Did expiration of the 10-year period for the Department to sue on old assessments automatically release a tax lien filed later?

Plain-English summary

Expiration of the Department's 10-year period to bring a collection action did not automatically release Sterling M. Kennedy's recorded tax lien. The collection bar affected the enforcement remedy, while a separate statute controlled when the lien itself was released or extinguished.

The decision identifies the taxpayer as Sterling M. Kennedy, also known as Merle Sterling Kennedy. The Department had issued six personal income tax assessments for 1986 through 1991. The remaining liabilities had not been paid, protested, abated, or discharged in bankruptcy.

In July 1997, the Department recorded Tax Lien No. 92421 against all of Kennedy's property and property rights for an outstanding balance of $48,368.72.

Kennedy requested release in November 2003, arguing that Section 7-1-19 barred collection more than 10 years after assessment. The Department agreed it could no longer foreclose the lien but refused to release it.

Collection limitations barred the remedy, not the debt

Section 7-1-19 limited the time for the Department to bring an action or proceeding to collect assessed taxes. By the time of the protest, that period had expired for the 1992 and 1993 assessments.

The decision followed the general rule that a statute of limitations bars an enforcement remedy without determining or extinguishing the underlying claim. The unpaid taxes and related lien therefore remained legally valid even though the Department could not initiate foreclosure.

A separate statute controlled lien release

Sections 7-1-37 and 7-1-38 provided that a tax lien arose upon assessment and demand and became effective against property through recording.

Section 7-1-39 supplied the exclusive circumstances discussed in the decision for release or extinguishment:

• substantial payment of the tax;
• a finding that the lien was premature, legally defective, or that release would facilitate collection; or
• passage of 10 years from the date the lien notice was filed.

Kennedy had not made substantial payment, shown a defect, or established that release would aid collection. And in 2005, 10 years had not passed since the July 1997 filing.

The lien had its own later endpoint

The decision said Kennedy could qualify under another Section 7-1-39 release condition or wait until July 2007, when subsection C would conclusively presume payment and extinguish the recorded lien after 10 years.

Whether a lien served a useful purpose after affirmative collection became time-barred was a policy question for the Legislature, not a basis for administrative release.

Result: protest DENIED. The Department had no obligation to release the lien in 2005.

What this means for you

Taxpayers with old assessed liabilities

Distinguish the deadline for a collection lawsuit from the lifespan of a recorded lien. Different statutes and triggering dates may control each.

Property owners requesting lien release

Identify the exact statutory release condition and provide evidence that it is satisfied. Inability to foreclose did not, by itself, meet Section 7-1-39.

Taxpayers calculating lien age

The decision measured the 10-year extinguishment period from the lien's filing date, not the earlier assessment dates.

Common questions

Q: How much did the lien claim when filed?
A: $48,368.72.

Q: When were the underlying assessments issued?
A: In November 1992 and October 1993 for tax years 1986 through 1991.

Q: When was the lien recorded?
A: July 23, 1997.

Q: Could the Department still foreclose it in 2005?
A: The Department agreed that Section 7-1-19 barred foreclosure, but the lien itself had not yet been extinguished.

Q: When did the decision say the lien's 10-year period would end?
A: July 2007, unless another statutory release condition occurred first.

Citations and references

Statutes:

• NMSA 1978, § 7-1-19 — ten-year limitation on collection actions
• NMSA 1978, § 7-1-37 — tax lien arises upon assessment and demand
• NMSA 1978, § 7-1-38 — recording a tax lien notice
• NMSA 1978, § 7-1-39 — release and extinguishment of tax liens

Cases cited:

• State v. Montoya, 32 N.M. 314, 255 P. 634 (1927)
• Davis v. Savage, 50 N.M. 30, 168 P.2d 851 (1946)
• Britton v. Britton, 100 N.M. 424, 671 P.2d 1135 (1983)
• Amarillo Independent School District v. Brockmeyer, 292 S.W.2d 886 (Tex. Civ. App. 1956)
• Maricopa County v. Bloomer, 78 P.2d 993 (Ariz. 1938)
• Lemhi County ex rel. Gilbreath v. Boise Live Stock Loan Co., 278 P. 214 (Idaho 1929)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Sterling Kennedy
• Decision PDF: D&O 05-17

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
STERLING M. KENNEDY No. 05-17
TO DEPARTMENT’S DENIAL OF REQUEST FOR
RELEASE OF TAX LIEN NO. 92421

DECISION AND ORDER

At the request of the parties, this matter was submitted to Hearing Officer Margaret B.

