I ran my business as a sole proprietor, then converted it to an LLC and used 'LLC' on my returns. Can the state still hold me personally liable for the gross receipts tax and put a lien on me?

Plain-English summary

Richard Casias ran two New Mexico businesses — R. Casias Trucking (hauling construction aggregates, registered 1996) and Stars & Stripes Paving (registered 2002). He registered both as sole proprietorships tied to his own name and Social Security number, each with its own CRS number.

Around 2003, on his CPA's advice, Casias says he converted both to limited liability companies to protect his personal assets, and he began using the "LLC" designation on checks, business cards, invoices, and his tax returns. But he never filed the Department's required business-registration update, so the businesses' CRS accounts were never changed to LLCs (and his federal Schedule C still listed him as a proprietor).

The Department audited the two businesses' gross receipts tax for 2006-2011 and issued large assessments (over $206,000 for the trucking business and about $57,000 for the paving business). Casias protested, then withdrew the protests (a withdrawal stating it is "conclusive as to the liability for the taxes"), and then signed an Installment Agreement in his individual capacity admitting conclusive liability under Section 7-1-21. He made only one or two payments, so the Department filed tax liens. He protested the liens, disputing both the underlying tax and his personal liability.

Hearing Officer Chris Romero denied the protest on two independent grounds:

• He can't re-litigate the assessments. By withdrawing his earlier protests (conclusive as to liability) and signing an installment agreement admitting conclusive liability (Section 7-1-21), Casias gave up the right to contest the underlying audits and assessments. His argument that the withdrawals were secretly conditioned on the Department collecting only from the LLCs had no supporting evidence — and even an unwritten agreement with the Department would be unenforceable because governmental entities are immune from contract claims except on a valid written contract (Section 37-1-23(A)).
• He is personally liable. Casias registered as a sole proprietor, so he was personally liable and stayed that way until the liability was formally transferred to an LLC. Two problems defeated the shift: (1) he never proved the LLCs existed — the only exhibit was undated and unsourced, and the statute makes a filed, dated copy of the articles of organization the conclusive proof (Section 53-19-10); and (2) he never used the Department's mandatory registration-update process (Regulation 3.1.1.15(A)(1) — "shall" comply). Putting "LLC" on unsigned returns, or a Department employee's later phone-prompted name change in GenTax, did not transfer the liability. The LLC shield in Section 53-19-13 protects members from the LLC's debts but expressly does not immunize a person "for the consequences of his own acts or omissions."

Result: the assessments were conclusively established, Casias remained personally liable, the liens satisfied Section 7-1-38, and the protest was denied.

What this means for you

Sole proprietors converting to an LLC

Forming an LLC with the Secretary of State is not enough to move your existing New Mexico tax liability off yourself. If your CRS account is registered to you as a sole proprietor, you must formally update the registration with the Department (close the old account, open a new one under the LLC, get a new CRS number). Until you do, you remain personally liable — and using "LLC" on your returns, checks, or invoices does not accomplish the transfer.

Anyone who has (or is offered) an installment agreement

Signing a New Mexico installment agreement means admitting conclusive liability for the whole amount (Section 7-1-21). Likewise, withdrawing a protest is conclusive as to liability. After either step, you generally cannot go back and contest the underlying tax — so resolve any real dispute before you sign or withdraw.

Business owners relying on a verbal understanding with the state

A side agreement that is not in writing will not bind the Department: governmental entities are immune from contract claims except on a valid written contract (Section 37-1-23(A)). If a deal matters, get it in writing.

Accountants and tax professionals

The liability-transfer failure here is a registration failure, not an entity-law failure. Even a validly formed LLC does not absorb a client's pre-existing sole-proprietor tax liability unless the Department's registration is updated through its mandatory process. Confirm the CRS account, not just the Secretary of State filing, reflects the entity you intend to be liable.

Common questions

Q: I formed an LLC and use "LLC" on my invoices and returns. Isn't my business the taxpayer now?
A: Not for tax purposes unless you formally updated your Department registration. If your CRS account is still your sole proprietorship, you remain personally liable, regardless of how you style the business elsewhere.

