Could a corporation recover the denied portion of a 2005 tax refund by filing another amended return after it missed the 90-day protest period based on Department advice?

Plain-English summary

St. Mary Land & Exploration Company lost the remaining $10,496 of its 2005 corporate income tax refund because it did not protest the original partial denial within 90 days. Filing a second amended return could not revive the denied claim, even though a Department employee had incorrectly told the company to “re-amend” its return.

St. Mary, later known as SM Energy, timely filed its original 2005 corporate return. On June 24, 2009, it filed an amended return reflecting changed apportionment percentages and New Mexico tax withheld from oil and gas proceeds.

The amended return requested $39,307. The Department paid $28,811 on August 26, 2009, leaving $10,496 denied.

The decision found that the company had supplied Forms 1099-R and a federal-adjustment spreadsheet with the amended return. Yet the Department requested the spreadsheet again and said the partial denial resulted from missing forms or an incorrect reported payment. That explanation was inaccurate.

The company followed incorrect instructions instead of protesting

In October 2009, a Department employee gave a different reason: missing merger documents. St. Mary promptly supplied those documents.

On December 4, the employee left a message saying the company needed to “re-amend” and resubmit the return and attachments. St. Mary followed that direction and filed a second amended return on April 28, 2010 for the same $10,496.

The hearing officer expressly acknowledged that the employee's directive was incorrect. The company should have been told to protest the August partial denial.

Section 7-1-26 barred a second claim for the same amount

Section 7-1-26(B)(1) said that once a refund claim was denied in whole or part, the denied portion could not be refiled. The taxpayer instead had 90 days after mailing or delivery of the denial to choose one remedy, including a Department protest or court action.

St. Mary received the partial refund and denial on August 31, 2009 and deposited the refund on September 1. Using September 1 as the latest starting date, the decision placed the 90th day on or about November 29, 2009.

St. Mary did not protest the partial denial until September 3, 2010. That protest was timely as to the Department's June 3, 2010 denial of the second amended return, but it was too late to challenge the original 2009 partial denial.

The general three-year refund period also ended December 31, 2009 for the 2005 tax year. The decision noted that the second amended return was untimely even under the separate one-year period for refunds following federal audit adjustments.

Incorrect advice did not permit equitable relief

The company argued that the Department's shifting and misleading requests caused it to miss the deadline. The decision agreed that the Department had supplied inaccurate reasons and incorrect instructions.

But an administrative hearing officer lacked authority to grant equitable estoppel, a remedy reserved to the courts. Citing Kilmer v. Goodwin, the decision also said that the refund statute absolutely barred late claims and that reliance on a Department employee's oral statements did not excuse failure to act within 90 days.

The Department stipulated that it would have granted the additional $10,496 if St. Mary had filed a timely protest. Even so, the statutory deadline controlled.

Result: protest denied. The Department properly denied the second amended return's $10,496 refund claim.

What this means for you

Businesses receiving a partial refund

Treat the unpaid portion as a formal denial immediately. Continuing to supply documents or discussing the claim with agency staff does not replace the statutory protest or court deadline.

Taxpayers given conflicting agency instructions

Request written clarification, but preserve legal deadlines independently. This decision acknowledged incorrect Department guidance yet still enforced the 90-day bar.

Accountants handling amended returns

Distinguish a new refund claim from a challenge to an already denied claim. Section 7-1-26 did not allow St. Mary to refile the same denied amount through another amended return.

Common questions

Q: Was the original refund claim timely?
A: Yes. The June 24, 2009 amended return timely claimed $39,307 for 2005.

Q: How much did the Department pay?
A: $28,811, leaving $10,496 denied.

Q: Why did St. Mary file a second amended return?
A: A Department employee incorrectly told the company to re-amend and resubmit its return and attachments.

Q: Did the hearing officer find the Department's communications misleading?
A: Yes. The decision found inaccurate explanations, repeated requests for information already provided, and an incorrect directive.

Q: Why did the company still lose?
A: It did not protest the original partial denial within 90 days, refiling was statutorily barred, and the administrative hearing officer could not grant equitable estoppel.

