Can a New Mexico company's CEO avoid personal liability for unpaid employee withholding tax by delegating all financial work to a CFO during Chapter 11 bankruptcy?

Plain-English summary

Drew Markell was personally liable for Santa Fe Medical Group's unpaid employee withholding tax. As chief executive officer, he had control over wage payments and the company's finances. Assigning day-to-day fiscal work to a chief financial officer did not transfer away Markell's statutory responsibility.

Santa Fe Medical Group was one of several healthcare entities Markell led during a difficult Chapter 11 reorganization. The entities were insolvent, their finances were complex, and Markell relied heavily on a CFO he had recommended and later fired for poor performance and inaccurate reporting.

Responsibility followed control, not job delegation

New Mexico's Withholding Tax Act treated an officer, agent, or employee with control over wage payments as an “employer” and “withholder.” Every withholder was liable for amounts required to be withheld, whether or not they were actually deducted and remitted.

Markell retained broad control. He could write checks, hire and fire employees, direct which creditors were paid, and required personal approval for expenditures over $5,000. He met weekly with the CFO, reviewed aging reports, signed monthly bankruptcy operating reports as “President/CEO,” and acknowledged that he retained ultimate responsibility for the entities' financial obligations.

Chapter 11 did not move that responsibility to the bankruptcy judge, trustee, Department, or other participants. Santa Fe Medical Group operated as a debtor in possession and kept primary control of its finances. Other people may also have had control, but shared responsibility did not discharge Markell.

The record contradicted claimed ignorance

Markell said the CFO never told him about the withholding debt and that he discovered tax correspondence only after firing the CFO in December 2015. The AHO did not find that explanation credible.

The evidence included:

• a payroll specialist's sworn statement that financial reports showed growing payroll-tax liability and were presented to Markell for review and approval;
• Department communications involving Markell and the CFO in March and April 2015 about the debt and a possible payment plan;
• bankruptcy reports and pleadings Markell signed that identified the Department as a creditor and referred to New Mexico tax liabilities; and
• Markell's unrestricted access to financial records and authority to retain accountants or attorneys.

Reliance on manually prepared CFO spreadsheets without reviewing underlying records did not show ordinary business care. The AHO found that Markell was at least indifferent, inattentive, or careless in the face of multiple warning signs.

No reasonable-cause exception applied

Section 7-3-5(B) excused a withholder when failure to deduct and withhold resulted from reasonable cause. The decision used New Mexico's negligence and nonnegligence regulations as guidance. Even accepting the company's financial crisis and the CFO's failures, Markell had the authority, information, and warning signs needed to investigate and act.

The October 2017 corporate-officer assessment was $40,336.03. By May 16, 2019, the order listed $42,289.33 outstanding: $33,476.95 of withholding tax, $4,925.59 of penalty, and $3,886.79 of interest, with penalty and interest continuing until payment.

The Department submitted its hearing request too late for the AHO to hold a hearing within the statutory 90-day period. The conclusions noted that procedural failure, but the final order still upheld Markell's liability.

Result: protest DENIED. Markell was personally liable for the withholding tax, penalty, and interest.

What this means for you

Executive control can create personal withholding liability

Titles alone are not the only issue. Check authority, payment approval, hiring and firing power, access to records, and the ability to choose which creditors get paid are strong evidence of control.

Delegating to a CFO does not eliminate oversight duties

An executive who retains ultimate authority should verify that payroll taxes are being reported and remitted, especially when the business is distressed or financial reports are manually prepared.

Bankruptcy does not suspend payroll-tax compliance

A Chapter 11 debtor in possession keeps financial and tax-reporting duties subject to court oversight. Bankruptcy complexity did not shift the withholding obligation away from the company's executives.

Respond to warning signs immediately

Creditor listings, payment-plan discussions, payroll reports, aging schedules, and delinquency correspondence should trigger direct verification of filings and payments.

Common questions

Q: Was Markell liable merely because he was CEO?
A: No. The decision focused on his actual authority over checks, expenditures, personnel, creditor priorities, financial records, and bankruptcy reporting.

Q: Did the CFO's alleged concealment excuse him?
A: No. Multiple independent records and communications disclosed the debt, and Markell retained the authority and duty to investigate.

Q: Could other responsible officers also be liable?
A: Possibly, but their liability was not before the AHO. The existence of other people with control did not reduce Markell's responsibility.

Q: Did Chapter 11 make the bankruptcy trustee responsible instead?
A: No. Santa Fe Medical Group remained a debtor in possession with control of its finances, and Markell was the executive overseeing those operations.