Alcock on a stipulation of facts and written briefs. The Taxation and Revenue Department

("Department") was represented by Bruce J. Fort, Special Assistant Attorney General. Sterling M.

Kennedy a/k/a Merle Sterling Kennedy (“Taxpayer”) was represented by Patricia Tucker,

attorney at law. The final brief of the parties was filed on August 19, 2005, at which time the

matter was submitted for decision. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a New Mexico resident.

2. In October 1992 and November 1993, the Department issued the following

personal income tax assessments against the Taxpayer, which were based on federal audit

adjustments reported to the state:

Assessment Date Report Tax, Penalty &
Number Issued Period Interest Assessed

560544 10/23/93 1986 $ 12,630.56
560512 10/23/93 1987 $ 6,511.67
560513 10/23/93 1988 $ 7,614.13
559678 10/09/93 1989 $ 7,297.34
559679 10/09/93 1990 $ 2,006.00
516472 11/13/92 1991 $ 1,245.68

3. A payment of $157.34 was received by the Department and applied against

Assessment No. 560544; the Department abated an additional $2.65 of that assessment.

4. A payment of $180.13 was received by the Department and applied against

Assessment No. 516472; the Department abated an additional $2.25 of that assessment.

5. To present date, the remaining liabilities have not been paid, protested, abated or

discharged in bankruptcy.

6. On July 23, 1997, the Department filed Notice of Claim of Tax Lien No. 92421

with the clerk of Bernalillo County, New Mexico, claiming a tax lien upon all property and rights

to property of the Taxpayer in the amount of $48,368.72, which was the balance outstanding on

the above assessments as of the date the lien was filed.

7. By letter dated November 23, 2003, the Taxpayer, through his attorney, requested

the Department to release Lien No. 92421. The request was based on NMSA 1978, 7-1-19,

which states that no action or proceeding shall be brought to collect taxes due under an

assessment after ten years from the date of such assessment.

8. On January 15, 2004, the Department denied the Taxpayer’s request that Lien No.

92421 be released. The denial was based on NMSA 1978, § 7-1-39, which sets out the

circumstances under which a tax lien will be released or extinguished. The Department’s denial

letter made reference to the provisions of Subsection (C) of § 7-1-39, which states that a lien

shall be conclusively presumed to have been paid and shall be extinguished after a period of ten

years has passed from the date of filing.

9. On February 4, 2004, the Taxpayer filed a written protest to the Department’s

denial of the Taxpayer’s request that Lien No. 92421 be released.

2
DISCUSSION

The issue presented is whether the expiration of the ten-year limitations period set out in

NMSA 1978, § 7-1-19, which bars the Department from bringing any action or proceeding to

collect the income taxes assessed against the Taxpayer in November 1992 and October 1993,

requires the Department to release the related tax lien filed in July 1997. The Taxpayer argues

that because § 7-1-19 prevents the Department from initiating any action to foreclose the tax lien,

the lien is now worthless and should be released. The Department agrees that § 7-1-19 prevents

the Department from foreclosing on the lien, but argues that the statute simply bars the remedy

and does not serve to extinguish the lien or require the Department to release the lien.

Pursuant to NMSA 1978, § 7-1-37, a lien on the Taxpayer’s property arose at the time the

Department issued its tax assessments in November 1992 and October 1993. In order for the lien

to be effective against third parties, the Department was required to file a notice of lien as

provided in NMSA 1978, § 7-1-38, which states:

A notice of the lien provided for in Section 7-1-37 NMSA 1978 may be recorded
in any county in the state in the tax lien index established by Sections 48-1-1
through 48-1-7 NMSA 1978 and a copy thereof shall be sent to the taxpayer
affected…. Recording of the notice of lien shall be effective as to all property and
rights to property of the taxpayer.

On July 23, 1997, the Department filed Notice of Claim of Tax Lien No. 92421 with the clerk of

Bernalillo County, New Mexico, claiming a tax lien upon all property and rights to property of

the Taxpayer in the amount of $48,368.72, which was the balance outstanding on the 1992 and

1993 assessments as of the date the lien was filed.

