Could Mary Satterla's estate recover New Mexico estate tax after abandoning a timely protective claim and filing a new claim after limitations expired?

Plain-English summary

The Estate of Mary C. Satterla could not recover additional New Mexico estate tax because it failed to preserve a timely protective refund claim and filed the later claim after the limitations period expired. A federal-audit adjustment allowed only a narrow refund tied to that adjustment; it did not reopen the full estate-tax payment.

Mary and Gordon Satterla were longtime New Mexico residents who moved to Oregon in 2000. They retained their New Mexico residence, personal and business property, voter registrations, vehicle registrations, and bank accounts. Mary Satterla became incapacitated and died in Oregon on July 14, 2001.

The estate filed a New Mexico estate-tax return on April 15, 2002 and paid $525,314. It later obtained several adjustments and refunds. The dispute addressed a remaining claim driven by Oregon's position that Satterla had been an Oregon resident and by Oregon's later assessment of estate tax.

The 2004 protective claim was timely but abandoned

On June 1, 2004, while residency issues were developing, the estate filed a timely protective claim for $394,406. The Department did not act within 120 days, which expired September 29, 2004.

Section 7-1-26 then gave the estate 90 more days to file an administrative protest or a civil action. It did neither by December 28, 2004, 210 days after the claim was filed. Under Kilmer v. Goodwin, that failure made the claim stale and left the Department without authority to consider it further.

The ordinary refund period ended December 31, 2005

Estate tax had been paid on April 15, 2002. The three-year refund period ran from the end of that calendar year, making December 31, 2005 the final date for an ordinary claim.

The estate did not submit another general claim by then. Its May 17, 2007 claim for $393,502, based on Oregon's competing domicile determination, came too late regardless of the underlying merits of the interstate residency dispute.

The federal adjustment did not reopen the full payment

An IRS audit and Tax Court stipulation limited the estate's federal credit for state death taxes. After the estate made an additional New Mexico payment, it filed a September 7, 2006 amended return. The Department refunded $48,742.54, leaving net New Mexico estate-tax payments of $441,016.46, the amount used in the federal stipulation.

Section 7-1-26(F) allowed a one-year claim for the amount of an IRS audit adjustment. The decision held that this exception reached only the adjusted amount. It did not revive the expired right to claim a refund of the entire 2002 New Mexico payment on a different ground.

The estate's unresolved Oregon appeal likewise did not supply New Mexico with statutory authority to grant the late May 2007 claim.

Result: the protest was denied, and no additional New Mexico estate-tax refund could be paid.

What this means for you

Estates facing competing state domicile claims

A protective claim still requires active follow-through. Filing it before the ordinary deadline does not preserve it indefinitely if the Department takes no action.

Taxpayers with an inactive refund claim

Track the 120-day Department-response period and the following 90-day window to protest or sue. This decision treated failure to act within 210 days as abandonment of the claim.

Taxpayers receiving a federal audit adjustment

The special one-year refund window is limited to the federal adjustment amount. It does not reopen unrelated refund theories after the general limitations period has closed.

Common questions

Q: Was the June 2004 protective claim timely?
A: Yes. It was filed before the December 31, 2005 ordinary limitations deadline.

Q: Why did that claim fail?
A: The Department did not act within 120 days, and the estate did not protest or sue within the next 90 days.

Q: Did Oregon's later estate-tax claim extend New Mexico's deadline?
A: No. The May 2007 New Mexico claim based on Oregon's domicile position was filed after the ordinary deadline.

Q: Why was the September 2006 refund allowed?
A: It arose from the federal audit adjustment and was limited to the adjusted amount permitted by Section 7-1-26(F).

Q: Did that allowed refund reopen the whole New Mexico payment?
A: No. The decision expressly limited the federal-adjustment exception and refused to revive the entire expired claim.

