My tax return and check probably got lost in the mail years ago — do I still owe the penalty and interest on the missing payment?

Plain-English summary

Zia Printing was a one-person print shop in Albuquerque with a solid history of paying and filing its gross receipts taxes on time. But the Department's records showed no November 1989 return or payment. In January 1994 — more than four years later — a Department employee finally called owner Sue Bollinger to ask about the missing return, followed by a form letter threatening estimated assessments and liens.

Ms. Bollinger cooperated: she quickly found and sent her April 1990 return and its cancelled check (a period the Department also wrongly showed as missing), then located her copy of the November 1989 return but could never find the matching cancelled check. It turned out there was a gap in her cancelled checks on an account she was closing at the time — and she'd been laid up with a slipped disc in late 1989, which may be why she never noticed a check hadn't cleared. Only in 1995, after the Department assessed $858.66 tax, $85.87 penalty, and $676.19 interest, did an employee finally explain that interest was still piling up at 15% and that she should pay and protest. She paid the tax and protested the penalty and interest.

Hearing Officer Gerald B. Richardson split the decision:

• The late protest was allowed. Although § 7-1-24 gives only 30 days to protest, the Department acknowledged her protest as valid within the 60-day window in which the Secretary can grant a retroactive extension — so that acknowledgment was treated as an effective extension, and jurisdiction existed.
• Interest stands (denied). Section 7-1-67(A) says interest "shall" be paid on any unpaid tax, "without regard to any extension of time," until paid — mandatory, with no exceptions (State v. Lujan). Because there was no proof the tax was ever actually paid, interest was properly imposed no matter why it went unpaid.
• Penalty is abated (granted). Penalty requires negligence (§ 7-1-69). The Hearing Officer believed Ms. Bollinger followed her normal routine and mailed the return and check, and that it was lost in the mail or in Department processing — noting the Department's own records were unreliable (they had wrongly flagged April 1990 too, and a third party, the Postal Service, could have lost it). Finding no negligence, he abated the penalty.

The Hearing Officer was pointedly critical of the Department for taking over four years to raise the missing return and for letting Ms. Bollinger have "numerous conversations" with collectors for a year before anyone told her interest was still accruing — remarking that the Department "creates many of the protests it must handle."

What this means for you

Interest is mandatory even when the failure isn't your fault

New Mexico's interest statute (§ 7-1-67(A)) applies to any tax that isn't paid when due, whatever the reason — including a return that was likely lost in the mail. Interest isn't a punishment; it compensates the state for money it didn't have. Unless you can prove the tax was actually paid on time, expect to owe interest for the entire period it was outstanding.

The penalty is different — it can be abated when you weren't negligent

Unlike interest, the penalty turns on negligence. A taxpayer with a good compliance history who apparently did everything right — prepared the return, wrote the check, mailed it — can have the penalty abated when the loss appears to be the mail's or the Department's fault. Keep copies of returns and payment records; here, the owner's retained return copy and the documented gap in her cancelled checks are what persuaded the Hearing Officer she'd complied.

Reconcile your bank account so a lost payment doesn't fester

The tax sat unpaid for years partly because a check for over $800 never cleared and no one noticed. Interest compounded the whole time. Regularly matching issued checks against what actually clears your account catches a lost tax payment early — before years of interest accumulate.

A missed protest deadline isn't always fatal

The 30-day protest deadline was blown here, but the Department's acknowledgment of the protest — within the 60-day extension window — saved it. Still, don't rely on that: protest within 30 days when you can, and if you're late, ask promptly for the extension the Secretary can grant under § 7-1-24.

Common questions

Q: My return and payment were lost in the mail. Do I still owe interest?
A: Yes. Interest under § 7-1-67(A) is mandatory on any tax not paid when due, regardless of the reason, unless you can prove the tax was actually paid on time. A return apparently lost in the mail doesn't excuse the interest.

Q: If interest is mandatory, can I at least get the penalty removed?
A: Possibly. The penalty depends on negligence (§ 7-1-69). If you have a good filing history and the evidence suggests you complied and the payment was lost in the mail or in Department processing, the penalty can be abated — as it was here.

Q: The Department waited years to tell me a payment was missing. Doesn't that help me?
A: It doesn't shift the burden — you're still responsible for timely filing and payment, and interest keeps accruing in the meantime. The Hearing Officer criticized the four-year delay but could not use it to waive the mandatory interest.

Q: I missed the 30-day protest deadline. Is my protest dead?
A: Not necessarily. Under § 7-1-24 the Secretary can grant a retroactive extension if you request it within 60 days of the assessment, and here the Department's acknowledgment of a late protest within that window was treated as an effective extension. File as soon as possible and ask for the extension.