Q: Can I still fight the tax after signing an installment agreement?
A: Generally no. An installment agreement requires you to admit conclusive liability for the full amount, and withdrawing a protest is conclusive as well. You lose the ability to re-litigate the underlying assessment.

Q: The state agreed verbally to collect only from my LLC — doesn't that count?
A: No. There was no evidence of such an agreement here, and an unwritten agreement with a governmental entity is unenforceable. Only a valid written contract binds the Department.

Citations and references

Statutes:

• § 7-1-21 NMSA 1978 — installment agreement; taxpayer admits conclusive liability, and on default the Department may enforce collection
• § 7-1-38 NMSA 1978 — statutory requirements for a Notice of Claim of Tax Lien
• § 7-1-3(X) NMSA 1978 — "tax" includes interest and civil penalty
• § 53-19-13 NMSA 1978 — an LLC's debts are solely the LLC's, but nothing immunizes a person for the consequences of his own acts or omissions
• § 53-19-10 NMSA 1978 — an LLC is formed when articles of organization are filed; a filed, dated copy is conclusive evidence of formation
• § 37-1-23(A) NMSA 1978 — governmental entities are immune from contract actions except those based on a valid written contract

Regulation:

• Regulation 3.1.1.15(A)(1) NMAC — taxpayers "shall" comply with the Department's mandatory registration and identification system

Case cited:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the word "shall" makes a provision mandatory absent a clear contrary indication

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Richard Casias & Cheri L. Olivas
• Decision PDF: D&O 17-12

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
RICHARD CASIAS & CHERI L. OLIVAS No. 17-12
TO NOTICE OF CLAIM OF TAX LIENS
ISSUED UNDER LETTER ID
NOS. L1679076912 AND L0336899632

DECISION AND ORDER

A formal hearing in the above-referenced protest was held January 23, 2017, before Chris

Romero, Hearing Officer, in Santa Fe, New Mexico. The Taxation and Revenue Department

(Department) was represented by Mr. Richard Pener, Staff Attorney. Ms. Veronica Galewaler,

Auditor, appeared and testified on behalf of the Department. Taxpayer Richard Casias

(Taxpayer) appeared in person and was represented by Mr. Wayne G. Chew (counsel). The

Hearing Officer took notice of all documents in the administrative file. Taxpayer Exhibits 1 – 12

and Department Exhibits A – N were admitted. The Department and the Taxpayer filed written

closing arguments and the record closed on February 9, 2017. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. In 1996, Taxpayer purchased a 1987 Model 359 Peterbilt truck and began

conducting business in New Mexico as a sole proprietor. The primary objective of the business

was the intrastate transportation of construction aggregates (hereinafter “R. Casias Trucking”).

[Testimony of R. Casias].

2. At approximately the same time in 1996, Taxpayer also began another business in

New Mexico as a sole proprietor. The primary objective of the business was paving (hereinafter

“Stars & Stripes Paving”). [Testimony of R. Casias].

3. Taxpayer registered with the Department to do business as R. Casias Trucking on

March 5, 1996. The Department assigned CRS Number 02-304475-00-6. The business was

registered as a sole proprietorship of Taxpayer and associated with Taxpayer’s social security

number. [Testimony of V. Galewaler].

4. Taxpayer registered with the Department to do business as Stars & Stripes Paving

on May 1, 2002. The Department assigned CRS Number 02-492303-00-6. The business was

registered as a sole proprietorship of Taxpayer and associated with Taxpayer’s social security

number. [Testimony of V. Galewaler].

5. At all relevant times, the Department had a system for assigning new CRS

numbers when a taxpayer converted a business from one form of business entity to another. The

process required that the Taxpayer submit a business tax registration update form. The system

then required that the business close its existing account and open a new account as the

converted entity. At that time the business received a new CRS number. [Testimony of V.

Galewaler].

6. CRS numbers do not change unless the Department recognizes a change to the

business entity. At no time relevant to the protest had the CRS numbers for R. Casias Trucking

and Stars & Stripes Paving changed to reflect any business entity conversion. [Testimony of V.

Galewaler].