Citations and references

Statutes and rule:

• NMSA 1978, § 7-1-26(B)(1) — no refiling after denial and 90-day election of remedies
• NMSA 1978, § 7-1-26(D) — general refund-claim limitation
• NMSA 1978, § 7-1-26(F) — one-year period following federal adjustments
• NMSA 1978, § 7-2A-9(A) — corporate income tax return timing referenced for the 2005 deadline
• NMSA 1978, § 7-1-25 and Rule 12-601 NMRA — appeal from the hearing decision

Cases:

• AA Oilfield Service v. New Mexico State Corp. Commission, 118 N.M. 273, 881 P.2d 18 (1994) — administrative agency lacked power to grant equitable estoppel
• Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690 — strict refund deadline and reliance on oral agency statements

Source

• Listing: New Mexico Decisions & Orders
• Decision post: St. Mary Land & Exploration Company
• Decision PDF: D&O 12-14

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
ST. MARY LAND & EXPLORATION COMPANY No. 12-14
TO DENIAL OF REFUND ISSUED UNDER LETTER
ID NO. L1641538624

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 12, 2012, before Monica

Ontiveros, Hearing Officer. The Taxation and Revenue Department (“Department”) was represented by

Nelson J. Goodin, attorney for the Department of Taxation and Revenue. Mr. Andrick Tsabetsaye,

protest supervisor, appeared and testified as witnesses for the Department. Mr. Michael F. Roach,

Assistant Vice President, CPA, Director of Taxation for SM Energy Company appeared on behalf of SM

Energy, formerly known as St. Mary Land & Exploration Company (“Taxpayer”), and testified on

Taxpayer’s behalf. On December 12, 2011, the Hearings Bureau received a packet of Exhibits from

Taxpayer. The Department introduced Exhibits #A, B, C, D, E and F into the record. Taxpayer

introduced Exhibits #1, 2, 3, 4, 5 and 6 into the record. The Department objected to the relevance of the

Exhibits #2, #3, #4, and #6. The objections were overruled. Exhibits #4 and #6 do not relate to the tax

year at issue but were admitted nonetheless. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 15, 2006, Taxpayer filed a Corporate Income Tax Return (“Return”) for

tax year 2005. Exhibit #A. The Return was timely filed.

2. On June 24, 2009, Taxpayer filed an Amended Corporate Income Tax Return to reflect

changes in the apportionment percentages and to include New Mexico income tax withheld from oil and

gas proceeds. (“Amended Return”). Exhibit #B.

In the Matter of the Protest of St. Mary Land & Exploration Company
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3. The amount of refund requested on the Amended Return was $39,307.00. Exhibit #B.

4. The Department partially granted the refund request on August 26, 2009 in the amount of

$28,811.00. Exhibit #C.

5. The difference between the amount requested to be refunded by Taxpayer and the amount

refunded by the Department is $10,496.00.

6. On June 3, 2010, the Department notified Taxpayer that it was denying its request for a

refund in the amount of $10,496.00 for three reasons, one of which was that “Section 7-1-26 NMSA 1978

provides that if a claim for refund is denied; a claimant may not refile that claim. If a taxpayer wishes to

challenge the denial, they may within 90 days, file a protest with the department or file a lawsuit in Santa

Fe District Court within 90 days of the date of mailing of the refund denial, the refund denial is final.”

Exhibit #E.

7. On September 3, 2010, Taxpayer filed a protest to the partial denial of the refund.

8. On December 23, 2010, the Department acknowledged the protest to the partial denial of

the refund.

9. The Department requested a hearing in this matter on July 8, 2011.

10. On August 2, 2011, the Hearings Bureau mailed a Notice of Administrative Hearing in

this matter setting the hearing for January 12, 2012.

11. If Taxpayer had filed a timely protest in this matter to the partial denial of the refund, the

Department would have granted the additional claim for refund of $10,496.00.

12. On June 24, 2009 when Taxpayer filed its Amended Return, Taxpayer provided the

Department with 1099R forms along with a spreadsheet of the federal adjustments to the Department.

Exhibit #B, page 2.

13. On July 9, 2009, the Department requested that Taxpayer provide a spreadsheet of the

federal adjustments by Letter ID No. L 1833376640 attached to protest letter. Taxpayer was provided 30

days to provide the information which had already been provided.

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14. When the Department issued the partial refund on August 26, 2009, it stated that the

reason for the adjustment was that the “W-K form and/or 1099R not provided. Reported payment is

incorrect.” Exhibit #C.

15. The reason for denying the partial refund given by the Department was inaccurate.

16. Taxpayer received the partial refund amount of $28,811.00 on August 31, 2009. Exhibit

C. The partial denial of the refund was deposited by Taxpayer on September 1, 2009.

17. Or about October 2, 2009, Ms. Sue Smith, a Department employee, informed Taxpayer

that the reason the refund was partially denied was because Taxpayer had failed to provide merger

documents to the Department. Exhibit Taxpayer #5.

