Could taxpayers avoid interest after an unidentified Department employee incorrectly said an IRS adjustment had nothing to do with New Mexico?

Plain-English summary

Armando and Antonia Cordoba remained liable for $441.15 of interest after an unidentified Department employee apparently gave incorrect oral advice about their IRS adjustment. The statutory duty to amend their New Mexico return and pay the additional tax controlled.

The Cordobas timely filed their 2001 federal and state returns. In August 2003, the IRS notified them of an error and additional federal tax. An H&R Block employee prepared an amended federal return and told them they also needed to amend the New Mexico return.

Armando Cordoba called the Department that afternoon. He said he needed to amend because of an IRS notice, but the unidentified employee told him the notice was a federal matter and had nothing to do with the state. He understood that no New Mexico amendment was required.

After later receiving the IRS information, the Department assessed $948 of additional state income tax and $441.15 of interest. It imposed no penalty. The Cordobas immediately paid the principal and protested only interest.

The decision itself ends with "Dated May 1, 2006," which supplies the issue date used in this page's metadata.

Federal adjustments triggered a state amendment

Section 7-1-13(C) required a taxpayer to file an amended New Mexico return within 90 days after an adjustment to the federal return.

The H&R Block employee had also specifically advised the Cordobas that a state amendment was required. When the Department's oral response conflicted with that advice, the decision said they should have made further inquiries with a supervisor or returned to the preparer.

Interest was compensatory and mandatory

Section 7-1-67(A) required interest from the first day after tax became due until payment. It compensated the state for the time value of unpaid revenue rather than punishing the taxpayer.

The state did not receive the additional $948 from the original April 2002 due date until August 2005. The Cordobas acted in good faith, but good faith did not create an interest exception.

The oral advice did not establish estoppel

Estoppel against the state required exceptional circumstances, such as shocking aggravated or overreaching conduct, plus reasonable detrimental reliance.

The evidence suggested the employee's response misled Cordoba, but there was no recording, name, or way to establish exactly what the employee understood. There was no evidence of fraud or an intent to induce nonpayment.

The statutory amendment requirement and H&R Block's contrary advice meant reliance on the unidentified employee's statement, without further investigation, was not reasonable. New Mexico's self-reporting system kept ultimate responsibility with the taxpayers.

Result: protest DENIED. The $441.15 interest assessment remained due.

What this means for you

Taxpayers receiving an IRS adjustment

Check the New Mexico amendment deadline immediately. The decision applied a 90-day state filing duty after a federal adjustment.

Taxpayers receiving conflicting oral advice

Escalate the question, request written guidance, and review the governing statute or professional advice. Unidentified oral advice may not support estoppel against the state.

Taxpayers acting in good faith

Good faith can matter in some penalty contexts, but it did not stop mandatory interest that compensated the state for delayed payment here.

Taxpayers relying on preparers

When a preparer flags a state consequence, do not disregard it based on a brief conflicting phone response without confirming the issue.

Common questions

Q: How much additional tax was due?
A: $948 of 2001 New Mexico personal income tax.

Q: Was a negligence penalty imposed?
A: No. The Department assessed tax and interest but no penalty.

Q: Why did interest continue after the phone call?
A: The statute made interest run until payment, and the phone advice did not legally estop the Department.

Q: What should the Cordobas have done after receiving conflicting advice?
A: The decision said they should have asked a higher-level Department employee or returned to H&R Block for clarification.

Q: Why is the issue date now populated?
A: The official decision text ends with the verbatim line "Dated May 1, 2006."

Citations and references

Statutes:

• NMSA 1978, § 7-1-3 — tax includes related interest and civil penalty
• NMSA 1978, § 7-1-13 — self-reporting obligation
• NMSA 1978, § 7-1-13(C) — amended state return within 90 days of a federal adjustment
• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, § 7-1-67(A) — mandatory interest on late-paid tax

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)
• Wisznia v. State of New Mexico, Human Services Department, 1998-NMSC-011, 125 N.M. 140, 958 P.2d 98
• Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 839 P.2d 630 (Ct. App. 1992)
• Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190, 936 P.2d 872 (Ct. App. 1997)
• Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Armando M. and Antonia G. Cordoba
• Decision PDF: D&O 06-06

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
ARMANDO M. & ANTONIA G. CORDOBA; No. 06-06
TO ASSESSMENT OF TAXES
ISSUED UNDER LETTER ID NO. L2113066496

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on April 25, 2006, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department")

was represented by Elizabeth K. Korsmo, Special Assistant Attorney General. Armando and

Antonia Cordoba (“Taxpayers”) represented themselves. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. In 2002, the Taxpayers filed timely federal and state personal income tax returns

for the 2001 tax year.