7. Beginning in approximately 1999, Taxpayer retained the services of a certified

public accountant (CPA) to assist him with reporting and paying gross receipts taxes, weight

distance taxes, federal income taxes, and state income taxes. [Testimony of R. Casias].

8. Upon the advice of his CPA, Taxpayer determined that it would be in his interests

to convert R. Casias Trucking and Stars & Stripes Paving from sole proprietorships to limited
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 2 of 18
liability companies. The benefit Taxpayer sought through such conversion would be to maximize

protection of his personal assets from potential third-party claims against his businesses.

[Testimony of R. Casias].

9. Taxpayer’s CPA prepared the documents to establish limited liability companies

for R. Casias Trucking and Stars & Stripes Paving. [Testimony of R. Casias].

10. Taxpayer stated that he formed R. Casias Trucking, LLC on April 23, 2003.

[Testimony of R. Casias; Taxpayer Ex. 11]. Taxpayer stated that he formed Stars & Stripes

Paving, LLC at approximately the same time. [Testimony of R. Casias].

11. Taxpayer, with guidance from his CPA, notified his financial institutions that both

R. Casias Trucking and Stars & Stripes Paving had converted from sole proprietorships to

limited liability companies. [Testimony of R. Casias].

12. Taxpayer held his businesses out to the general public, customers, and employees,

as limited liability companies. Taxpayer utilized an LLC designation on checks, business cards,

W-2 forms, and invoices. [Testimony of R. Casias].

13. Although Taxpayer indicated that he notified all financial institutions, contractors,

and employees, of the business conversions, Taxpayer did not recall, nor did he have records to

indicate whether he or his CPA formally updated his taxpayer registrations for R. Casias

Trucking and Stars & Stripes Paving. Taxpayer relied on his CPA and did not make any

independent inquiries regarding the Department’s registration procedures. [Testimony of R.

Casias].

14. Department records do not include any application to the Department to update

the registrations for either R. Casias Trucking or Stars & Stripes Paving at any time. [Testimony

of V. Galewaler].
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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15. Despite the lack of a proper update to Taxpayer’s business registrations, Taxpayer

identified his businesses as limited liability companies on returns prepared by his CPA for

submission to the Department. [Testimony of R. Casias; Taxpayer Ex. 1; Taxpayer Ex. 2;

Taxpayer Ex. 3; Taxpayer Ex. 4; Taxpayer Ex. 5; Taxpayer Ex. 6; Taxpayer Ex. 7; Taxpayer Ex.

8; Taxpayer Ex. 9]. Taxpayer Exhibit 7 refers to “Stars & Stripes Paving, LLC.” Taxpayer

Exhibits 1, 2, 3, 4, 5, 6 and 8 refer to “R. Casias Trucking, LLC.”

16. Taxpayer reviewed his business records for the relevant periods and represented

that all prepared returns were consistent with Taxpayer Exhibits 1 – 9 in that they utilized the

LLC designation to indicate that Taxpayer’s businesses were limited liability companies.

[Testimony of R. Casias].

17. Until the time the Department conducted its audits of R. Casias Trucking and

Stars & Stripes Paving, the Department never communicated to Taxpayer or his CPA that the

names provided for Taxpayer’s businesses on his returns were incorrect. [Testimony of R.

Casias].

18. For federal income tax purposes, Taxpayer’s Schedule C for Profit or Loss From

Business for tax years 2006 through 2010 did not identify R. Casias Trucking as a limited

liability company. Rather, Taxpayer was identified as proprietor. [Taxpayer Ex. 10].

19. The Department initiated audits of Taxpayer’s businesses. The audits examined

gross receipts taxes for the periods from January 1, 2006 through September 30, 2011 for R.

Casias Trucking and Stars & Stripes Paving. [Testimony of R. Casias].

20. The audits for R. Casias Trucking and Stars & Stripes Paving commenced on

November 2, 2011. The audit or R. Casias Trucking concluded on February 25, 2013. The audit

In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 4 of 18
of Stars & Stripes Paving concluded on March 12, 2013. [Testimony of V. Galewaler; Dept. Ex.

A; Dept. Ex. B].

