New Mexico ~ Corporate Income Tax: Retroactive Change to Combined Reporting Not Permitted

A hearing officer for the New Mexico Taxation and Revenue Department (TRD) ruled a parent corporation could not retroactively amend its corporate income tax return for a previous year to change its reporting methodology from the separate entity reporting methodology originally elected by its subsidiaries to a combined return filed by the parent corporation on behalf of a unitary group of corporations including the subsidiaries involved in the original filing. The TRD initially denied the change in reporting method based on a regulation that prohibits the retroactive election of a different reporting methodology. However, the parent corporation claimed that the regulation is void because it goes beyond interpreting the statute by limiting the amount of time a taxpayer has to elect its filing methodology. The hearing officer rejected the parent corporation’s argument because the statute in question actually contains restrictions that limit a taxpayer from changing its election of reporting methodology for subsequent years. Thus, the regulatory provisions that prohibit retroactive elections to change reporting methods and require that any requests to change reporting methodologies be made no later than the date for timely filing a return are a reasonable interpretation and implementation of the statute.

The parent corporation also argued that New Mexico has adopted the federal “good faith” exception that allows a retroactive change in reporting methods (the federal regulation allows the IRS to grant administrative relief to taxpayers when certain beneficial elections are erroneously not exercised within the prescribed time limits through no fault of their own). However, according to the hearing officer, even though New Mexico law does contain references to federal law, it does not contain a broad inclusion of the IRS regulations. Furthermore, the hearing officer determined that the federal “good faith” exception would not apply in the case at hand even if it were adopted because the failure to elect a more beneficial filing methodology was based on the parent corporation’s failure to make a unitary analysis at the time the original return was due. In addition, the hearing officer noted that the inapplicability of the federal “good faith” exception to the facts of this case was further demonstrated by the fact there is no such thing as combined filing by unitary corporations under federal law. Finally, the hearing officer determined that a prior administrative decision allowing a taxpayer to retroactively change its method of filing did not apply to or govern the determination of this matter.

In the Matter of the Protest of Perkinelmer, Inc. and Subsidiaries, New Mexico Taxation and Revenue Department, No. 11-02, January 24, 2011, released July 19, 2011, ¶401-368

Other References:

Explanations at ¶11-550


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