Q: What did the final order require?
A: It upheld $33,476.95 of tax, $4,925.59 of penalty, and $3,886.79 of interest as of May 16, 2019, totaling $42,289.33, with further penalty and interest until paid.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-3-2(C) and (M), 7-3-3(A), and 7-3-5(A)-(B) — employer, withholder, withholding duty, personal liability, and reasonable cause
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(X) — assessment presumption, civil penalty, and interest
• Regulations 3.1.6.12 and 3.1.6.13 NMAC — evidence needed to rebut an assessment and presumption for penalty and interest
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and nonnegligence guidance
• 11 U.S.C. §§ 1106, 1107, and 1109 — Chapter 11 debtor-in-possession authority and duties

Cases and decisions:

• Otte v. United States, 419 U.S. 43 (1974) — withholding responsibility follows control of wage payments
• Southwest Restaurant Systems, Inc. v. IRS, 607 F.2d 1237 (9th Cir. 1979) — shared control does not reduce an individual's responsibility
• Gathings v. Bureau of Revenue, 1975-NMCA-016 — reasonable cause and negligence
• In the Matter of the Protest of Bryan Templeton, D&O 10-03, and Eugene Baker, D&O 01-30 — nonprecedential responsible-officer decisions discussed in the order
• In the Matter of the Protest of Andrew Winton, D&O 15-32 — nonprecedential decision contrasting an officer without check authority or an operational role

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Drew Markell
• Decision PDF: D&O 19-21

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 DREW MARKELL CORP. OFFICER FOR SANTA FE MEDICAL GROUP
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L0510542640

8 v. Case Number 18.04-081A
9 D&O 19-21

10 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

11 DECISION AND ORDER

12 On May 16, 2019, Hearing Officer Chris Romero, Esq., conducted a hearing on the

13 merits of the tax protest of Drew Markell (“Taxpayer”) pursuant to the Tax Administration Act

14 and the Administrative Hearings Office Act. Mr. Markell appeared in person and represented

15 himself having been previously advised of his right to representation. Mr. Marek Grabowski,

16 Esq. appeared on behalf of the opposing party in the protest, the Taxation and Revenue

17 Department (“Department”), and was accompanied by Mr. Nicholas Pacheco, protest auditor,

18 who testified on the Department’s behalf.

19 Taxpayer Exhibits 1 – 12 and Department Exhibits A – H were admitted into the

20 evidentiary record without objection.

21 The issue in the protest is whether Taxpayer should be personally liable for withholding

22 tax that was not paid on behalf of employees of the Santa Fe Medical Group, LLC, an entity for

23 which Mr. Markell served as chief executive officer. Based on the evidence provided, the

24 Hearing Officer finds that Mr. Markel, as a person having control of the payment of wages, is

25 liable for the failure of Santa Fe Medical Group, LLC to pay withholding tax on behalf of its

26 employees, and that his failure to act in that regard may not be excused for reasonable cause. IT

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 1 of 21
1 IS DECIDED AND ORDERED AS FOLLOWS:

2 FINDINGS OF FACT

3 1. In July of 2014, Mr. Drew Markell was hired to work for Physicians Accountable

4 Care Organization (“PACO”) by Dr. Philip Briggs, who was the owner of multiple entities

5 engaged in the business of providing health care services in New Mexico, including Santa Fe

6 Medical Group, LLC. [Direct Examination of Mr. Markell]

7 2. At all relevant times, Mr. Markell resided in Arizona, from where he performed a

8 significant amount of his work for PACO and commuted when necessary to New Mexico.

9 [Direct Examination of Mr. Markell]

10 3. During the initial first six months of his employment, Mr. Markell’s work

11 concentrated primarily on PACO. [Direct Examination of Mr. Markell]

12 4. Near the end of 2014, Mr. Markell reached an agreement with Dr. Briggs to serve

13 as chief executive officer (CEO) for other entities which he also owned including: (1) Atrinea

14 Health, LLC: (2) Atrinea Ruidoso, LLC; (3) Corazon Family Health, PC; and (4) Santa Fe

15 Medical Group, LLC (collectively referred to as the “entities”). [Direct Examination of Mr.

16 Markell]

17 5. Dr. Briggs pursued Mr. Markell to establish an executive office with the objective

18 of “turn[ing] the entit[ies] around” because they were having significant problems stemming

19 from poor management. [Cross Examination of Mr. Markell]

20 6. It was subsequently determined during the ensuing bankruptcy proceeding that the

21 entities had been insolvent since 2013. [Cross Examination of Mr. Markell]

22 7. At the time Mr. Markell began his tenure as CEO, he had approximately 15 years

23 of experience in the health care field, yet the duties he incurred as CEO for the various entities

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 2 of 21
1 represented the most complex work of his career. [Cross Examination of Mr. Markell]

2 8. Each entity was separate and distinct from each other and individually registered

3 to pay taxes in the State of New Mexico. [Direct Examination of Mr. Markell]

4 9. The issues at hand in the present matter stem exclusively from Santa Fe Medical

5 Group, LLC. [Administrative File]

6 10. At the time he assumed the role of CEO, Mr. Markell was aware that the various

7 entities had significant problems but did not appreciate the breadth and depth of those problems

8 until he began his work as CEO. [Direct Examination of Mr. Markell]

9 11. Mr. Markell identified a variety of issues that he would attempt to resolve during

10 his tenure as CEO, including the systemic failure to collect co-payments from patients, failure to

11 bill patients for services not covered by insurance, inaccuracy in submissions to insurance

12 providers, failure to follow up on rejected insurance claims, lack of adequate financial safeguards

13 and controls, lack of inventory control, employee incompetence, and financial mismanagement

14 or impropriety, all of which contributed to the poor condition of the entities’ financial affairs,

15 and ultimately, their insolvency. [Cross Examination of Mr. Markell]

16 12. Mr. Markell commenced efforts to accomplish his objectives by initiating several

17 personnel changes, the most relevant for present purposes being at the position of chief financial

18 officer for the entities. [Direct Examination of Mr. Markell]

19 13. Mr. Markell recommended an individual who was eventually hired by Dr. Briggs

20 to serve as chief financial officer (CFO) 1. [Direct Examination of Mr. Markell]

21 14. Mr. Markell and the CFO had known each other for several years as peers when

1
The Hearing Officer will not refer to the CFO by name in this Decision and Order. The individual’s name is,
however, referenced frequently in the evidentiary record.