21. The audits did not identify the businesses as limited liability companies.

[Testimony of V. Galewaler; Dept. Ex. A; Dept. Ex. B].

22. On June 18, 2013, the Department issued a Notice of Assessment and Demand for

Payment to R. Casias Trucking under Letter ID No. L0202781136 for $152,266.32 in tax,

$30,453.26 in penalty, and $23,572.44 in interest for a total amount due of $206,292.02. The

Notice of Assessment and Demand for Payment does not identify the Taxpayer’s business as a

limited liability company. [Testimony of R. Casias; Dept. Ex. G].

23. On June 18, 2013, the Department issued a Notice of Assessment and Demand for

Payment to Stars & Stripes Paving under Letter ID No. L0264180176 for $41,616.99 in tax,

$8,323.37 in penalty, and $7,238.02 in interest for a total amount due of $57,178.38. The Notice

of Assessment and Demand for Payment does not identify the Taxpayer’s business as a limited

liability company. [Testimony of R. Casias; Dept. Ex. H].

24. Taxpayer protested the audit results for R. Casias Trucking and Stars & Stripes

Paving by and through his counsel on July 13, 2013. The protests were received in the Protest

Office on July 19, 2013. [Testimony of R. Casias; Testimony of V. Galewaler; Dept. Ex. C;

Dept. Ex. D].

25. The protests do not identify R. Casias Trucking and Stars & Stripes Paving as

limited liability companies. [Testimony of R. Casias; Testimony of V. Galewaler; Dept. Ex. C;

Dept. Ex. D]. The CRS numbers associated with the businesses are the same numbers assigned to

the businesses at the time of their initial registrations as sole proprietorships.

In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 5 of 18

26. The protests were withdrawn by counsel with Taxpayer’s authorization.

[Testimony of R. Casias; Testimony of V. Galewaler; Dept. Ex. E; Dept. Ex. F]. The

withdrawals were executed in approximately June of 2014. The withdrawals do not refer to

Taxpayer’s businesses as limited liability companies. [Testimony of V. Galewaler].

27. On or about September 18, 2014, Taxpayer executed an Installment Agreement

that provided for payment of both the assessments issued under a Letter ID Nos. L0202781136

[Dept. Ex. G] and L0264180176 [Dept. Ex. H]. [Testimony of R. Casias; Testimony of V.

Galewaler; Dept. Ex. I]. The Installment Agreement makes no reference to any limited liability

company, referring instead to Taxpayer by his name, address, and social security number. [Dept.

Ex. I].

28. The Installment Agreement explicitly stated as a condition that Taxpayer admitted

conclusive liability for the entire amount of taxes due consistent with NMSA 1978, Sec. 7-1-21

[Dept. Ex. I].

29. Counsel for the Taxpayer contacted a revenue agent for the Department in

September of 2014, after the Taxpayer executed the Installment Agreement. Thereafter, the

revenue agent changed the name of the Taxpayer in GenTax to add the designation “LLC” to R.

Casias Trucking. The Department did not receive an application to update the registration nor did

the Department issue a new CRS number. [Testimony of V. Galewaler].

30. Any purported update to the Taxpayer’s registration did not comply with the

Department’s procedures. [Testimony of V. Galewaler].

31. Taxpayer made one or two payments under the Installment Agreement. Taxpayer

agreed that the vast majority of the total due under the Installment Agreement remained unpaid.

[Testimony of R. Casias].
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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32. Taxpayer received a Notice of Claim of Tax Lien under Letter ID No.

L0336899632. The total amount due under the lien indicated a total amount due of $188,488.73.

The lien was addressed to Taxpayer and his spouse. [Testimony of R. Casias; Dept. Ex. J].

33. Taxpayer received a Notice of Claim of Tax Lien under Letter ID No.

L1679076912. The total amount due under the lien indicated a total amount due of $58,988.79.

The lien was addressed to Taxpayer and his spouse. [Testimony of R. Casias; Dept. Ex. K].

34. Notice of Claim of Tax Lien under Letter ID No. L0336899632 and Notice of

Claim of Tax Lien under Letter ID No. L1679076912 are addressed to Taxpayers Richard Casias

& Cheri L. Olivas and provide the last four digits of Mr. Casias’ social security number. The

notices provide the dates upon which the taxes became due and state that the State of New

Mexico claims a lien for the entire amount asserted to be due, including applicable interest and

penalties.

