A woman who left her job with the state Environment Department's Petroleum Storage Bureau to start a company that later did business with the state agency was arraigned Thursday on a five-count indictment charging her with tax evasion.

The U.S. Attorney's Office said Shelda Sutton-Mendoza of Albuquerque filed false tax returns and avoided paying about $241,132 in personal and corporate taxes in 2003, 2004 and 2005.

She entered a not guilty plea to the charges in federal court, the prosecutor's office said.

Sutton-Mendoza worked for the state for more than six years before she left to set up NSYNC Environmental Inc., described as an environmental cleanup and testing service that primarily did business with the Environment Department. An Environment Department official said Thursday she did "a fair amount" of work as a contractor.

Jim Davis, director of the Resource Protection Division at the department, said the agency about three months ago disqualified Sutton-Mendoza as a contractor "because it is our belief that she submitted some forged documents to us. We haven't proven that, but that is our belief."

Her company was among about 20 to 30 contractors used on a regular basis to clean up gas spills at retail gas stations around the state, Davis said. The department uses another 20 to 30 companies on a more occasional basis. The price tag of those jobs ranges from the thousands to the millions.

Prosecutors say Sutton-Mendoza underreported her taxable income over several years to avoid taxes.

In one of the counts, she is accused of filing a false tax return indicating she had a taxable income of $1,296 in 2003. Prosecutors allege she in fact had an income of $277,955 and evaded about $76,660 in federal taxes.

In another year, Sutton-Mendoza filed a return saying she had a taxable income of $7,167 but had a taxable income of $266,967, evading $71,560 in federal taxes.

In 2005, she reported no taxable income but actually had taxable income of $248,389, and avoided paying $63,609, prosecutors said.

A phone number listed for NSYNC was disconnected.

If convicted, Sutton-Mendoza could face a maximum penalty of five years in prison, a $100,000 fine and three years of supervised release on each of the five counts, the U.S. Attorney's Office said.

Sutton-Mendoza was released pending trial under pretrial supervision, the office said.

Contact Kate Nash at 986-3036 or knash@sfnewmexican.com.