Could Mark Kilcoyne defeat a 2008 New Mexico personal income tax assessment by arguing that taxes were voluntary, attempting to name a Department employee as trustee, and presenting no evidence?

Plain-English summary

Mark Kilcoyne remained liable for $210 in 2008 New Mexico personal income tax, a $42 penalty, and $27.46 in interest as of the hearing. He presented no evidence to overcome the assessment and relied on arguments the decision found unsupported and legally meritless.

Kilcoyne had argued in his protest letter that additional tax, penalty, and interest were unwarranted because he used Department forms, instructions, and tax tables to calculate his original return. At the hearing, however, he offered no evidence supporting that claim.

He instead argued that paying tax was voluntary and attempted to designate the Department's witness as trustee of a trust he said he had created.

New Mexico personal income tax was not voluntary

Section 7-2-3 imposed tax on the net income of every New Mexico resident unless an exemption applied. The decision also cited federal appellate cases rejecting claims that income tax is optional or consensual and a New Mexico Supreme Court decision rejecting challenges to the state's authority to tax resident wages.

Kilcoyne's voluntary-payment argument therefore did not rebut the assessment.

The purported trust changed nothing

The decision found no factual showing that Kilcoyne had established the basic elements of a lawful trust. He also cited no legal authority explaining how the purported trust or his attempt to name a Department employee as trustee would affect his 2008 tax liability.

No evidence supported penalty relief

The assessment was presumed correct, and Kilcoyne carried the burden to show otherwise. Because he presented no evidence, the $210 tax principal remained due.

Interest was mandatory from the original due date until the principal was paid. The civil negligence penalty also applied because the tax had not been correctly filed and paid when due.

Section 7-1-69(B) provided an exception when nonpayment resulted from a good-faith mistake of law on reasonable grounds. Kilcoyne did not prove his reliance-on-forms claim or any other nonnegligence factor, so the $42 penalty remained.

Result: protest denied. Interest was $27.46 as of the hearing and continued to accrue until payment.

What this means for you

Individuals disputing an income-tax assessment

Arguments are not evidence. To overcome the assessment's presumption of correctness, a taxpayer needs documents, testimony, or legal analysis addressing why the calculated liability is wrong.

Taxpayers claiming reliance on official instructions

A reasonable good-faith mistake of law can matter for penalty relief, but the taxpayer must prove the factual basis for that claim. Kilcoyne did not present evidence showing how the forms, instructions, or tables caused the error.

Anyone considering tax-protester theories

The decision treated claims that income tax is voluntary or depends on consent as meritless. An unsupported trust arrangement likewise did not alter the tax obligation.

Common questions

Q: Why did the $210 tax remain due?
A: The assessment was presumed correct, and Kilcoyne presented no evidence challenging its calculation.

Q: Is New Mexico personal income tax voluntary?
A: No. The decision held that the statutory income-tax scheme makes payment mandatory for residents unless the law provides an exemption.

Q: Did the purported trust shift responsibility to the Department employee?
A: No. Kilcoyne did not establish the factual elements of a lawful trust or cite authority connecting it to his 2008 liability.

Q: Why was the penalty not abated?
A: Although the law recognized a good-faith mistake-of-law exception, Kilcoyne offered no evidence proving reasonable reliance on Department materials or another nonnegligent explanation.

Q: Did interest stop at the hearing?
A: No. The decision said interest continued from the original due date until the tax principal was paid in full.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption that Department assessments are correct
• NMSA 1978, §§ 7-2-1 et seq. and 7-2-3 — New Mexico personal income tax
• NMSA 1978, § 7-1-67 — mandatory interest on unpaid tax
• NMSA 1978, § 7-1-69 — civil negligence penalty and good-faith mistake-of-law exception
• 3.1.11.10 NMAC — negligence definitions
• 3.1.11.11 NMAC — circumstances showing nonnegligence

Cases:

• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (N.M. Ct. App. 1972)
• Lonsdale v. United States, 919 F.2d 1440 (10th Cir. 1990)
• United States v. Schiff, 876 F.2d 272 (2d Cir. 1989)
• McLaughlin v. United States, 832 F.2d 986 (7th Cir. 1987)
• Holt v. New Mexico Department of Taxation & Revenue, 133 N.M. 11, 59 P.3d 491 (N.M. 2002)
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Mark Kilcoyne
• Decision PDF: D&O 12-25