35. Taxpayer submitted correspondence purporting to protest the assessment and

audit results underlying the Installment Agreement and the liens. The protest was received by the

Department’s Protest Office on September 22, 2016. The formal protest also disputed that the

Taxpayer was liable for the amounts due in his personal capacity.

36. The Department acknowledged the receipt of Taxpayer’s protest on September

29, 2016.

37. On November 7, 2016, the Department filed a Hearing Request with the

Administrative Hearings Office.

38. On November 7, 2016, the Administrative Hearings Office set the protest for a

hearing on the merits scheduled to occur on November 30, 2016.

39. On November 10, 2016, Taxpayer moved for a continuance.
    In the Matter of the Protest of Richard Casias and Cheri L. Olivas
    Page 7 of 18
40. On November 15, 2016, the Taxpayer waived the 90-day deadline to facilitate his

request for a continuance.

41. On November 16, 2016, the Administrative Hearings Office granted Taxpayer’s

request for a continuance and set a hearing on the merits for January 23, 2017.

42. On January 23, 2017, the Department filed a Motion to Dismiss Protest.

43. On January 23, 2017, all parties and counsel appeared for the scheduled hearing.

44. With permission of the hearing officer, the Department was permitted to amend or

supplement its Motion to Dismiss Protest. On January 27, 2017, the Department filed its Motion

to Dismiss Protest and Closing Argument.

45. The Taxpayer filed its Response to Motion to Dismiss Protest and Closing

Argument on February 9, 2017. The record in the above-referenced protest closed upon its

receipt.

46. As of January 23, 2017, in reference to R. Casias Trucking, Taxpayer owed

$212,270.53 in tax, $42,556.39 in penalty, and $45,608.55 in interest for a total outstanding

liability of $300,435.47. [Dept. Ex. M].

47. As of January 23, 2017, in reference to Stars & Stripes Paving, Taxpayer owed

$41,371.99 in tax, $8,346.89 in penalty, and $12,021.69 in interest for a total outstanding

liability of $61,740.57. [Dept. Ex. N].

DISCUSSION

Taxpayer’s protest is interpreted as seeking relief on two bases. First, Taxpayer seeks to

protest the assessments and audit results for R. Casias Trucking and Stars & Stripes Paving

which were subject of Taxpayer’s previous protests as illustrated in Dept. Ex. C and Dept. Ex. D.

Those protests were withdrawn more than two years ago. [Dept. Ex. E; Dept. Ex. F].
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 8 of 18
Since those protests were withdrawn, Taxpayer executed an Installment Agreement

[Dept. Ex. I] and admitted that he made one or two payments toward the outstanding balance

since September of 2014. Consequently, the Department sought to collect unpaid amounts due

through the liens under Letter ID No. L1679076912 and Letter ID No. L0336899632.

The Department argued that the Taxpayer is precluded from attempting to litigate the

issues that would have been properly addressed in his previous protests. The Department relies

on the withdrawals admitted as Dept. Ex. E and Dept. Ex. F and specifically the provisions

contained therein which provide that the “withdrawal is conclusive as to the liability for the

taxes. Since this withdrawal is conclusive as to tax liability, I/we understand that I/we cannot file

another protest on the years coved[sic] by the assessments[.]” Taxpayer also entered into an

Installment Agreement in which Taxpayer was required as a matter of law to admit conclusive

liability for the entire amount of taxes due. See NMSA 1978, Sec. 7-1-21. Unless otherwise

specified, for the purposes of the Tax Administration Act, “tax” is defined to include interest and

civil penalty. See NMSA 1978, §7-1-3 (X) (2013).

In response, Taxpayer’s counsel claimed “[t]he withdrawals of protests occurred after the

Department agreed that the Taxpayers were both limited liability companies and not Richard

Casias, individually.” Accordingly, counsel argued that the withdrawals were conditioned upon

the Department collecting payment from Taxpayer’s limited liability companies rather than the

Taxpayer in his individual capacity.