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 3 of 21
1 they previously worked for separate companies. Their relationship for the entities would

2 represent the first time they would occupy the positions of CEO and CFO for the same employer.

3 [Cross Examination of Mr. Markell]

4 15. The new CFO commenced employment in January of 2015. [Direct Examination

5 of Mr. Markell; Taxpayer Ex. 4]

6 16. Shortly after the CFO commenced employment, in consultation with accounting

7 and legal professionals, the decision was made that Atrinea Health, LLC, Atrinea Ruidoso, LLC,

8 Corazon Family Health, PC, and Santa Fe Medical Group, LLC would commence bankruptcy

9 proceedings under Chapter 11 of the U.S. Bankruptcy Code. [Direct Examination of Mr.

10 Markell]

11 17. Upon suggestion or advice of counsel, the individual entities merged within a new

12 entity called Atrinea Holdings, LLC, and thereafter initiated bankruptcy proceedings. The

13 bankruptcy petition was rejected and each entity was required instead to proceed individually,

14 although they were ultimately granted leave for a joint administration. [Direct Examination of

15 Mr. Markell]

16 18. Despite the apparent convenience of a joint administration, Mr. Markell perceived

17 the administration of the bankruptcy to be rather complex because each individual entity’s

18 separate obligations to maintain multiple financial accounts, separate accounting records, and

19 adhere to separate reporting obligations. [Direct Examination of Mr. Markell]

20 19. During pendency of the bankruptcy, Mr. Markell relied extensively and

21 exclusively on the CFO to provide fiscal oversight and perform all fiscal obligations which

22 allowed Mr. Markell to concentrate on other business-related matters, although Mr. Markell

23 recognized that he nevertheless retained the ultimate responsibility to assure that financial

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 4 of 21
1 obligations continued to be satisfied. [Direct Examination of Mr. Markell]

2 20. Mr. Markell retained and exercised significant control of the various entities’

3 operations and implemented various policies intended to improve financial controls. For

4 example, payment of any expenditures exceeding $5,000 needed to be personally approved by

5 Mr. Markell, and he managed the control of inventory. [Cross Examination of Mr. Markell;

6 Department Ex. G]

7 21. Although the entities had previously utilized the services of a third-party certified

8 public accountant (CPA), Mr. Markell terminated the certified public accountant because that

9 individual was behind schedule and unable to meet deadlines. [Cross Examination of Mr.

10 Markell]

11 22. The terminated CPA was not replaced because the CFO believed that the CFO,

12 with the assistance of other staff could get the entities’ accounts back in good order. [Cross

13 Examination of Mr. Markell]

14 23. Mr. Markell could not recollect whether the terminated CPA ever raised issues

15 with regard for outstanding withholding tax liabilities. [Cross Examination of Mr. Markell]

16 24. Mr. Markell perceived his substantial reliance on the CFO as reasonable under the

17 circumstances, and denied any reason to believe that withholding taxes, as well as other financial

18 obligations were not being satisfied. [Direct Examination of Mr. Markell]

19 25. Mr. Markell believed he was well informed of all issues. Mr. Markell and the

20 CFO met on a weekly basis to discuss the status of various accounts and issues relating to cash

21 flow, and particularly the status of various financial obligations as detailed on an aging report

22 prepared by the CFO. [Direct Examination of Mr. Markell]

23 26. The aging report was manually created by the CFO and listed outstanding debts

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 5 of 21
1 and the length of time the debt had been outstanding. It assisted Mr. Markell and the CFO in

2 prioritizing payments of obligations based on the length of time the obligation had been

3 outstanding. [Direct Examination of Mr. Markell]

4 27. Mr. Markell relied exclusively on the accuracy and completeness of the

5 information provided by the CFO and never reviewed any of the underlying financial

6 documentation or data. [Cross Examination of Mr. Markell]

7 28. At no time during his ongoing communications with the CFO did Mr. Markell

8 ever recall the CFO disclosing that there were any outstanding liabilities or concerns for tax

9 obligations to the State of New Mexico. [Direct Examination of Mr. Markell]

10 29. Examples of the documents prepared by the CFO submitted for Mr. Markell’s

11 review are provided in the spreadsheets identified as Taxpayer Exhibits 1, 2, 3, 5, and 7. The

12 spreadsheets were manually created and were not generated by any accounting software known

13 to Mr. Markell. [Direct Examination of Mr. Markell]

14 30. In or around May of 2015, Ms. Margaret Duenas, payroll specialist for Santa Fe

15 Medical Group, stated in a sworn statement that she participated in preparing financial reports.

16 “These reports showed that payroll taxes were a growing liability[.]” She went on to explain that

17 the reports “were then presented to Drew Markell, who would ask questions, review, and then

18 sign off on the reports.” [Department Ex. F-02]

19 31. Department records similarly reflect communications including Mr. Markell and

20 the CFO in the early portion of 2015 (March 3, 2015 and April 1, 2015) regarding the

21 outstanding tax liability and options for entering a payment plan. [Direct Examination of Mr.