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
MARK E. KILCOYNE No. 12-25
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1528712576

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on November 29, 2012 before

Brian VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Mr. Mark E. Kilcoyne (“Taxpayer”)

appeared pro se. Staff attorney Peter Breen represented the Taxation and Revenue Department of

the State of New Mexico (“Department”). Protest Auditor Mary Griego appeared as a witness for

the Department. Department Exhibit A, an updated spreadsheet of Taxpayer’s liability as of the

date of hearing, was admitted into the record. Based on the evidence and arguments presented, IT

IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On July 31, 2009 the Department assessed Taxpayer for $210.00 in 2008 personal

income tax, $16.80 in penalty, and $2.36 in interest for a then total assessment of $229.16 under

letter identification number L1528712576.

2. On August 11, 2009, Taxpayer submitted a letter of protest of the assessment.

3. On August 13, 2009, the Department acknowledged receipt of Taxpayer’s protest.

4. On September 13, 2012, the Department submitted a request for hearing on

Taxpayer’s protest.

5. On October 4, 2012, the Department’s Hearings Bureau sent Notice of

Administrative Hearing, scheduling the protest hearing for November 29, 2012.

In the Matter of the Protest of Mark Kilcoyne, page 1 of 6

6. As of the date of the hearing, Taxpayer owed $210.00 in 2008 personal income

tax, $42.00 in penalty, and $27.46 in interest.

DISCUSSION

Taxpayer presented no evidence at the protest hearing in this matter. Taxpayer did argue

at the hearing that the payment of all taxes is voluntary, and that he did not agree to pay any

additional tax. At the hearing Taxpayer further argued that he has created a trust and attempted to

designate the Department’s witness Mary Griego as a trustee to assist him in this matter. In his

protest letter, Taxpayer argued that the imposition of additional personal income tax, interest,

and penalty was unwarranted because he relied on Department forms, instructions, and tax tables

to calculate his initial 2008 personal income tax return.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is

presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment

of personal income tax. See Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (NM Ct.

App. 1972). Since Taxpayer presented no evidence at hearing to support his claim in the protest

letter that he owed no additional tax because he relied on Department forms, instructions, and tax

tables to calculate his tax liabilities, Taxpayer failed to overcome the presumption of correctness of

the Department’s assessment. Consequently, Taxpayer is liable for the assessed $210.00 personal

income tax liability for tax year 2008.

Taxpayer’s unsupported argument that the payment of tax is voluntary is without merit in

light of federal and state legal authority. Payment of New Mexico personal income tax is

governed by NMSA 1978, §§ 7-2-1, et seq. Unless otherwise exempted by law, a tax is imposed

“upon the net income of every” New Mexico resident. NMSA 1978, §7-2-3 (1981). This

statutory scheme makes payment of income tax by New Mexico residents mandatory.

In the Matter of the Protest of Mark Kilcoyne, page 2 of 6
Further, in Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990), the Federal

Court of Appeals for the 10th Circuit found meritless and frivolous a taxpayer’s claim that payment

of income tax is voluntary. See also, United States v. Schiff, 876 F.2d 272, 275 (2d Cir. 1989)

(payment of income taxes is not optional; the average citizen knows that payment of income taxes is

legally required); McLaughlin v. United States, 832 F.2d 986, 987 (7th Cir. 1987) (the notion that the

federal income tax is contractual or otherwise consensual in nature has been repeatedly rejected by

the courts). Similarly, the New Mexico Supreme Court characterized arguments questioning New

Mexico’s authority to tax the wages earned by its residents as frivolous and without merit. See

Holt v. New Mexico Department of Taxation & Revenue, 133 N.M. 11, 18, 59 P.3d 491, 498

(N.M. 2002). This statutory and case law authority establishes that the payment of income tax is

not optional, therefore Taxpayer’s argument is without merit.

