpayer;

(9) engaged in conduct subject to a criminal penalty pursuant to Sections 7-1-72 and 7-1-73 NMSA 1978;

(10) misrepresented the tax return preparer's eligibility to practice before the department or otherwise misrepresented the tax return preparer's experience or education;

(11) guaranteed the payment of an income tax refund or the allowance of an income tax credit; or

(12) engaged in any other fraudulent or deceptive conduct that substantially interferes with the proper administration of the tax laws of the state.

E. If the court finds that a tax return preparer has continually or repeatedly engaged in conduct described in Subsection D of this section and that an injunction prohibiting the conduct would not be sufficient to prevent the person's interference with the proper administration of the tax laws of state, the court may enjoin the person from acting as a tax return preparer in the state.

F. The fact that a tax return preparer has been enjoined from preparing income tax returns or claims for refund for the United States or any other state in the five years preceding the petition for an injunction shall establish a prima facie case for an injunction to be issued pursuant to Subsection E of this section.

G. The secretary shall annually publish on the department's website a summary of the department's enjoinment actions.

[D. Any] H. A tax return preparer who endorses or otherwise negotiates, either directly or through an agent, any warrant in respect of the Income Tax Act issued to a taxpayer, other than the tax return preparer, shall pay a penalty of five hundred dollars ($500) with respect to each such warrant; provided that the provisions of this subsection shall not apply with respect to the deposit by a bank, savings and loan association, credit union or other financial corporation of the full amount of the warrant in the taxpayer's account for the benefit of the taxpayer.

[E. For the purposes of this section, any] I. A penalty determined to be due pursuant to this section shall be considered to be tax due.

J. As used in this section:

(1) "state" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States;

(2) "unreasonable position" means "unreasonable position" pursuant to Section 6694(a)(2) of the Internal Revenue Code; and

(3) "willful or reckless conduct" means "willful or reckless conduct" pursuant to Section 6694(b)(2) of the Internal Revenue Code."

SECTION 3. Section 7-1-71.4 NMSA 1978 (being Laws 2007, Chapter 127, Section 2) is amended to read:

"7-1-71.4. TAX RETURN PREPARER--ELECTRONIC FILING REQUIREMENT--CIVIL PENALTY.--

A. [In taxable years beginning on or after January 1, 2008] A tax return preparer who prepares over twenty-five personal income tax returns for a taxable year shall ensure that each return is submitted to the department by a department-approved electronic media, unless a person for whom the preparer files a return requests, in a form prescribed by the department, that the return be filed by other means in accordance with department rule.

B. A tax return preparer shall pay to the department a penalty not to exceed five dollars ($5.00) for each tax return filed in violation of this section."

SECTION 4. A new Section 7-1-71.5 NMSA 1978 is enacted to read:

"7-1-71.5. [NEW MATERIAL] TAX RETURN PREPARER AND TAX PREPARATION SERVICES--PERMIT REQUIRED--QUALIFICATIONS--ISSUANCE--SUSPENSION, REVOCATION AND DENIAL--EXCEPTIONS--CIVIL PENALTIES.--

A. No person, except as provided in Subsection R of this section, shall engage in the business of, solicit business as or advertise as furnishing tax preparation services or make representations to be a tax return preparer without a permit issued by the department pursuant to this section. An applicant for a permit or renewal of a permit shall apply by electronic means in the form and manner prescribed by the department.

B. A person applying for a permit shall:

(1) be eighteen years of age or older;

(2) have obtained a high school diploma or high school equivalency credential;

(3) possess a tax identification number issued by the federal internal revenue service that shall be used by the person for each income tax return the person is required to sign as a tax return preparer; and

(4) beginning January 1, 2023, submit with an application for permit a certification of completion of an annual filing season program administered by the federal internal revenue service.

C. The secretary may issue a permit pursuant to this section to an applicant that presents evidence satisfactory to the department that the applicant is authorized to act as a tax return preparer in a state that has professional requirements substantially similar to the requirements for tax return preparers in this state.

D. No later than sixty days after receipt of an application, the department shall provide written notice to the applicant of the secretary's decision approving or denying an application for issuance or renewal of a permit. The notice shall include the right of the tax return preparer to dispute the denial of issuance or renewal of a permit pursuant to Subsection P of this section.

E. The department may impose a reasonable fee to cover the cost of administering the permit, not to exceed one hundred dollars ($100) for an initial application and fifty dollars ($50.00) for a renewal application.

F. If at any time following the issuance or renewal of a permit issued pursuant to this section, any information provided to the department by an applicant is no longer accurate, the applicant shall promptly provide updated information to the department.

G. Issuance of a permit pursuant to this section shall not be advertised as an endorsement by the department of a tax return preparer's services.

H. The secretary may impose on a person that has not been issued a permit pursuant to this section a civil penalty of one hundred dollars ($100) for each day the secretary finds the person to have provided tax return preparation services.

I. If a person or business offering tax return preparation services employs an individual to provide tax return preparation services and the individual has not been issued a permit as required pursuant to this section, the secretary may impose on the employing person or business a civil penalty of five hundred dollars ($500) per violation.

J. If a tax return preparer ceases to engage in tax return preparation services or in advising or assisting in tax return preparation services, the tax return preparer may apply to the department for inactive permit status. A permit that is granted inactive status shall not require renewal. Reactivation of a permit shall be subject to the requirements of Subsections B and E of this section.

K. A tax return preparer whose permit is inactive shall not act as a tax return preparer or advertise the tax return preparer's status as being permitted to act as a tax return preparer.