In State v. Montoya, 32 N.M. 314, 255 P. 634 (1927), the New Mexico Supreme Court

held that the Legislature could not statutorily release a taxpayer from personal liability for

3
accrued taxes, but could enact a statute providing for the discharge of a tax lien. NMSA 1978, §

7-1-39 is the statute that sets out the circumstances under which a tax lien filed in accordance

with § 7-1-38 will be released or extinguished. Subsection A provides for a full or partial release

when “any substantial part” of the tax due from a taxpayer is paid. Subsection B provides for a

full or partial release when the Department determines that the filing of a lien was premature or

did not follow requirements of law, or when release would facilitate collection of the taxes due.

Subsection C provides for extinguishment of a recorded lien after the passage of ten years from

the date the lien was filed and states:

In all cases when a notice of lien for taxes, penalties and interest has been filed
under Section 7-1-38 NMSA 1978 and a period of ten years has passed from the
date the lien was filed, as shown on the notice of lien, the taxes, penalties and
interest for which the lien is claimed shall be conclusively presumed to have been
paid. The county clerk shall enter in his records a notice including the words
“canceled by act of Legislature” and the lien is thereby extinguished. No action
shall be brought to enforce any lien extinguished in accordance with this
subsection.

In this case, none of the statutory prerequisites for releasing or extinguishing the tax lien filed

against the Taxpayer have been met: the Department has not received a substantial payment of

the tax due from the Taxpayer; there is no evidence that the lien was filed prematurely or did not

follow the requirements of law; there is no evidence that releasing the lien would facilitate

collection of the underlying tax; and 10 years have not yet passed since the date the lien was

filed.

The Taxpayer argues that even though he has not met the requirements of § 7-1-39, he is

still entitled to have the lien released because the statute of limitations set out in § 7-1-19 bars the

state from initiating any action to collect the taxes on which the lien is based. Although there is

no New Mexico case law addressing this issue, the Taxpayer’s argument is directly contrary to

4
the holdings of other state courts. See, e.g., Amarillo Independent School District v. Brockmeyer,

292 S.W.2d 886 (Tex. Civ. App. 1956) (statute of limitations merely barred the remedy; it could

not legally form the basis of the property owner's suit to remove the cloud on his title by

canceling the tax debt and lien); Maricopa County v. Bloomer, 78 P.2d 993 (Ariz. 1938) (fact

that statute of limitations had run against affirmative action by county to recover taxes did not

serve to remove tax lien); Lemhi County ex rel. Gilbreath v. Boise Live Stock Loan Co., 278 P.

214 (Idaho 1929) (statute of limitations prevented enforcement of a tax lien, but did not

extinguish the lien); State v. Yellow Jacket Silver Mining Co., 14 Nev. 220, 1879 Nev. LEXIS 31

(Nev. 1879) (a tax lien may continue after the remedy for its enforcement is lost). In Davis v.

Savage, 50 N.M. 30, 168 P.2d 851 (1946), the New Mexico Supreme Court reached a similar

result in the context of a mortgage lien, holding that the lien continued in effect even though the

right to enforce the mortgage was barred.

All of the cases cited above are based on the principle that the application of a statute of

limitations merely bars the remedy on a stale claim without determining the underlying validity

of the claim or modifying it in any way. Britton v. Britton, 100 N.M. 424, 428, 671 P.2d 1135,

1139 (1983); see also, Davis v. Savage, supra. Here, § 7-1-19 limits the time within which the

Department may bring an action or proceeding to collect assessed taxes, including an action to

foreclose an existing tax lien. Case law is clear, however, that the running of the statute does not

affect the continuing validity of the taxes themselves or the related tax lien.

Although the Taxpayer contends that a tax lien “serves no legitimate purpose” once the

time to take collection action has passed (Reply Brief at 4), that is something for the Legislature

to decide. It is not the role of the Taxpayer or the Department to second guess the Legislature’s

5
statutory prerequisites for releasing and extinguishing tax liens. As the law is currently written,

the Taxpayer’s only method of obtaining a release of Tax Lien No. 92421 is to meet one of the

requirements set out in § 7-1-39 (A) or (B). Alternatively, he can wait until July 2007, when the

lien will be extinguished under the provisions of Subsection C of § 7-1-39.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the Department’s denial of his

request for release of Tax Lien No. 92421, and jurisdiction lies over the parties and the subject

matter of this protest.

B. The running of the ten-year limitations period in NMSA 1978, § 7-1-19 does not

release or extinguish tax liens filed pursuant to NMSA 1978, § 7-1-38.

C. The Taxpayer has not established the existence of the statutory prerequisites for

release of tax liens set out in NMSA 1978, § 7-1-39, and the Department has no obligation to

release the tax lien filed against him.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED August 31, 2005.

6