2. In August 2003, the Internal Revenue Service (“IRS”) notified the Taxpayers that

they had made an error on their 2001 return and owed additional tax.

3. As soon as they received the notice, the Taxpayers went to H & R Block, where

an employee named Mrs. Jaramillo prepared an amended 2001 federal tax return for the

Taxpayers.

4. Mrs. Jaramillo advised the Taxpayers that they also had to amend their 2001 New

Mexico tax return. In order to avoid additional expense, she suggested that the Taxpayers

contact the Department directly to obtain the forms and information they needed.

5. That same afternoon, Mr. Cordoba called the Department’s Albuquerque district

office. He told the employee who answered the telephone that he had received a notice from the

IRS concerning his 2001 taxes and needed to file an amended return.

6. Mr. Cordoba does not know the name of the employee he spoke with, but testified

that she told him the IRS notice was a federal matter and had nothing to do with the state.

7. Mr. Cordoba understood this to mean that he did not have to amend his 2001 New

Mexico income tax return.

8. In 2005, the Department received information from the IRS concerning the

income reported on the Taxpayers’ 2001 amended federal income tax return. When this

information was compared to the income reported on the Taxpayer’s New Mexico return, the

Department determined that additional tax was due.

9. In August 2005, the Department assessed the Taxpayers for $948.00 of additional

tax due as a result of the error they made on their 2001 income tax return, plus interest of

$441.15. No penalty was assessed.

10. The Taxpayers immediately paid the $948.00 of tax principal.

11. On August 11, 2005, the Taxpayers filed a written protest to the assessment of

interest.

DISCUSSION

The issue to be decided is whether the Taxpayers are liable for the interest that accrued on

their underpayment of 2001 New Mexico income taxes between August 2003, when Mr.

Cordoba called the Department for advice concerning his 2001 return, and August 2005, when

the Taxpayers received and paid the Department’s assessment of additional tax due. The

2
Taxpayers believe they should be excused from the payment of interest because Mr. Cordoba was

given incorrect advice concerning the Taxpayers’ obligation to amend their 2001 state income tax

return. The Department maintains that New Mexico’s tax laws provided the Taxpayers with notice

of their legal obligation to file an amended return, and that interest is due from the original due date

of the tax to the date it was paid.

Burden of Proof. NMSA 1978, § 7-1-17(C) provides that any assessment of tax by the

Department is presumed to be correct. NMSA 1978, § 7-1-3 defines tax to include not only the

amount of tax principal imposed but also, unless the context otherwise requires, “the amount of

any interest or civil penalty relating thereto.” See also, El Centro Villa Nursing Center v.

Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989). Accordingly,

the assessment issued to the Taxpayers is presumed to be correct, and it is the Taxpayers’ burden

to present evidence and legal argument to show that they are entitled to an abatement.

Imposition of Interest. NMSA 1978, § 7-1-67 governs the imposition of interest on late

payments of tax and provides, in pertinent part:

A. If a tax imposed is not paid on or before the day on which it becomes
due, interest shall be paid to the state on that amount from the first day
following the day on which the tax becomes due, without regard to any
extension of time or installment agreement, until it is paid... (emphasis
added).

The legislature’s use of the word “shall” indicates that the assessment of interest is mandatory

rather than discretionary. State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). With

limited exceptions that do not apply here, the New Mexico Legislature has directed the

Department to assess interest whenever taxes are not timely paid.

3
The assessment of interest is not designed to punish taxpayers, but to compensate the

state for the time value of unpaid revenues. In this case, the IRS determined that the Taxpayers

made a mistake when calculating their 2001 income taxes. Although the Taxpayers acted in

good faith and without any intent to defraud the government, the fact remains that the State of

New Mexico would have received an additional $948.00 tax payment if the Taxpayers had

completed their return correctly. As a result of the Taxpayers’ mistake, the state was deprived of

the use of this money for the period between April 2002, the original due date of the Taxpayer’s

return, and August 2005, the date payment of the additional tax was made. For this reason,

interest was properly assessed pursuant to NMSA 1978, § 7-1-67(A).

Estoppel. The Taxpayers maintain that they should not be required to pay the interest

that accrued on their unpaid taxes after the date that Mr. Cordoba called the Department and was

told that the notice he received from the IRS had nothing to do with the state. In effect, the

Taxpayers are raising an estoppel issue, arguing that the Department should be estopped from

enforcing the collection of interest that would otherwise be due.