Citations and references

Statute:

• NMSA 1978, § 7-1-26(B), (D)(1), and (F) (2003) — remedies after inaction, ordinary refund limitations, and the federal-audit-adjustment window

Case cited:

• Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Estate of Mary C. Satterla
• Decision PDF: D&O 11-18

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
THE ESTATE OF MARY C. SATTERLA No. 11-18
TO DENIAL OF REFUND CLAIM LETTER
ISSUED ON AUGUST 31, 2007

DECISION AND ORDER

A hearing was held on the above captioned matter on July 26, 2011 before Brian

VanDenzen Esq., Hearing Officer, in Santa Fe. Attorney Wallace D. Cegavske appeared on

behalf of the Estate of Mary C. Satterla (“Taxpayer”). The Taxation and Revenue Department of

the State of New Mexico (“Department”) was represented by Staff Attorney Ida M. Lujan,

Taxation and Revenue Department. Protest Auditor Silvia Sena appeared as a witness for the

Department. In addition to the documents contained in the Administrative File, the parties

stipulation of facts, and attached Stipulated Exhibits A-S, are admitted into the record. Based on

the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The parties have stipulated to facts listed as 1-36 in the Parties Joint Stipulation of

Facts, Section I, Filed July 26, 2011. The parties have also stipulated to the admission of

Exhibits A-S. Those stipulations and stipulated exhibits are the basis of the findings of facts in

this matter.

2. Mary Satterla (“Decedent”) and her husband Gordon Satterla were long time New

Mexico residents.

3. Decedent and her husband Gordon Satterla filed personal income tax returns in

New Mexico from at least tax years 1994 through 2000, in addition to the 2001 estate tax return

at issue in this protest.

4. Decedent suffered from Alzheimers.

5. In 2000, the Satterlas moved to Oregon to live closer to their son. Shortly after

that move, Decedent became incapacitated. Mr. Satterla cared for Decedent at their home until

he became too ill to care for her. Decedent was thereafter placed in a nursing home. Mr. Satterla

died in Oregon on April 14, 2000 at the age of 87.

6. Decedent remained incapacitated until her death in Oregon on July 14, 2001.

7. From the time of their move to Oregon until the time of Gordon Satterla’s and

Decedent’s deaths, the Satterlas retained their residence, personal property and business assets in

New Mexico.

8. While living in Oregon, the Satterlas maintained their voter registration in New

Mexico.

9. While living in Oregon, the Satterlas registered their vehicles in New Mexico.

10. While living in Oregon, the Satterlas also maintained their bank accounts in New

Mexico.

11. After Decedent’s death, Taxpayer filed a New Mexico estate tax return for tax

year 2001 on April 15, 2002 and paid estimated resident estate taxes of $525,314.00.

12. Taxpayer’s April 15, 2002 New Mexico estate tax return for tax year 2001 reflects

the Decedent’s New Mexico residential address.

13. On April 15, 2002, Taxpayer also made an estate tax payment to the State of

Oregon in the amount of $28,289.00.

In the Matter of the Protest of Estate of Mary C. Satterla, page 2 of 11

14. On October 11, 2002, Taxpayer filed an amended Estate Tax Return listing the tax

due as $434,759.00 rather than the previously paid $525,314.00 and requesting $99,455.00

refund on New Mexico estate tax.

15. On November 20, 2002, the Department acted on Taxpayer’s claim for refund by

making a partial refund of $90,555 to Taxpayer and denying the remaining claim for refund.

16. The Taxpayer did not file a protest or commence a civil action in response to the

Department’s partial denial of refund within 90-days, which was February 18, 2003.

17. In June 2003, the Internal Revenue Service (“IRS”) initiated an audit of Taxpayer,

limited only to the Taxpayer’s federal estate tax return and any federal credits allowed for

payment of estate taxes to New Mexico and Oregon.

18. On IRS Form 3614-A, likely generated as part of this IRS audit, Taxpayer claimed

a $456,867.00 credit for State death taxes. [Stipulated Exhibit E]

19. On August 14, 2003, the State of Oregon issued a determination that the Satterlas

were full-time Oregon residents since 1991 for income tax purposes. The record is unclear as to

the form of the State of Oregon’s determination.

20. Because of Taxpayer’s concern that the State of Oregon’s inquiry into the

Satterlas residency for income tax purposes would also lead to an inquiry about Taxpayer’s

residency for Oregon estate tax purposes, Taxpayer on June 1, 2004 submitted an amended New

Mexico Estate Tax Return and a protective claim for refund in the amount of $394,406.00.

[Stipulated Exhibit F]

21. Taxpayer’s June 1, 2004 protective claim for refund was submitted before the

December 31, 2005 expiration of the statute of limitations.

In the Matter of the Protest of Estate of Mary C. Satterla, page 3 of 11

22. The Department did not take any action on Taxpayer’s June 1, 2004 protective

claim for refund by September 29, 2004, 120-days later.