18. On or about October 2, 2009, Taxpayer, through its employee, Joe Scarfarotti, faxed a

letter to the Department indicating that St. Mary Operating Company had merged with St. Mary Land &

Exploration Company. Attached to Protest Letter, Attachment E.

19. On or about December 4, 2009, Ms. Smith left a voice message for one of Taxpayer’s

representatives, Joe Scarfarotti, that to receive the denied refund amount, Taxpayer would have to “re-

amend” its return and resubmit the return and all of the attachments. Exhibits #4 and #5.

20. After receiving the partial denial of refund on August 26, 2009, Taxpayer had further

conversations with the Department. Based on those conversations, Taxpayer filed a Second Amended

Return on April 28, 2010. Exhibit #D.

21. The Second Amended Return requested a refund of $10,496.00, which was the difference

between the amount requested on the Amended Return and the partial refund granted by the Department.

Exhibits #C and #D.

22. The Second Amended Return requested a refund amount that had already been denied by

the Department.

23. On June 3, 2010, the Department denied the requested refund amount because of the

statute of limitations. Exhibit #E.

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DISCUSSION

At issue in this matter is whether the Department properly denied the claim for refund filed by

Taxpayer for the 2005 tax year for corporate income taxes based on Taxpayer’s Second Amended Return.

NO PROTEST FILED WITHIN 90 DAYS.

Generally speaking, a claim for refund must be filed within three years of the end of the calendar

year in which the payment was originally due. NMSA 1978, § 7-1-26 (D) (2007). For the tax year 2005,

the latest the request for a claim for refund could be filed was December 31, 2009 pursuant to NMSA

1978, Section 7-2A-9(A)(1989) and Section 7-1-26(D)(1)(a) (2007). In this case, the only timely request

for a claim for refund is the Amended Return filed on June 24, 2009. 1 Once this claim for refund was

filed, Taxpayer’s remedies became limited.

On June 24, 2009, Taxpayer filed an Amended Return to reflect changes in the apportionment

percentages and to include New Mexico income tax withheld from oil and gas proceeds. Exhibit #B.

There is no dispute between the parties that the information provided in the Amended Return was

accurate. Taxpayer was requesting a refund of $39,307.00. Exhibit #B. On August 26, 2009, the

Department refunded a partial amount, $28,811.00, of the requested amount in the Amended Return filed

on June 24, 2009. Exhibit #C. The difference between the amount requested to be refunded by Taxpayer

and the amount refunded by the Department was $10,496.00.

At that point of receiving the partial denial of refund instead of providing the Department with

additional information that it was requesting, Taxpayer should have protested the partial denial of the

refund within 90 days from receiving the partial denial of the refund. The statute provides that “(i)f the

claim is denied in whole or in part in writing, no claim may be refiled with respect to that which was

1
There is a statute of limitations that provides a one year period for requesting a claim for refund if the Internal
Revenue audits the taxpayer and makes adjustments. NMSA 1978, Section 7-1-26(F) (2007). The date on the
Internal Revenue audit work papers indicates that the federal adjustments were completed on January 20, 2009. It
appears Taxpayer filed a Second Amended Return on April 28, 2010. Exhibit #D. The Amended Return filed on
April 28, 2010 is still untimely under this provision.

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denied but the person, within ninety days after either the mailing or delivery of the denial of all or any

part of the claim, may elect to pursue one, but not more than one, of the remedies in Subsection C of this

section.” NMSA 1978, §7-1-26(B) (1) (2007). Pursuant to Section 7-1-26(B)(1), Taxpayer was required

to protest the partial denial within 90 days.

In this case, the partial denial of the refund was mailed to Taxpayer on August 26, 2009 and

received by Taxpayer on August 31, 2009. Exhibit #C. The refund amount was deposited by Taxpayer

on September 1, 2009. The time period of 90 days began at the latest on September 1, 2009. Therefore

the 90th day expired on or about November 29, 2009. Taxpayer’s protest was filed on September 3, 2010.

The protest of the partial denial of the refund was untimely.

Taxpayer argues that the information provided and requested by the Department was confusing

and misleading which caused Taxpayer to miss the earlier protest period. The confusion for Taxpayer

began when the Department requested, on July 9, 2009, a spreadsheet of the federal adjustments by Letter

ID No. L 1833376640. Taxpayer was provided 30 days to provide the information which had already

been provided. When the Department issued the partial refund on August 26, 2009, it stated that the

reason for the adjustment was that the “W-K form and/or 1099R not provided. Reported payment is

incorrect.” Exhibit #C. However, the W-K form and/or 1099R had already been provided to the

Department at the hearing. The Department did not provide an explanation as to why the Department

partially denied the refund and why it kept requesting information already provided.