Despite counsel’s claim that there was an agreement between the Department and the

Taxpayer with respect to the foregoing, there is no evidence of an agreement consistent with

counsel’s description, and counsel’s arguments are not evidence. The protest withdrawals speak

In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 9 of 18
for themselves, and even their most liberal construction fails to establish that they were subject to

any conditions.

Even if there were a verbal or unwritten agreement, which the evidence does not suggest,

an agreement not reduced to writing is nevertheless unenforceable. See NMSA 1978, Sec. 37-1-

23 (A) (“governmental entities are granted immunity from actions based on contract, except

actions based on a valid written contract.).

The record established that Taxpayer’s protest withdrawals were unconditional. Taxpayer

is precluded from protesting the issues underlying the previous audits and assessments which

now establish the grounds for the liens issued when the Taxpayer failed or refused to perform

under the Installment Agreement.

The second basis for Taxpayer’s protest is whether the Taxpayer is personally liable for

the amounts due on the liens, or whether liability rests solely with the limited liability companies

Taxpayer said he formed to protect his personal assets from potential claims.

Although there may be various benefits to operating a business under a limited liability

company, the primary benefit Taxpayer addressed in the present matter derives from NMSA

1978, Sec. 53-19-13 which provides:

Except as otherwise provided in the Limited Liability Company
Act, the debts, obligations and liabilities of a limited liability
company, whether arising in contract, tort or otherwise, shall be
solely the debts, obligations and liabilities of the limited liability
company. No member or manager of a limited liability company
and no other person with authority pursuant to the Limited
Liability Company Act to wind up the business or affairs of the
limited liability company following its dissolution, shall be
obligated personally for any debt, obligation or liability of the
limited liability company solely by reason of being a member or
manager of the limited liability company or having authority
pursuant to the Limited Liability Company Act to wind up the
company's business and affairs following its dissolution. A person
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 10 of 18
may be liable for any act or omission performed in his capacity as
a manager of a limited liability company if there is a basis for
liability. Nothing in this section shall be construed to immunize
any person from liability for the consequences of his own acts or
omissions for which he otherwise may be liable.

It would then logically follow that a litigant asserting a right to the benefits of a limited

liability company must present evidence to establish the formation and existence of the limited

liability company.

The New Mexico Limited Liability Act establishes the manner by which limited liability

companies are formed and operated. See NMSA 1978, Sec. 53-19-1, et. seq. Formation of a

limited liability company is a straight forward and relatively simple task. NMSA 1978, Sec. 53-

19-10 (A) provides that a limited liability company is formed when the articles of organization

are filed with the secretary of state, or at any later date or time specified in the articles of

organization, if there has been substantial compliance with the requirements of the Limited

Liability Company Act. The New Mexico Limited Liability Act then provides that a copy of the

articles of organization stamped as filed and marked with the filing date is conclusive evidence

that there has been substantial compliance with all conditions required to be performed by the

organizers and that the limited liability company has been legally organized and formed pursuant

to the Limited Liability Company Act. See NMSA 1978, Sec. 53-19-10 (B).

The Taxpayer testified that he converted R. Casias Trucking and Stars & Stripes Paving

from sole proprietorships to limited liability companies. With respect to R. Casias Trucking,

Taxpayer presented Taxpayer Ex. 11 as evidence of the formation and existence of a limited

liability company. However, the Hearing Officer is unable to give Taxpayer Ex. 11 any

significant weight because, although the document purports to identify R Casias Trucking, LLC

as a limited liability company organized on April 23, 2003, the document is not dated and there
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 11 of 18
is nothing on the face of the exhibit to establish the source of the information contained therein.

Taxpayer’s testimony in reference to Taxpayer Ex. 11 was limited solely to the contents of the

document which speaks for itself. Taxpayer did not claim to know the source of the document.

The Department objected to its admission at which time counsel for the Taxpayer asserted the

source of the document was the New Mexico Secretary of State’s Office, but counsel’s

statements and arguments are not evidence.

Even if the source of Taxpayer Ex. 11 was clear and undisputed, the Hearing Officer still

finds the information contained therein to be insufficient. The reliability of Taxpayer Ex. 11

depends on the date it was generated, which is absent.