23. Taxpayer did not protest or file a civil action within 90-days of the Department’s

failure to act by September 29, 2004. Consequently, more than 210 days elapsed from

Taxpayer’s June 1, 2004 filing of a claim for refund on December 28, 2004 without any protest

or action by Taxpayer to preserve its claim for refund.

24. On June 7, 2006, Taxpayer paid an additional $55,000.00 estimated estate tax to

New Mexico during the pendency of the United States Tax Court case resulting from the IRS

audit. [Stipulated Exhibit H]

25. On August 9, 2006, Taxpayer filed an amended New Mexico return dated August

9, 2006 that included a $3,070.00 refund claim. [Stipulated Exhibit I]

26. On August 17, 2006, Taxpayer and the IRS, parties to the United States Tax Court

case, stipulated to a federal net estate tax deficiency. Under that stipulation, Taxpayer was

prohibited from claiming a federal credit for additional State estate, inheritance, legacy, or

succession tax. [Stipulated Exhibit J]

27. In light of the stipulation limiting Taxpayer’s ability to claim additional State

estate tax beyond the previous credit of $456,867.00, on September 7, 2006, Taxpayer filed an

amended New Mexico Estate Tax Return claiming an additional refund of $48,742.54 because

Taxpayer had already paid Oregon $15,850.54 in estate tax, leaving only $441,016.46 for New

Mexico estate tax. [Stipulated Exhibit K]

28. On November 22, 2006, the Department processed a $48,742.54 refund,

consistent with the stipulation filed in the U.S. Tax Court case. [Stipulated Exhibit L]

In the Matter of the Protest of Estate of Mary C. Satterla, page 4 of 11

29. The total of Taxpayer’s estate tax payments made, less granted refunds, was

$441,016.46, exactly the amount calculated in the U.S. Tax Court case stipulation.

30. On April 23, 2007, Taxpayer, through counsel, wrote the Department to inform

the Department of the State of Oregon’s April 12, 2007 Notice of Deficiency of estate tax in the

amount of $825,536 in principal and interest. [Stipulated Exhibit M]

31. In light of Oregon’s belated claim, Taxpayer advised the Department that it was

withdrawing the amended returns filed on August 11, 2006 and September 7, 2006, and standing

solely on the Taxpayer’s protective claim filed on June 1, 2004. [Stipulated Exhibit M]

32. On May 17, 2007, Taxpayer submitted an amended return requesting a refund of

$393,502.00 on the basis that Oregon had determined that the Decedent was a non-resident of

New Mexico and that Oregon disputed the amount of estate tax due or paid to New Mexico.

[Stipulated Exhibit N]

33. By letter dated June 26, 2007, the Department advised Taxpayer that the amended

return/claim was incomplete because it failed to select a residency/non-residency status and

failed to include requisite proof of Decedent’s non-residence in New Mexico. [Stipulated

Exhibit O]

34. On July 10, 2007, Taxpayer challenged Oregon’s determination of the Decedent’s

domicile.

35. As of the date of this hearing, Taxpayer’s appeal in Oregon has yet to be resolved.

36. Taxpayer protested the Department’s June 26, 2007 letter asking for more

information, which Taxpayer took as a denial of its claim for refund on November 6, 2007.

37. On November 19, 2007, the Department acknowledged receipt of Taxpayer’s

protest to the denial of claim for refund.

In the Matter of the Protest of Estate of Mary C. Satterla, page 5 of 11

38. Protest hearings previously scheduled for August 5, 2008 and October 14, 2008

were vacated upon Taxpayer’s unopposed requests for continuances and motions to stay the

proceedings related to the pendency of the IRS federal audit, the United States Tax Court

proceedings, and Taxpayer’s appeal of Oregon’s determination concerning Decedent’s domicile.

39. On April 15, 2011, the Department requested a setting in this protest.

40. On May 3, 2011, the Hearing Bureau sent Notice of Administrative Hearing,

scheduling the hearing on July 26, 2011 at 9:00 AM.

DISCUSSION

Despite a fairly complex set of facts, the legal question at protest in this matter is

straightforward in light of controlling statute and case-law: whether the Department has any

authority to grant claims for refund after the statute of limitations for such claims have passed

and after the Taxpayer failed to timely confront the Department’s inaction on a claim for refund?