Estoppel is rarely applied against the state, and then only in exceptional circumstances

where there is "a shocking degree of aggravated and overreaching conduct or where right and

justice demand it." Wisznia v. State of New Mexico, Human Services Department, 1998-NMSC-

11, ¶17, 125 N.M. 140, 958 P.2d 98. In determining whether estoppel is appropriate, the conduct

of both parties must be considered. Gonzales v. Public Employees Retirement Board, 114 N.M.

420, 427, 839 P.2d 630, 637 (Ct. App.), cert. denied, 114 N.M. 227, 836 P.2d 1248 (1992). The

following elements must be shown as to the party to be estopped (i.e., the Department): (1)

conduct that amounts to a false representation or concealment of material facts, (2) actual or

4
constructive knowledge of the true facts, and (3) an intention or expectation that the other party

will act on the representations. As to the party claiming estoppel (i.e., the Taxpayer), the

following must be shown: (1) lack of knowledge of the true facts, (2) detrimental reliance on the

adverse party's representations or concealment of facts, and (3) that such reliance was reasonable.

Id. See also, Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190, 195, 936

N.M. 872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d 337 (1997).

The facts presented in this case do not support a finding of estoppel. Here, an employee

of H & R Block advised the Taxpayers that as a result of the adjustment made to their federal

return, they had to file an amended New Mexico income tax return for 2001. Mr. Cordoba then

called the Department’s Albuquerque office and spoke to an unidentified Department employee.

He told the employee that he had received a notice from the IRS and needed to file an amended

return. The employee told Mr. Cordoba that the IRS notice was a federal matter and had nothing

to do with the state. Based on this response, the Taxpayers took no action to amend their 2001

state tax return.

Mr. Cordoba’s testimony indicates that he was misled by the information he received

from the Department. This was certainly unfortunate, and the Department should make every

effort to insure that its employees are trained to give proper attention and advice to taxpayers

who call the Department for information. Nonetheless, the fact that a taxpayer receives incorrect

advice does not provide a legal basis for barring the collection of taxes and interest otherwise due

to the state. Estoppel based on the oral advice of an unidentified employee is particularly

problematic because there is no way to confirm exactly what information the employee was given

or what questions were asked. It is not clear, for example, whether the employee with whom Mr.

5
Cordoba spoke understood that he was asking about an amendment to his state return rather than

his federal return. Although the Department employee could have asked additional questions

concerning the nature of the IRS notice, there is no evidence that she acted fraudulently or

intended to induce the Taxpayers not to pay taxes the employee knew were owed to the state.

Turning to the other side of the equation, the Taxpayers had access to information that

should have put them on notice that an amended return was required. NMSA 1978, § 7-1-13(C)

clearly states that if any adjustment is made to a taxpayer’s federal tax return, “the taxpayer shall,

within ninety days…file an amended return with the department.” In addition, the Taxpayers were

specifically advised of the need to amend their New Mexico return by an employee of H & R

Block. After receiving what seemed to be conflicting advice from the Department, the Taxpayers

should have made additional inquiries, either by asking to speak with a higher-level Department

employee or by going back to H & R Block to clarify their state tax obligations.

New Mexico has a self-reporting tax system and taxpayers have a statutory obligation to

determine their tax liabilities and accurately report and pay those liabilities to the state. See, NMSA

1978, § 7-1-13. While the Department makes every effort to give correct advice to taxpayers who

contact the Department, the ultimate responsibility for payment of tax remains with the taxpayer.

Taxpayers are not entitled to rely on the oral advice of a Department employee as a substitute for

making their own independent review of the statutes and regulations. See, Taxation and Revenue

Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989) (a

taxpayer’s reliance on the oral representations of a Department employee was not reasonable).

6
CONCLUSIONS OF LAW

1. The Taxpayers filed a timely protest to the assessment of interest issued under Letter

ID L2113066496, and jurisdiction lies over the parties and the subject matter of these protests.

2. The Taxpayers’ error in completing their 2001 federal income tax return resulted in

the late payment of $948.00 of New Mexico income tax, and interest was properly assessed on this

amount from the date the tax was originally due until the date it was paid.

3. The Department is not estopped from enforcing its assessment of interest against the

Taxpayers.

For the foregoing reasons, the Taxpayers’ protest IS DENIED.

Dated May 1, 2006.

7