My tax check got lost in the mail even though I filed on time — do I still owe interest for the months the tax went unpaid?

Plain-English summary

Franklin and Shirley Niles, New Mexico residents, got their 1994 state income tax return from their accountant in early April 1995, signed it, wrote a $1,315 check (No. 0805), and mailed the return on April 3. The Department received the return but not the check — and that check was never found. The Department told the couple it hadn't received payment and assessed the $1,315 tax plus penalty and interest (Assessment No. 615724).

The couple protested the penalty and interest, saying they had mailed the check and shouldn't be treated as late. Over the following months the Department agreed to abate the penalty if they placed a stop-payment on the lost check and paid the tax — which they did on October 11, 1995, also paying $16.43 of interest. But the Department said the remaining interest (which grew as the tax stayed unpaid) could not be waived.

Hearing Officer Julia Belles denied the interest protest:

• The tax was due April 15, 1995, and wasn't paid until October. Section 7-1-12 sets the due date; the Department received only the return, and the actual payment didn't arrive until October 11, 1995 (Section 7-1-13(A) keeps a taxpayer liable until payment is made).
• Interest is the price of using the state's money. Under Section 7-1-67(A), interest accrues for the entire time the tax is unpaid, because during April 16–October 11 the couple "had the use of the money" they owed. The Tax Administration Act has no provision to abate interest.
• A postmark isn't proof of payment. The couple offered no cancelled check or other evidence that the Department ever received their payment, so they could not overcome the presumption (Sections 7-1-17(C) and 7-1-3(U)) that the assessed interest was correct.
• The penalty was different. Because the couple were not negligent and complied with the stop-payment request, the Department abated the penalty — but penalty and interest are separate, and interest remained due.

What this means for you

Individual taxpayers

Filing on time is not the same as paying on time. If a mailed check is lost, interest keeps running until the state actually gets its money, and there is no hardship or good-faith exception to interest in New Mexico. The moment you learn a payment didn't arrive, pay a replacement immediately to stop interest — and keep proof (a cancelled check or bank record) that payment was received.

Anyone worried a payment went missing

The couple here did the sensible things — they placed a stop-payment on the lost check and sent a replacement — and that was enough to get the penalty abated. But the interest for the gap between the due date and the replacement payment was not waivable. Acting fast shrinks that gap.

Accountants and tax professionals

Two clean rules for clients: interest under Section 7-1-67(A) is not abatable and runs until payment is actually made, while a penalty can be abated for a non-negligent taxpayer (here, on submitting a stop-payment order). Advise clients that a postmark proves timely filing, not timely payment — only proof the state received the funds does that.

Common questions

Q: I mailed my payment on time but it was lost. Do I still owe interest?
A: Yes. Interest accrues until the tax is actually paid, regardless of when you mailed it. New Mexico's Tax Administration Act has no provision to abate interest.

Q: The Department waived my penalty — why not the interest too?
A: Penalty and interest are separate. A penalty can be abated for a non-negligent taxpayer, but interest compensates the state for the time it went without money it was owed, and it is not abatable.

Q: How do I prove I paid on time if my check disappears?
A: A postmark only shows you filed; it doesn't show payment. Keep a cancelled check or bank record proving the state received your funds. Without that, the assessment (including interest) is presumed correct and you carry the burden to disprove it.

Citations and references

Statutes:

• § 7-1-67(A) NMSA 1978 — interest accrues on unpaid tax from the day after it becomes due until it is paid
• § 7-1-12 NMSA 1978 — individual income tax and return are due on or before the 15th day of the 4th month after the taxable year
• § 7-1-13(A) NMSA 1978 — taxpayers remain liable for tax until payment is made
• § 7-1-17(C) NMSA 1978 — an assessment is presumed correct and the taxpayer bears the burden of disproving it
• § 7-1-3(U) NMSA 1978 — "tax" includes the amount of interest related to any tax
• § 7-1-24 NMSA 1978 — a taxpayer's right to file a written protest (basis for jurisdiction)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Franklin E. and Shirley J. Niles
• Decision PDF: D&O 96-06

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
FRANKLIN E. AND SHIRLEY J. NILES,
PROTEST TO ASSESSMENT NO. 615724. NO. 96-06

DECISION AND ORDER

This matter was scheduled for hearing before Julia Belles, Hearing Officer on January 22,

1996. Rather than conduct an evidentiary hearing, the matter was submitted for decision based

upon stipulated facts, exhibits and written argument. Frank D. Katz, Special Assistant Attorney

General, represented the Taxation and Revenue Department (Department) and Franklin E. and

Shirley J. Niles (Taxpayer) represented themselves.

Based upon the evidence and arguments presented, IT IS DECIDED AND ORDERED

AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayers earned income in New Mexico and were subject to the New

Mexico personal income tax.

2. On April 1, 1995, the Taxpayers received their State of New Mexico 1994

income tax return from their accountant.

3. On April 2, 1995, the Taxpayers signed the return and wrote check number 0805

on Nations Bank in the amount of $1315 to pay their New Mexico Personal Income Tax (PIT).

The Taxpayers mailed the return on April 3, 1995.

4. On April 29, 1995, the Department notified the Taxpayers that it received the

return without payment and that they owed $1315 as tax due, along with $26.30 as penalty and

$14.43 as interest.