For the purposes of this protest, that legal question needs to be considered for three of Taxpayer’s

claims for refund: first, Taxpayer’s June 1, 2004 protective claim for refund; second, Taxpayer’s

September 7, 2006 claim for refund after conclusion of the IRS audit; and third, Taxpayer’s May

17, 2007 claim for refund. In short, regardless of the merits of Taxpayer’s claim for refund, the

Department may not grant either Taxpayer’s June 1, 2004 or the May 17, 2007 claim for refund

because those claims are time-barred by operation of law.

Statute of Limitations on Claims for Refund.

Under NMSA 1978, Section 7-1-26 (D) (1) (2003), no refund can be granted unless as a

result of a claim made within three-years of the end of the calendar year in which the tax was due

or the overpayment resulted from an assessment by the Department under NMSA 7-1-17.

In the Matter of the Protest of Estate of Mary C. Satterla, page 6 of 11
In this case, Mary Satterla died on July 14, 2001. Taxpayer prepared, filed, and paid New

Mexico Estate Tax when due on April 15, 2002. The end of the calendar year from that April 15,

2002 New Mexico Estate Tax payment was December 31, 2002. Under NMSA 1978, Section 7-

1-26 (D) (1) (2003), Taxpayer had until December 31, 2005 to make any claim for refund on

Estate Tax paid to the Department.

a. Taxpayer’s June 1, 2004 Claim for Refund

Taxpayer timely filed a claim for refund on June 1, 2004 attaching the Amended New

Mexico Return and Claim for refund. [Stipulated Exhibit F]. Taxpayer intended that June 1,

2004 claim for refund as a protective claim for refund while it addressed the State of Oregon’s

later claims of residency against Taxpayer.

The Department took no action on Taxpayer’s June 1, 2004 protective claim for refund

within 120-days. Under NMSA 1978, Section 7-1-26 (b)(2) (2003), when the Department takes

no action on a claim for refund within 120-days from that claim for refund, a taxpayer has 90-

days to either file a protest or commence a civil action in the Santa Fe County District Court. If

there is time still left under the statute of limitations, a taxpayer can also choose to refile the

claim for refund. In other words, a taxpayer has 210-days from the date of filing a claim for

refund to either protest the Department’s inaction or commence a civil action.

In this case, when the Department failed to act on Taxpayer’s June 1, 2004 claim for

refund by September 29, 2004, Taxpayer needed to either file a written protest or commence a

civil action by December 28, 2004. Taxpayer did not assert either option by that December 28,

2004 deadline. By not filing either a protest or civil action, Taxpayer abandoned the June 1,

2004 protective claim for refund.

In the Matter of the Protest of Estate of Mary C. Satterla, page 7 of 11
Relevant case law affirms that when the Department fails to timely act on a claim for

protective refund, that refund is time barred unless preserved through timely filing of either a

protest or a civil action. In Kilmer v. Goodwin, 136 N.M. 440, 2004 NMCA122, 99 P.3d 690

(N.M. Ct. App. 2004), the New Mexico Court of Appeals dealt with a similar set of facts and

circumstances as this present protest. In Kilmer, the taxpayer had filed a New Mexico personal

income tax return for tax year 1995. See id. at 443. In 1998, the State of California began

auditing the Kilmer taxpayer because California believed that the taxpayer had been a resident of

California in 1995 rather than New Mexico. See id. In response to this California audit, in 1999

the Kilmer taxpayer filed a protective claim for refund with the Department for the 1995 personal

income taxes paid to New Mexico. See id. While in Kilmer there was some factual dispute

about whether that protective claim for refund was accepted by a Department employee or lost,

the facts in Kilmer nevertheless establish that the Department took no action on the Kilmer

taxpayer’s protective claim for refund within 120-days of the initial filing of that claim. See id.

at 444. Like in the present protest, the Kilmer taxpayer failed to preserve her claim for refund

within 90-days of the Department’s inaction by either filing a protest or a civil suit. See id. at

445. And like in the present protest, the statute of limitations prevented the Kilmer taxpayer

from refilling a new claim for refund. See id.