Then or about October 2, 2009, Ms. Smith informed Taxpayer that the reason the refund was

partially denied was because Taxpayer had failed to provide merger documents to the Department.

Exhibit Taxpayer #5. This reason provided by the Department was a different reason than that provided

in the explanation of the partial denial. Exhibit #C. Taxpayer promptly provided the merger documents

that Ms. Smith requested. On or about October 2, 2009, Taxpayer, through its employee, Joe Scarfarotti,

faxed a letter to the Department indicating that St. Mary Operating Company had merged with St. Mary

Land & Exploration Company. Attached to Protest Letter, Attachment E. Mr. Roach testified that

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Taxpayer kept providing the Department with the requested documents in hopes of receiving the

remainder of his refund.

At least one more telephone conversation occurred, in which, Ms. Smith left a voice message for

one of Taxpayer’s representatives, and said that to receive the denied refund amount, Taxpayer would

have to “re-amend” its return and resubmit the return and all of the attachments and that the return should

“reflect the additional $6,508.00.” Exhibits #4 and #5. This occurred on December 4, 2009. Taxpayer

submitted a Second Amended Return for tax year 2005 requesting the refund of $10,496.00 on April 28,

2010. It is clear from the evidence and testimony that Taxpayer was attempting to comply with Ms.

Smith’s directive. However, her directive was incorrect. The Hearing Officer acknowledges that Ms.

Smith provided incorrect information to Taxpayer. Taxpayer should have been told to protest the partial

denial of the refund because the deadline was on or about November 29, 2009. Taxpayer should not

have filed a Second Amended Return in hopes of receiving the remainder of its refund or $10,496.00,

since the statute provides that “(i)f the claim is denied in whole or in part in writing, no claim may be

refiled with respect to that which was denied but the person, within ninety days after either the mailing

or delivery of the denial of all or any part of the claim…” may file a protest of the partial denial. NMSA

1978, §7-1-26(B) (1) (2007). (Emphasis added).

To the extent that the Taxpayer’s argument might encompass equitable estoppel, a hearing officer

does not have authority to grant equitable estoppel. See AA Oilfield Service v. New Mexico State Corp.

Comm’n, 118 N.M. 273, 881 P.2d 18 (1994) (holding that an administrative agency cannot grant the

equitable remedy of estoppel because that power is held exclusively by the judiciary). However, the claim

for refund statute absolutely bars the Department from acting on a claim for refund that is not filed within

the time period set out in the statute. See Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d

690. It is incumbent on a taxpayer to file the protest or action in court within the 90 day period. See id. at

¶1. A taxpayer’s failure to file a protest or an action within the 90-day period is not excused by the

taxpayer’s reliance on oral statements of an employee of the Department. See id. at ¶45.

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Therefore, the Department’s denial of the claim for refund based on Taxpayer’s Second Amended

Return filed on April 28, 2010 for $10,496.00 was properly denied.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest on September 3, 2010 to the denial of the claim for

refund the Department issued on June 3, 2010.

B. On August 26, 2009, Taxpayer filed an Amended Return requesting a refund. The refund

was partially granted and partially denied. Pursuant to NMSA 1978, Section 7-1-26(B) (1) (2007), Taxpayer

failed to protest the partial denial of the refund.

C. Taxpayer filed a Second Amended Return on April 28, 2010. This Seconded Amended

Return was properly denied because the Department did not have authority to grant the partial denial.

D. On June 3, 2010, the Department properly denied the claim for refund filed on April 28,

2010.

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

DATED: June 28, 2012.

Monica Ontiveros
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, §7-1-25, the Taxpayers have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date

shown above. See NMRA, 12-601 of the Rules of Appellate Procedure. If an appeal is not filed

within 30 days, this Decision and Order will become final.

In the Matter of the Protest of St. Mary Land & Exploration Company
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CERTIFICATE OF SERVICE

On July 2, 2012, a copy of the foregoing Decision and Order was mailed via certified mail

7011 0470 0001 1511 6160 to Michael F. Roach, Director of Taxation at SM Energy, 1775

Sherman St. Suite 1200, Denver, Colorado 80203 and delivered through interoffice mail to Staff

Attorney Julia Belles, Esq. Taxation and Revenue Department, Santa Fe, New Mexico.

John Griego

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