Equally meritless is Taxpayer’s unsupported attempt to create a trust and designate a

Department employee as a trustee in an effort to shield him from income tax liability. Taxpayer

failed to establish factually the prima facie elements of any lawful trust. Moreover, Taxpayer

cited no legal authority as to how the creation of this ostensible trust might affect his 2008 New

Mexico personal income tax liabilities. Since Taxpayer did not present any evidence to overcome

the presumption of correctness on the assessment, and since Taxpayer’s other arguments are

without merit, Taxpayer is obligated to pay the assessed $210.00 in 2008 personal income tax.

Additionally, Taxpayer is liable for payment of interest. When a taxpayer fails to make

timely payment of taxes due to the state, “interest shall be paid to the state on that amount from

the first day following the day on which the tax becomes due...until it is paid.” NMSA 1978,

Section 7-1-67 (2001). Under the statute, the Department has no discretion in the imposition of

interest, as the statutory use of the word “shall” makes the imposition of interest mandatory. See

In the Matter of the Protest of Mark Kilcoyne, page 3 of 6
State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). The language of the statute also

makes it clear that interest begins to run from the original due date of the tax and continues until the

tax principal is paid in full. Thus, interest continues to accrue against Taxpayer until the tax

principal is paid in full.

Taxpayer did challenge the imposition of penalty in his protest letter, arguing that he

relied on Department forms, instructions, and tax tables to calculate his tax liability. When a

taxpayer fails to pay taxes due to the State as a result of negligence or disregard of rules and

regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

(2007) requires that

there shall be added to the amount assessed a penalty in an amount
equal to the greater of: (1) two percent per month or any fraction of
a month from the date the tax was due multiplied by the amount of
tax due but not paid, not to exceed twenty percent of the tax due
but not paid. (italics added for emphasis)

The statute’s use of the word “shall” makes the imposition of penalty mandatory in all instances

where a taxpayer’s actions or inactions meets the legal definition of “negligence” even if a

taxpayer’s actions or inactions were unintentional.

Regulation 3.1.11.10 NMAC (1/15/01) defines negligence in three separate ways: (A)

“failure to exercise that degree of ordinary business care and prudence which reasonable taxpayers

would exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or

(C) “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” In

this case, Taxpayer did not file and pay the appropriate New Mexico personal income tax in

2008 when due. Taxpayer’s inaction in failing to pay personal income tax when required meets

the legal definition of “civil negligence” under the penalty statute.

In the Matter of the Protest of Mark Kilcoyne, page 4 of 6
In instances where a taxpayer or taxpayers might otherwise fall under the definition of

civil negligence generally subject to penalty, NMSA 1978 §. 7-1-69 (B) (2003) provides a

limited exception: “No penalty shall be assessed against a taxpayer if the failure to pay an

amount of tax when due results from a mistake of law made in good faith and on reasonable

grounds.” By Department Regulation 3.1.11.11 NMAC (1/15/01), there are several situations

which can show a taxpayer’s or taxpayers’ nonnegligence. In such nonnegligent situations, the

Department either may choose not to assess civil penalty or may abate civil penalty. Taxpayer

presented no evidence in this case to support his protest letter challenge to the imposition of

penalty, and therefore failed to establish any of the nonnegligence factors that might justify

abatement of penalty. Consequently, Taxpayer is liable for penalty.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest of the assessment for 2008 personal income

taxes, penalty, and interest, and jurisdiction lies over the parties and the subject matter of this

protest.

B. Taxpayer presented no evidence at the protest hearing, and thus failed to

overcome the presumption of correctness under NMSA 1978, §7-1-17 (2007). See Archuleta v.

O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972).

C. Taxpayer’s other unsupported arguments are without merit.

D. Taxpayer was civilly negligent in not filing and paying appropriate 2008 personal

income tax.

In the Matter of the Protest of Mark Kilcoyne, page 5 of 6
E. Taxpayer is liable for $210.00 in 2008 personal income tax principal, $42.00 in

penalty, and $27.46 in interest as of the date of hearing. Interest continues to accrue until the tax

obligation is satisfied.

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

DATED: December 20, 2012.

Brian VanDenzen, Esq.
Tax Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Mark Kilcoyne, page 6 of 6