22 Pacheco; Taxpayer Ex. 10-3; Taxpayer Ex. 10-04]

23 32. Mr. Markel disclaimed knowledge of a withholding tax liability until the latter

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 6 of 21
1 portion of 2015. [Direct Examination of Mr. Markell]

2 33. In December of 2015, less than one year after hiring the CFO, Mr. Markell

3 terminated the CFO’s employment. Mr. Markell determined that the CFO failed to satisfactorily

4 perform the CFO’s job duties, including the failure to adequately inform Mr. Markell of various

5 matters that were essential to his decisions as CEO, including the failure to make timely

6 payments toward employee 401(k) plans. [Direct Examination of Mr. Markell]

7 34. After the CFO’s termination, Mr. Markell determined that information provided

8 to him by the CFO on a variety of financial matters was inaccurate, which also included

9 information that had been provided in the bankruptcy proceedings. [Direct Examination of Mr.

10 Markell]

11 35. Subsequent to the CFO’s termination, Mr. Markell discovered correspondence in

12 the CFO’s office suggesting that the CFO was aware of an outstanding New Mexico state tax

13 liability for which Mr. Markell was allegedly unaware. [Cross Examination of Mr. Markell]

14 36. Santa Fe Medical Group reported, but did not pay, withholding taxes in the

15 periods between April 30, 2015 and November 30, 2015. After November 30, 2015, Santa Fe

16 Medical Group ceased reporting altogether. [Direct Examination of Mr. Pacheco]

17 37. Under the policy implemented by Mr. Markell, the CFO should have promptly

18 notified him of any issues of which he was made aware with regard for liabilities exceeding

19 $5,000, including state tax liabilities, but that the CFO had not done so in this instance. [Cross

20 Examination of Mr. Markell]

21 38. On at least one prior occasion, the CFO was admonished for failure to bring bills

22 exceeding $5,000 to Mr. Markell’s attention. [Cross Examination of Mr. Markell]

23 39. Mr. Markell indicated that he was uninformed of the particulars of New Mexico

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 7 of 21
1 tax law, such as the distinction between gross receipts tax and withholding tax. [Cross

2 Examination of Mr. Markell]

3 40. Mr. Markell denied having any knowledge regarding the method through which

4 state withholding taxes are paid in New Mexico. [Cross Examination of Mr. Markell]

5 41. Mr. Markell was authorized to write checks for expenditures, and after the CFO’s

6 termination, managed the effort to return the employee 401(k) plan to good standing. [Cross

7 Examination of Mr. Markell]

8 42. Mr. Markell, in addition to his executive functions for the entities, was wholly

9 involved and intimately familiar with the bankruptcy proceedings, estimating that he testified no

10 fewer than a dozen times in the U.S. Bankruptcy Court. [Cross Examination of Mr. Markell]

11 43. With concern for the bankruptcy proceedings, Mr. Markell signed all monthly

12 operating reports submitted to the U.S. Bankruptcy Court. The reports were initially prepared by

13 the CFO and submitted for Mr. Markell’s review with tabs indicating where he should affix his

14 signature. Mr. Markell relied heavily on the CFO to inform him of any significant issues in the

15 reports. [Cross Examination of Mr. Markell]

16 44. Mr. Markell signed all monthly operating reports as “President/CEO.” [Cross

17 Examination of Mr. Markell; Department Exs. A - B]

18 45. Even though monthly operating reports identified the Department as a creditor,

19 Mr. Markell had no specific recollection of reviewing or making further inquiry in reference to

20 Department’s status as a creditor in the bankruptcy proceedings, even though various bankruptcy

21 reports and pleadings made specific and express reference to outstanding New Mexico state tax

22 liabilities. [Cross Examination of Mr. Markell; Department Ex. B-06; Department Ex. B-11;

23 Department Ex. B-14; Department Ex. C-06 – C-07; Department Ex. C-14; Department Ex. C-

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 8 of 21
1 18; Department Ex. D-03 – D-04; D-06 – D-07; Department Ex. E-04]

2 46. At some point while the bankruptcy was pending, Mr. Markell made an offer to

3 purchase the entities, but the offer was rejected by the creditors in bankruptcy. [Cross

4 Examination of Mr. Markell]

5 47. During the proceeding, Mr. Markell became aware that Dr. Briggs 2 may have

6 initiated various transactions which were not recorded in any accounts of the entities in

7 bankruptcy, including transfers of funds to third-party individuals that may have been improper.