Citations and references

Statutes and regulations:

• § 7-1-67(A) NMSA 1978 — interest "shall" be paid on any tax not paid when due, without regard to any extension of time or installment agreement, until it is paid
• § 7-1-24 NMSA 1978 — a taxpayer has 30 days to protest an assessment; the Secretary may grant a retroactive extension of time to protest if requested within 60 days of the assessment
• § 7-1-69 NMSA 1978 — penalty is imposed when a taxpayer's late filing or payment results from negligence; abated where there is no negligence

Cases cited:

• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977) — "shall" in a statute is mandatory rather than discretionary unless a contrary legislative intent is clearly demonstrated

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Zia Printing
• Decision PDF: D&O 96-19

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
ZIA PRINTING, ID. NO. 01-151068-00 4,
PROTEST TO ASSESSMENT NO. 1918795. No. 96-19

DECISION AND ORDER

This matter came on for formal hearing on June 25, 1996 before Gerald B. Richardson,

Hearing Officer. Zia Printing (hereinafter "Taxpayer") was represented by its owner, Ms. Sue

Bollinger. The Taxation and Revenue Department (hereinafter "Department") was represented

by Gail MacQuesten, Special Assistant Attorney General.

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

AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a sole proprietorship which operates a printing operation in

Albuquerque, New Mexico.

2. In January of 1994, Ms. Bollinger received a telephone call from an employee of

the Department informing her that the Department had no record of receiving monthly tax filings

from the Taxpayer for the reporting periods of November of 1989 and April of 1990 and asking

her if she had filed returns for those periods. This was the first time that Ms. Bollinger had been

informed by the Department that there was a problem with missing returns. Ms. Bollinger

informed the caller that she would locate her returns and payment records and send them in to the

Department.

3. Several days later the Taxpayer received a form letter from the Department

informing it that repeated notices have been sent regarding the Taxpayer's failure to file returns for

the November 1989 and April 1990 periods and requesting returns should be filed immediately or

the Department will take action to issue estimated assessments and file liens and seize property of
the Taxpayer.

4. On January 31, 1994, Ms. Bollinger wrote to the Department in response to the

phone call and letter. She had been able to locate its April 1990 return and the cancelled check

and enclosed them in her letter and informed the Department that she was still researching her old

files to find the return and cancelled check for the November 1989 reporting period.

5. On April 15, 1994, Ms. Bollinger wrote the Department, enclosing a copy of the

Taxpayer's November, 1989 return and informing the Department that she had not been able to

locate a copy of her cancelled check but that she was still looking.

6. There were numerous conversations between Ms. Bollinger and Department

employees between early 1994 and early 1995 concerning the missing returns, and Ms. Bollinger's

efforts to locate her November 1989 return and cancelled check. Ms. Bollinger was never

informed that penalty and interest would be accruing on any unpaid liability which may exist with

respect to her November 1989 return and that the interest accrual was nearly equal to the tax.

7. On April 6, 1995, the Department issued Assessment No. 1918795 to the

Taxpayer assessing $858.66 in gross receipts tax (the amount reported by the Taxpayer on its

November, 1989 return); penalty in the amount of $85.87 and interest in the amount of $676.19

for the November, 1989 reporting period.

8. Sometime thereafter, Ms. Bollinger had a conversation with a Department

employee named Julia. Ms. Bollinger was still hoping to locate her cancelled check to resolve

this matter. Julia was the first Department employee to inform Ms. Bollinger that interest was

continuing to accrue at 15% per year on the tax principal portion of the liability and that she

needed to file a protest to protect her right to dispute the tax liability and that she should pay the

tax to prevent the further accrual of interest. Shortly, thereafter, on June 7, 1995 the Taxpayer

paid the tax principal portion of Assessment No. 1918795 and mailed a written protest to the

penalty and interest portion of the assessment.

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9. On August 30, 1995, the Department acknowledged the Taxpayer's protest to

Assessment No. 1918795.

10. During December of 1989, when the Taxpayer's November, 1989 return and tax

payment was due the Taxpayer was in the process of switching checking accounts. The Taxpayer

has never been able to locate the cancelled check which would have accompanied her November

1989 return, but she has determined that there is a gap in the cancelled checks on the checking

account which was subsequently closed.

11. During late 1989 and early 1990 Ms. Bollinger was also suffering from a slipped

disc in her neck. She was in a lot of pain, missed work and, in general, was not as on top of her

business as she usually is. This may account for why she never noticed that her tax payment

check did not clear her account.

12. With the exception of the November, 1989 return, the Taxpayer has a good record

of timely payment and reporting of taxes.