Consider that the New Mexico Limited Liability Act provides that a copy of the articles

of organization, stamped as filed and marked with the filing date, is conclusive evidence that

there has been substantial compliance with all conditions required to be performed by the

organizers and that the limited liability company has been legally organized and formed pursuant

to the Limited Liability Company Act. Although the Taxpayer’s efforts at the hearing were

focused on the existence of limited liability companies, the Taxpayer did not present filed or

dated copies of articles of organization for either purported limited liability company, choosing

to rely instead on his own testimony to establish their formation and existence. The Hearing

Officer did not find this evidence sufficient. In other words, Taxpayer seeks a decision from the

Hearing Officer that would effectively shift a significant tax liability from Taxpayer to two

limited liability companies. However, Taxpayer presented insufficient evidence to establish that

the limited liability companies exist to accept or receive the liability.

Even if the Taxpayer had established the existence of the business entities he asserted

should be liable for the amounts claimed under the liens, there are additional concerns with
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 12 of 18
Taxpayer’s claims. Regulation 3.1.1.15 (A) (1) NMAC requires that the secretary of the

Department develop and maintain systems “for the registration and identification of taxpayers

who are subject to taxes and tax acts listed in Section 7-1-2 NMSA 1978 and taxpayers shall

comply therewith.” Along similar lines as the rules of interpretation applicable to statutes, the

use of the word “shall” indicates a provision is mandatory. See Marbob Energy Corp. v. N.M. Oil

Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24, 32 (use of the word “shall” in a statute

indicates provision is mandatory absent clear indication to the contrary).

In this protest, the Taxpayer did not utilize the compulsory method to update its

registration to reflect that his businesses converted from sole proprietorships to limited liability

companies. [Testimony of R. Casias; Testimony of V. Galewaler]. The evidence on this issue is

uncontested. Rather, Taxpayer asserted that he provided notice to the Department of the

conversion when he began utilizing an “LLC” designation in his tax return filings. [Testimony of

R. Casias; Taxpayer Exs. 1 – 9]. However, this method was not the correct method. At all

relevant times, the Department has had a system for assigning new CRS numbers when a

taxpayer converted a business from one form of business entity to another. The system required

that the business close its existing account and open a new account as the converted entity at

which time the business would receive a new CRS number. [Testimony of V. Galewaler].

Although Taxpayer Exhibits 1 – 9 utilize the LLC designation throughout and also

identify the Taxpayer as “member”, the Hearing Officer noted that none of the exhibits are

signed, dated, or indicate that they were actually submitted to the Department. The absence of a

signature is the most notable observation as each exhibit, except Taxpayer Ex. 3, contains a

statement that the return is signed under penalty of perjury and that the person signing the return

has examined it and affirms that it is correct and complete to the best of the signor’s knowledge.
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
Page 13 of 18
Taxpayer nevertheless asserts that the Department acknowledged that the Taxpayer was

doing business as a limited liability company when, at least with respect for R. Casias Trucking,

a Department employee made a revision to the Taxpayer’s account in GenTax to reflect the name

of the business as R Casias Trucking, LLC. However, evidence established that the change to the

account was not in accordance with Department procedure. Ms. Galewaler testified that the

change to the account occurred after a telephone call from Taxpayer’s counsel, well after the

audits, assessments, protests, protest withdrawals, and execution of the installment agreement.

Despite the fact that GenTax reflects that the Taxpayer is doing business as R Casias Trucking,

LLC, the Hearing Officer was not persuaded that Taxpayer’s counsel’s telephone call essentially

shifted the Taxpayer’s liability from Taxpayer in his individual capacity to a limited liability

company because the Taxpayer did not follow the mandatory procedure established by the

secretary.

Moreover, it appears that the effort to update Taxpayer’s registration in the method

described may have been an afterthought. Ms. Galewaler testified that counsel’s telephone call,

which was followed by a change to Taxpayer’s account, at least with respect for R. Casias

Trucking, was initiated after the Taxpayer executed his Installment Agreement. The Installment

Agreement, in which Taxpayer admitted conclusive tax liability consistent with NMSA 1978,

Sec. 7-1-21, clearly identifies the Taxpayer in his individual capacity, listing his name, social

security number, and address. Despite there being a designated area on the agreement for the

name of a taxpayer other than an individual, the area in this case was left blank.