The New Mexico Court of Appeals found in Kilmer that the legislature intended the

purpose of the deadlines set out in NMSA 1978, § 7-1-26 (D) (1) (2003) “to avoid stale claims,

which protects the Department's ability to stabilize and predict, with some degree of certainty, the

funds it collects and manages.” id. at 445. The Kilmer court further found that the legislature

placed the responsibility on a taxpayer to maintain an active claim and to timely confront the

Department’s inactions on a claim. See id. The Kilmer court ultimately held that the Department

In the Matter of the Protest of Estate of Mary C. Satterla, page 8 of 11
lacked either explicit statutory authority under NMSA 1978, § 7-1-26 (D) (1) (2003) or implied

authority as an administrative agency to grant that taxpayer’s stale claim for refund beyond the

210-days from the initial filing of that refund. See id. 444-446.

Like in Kilmer, because Taxpayer in this matter failed to either protest or initiate a civil

action for its protective claim for refund within 210-days of filing that claim, Taxpayer’s

protective claim for refund became stale and the Department was statutorily barred from

considering that June 1, 2004 protective claim for refund any further. Taxpayer made no further

claim for refund by the expiration of the statute of limitations on December 31, 2005.

b. Taxpayer’s two post- December 31, 2005 Claim for Refunds

Taxpayer did make two claims of refund after that December 31, 2005 expiration of the

statute of limitations for a refund. Despite being past the statutory limit, the Department

correctly granted one of these claims, Taxpayer’s September 7, 2006 claim for refund.

Taxpayer’s September 7, 2006 refund claim was related to an amended June 7, 2006 filing and

payment of New Mexico Estate Tax as a result of IRS audit. Under NMSA 1978, Section 7-1-26

(F) (2003), a taxpayer has one-year to make a refund claim of only the adjusted amount of an IRS

audit, assuming the audit established an overpayment during the taxable audit period. In other

words, in the event of an overpayment, a taxpayer can claim a refund only of the adjusted amount

under the IRS audit for one-year, but cannot claim a refund greater than that adjustment. By

limiting that claimed refund to the adjustment only, the legislature clearly did not intend NMSA

1978, Section 7-1-26 (F) (2003) to reopen the entire amount to a refund after the expiration of the

statute of limitations for filing a refund. Therefore, while it was proper for the Department to

grant Taxpayer’s September 7, 2006 claim for refund resulting from the adjustment from the IRS

audit, neither the IRS audit nor the Department’s granting of the claim for refund related to the

In the Matter of the Protest of Estate of Mary C. Satterla, page 9 of 11
IRS audit action triggered anew the possibility of a claim for refund against the entire amount of

estate tax beyond the expired December 31, 2005 statutory bar.

Taxpayer’s other May 17, 2007 claim for refund, the denial of which triggered this

protest, was filed beyond the December 31, 2005 statute of limitations on a claim for refund.

Rather than relating to the IRS audit, the May 17, 2007 claim for refund resulted from Oregon’s

belated claim that Decedent was a resident of Oregon. Therefore, NMSA 1978, Section 7-1-26

(F) (2003) does not assist Taxpayer with the May 17, 2007 claim for refund. Since Taxpayer’s

May 17, 2007 claim for refund was made after the December 31, 2005 statute of limitations, the

Department had no statutory authority to grant that claim for refund under NMSA 1978, Section

7-1-26 (D) (1) (2003). The Department thus properly denied that May 17, 2007 claim for refund.

In conclusion, since Taxpayer did not timely preserve its initial June 1, 2004 protective

claim for refund, and did not file any additional claim for refund by the expiration of the statute

of limitation on December 31, 2005, Taxpayer was statutorily time barred from making any

additional claims of refund (other than the IRS adjusted amount discussed above) against its

April 15, 2002 payment of New Mexico Estate Tax. Consequently, Taxpayer is not entitled to

any additional refund for the April 15, 2002 payment of New Mexico Estate Tax regardless of

the legal merits of that refund claim, and the Department properly denied Taxpayer’s May 17,

2007 claim for refund.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the Department’s denial of its claim for

refund, and jurisdiction lies over the parties and the subject matter of this protest.

In the Matter of the Protest of Estate of Mary C. Satterla, page 10 of 11
B. Taxpayer failed to timely preserve its June 1, 2004 protective claim for refund of

2002 New Mexico Estate Tax under the time limitations set out in NMSA 1978, § 7-1-26.

C. The Department lacks the statutory authority to refund any additional amount of

New Mexico Estate Tax to Taxpayer because the statute of limitations on a refund expired on

December 31, 2005.

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

DATED: August 29, 2011.

In the Matter of the Protest of Estate of Mary C. Satterla, page 11 of 11