5. The Taxpayers responded and on May 4, 1995 informed the Department that they

sent check number 0805 with their return. The taxpayers requested penalty and interest be

abated and that if the Department could not find that check they would send another.

6. On May 6, 1995, the Department issued Assessment No. 615724 assessing $1315

in tax, $16.43 in interest and $26.30 in penalty.

7. The Taxpayers timely filed a written protest of the Department's imposition of

interest and penalty on the assessment.

8. The Department acknowledged receipt of the protest on May 22, 1995 and

advised the Taxpayer that interest on the tax would accrue until the tax was paid.

9. On October 2, 1995, the Department informed the Taxpayers that penalty would

be abated penalty if Taxpayers stopped payment on check number 0805 and promptly remitted

the tax owed. The Department also informed the Taxpayers that they would still owe $16.43 in

interest since the Tax Administration Act does not permit the abatement of interest.

10. On October 11, 1995, the Taxpayers submitted a check for the $1315 tax due, a

check for $16.43 in interest, a copy of the stop payment order and a signed withdrawal or protest.

The Taxpayers' letter stated they did not think they should have to pay the interest and that the

Department should reimburse them for the stop payment fee of $20.

11. The Taxpayers actually owed additional interest in the amount of $82.15 to cover

the period of May 15, 1995 through October 11, 1995 during which the tax remained unpaid.

The Department determined that Taxpayers still wished to challenge the imposition of interest so

the withdrawal of protest was not accepted.

DISCUSSION

The Taxpayers dispute the interest that was calculated on the assessment for the time

period April 16, 1995 through October 11, 1995. Section 7-1-17(C) NMSA 1978 (1995 Repl.)

provides that there is a presumption of correctness which attaches to any assessment of taxes by

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the Department. "Tax" is defined to include the amount of interest related to any taxes. Section

7-1-3(U) NMSA 1978 (1995 Repl.). Therefore, the presumption of correctness attaches to the

assessment of interest as well and the Taxpayer has the burden of proving that the assessment of

interest is incorrect.

The Taxpayers attempted to correctly report and pay their taxes. This case arises from a

lost check. The Taxpayers mailed the tax return and they believe that they included the check

for taxes owed. The Department received the return but did not receive the check. The lost

check has never been found and we shall probably never know what actually happened to it.

The Department immediately notified the Taxpayers that it did not receive their check and

informed them that interest was now owed on the taxes due. The correspondence between the

Department and the Taxpayers over the lost check resulted in the Taxpayers filing written protest

of the Department's action on May 8, 1995. On May 22, 1995 the Department acknowledged

the protest and warned the Taxpayers that interest would accrue on the taxes owed until the taxes

were paid. The Taxpayers paid the taxes assessed on Assessment No. 615724 and paid $16.43

in interest on October 11, 1995. They also sent a copy of the stop payment order as requested by

the Department so the Department could abate the penalty. The Taxpayers owed an additional

$82.15 in interest which accrued between May 15, 1995 and October 11, 1995. The Taxpayers

asked that interest be abated because they were not delinquent since the tax return was

postmarked by April 15, 1995.

A review of these fact does not indicate that the interest on Assessment No. 0615724

should be abated. The Taxpayers were required to pay taxes on their personal income tax under

provision Section 7-1-13(A) NMSA 1978 (1995 Repl.). Section 7-1-12 NMSA 1978 (1995

Repl.) provides the date when the taxes are due. It states: "[t]he return required and the tax

imposed on individuals under the Income Tax Act are due and payment is required on or before

the fifteenth day of the fourth month following the end of the taxable year" (emphasis added).

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The Department did not receive the payment for the taxes that were owed by April 15, 1995 and

the Taxpayers did not pay their taxes until October 11, 1995. Between April 16, 1995 and

October 11, 1995, the Taxpayers had the use of the money that they owed to the Department.

Interest was properly assessed on the taxes that were owed since the Taxpayers did not pay their

taxes by April 15, 1995 and had the advantage of having the use of the money until they paid

their taxes.

The Taxpayers did not meet their burden to show that the Department's imposition of

interest was incorrect. The Taxpayers' tax return, as well as tax payment, were due on April 15,

1995. The Department only received the tax return. The Taxpayers did not provide any

evidence, such as a cancelled check, to demonstrate that the Department received the payment

and that the taxes were timely paid. The taxes were not paid until October 11, 1995. As

required by Section 7-1-67(A) NMSA 1978, interest accrued during the time the taxes remained

unpaid. The Taxpayers were warned by the Department in its May 22, 1995 letter that interest

would accrue until the taxes were paid. Under these circumstances, interest was properly

assessed.

CONCLUSIONS OF LAW

1. The Taxpayer timely filed a written protest, pursuant to Section 7-1-24 NMSA

1978 (1995 Repl.), to the interest portion of Assessment No. 615724 and, therefore, jurisdiction
lies over the parties and the subject matter of this protest.

2. The date on which Taxpayers' taxes were due was April 15, 1995.
3. The Department timely received the Taxpayers' tax return but did not receive the

tax payment until October 11, 1995.

4. The penalty should be abated as the Department agreed to do so if the Taxpayers

submitted a copy of the stop payment order. It was submitted on October 11, 1995.

4. The interest that accrued between April 16, 1995 until October 11, 1995 on the

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taxes due was properly assessed.

For these reasons, the Taxpayers' protest is hereby denied.

Done this 15th day of February, 1996.

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