8 [Direct Examination of Mr. Markell]

9 48. Based in part on those revelations, the bankruptcy was eventually converted to a

10 proceeding under Chapter 7 of the U.S. Bankruptcy Code. [Direct Examination of Mr. Markell]

11 49. In hindsight, nothing on Mr. Markel’s personal payroll documents indicated that

12 there were any issues with respect to his personal withholdings. However, state withholdings for

13 Mr. Markell were paid to the state of Arizona, not New Mexico. [Direct Examination of Mr.

14 Markell; Taxpayer Ex. 9; Direct Examination of Mr. Pacheco]

15 50. The Department’s GenTax software system indicates that Mr. Markell was

16 identified as a corporate officer in 2016 upon the suggestion of another Department employee

17 presumably based on information obtained through the bankruptcy proceeding. [Direct

18 Examination of Mr. Pacheco; Taxpayer Ex. 12]

19 51. As of May 16, 2019, the balance of outstanding withholding tax, penalty, and

20 interest for Santa Fe Medical Group, LLC was:

Period Tax Penalty Interest Total
4/30/2015 $8,848.48 - - $8,848.48
5/31/2015 $8,027.17 $1,605.40 $1,294.20 $10,926.77
6/30/2015 $5,295.07 $1,059.00 $840.62 $7,194.69

2
The parties did not dispute that Dr. Briggs is deceased.

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 9 of 21
7/31/2105 $6,744.97 $1,348.99 $1,052.79 $9,146.75
8/31/2015 $3,779.07 $755.80 $579.43 $5,114.30
9/30/2015 $782.19 $156.40 $119.75 $1,058.34
$33,476.95 $4,925.59 $3,886.79 $42,289.33

1 [Department Ex. H]

2 52. On October 2, 2017, the Department issued a Notice of Assessment of Taxes and

3 Demand for Payment under Letter ID No. L0510542640 (“Assessment”) claiming a total amount

4 due of $40,336.03. [Administrative File]

5 53. The Assessment was issued to “Drew Markell Corp. Officer for Santa Fe Medical

6 Group[.]” [Administrative File]

7 54. Mr. Markell submitted his Formal Protest of the Assessment to the Department on

8 January 2, 2018. [Administrative File]

9 55. The Department acknowledged Mr. Markell’s protest on January 17, 2018 under

10 Letter ID No. L0167471920. [Administrative File]

11 56. The Department requested a scheduling hearing on Taxpayer’s protest on April

12 17, 2018.

13 57. On April 18, 2018, the Administrative Hearings Office entered a Notice of

14 Telephonic Scheduling Hearing which set an initial hearing for May 8, 2019. [Administrative

15 File]

16 58. A telephonic scheduling hearing occurred on May 8, 2019 at which time the

17 Hearing Officer noted the following: (a) Taxpayer’s protest was received in the Department’s

18 Protest Office on January 2, 2018; (b) the Department acknowledged Taxpayer’s protest on

19 January 17, 2018; (c) the Department requested a scheduling hearing in this matter with the

20 Administrative Hearings Office on April 17, 2018; (d) ninety calendar days elapsed from January

21 17, 2018 to April 17, 2018; (e) the Administrative Hearings Office had no knowledge of

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 10 of 21
1 Taxpayer’s protest prior to April 17, 2018; (f) the 90th day from the date upon which the

2 Department acknowledged Taxpayer’s protest was April 17, 2018; (g) the Department’s delay in

3 filing a hearing request deprived the Administrative Hearings Office of the opportunity to set a

4 hearing on or before April 17, 2018. [Administrative File]

5 59. On May 10, 2018, the Administrative Hearings Office entered a Notice of Second

6 Telephonic Scheduling Conference setting a hearing for June 22, 2018 upon the request of the

7 parties that they might benefit from conferring and exchanging documents prior to proceeding

8 with scheduling. [Administrative File]

9 60. On June 26, 2018, the Administrative Hearings Office entered a Scheduling Order

10 and Notice of Administrative Hearing which in addition to establishing various prehearing

11 deadlines, set a hearing on the merits to occur on April 1, 2019. [Administrative File]

12 61. On April 1, 2019, Mr. Markell failed to appear due to his misunderstanding that

13 his hearing was set to occur in person at the Administrative Hearings Office in Santa Fe, NM.

14 With the concurrence of counsel for the Department, the merits hearing was converted to a

15 telephonic scheduling hearing and the matter was reset for May 16, 2019. [Administrative File]

16 DISCUSSION

17 The issue in the protest is whether Mr. Markell is personally liable pursuant to NMSA

18 1978, Section 7-3-5 (2010) for that amount of withholding tax that Santa Fe Medical Group,

19 LLC deducted from compensation paid to its employees, but not remitted to the Department, plus

20 associated penalty and interest. Santa Fe Medical Group, LLC was one of several entities for

21 which Mr. Markell served as CEO and the only entity at issue in the present matter.

22 Presumption of Correctness & Burden of Proof.

23 Under NMSA 1978, Section 7-1-17 (C) (2007), the Assessment from which this protest

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 11 of 21
1 arises is presumed correct and the burden rests on Taxpayer to overcome the presumption. See

2 Archuleta v. O’Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 504 P.2d 638. Unless otherwise

3 specified, for the purposes of the Tax Administration Act, “tax” includes interest and civil

4 penalty. See NMSA 1978, Section 7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the

5 presumption of correctness under Section 7-1-17 (C) similarly extends to the Department’s

6 assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation &

7 Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503, 134 P.3d 785, 791 (agency regulations

8 interpreting a statute are presumed proper and are to be given substantial weight).