L. The department shall maintain on the department's website a listing accessible to the public of the name and principal business address of each tax return preparer permitted pursuant to this section.

M. A tax return preparer shall not do or commit any of the following acts or omissions, and the secretary may deny the issuance of a permit and may suspend or revoke a permit for the following acts or omissions or for a violation of any provision of this section:

(1) engage in a criminal act resulting in conviction of the tax return preparer or in unprofessional conduct resulting in final disciplinary action by the federal government, any state or jurisdiction of the United States, any other governmental agency or any professional licensing board or similar entity; provided that the act or conduct is substantially related to qualification as a tax return preparer;

(2) procure or attempt to procure a permit pursuant to this section by material misrepresentation or fraud; or

(3) violate, attempt to violate or assist in or abet a violation of any provision of this section.

N. The secretary may discipline a tax return preparer by:

(1) issuing a written warning;

(2) suspending the tax return preparer's permit for a period not to exceed one year; or

(3) revoking the tax return preparer's permit.

O. The secretary shall issue a written order notifying a tax return preparer of the suspension or revocation of the tax return preparer's permit for good cause shown. The notice shall include the right of the tax return preparer to dispute the suspension or revocation pursuant to Subsection P of this section.

P. A person may dispute the denial, suspension or revocation of a permit required pursuant to this section by filing with the department a written protest against the action or inaction by the department. Every protest shall identify the person and the action or inaction that is in dispute, the grounds for the protest and the affirmative relief requested. The statement of grounds for protest shall specify individual grounds upon which the protest is based and a summary statement of the evidence expected to be produced supporting each ground asserted, if any; provided that the person may supplement the statement at any time prior to a hearing conducted on the protest pursuant to the provisions of the Administrative Hearings Office Act. The secretary may, in appropriate cases, provide for an informal conference before the administrative hearings office sets a hearing of the protest.

Q. A protest by a person shall be filed within thirty days of the date of the mailing or verbal notification of the action proposed to be taken by the department. If a protest is not filed within the time required for filing a protest, the secretary may proceed with the action proposed by the department.

R. The provisions of this section do not apply to:

(1) a person or firm licensed or permitted to practice public accountancy pursuant to the 1999 Public Accountancy Act;

(2) an employee of a person or firm described in Paragraph (1) of this subsection that prepares a return under the supervision of a person described in that paragraph;

(3) a person who furnishes typing, reproducing or other mechanical assistance;

(4) an employee who prepares an income tax return or claim for refund with respect to an income tax return of the employer, or of an officer or employee of the employer, by whom the person is regularly and continuously employed;

(5) a person who prepares as a trustee or other fiduciary an income tax return or claim for refund with respect to income tax for any person;

(6) an attorney admitted to practice law in this state or another state or jurisdiction of the United States and any person engaged in providing tax preparation services under the supervision of the attorney;

(7) a person enrolled to practice before the federal internal revenue service pursuant to federal regulations;

(8) person employed by a local, state or federal governmental agency while engaged in the performance of the person's official duties;

(9) a qualified volunteer tax return preparer for the federal internal revenue service, including a tax return preparer sponsored by a federal tax counseling for the elderly program or a federal volunteer income tax assistance program;

(10) a tax return preparer who prepares fewer than ten returns for compensation in the calendar year; and

(11) a person serving as an employee of or assistant to a tax return preparer or other person described in Paragraphs (1) through (10) of this subsection, in the performance of official duties for the tax return preparer or other person.

S. As used in this section, "tax return preparation services" means the services of a tax return preparer, in regard to the preparation or assistance in the preparation of another person's income tax return or claim for refund of income tax, for a fee or other consideration."

SECTION 5. Section 7-1B-9 NMSA 1978 (being Laws 2015, Chapter 73, Section 9) is amended to read:

"7-1B-9. MOTOR VEHICLE ADMINISTRATIVE HEARINGS--TAX RETURN PREPARER PERMIT--PROCEDURES.--

A. A person may dispute the denial of or failure to either allow or deny a license, permit, placard or registration provided for in the Motor Vehicle Code or a permit provided for in Section 4 of this 2021 act. Upon timely receipt of a protest, the chief hearing officer shall promptly designate a hearing officer to conduct a hearing and shall set a date for the hearing. On that date, the hearing officer shall hear the protest.

B. A person may appear at a hearing set pursuant to the provisions of Subsection A of this section for the person's self or be represented by a bona fide employee or an attorney. A hearing shall not be open to the public except if held pursuant to the provisions of the Implied Consent Act or upon request of the person. A hearing officer may postpone or continue a hearing.

C. At the beginning of the hearing, the hearing officer shall inform the person of the person's right to representation. Within thirty days after the hearing, the hearing officer shall inform the protestant in writing of the decision and of the protestant's right to, and the requirements for perfection of, an appeal from the decision to the district court and of the consequences of a failure to appeal. The written decision shall embody an order granting or denying the relief requested or granting such part of the relief requested, as appropriate.

D. If the protestant or the secretary of taxation and revenue is dissatisfied with the decision and order of the hearing officer, the party may appeal pursuant to the provisions of Section 39-3-1.1 NMSA 1978.

E. No court of this state has jurisdiction to entertain a proceeding by any person in which the person calls into question the application to that person of any provision of the Motor Vehicle Code, except as a consequence of the appeal by that person to the district court from the action and order of the hearing officer as provided for in this section.

F. Nothing in this section shall be construed to authorize a criminal proceeding or to authorize an administrative protest of the issuance of a subpoena or summons."

SECTION 6. EFFECTIVE DATE.--The effective date of the provisions of this act is January 1, 2022.

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