Taxpayer correctly points out the language in NMSA 1978, Sec. 53-19-13 which

provides that “the debts, obligations and liabilities of the limited liability company…shall be

solely the debts, obligations and liabilities of the limited liability company” and that “[n]o
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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member of the limited liability company…shall be obligated personally for any debt, obligation

or liability of the limited liability company[.]”

However, the immunity from personal liability for members of a limited liability

company extends only to the liability incurred by the limited liability company. In this case, if

the limited liability companies were formed and existing during the relevant time, the Hearing

Officer was still not persuaded that the limited liability companies incurred the Taxpayer’s

liability. NMSA 1978, Sec. 53-19-13 expressly provides that “[n]othing in this section shall be

construed to immunize any person from liability for the consequences of his own acts or

omissions for which he otherwise may be liable.”

In this case, Taxpayer sought immunity from his own liability for the consequences of his

own acts or omissions, not the acts or omissions of any limited liability company. Taxpayer

assumed personal liability to the State of New Mexico and the Department when he registered as

a sole proprietor to do business as R. Casias Trucking and Stars & Stripes Paving. He would

remain personally liable until that liability would be formally transferred from himself to one or

both limited liability companies utilizing the mandatory process employed by the secretary of the

Department. At that time, the liability would then be incurred by one or both limited liability

companies. That never happened. Instead, the Taxpayer executed an Installment Agreement in

which he admitted conclusive tax liability in his personal capacity, and then attempted to transfer

the liability to a limited liability company utilizing an incorrect method. Accordingly, as of the

time the hearing in this protest concluded, there was no evidence to establish that the Taxpayer’s

liability had been incurred by any limited liability companies and the actual existence of those

limited liability companies remained in doubt.

In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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NMSA 1978, Sec. 7-1-21 (A) provides that “[w]henever justified by the circumstances,

the secretary or the secretary’s delegate may enter into a written agreement with a taxpayer in

which the taxpayer admits conclusive liability for the entire amount of taxes due and agrees to

make monthly installment payments according to the terms of the agreement[.]” In consideration,

a taxpayer is given the opportunity to pay a tax liability in installments. So long as a taxpayer

complies with the agreement, the secretary is prohibited from further attempts to enforce

payment of the tax by levy or injunction. See Sec. 7-1-21 (E). However, if installment payments

are not made on or before the times specified in the agreement, if any other condition contained

in the agreement is not met, or if the taxpayer does not make payment of all other taxes for which

he becomes liable as they are due, the secretary may proceed to enforce collection of the tax as if

the agreement had not been made or proceed as otherwise permitted by law. Id.

In this case, Taxpayer executed an Installment Agreement in his personal capacity. Since

that time, he has made one or two payments. The Department provided approximately two years

for the Taxpayer to comply with the terms of the Installment Agreement and then sought to

collect the tax owed pursuant to its authority under the Tax Administration Act. Taxpayer’s

protest should be denied.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to Notice of Claim of Tax Liens issued

under Letter ID Nos. L1679076912 and L0336899632, and jurisdiction lies over the parties and the

subject matter of this protest.

In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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2. The Taxpayer did not satisfy the terms of his installment agreement and the

Department was authorized to enforce collection. See NMSA 1978, Sec. 7-1-21; NMSA 1978 Sec.

7-1-38.

3. The Notices of Lien satisfied the statutory requirements of NMSA 1978, Sec. 7-1-

38.

4. The Taxpayer is precluded from protesting the underlying audits or assessments, by

virtue of entering into an installment agreement for payment of the same as provided by NMSA

1978, Sec. 7-1-21, in which he admitted conclusive tax liability.

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

DATED: March 13, 2017

Chris Romero
Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties 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. If an appeal is not timely filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.
In the Matter of the Protest of Richard Casias and Cheri L. Olivas
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Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

Hearings Office may begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

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