9 For that reason, Taxpayer carries the burden to present countervailing evidence or legal

10 argument to show that it is entitled to an abatement of an assessment. See N.M. Taxation &

11 Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated

12 statements that the assessment is incorrect cannot overcome the presumption of correctness.” See

13 MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d

14 308; See also Regulation 3.1.6.12 NMAC. If a taxpayer presents sufficient evidence to rebut the

15 presumption, then the burden shifts to the Department to re-establish the correctness of the

16 assessment. See MPC, 2003-NMCA-021, ¶13.

17 The Withholding Tax Act.

18 Payment of withholding taxes is controlled by the Withholding Tax Act, which at NMSA

19 1978, Section 7-3-3 (A), requires that every “employer” deducting and withholding a portion of

20 an employee’s wages for payment of income tax under the provisions of the Internal Revenue

21 Code also deduct and withhold an amount for each payroll period for state tax.

22 The Withholding Tax Act defines “employer” as “a person or an officer, agent or

23 employee of that person having control of the payment of wages, doing business in or deriving

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 12 of 21
1 income from sources within the state for whom an individual performs or performed any service

2 as the employee of that person, except that if the person for whom the individual performs or

3 performed the services does not have control over the payment of the wages for such services,

4 ‘employer’ means the person having control of the payment of wages” See NMSA 1978, Section

5 7-3-2 (C).

6 Section 7-3-5 goes on to require that “[e]very withholder shall be liable for amounts

7 required to be deducted and withheld by the Withholding Tax Act regardless of whether the

8 amounts were in fact deducted and withheld.” The definition of “withholder” includes

9 “employer.” See NMSA 1978, Section 7-3-2 (M).

10 Considering the totality of the evidence presented, the Hearing Officer was persuaded

11 that despite the complexity of the circumstances underlying Mr. Markell’s tenure as CEO, he

12 was ultimately a person having control over the payment of wages and is therefore liable under

13 the Withholding Tax Act pursuant to Section 7-3-5.

14 The term “having control of the payment of wages[,]” as utilized in Section 7-3-2 (C) is

15 dispositive, and although Mr. Markell understandably assigns substantial fault to others,

16 primarily the CFO he supervised, Mr. Markell undeniably retained the ultimate responsibility to

17 the employees of Santa Fe Medical Group, LLC to assure that money withheld from their wages

18 was properly paid to the State, despite his delegation of responsibility to others.

19 The term “having control of the payment of wages” has been subject of prior discussion

20 at the federal level, which similarly requires employers to withhold employee wages for the

21 payment of personal income taxes due. See 26 U.S.C. Section 3403. Similar to the use of the

22 term in New Mexico, “the term ‘employer’ means the person for whom an individual performs

23 or performed any service, …except that … if the person for whom the individual performs or

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 13 of 21
1 performed the services does not have control of the payment of the wages for such services, the

2 term ‘employer’ (except for purposes of subsection (a)) means the person having control of the

3 payment of such wages…” See 26 U.S.C. Section 3401 (d).

4 The United States Supreme Court considered “control of the payment of wages” in Otte

5 v. United States, 419 U.S. 43 (1974), affirming a lower court judgment that a bankruptcy trustee

6 was in control of the payment of wages, and therefore liable for federal wage withholdings,

7 during the pendency of a bankruptcy proceeding. The Court reasoned that Congress intended to

8 place responsibility at the point of control. See Southwest Restaurant Systems Inc. v. I.R.S, 607

9 F.2d 1237 (9th Cir. 1979); Abel v. United States (In re Abel), 200 B.R. 816, 822 (E.D. Pa. 1996).

10 In the present case, although Santa Fe Medical Group, LLC was also in bankruptcy, it

11 operated as debtors in possession pursuant to Sections 1107 and 1109 of the Bankruptcy Code

12 and retained primary control of its own finances subject to the court’s oversight.

13 Section 1107 of the Bankruptcy Code elevates a debtor in possession to a fiduciary

14 position, having all authority of a Chapter 11 trustee, including accounting of property,

15 evaluating claims and stating objections, and filing informational reports, such as monthly

16 operating reports. See 11 U.S.C. Sections 1106 & 1107; Fed. R. Bankr. P. 2015 (a). Among other

17 fiduciary obligations, a debtor in possession retains responsibility for filing tax returns and

18 reports which are either necessary or ordered by the court.

19 Mr. Markell suggested that by virtue of the pending bankruptcy, a variety of other

20 individuals shared in the responsibility to assure that taxes were being paid, including the

21 Department, the bankruptcy trustee, and even the presiding bankruptcy judge to name a few. The

22 Hearing Officer, although empathetic to Mr. Markell’s predicament, remains unpersuaded by his

23 reasoning. Responsibility to make withholding payments rested with Santa Fe Medical Group,

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 14 of 21
1 LLC and its executives, and Mr. Markell was the executive to whom all others answered. He was

2 intimately familiar with the progress of the bankruptcy, having testified numerous times on

3 various issues, and having signed all reports, even if his testimony suggested that the depth of his

4 reviews may have been superficial at times. He also had unrestricted access to all financial

5 records and authority over all finances, not to mention the authority within the organization to

6 direct the responsibilities and obligations of others, oversee inventory of supplies or equipment,

7 or to retain the professional services of accountants or attorneys as he believed necessary. There

8 was simply no reliable or persuasive evidence to support any conclusion to the contrary that Mr.