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DISCUSSION
The first matter which must be addressed is my jurisdiction to decide this matter. This is

because Section 7-1-24 NMSA 1978 provides for a 30 day time frame for taxpayers to file a

protest to an assessment. This was not done in this case. Nonetheless, the Department

acknowledged the Taxpayer's protest, giving the Taxpayer every indication that the protest had

been accepted as a valid protest. Section 7-1-24 also allows for the Secretary to grant a

retroactive extension of time to file a protest if a taxpayer requests an extension within 60 days of

the assessment. In this case, the Taxpayer's protest letter was filed within 60 days of the

Assessment and since the Department acknowledged the protest as valid, the Department's

acknowledgement will be treated as an effective grant of extension of time to protest the

assessment. Thus, jurisdiction lies to determine this matter.

Section 7-1-67(A) NMSA 1978 addresses the imposition of interest on tax deficiencies

and provides as follows:
A. If any tax imposed is not paid on or before the day on which it becomes due,
interest shall be paid to the state on such amount from the first day following the
day on which the tax becomes due, without regard to any extension of time or
installment agreement, until it is paid. (emphasis added)

It is a well settled rule of statutory construction that the use of the word "shall" in a statute

indicates that the provisions are intended to be mandatory rather than discretionary, unless a

contrary legislative intent is clearly demonstrated. State v. Lujan, 90 N.M. 103, 560 P.2d 167

(1977). Applying this rule to Section 7-1-67, the statute requires that interest be paid to the state

on any unpaid taxes and no exceptions to the imposition of interest are countenanced by the

statute. Thus it doesn't matter why taxes were unpaid. Interest is imposed for the period of time

that they are unpaid.

While nothing can be done within the confines of the law with respect to the imposition of
interest, this case is nonetheless troubling. I believe that this case is an example of how the

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Department creates many of the protests it must handle or at least exacerbates the situation and

makes it more difficult to resolve these matters.

While nothing herein is intended to imply that the burden is on any other person than the

Taxpayer to ensure that taxes are reported and paid in a timely manner, and in this case, the

Taxpayer also failed to notice that a check for over $800 dollars failed to clear its account, I still

fail to see why it should take over four years for the Department to contact the Taxpayer and

inquire as to why no return was filed for a certain period. The sooner such matters are discovered

and dealt with, the easier it is for everyone. A taxpayer can more readily find the records or

documentation to respond to the Department's inquiry and there is no accumulation of significant

amounts of interest. I also find it disturbing that Ms. Bollinger had numerous conversations with

the Department's collectors for over a year before anyone explained to her that interest was still

accumulating on this liability. I don't blame Ms. Bollinger for being upset about how this matter

was handled.

Penalty is imposed when a taxpayer fails to timely file a return or pay tax when due as a

result of taxpayer negligence. In this case Ms. Bollinger testified that she prepares the tax return

and mails it with payment every month. Ordinarily, there is no problem with taxes being paid in

a timely manner. We will never know what happened in this case. It could have been that Ms.

Bollinger somehow failed to mail the return and payment, due in part to her disability from her

slipped disc, but the fact that she had her copy of the return and there was a missing check in her

records would indicate that she probably made out the check and mailed the return as would be

her normal course of activity. On the other hand, we have the Department, which had no record

of receiving the return or payment. However, the Department's records also indicated that it had

no return or payment from the Taxpayer for April of 1990 and the Taxpayer was able to produce

her cancelled check showing that the Department received and cashed her check, so the

Department's records are not without error either. Then, there was also a third party involved in

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this transaction, the U.S. Postal Service. They could have lost the return and payment even

though the Taxpayer timely mailed it. We will never know what really happened in this case. I

happen to believe that Ms. Bollinger followed her normal procedures and mailed the check and

return to the Department in a timely manner. I suspect that the return was lost in processing,

either by the postal authorities or within the Department. Under these circumstances, I do not

find that the Taxpayer was negligent and penalty should be abated.

CONCLUSIONS OF LAW

1. The Department granted an extension of time for the filing of a protest in this

matter when it acknowledged the Taxpayer's untimely protest as a valid protest, and the

acknowledgement occurred within the time frame that the Department is allowed to grant

extensions of time for protesting matters. Thus, the Taxpayer's protest is timely and jurisdiction

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

2. Because there was no proof of timely payment of tax, interest was properly

imposed in this matter.

3. The Department's failure to notify a taxpayer that it had not received payment of

tax does no shift the burden from the taxpayer to timely report and pay taxes when due.

4. The Taxpayer was not negligent in failing to timely pay taxes under the

circumstances of this case and penalty should be abated.

For the foregoing reasons, the Taxpayer's protest IS HEREBY GRANTED IN PART

AND DENIED IN PART. The Department IS HEREBY ORDERED TO ABATE THE

PENALTY PORTION OF ASSESSMENT NO. 1918795.

DONE, this 22nd day of July, 1996.

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