9 Markell was not the person having control over the payment of wages. See Abel v. United States

10 (In re Abel), 200 B.R. 816, 821 (E.D. Pa. 1996) (hallmarks of control include signing or the

11 ability to sign checks and tax returns, the power to hire and fire employees, and directing when

12 and which creditors are to be paid ahead of the government).

13 This is not to insinuate that Mr. Markell was the only individual having control, but the

14 fact that others could have exercised control does not alleviate or discharge Mr. Markell from

15 liability just as Mr. Markell’s liability may not have any effect on the liability of others.

16 However, the liability of others is not before the tribunal in this protest.

17 In Southwest Restaurant, the Federal Circuit Court of Appeals considered whether having

18 shared control of an account reduced liability and determined that the share control of a few did

19 not lessen the responsibility of the individual whose primary function was to assure that the task

20 was accomplished.

21 Previous cases before this tribunal have reached comparable results under similar facts.

22 In the Matter of the Protest of Bryan Templeton, Decision and Order #10-03

23 (N.M.Tax.Rev.Dept., Hearings Bureau, March 18, 2010; non-precedential), the hearing officer

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 15 of 21
1 held that a chief accounting officer was an “employer” under the statute and liable for unpaid

2 withholding tax. The evidence in that case included publicly available corporate documents that

3 showed the taxpayer’s role as a director, evidence he signed employees’ paychecks, evidence he

4 signed income tax returns, and evidence he held himself out to be the “Taxpayer or agent” of the

5 organization. In the Matter of the Protest of Eugene Baker, Decision and Order # 01-30 (N.M.

6 Tax. Rev. Dep’t., Hearings Bureau, November 1, 2001; non-precedential), is consistent with the

7 reasoning in Templeton (there is no question that a person is liable, in the instance when a person

8 admits he was the corporate officer, was primarily responsible for business operations, and had

9 authority to sign tax returns and make payments on behalf of the organization).

10 By comparison, the decision In the Matter of the Protest of Andrew Winton, Decision and

11 Order #15-32 (N.M. Administrative Hearings Office, September 29, 2015; non-precedential)

12 acknowledges that the factual posture of each case requires focused consideration. In that case,

13 the taxpayer, who appeared as a director in corporate documents for the limited liability

14 company, but who had no check-writing authority and no role in the business was not found

15 liable as an “employer.”

16 The evidence related to the control of payment of wages in this protest more closely

17 resembles the facts in Templeton and Baker. Mr. Markell was the chief executive officer of Santa

18 Fe Medical Group, LLC. He had oversight and control over all aspects of Santa Fe Medical

19 Group, LLC’s management, including its fiscal operations. These powers included implementing

20 and enforcing policies for prioritizing and paying debts, writing checks, processing mail, and

21 managing personnel, including the authority to hire and fire. Mr. Markell then reported the

22 condition of Santa Fe Medical Group, LLC’s finances to the bankruptcy court under the title

23 “President/CEO.”

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 16 of 21
1 Therefore, the Hearing Officer was ultimately persuaded by a preponderance that Mr.

2 Markell was a person having control of wages and therefore, an “employer.”

3 The Hearing Officer considered whether any of the circumstances presented by Mr.

4 Markell might except him from personal liability under Section 7-3-5 (B) which states “if the

5 withholder's failure to deduct and withhold the required amounts was due to reasonable cause,

6 the withholder shall not be liable for amounts not deducted and withheld.” The term “lack of

7 reasonable cause” has been previously equated with “negligence.” See Gathings v. Bureau of

8 Revenue, 1975-NMCA-016, 87 N.M. 334, 533 P.2d 107. Thus the “lack of reasonable cause”

9 may be construed as the equivalent to “negligence”. Therefore, the term “due to reasonable

10 cause” may be alternatively construed as a “lack of negligence” or “nonnegligence” as that term

11 is used in Regulation 3.1.11.11 NMAC.

12 The Department, in other contexts, has defined “negligence” as follows:

13 3.1.11.10 NEGLIGENCE: Taxpayer “negligence” under
14 Subsection 7-1-69A NMSA 1978 means:

15 A. failure to exercise that degree of ordinary business care and
16 prudence which reasonable taxpayers would exercise under like
17 circumstances;

18 B. inaction by taxpayers where action is required;

19 C. inadvertance, indifference, thoughtlessness, carelessness,
20 erroneous belief or inattention.

21 [11/5/85, 8/15/90, 10/31/96; 3.1.11.10 NMAC - Rn & A, 3 NMAC
22 1.11.10, 1/15/01]

23 Although not explicitly applicable to Section 7-3-5, the definition of negligence is

24 instructive in considering whether Mr. Markell’s actions were negligent or lacking reasonable

25 cause. The Hearing Officer concluded that even if viewing the evidence in the light most

26 favorable to Mr. Markell, that he failed to exercise that degree of ordinary business care and

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 17 of 21
1 prudence which reasonable taxpayers would exercise under like circumstances.

2 All the information he needed to evaluate the status of Santa Fe Medical Group, LLC’s

3 withholdings was readily available to him, and he retained the authority to pay as necessary once

4 he was aware that Santa Fe Medical Group, LLC’s withholding taxes were delinquent. Despite

5 several filings with the Bankruptcy Court which reported liabilities to the Department, all which

6 Mr. Markell signed, he nevertheless remained ignorant or indifferent to the mounting liability.

7 The Hearing Officer is unpersuaded that Mr. Markell was genuinely ignorant. Even if the

8 CFO failed to keep him reasonably informed, a plethora of indicators existed that should have

9 individually, if not collectively, demanded his immediate attention, including a personal visit

10 from a Department employee at which time the subject of a payment plan was raised with him

11 and the CFO. Even Ms. Duenas’ sworn statement indicated that Mr. Markell was made aware of

12 a mounting withholding tax liability midway through 2015.

13 It is also implausible that Mr. Markell could be called upon to testify no less than a dozen

14 times in the bankruptcy court, and provide his signature on numerous bankruptcy reports, yet

15 never be informed that there were significant outstanding liabilities with regard for state

16 withholding taxes. Then, to the extent any doubt might persist regarding Mr. Markell’s

17 knowledge, he made an offer to purchase the entities in bankruptcy. The Hearing Officer finds it

18 improbable that Mr. Markell would make such an offer without having fully considered the

19 extent of the entities’ outstanding and delinquent obligations, including state withholding taxes.

20 As a result, Mr. Markell’s testimony that he was ill-informed, perhaps due to the deceit of the

21 CFO, is simply not credible.

22 This suggests that Mr. Markell’s failure to act resulted from inadvertence, indifference,

23 thoughtlessness, carelessness, erroneous belief or inattention, none of which liken to reasonable

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 18 of 21
1 cause, even under these circumstances.

2 The Hearing Officer also contemplated the Department’s indicators of nonnegligence at

3 Regulation 3.1.11.11 NMAC. Although not applicable to Section 7-3-5, they are likewise

4 illustrative of the circumstances in which the Department observes instances of “nonnegligence”

5 and by comparison, circumstances that might signify “reasonable cause.” Once again, even when

6 viewing the evidence in the light most favorable to Mr. Markell, his circumstances simply fail to

7 satisfy any accepted indicators of nonnegligence.

8 Consequently, the Hearing Officer is not persuaded under the facts of this protest that Mr.

9 Markell’s failure to assure that withholding taxes were properly withheld, deducted, and paid to

10 the state should be discharged on the basis that his failure to act was the result of reasonable

11 cause. Taxpayer’s protest should be DENIED.

12 CONCLUSIONS OF LAW

13 A. Taxpayer filed a timely, written protest of the Department’s assessment and

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

15 B. Due to the Department submitting an overdue request for hearing, the

16 Administrative Hearings Office was divested of the opportunity to hold a hearing within 90-days of

17 protest under NMSA 1978, Section 7-1B-8 (2015).

18 C. Taxpayer is an “employer” as that term is defined in NMSA 1978, Section 7-3-2

19 (C).

20 D. Taxpayer is a “withholder” as that term is defined in NMSA 1978, Section 7-3-2

21 (M).

22 E. Taxpayer is a liable withholder for amounts deducted and withheld under NMSA

23 1978, Section 7-3-5.

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 19 of 21
1 F. Taxpayer’s failure to deduct and withhold was not due to reasonable cause under

2 NMSA 1978, Section 7-3-5 (B).

3 For the foregoing reasons, the Taxpayer’s protest IS DENIED. Taxpayer shall be liable for

4 withholding tax, withholding tax penalty, and withholding tax interest in the following amounts as

5 of May 16, 2019, with applicable penalty and interest accruing until paid in full:

Period Tax Penalty Interest Total
4/30/2015 $8,848.48 - - $8,848.48
5/31/2015 $8,027.17 $1,605.40 $1,294.20 $10,926.77
6/30/2015 $5,295.07 $1,059.00 $840.62 $7,194.69
7/31/2105 $6,744.97 $1,348.99 $1,052.79 $9,146.75
8/31/2015 $3,779.07 $755.80 $579.43 $5,114.30
9/30/2015 $782.19 $156.40 $119.75 $1,058.34
$33,476.95 $4,925.59 $3,886.79 $42,289.33

6 DATED: August 29, 2019

7
8 Chris Romero
9 Hearing Officer
10 Administrative Hearings Office
11 P.O. Box 6400
12 Santa Fe, NM 87502
13

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 20 of 21
1 NOTICE OF RIGHT TO APPEAL

2 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

3 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

4 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

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

6 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

7 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

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

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

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

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

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

13 CERTIFICATE OF SERVICE

14 On August 29, 2019, a copy of the foregoing Decision and Order was submitted to the

15 parties listed below in the following manner:

16 First Class Mail Interdepartmental State Mail
17

18 INTENTIONALLY BLANK
19
20 John Griego
21 Legal Assistant
22 Administrative Hearings Office
23 P.O. Box 6400
24 Santa Fe, NM 87502

In the Matter of the Protest of Drew Markell,
Corporate Officer for Santa Fe Medical Group, LLC.
Page 21 of 21