If I couldn't use a capital loss in the year I had it and want to carry it back to cut an earlier year's New Mexico tax, how long do I have to file the refund claim — and does an earlier amended return on a different issue keep that year open?

Plain-English summary

Amoco Oil Company and Affiliated Subsidiaries (a Maryland corporation headquartered in Illinois, filing New Mexico corporate income tax on a combined basis) had a large capital loss in 1992. Under the Internal Revenue Code it couldn't use that loss to reduce its 1992 income, but it could carry the loss back up to three years. So Amoco carried about $40.7 million of the 1992 loss back to 1989, which it had reported as a gain year, to cut its 1989 New Mexico corporate income tax by $64,588.

The problem was timing. Amoco filed the amended 1989 return that made this claim in January 1995. New Mexico's refund statute of limitations requires a claim within three years of the end of the calendar year in which the tax was originally due (§ 7-1-26(B)). The 1989 tax was due in 1990, so any refund claim had to be filed by December 31, 1993. Amoco's January 1995 claim was more than a year late. The Department denied it, and the Hearing Officer denied the protest.

The Hearing Officer worked through and rejected each of Amoco's arguments:

• The relevant year is 1989, not 1992. Amoco argued the clock should run off 1992 (the loss year), giving it until 1996. But it was amending its 1989 liability, and a 1989 return is not a 1992 return, so the 1989 deadline governed.
• Amoco knew about the claim in time. It had identified the 1992 loss and its carryback to 1989 by September 15, 1993, when it made the same carryback on a federal filing. This wasn't a case where the deadline expired before the taxpayer could have known of the claim.
• The earlier amended return didn't keep 1989 open. Amoco had filed a December 1993 amended 1989 return — but that one sought a refund on a different issue (reclassifying foreign dividend income after Kraft General Foods v. Iowa). A refund claim must "state the nature of the complaint" (§ 7-1-26(A)), and an amended return is a claim only for the difference it actually computes (§ 7-1-26(G)). Amending on one ground did not reopen the 1989 return to revision on the unrelated capital-loss ground.
• Federal law being satisfied doesn't override the state deadline. New Mexico follows the federal Code except where the Legislature enacts a variance, and § 7-1-26 is exactly such a variance. The state refund claim is governed by state law, and it was untimely.
• No estoppel. Amoco pointed to a prior instance where the Department had let it recover on a technically time-barred carryback. But statutory estoppel (§ 7-1-60) needs reliance on a regulation or written ruling, and equitable estoppel — applied against the state only rarely — requires showing the taxpayer was actually prevented from filing on time. Amoco knew of its claim and simply didn't act; a past Department error isn't enough to estop the deadline.

What this means for you

The refund clock runs from the year you're fixing, not the year of the event

Amoco's instinct — measure the deadline from the loss year — is a common and costly mistake. When you carry a loss (or any adjustment) back to an earlier year, you're amending that earlier year's return, and its refund statute of limitations controls. Here that meant the 1989 three-year window, which closed at the end of 1993, not a window keyed to the 1992 loss.

A refund claim only covers the ground it actually states

Filing an amended return or refund claim on one issue does not silently preserve your right to reopen the same year later on a different issue. New Mexico law requires the claim to state its nature and treats an amended return as a claim only for the specific difference it computes. If you have more than one basis for a refund, raise each one — in a claim filed within the deadline.

Being right on the merits doesn't beat a missed deadline

The Department didn't dispute that Amoco could properly carry the 1992 loss back to 1989. It lost purely on timing. A valid refund is still lost if the claim is filed after the statutory period, so calendar the deadline the moment you know a carryback or adjustment exists.

Don't count on estoppel because the state was lenient once before

New Mexico estops the tax department against a limitations defense only in rare cases, and generally only where the Department's own conduct actually prevented a timely filing. A prior instance of the Department letting a late claim through is not a promise to do it again and won't extend your deadline.

Common questions

Q: I had a capital loss I couldn't use. How long do I have to carry it back and claim a refund in New Mexico?
A: You generally must file the refund claim within three years of the end of the calendar year in which the earlier year's tax was due (§ 7-1-26(B)). The deadline is tied to the year you're amending, not the later year in which the loss occurred.

Q: I already amended that year's return for a different reason. Doesn't that keep the year open?
A: No. A refund claim covers only the issue it states, and an amended return is a claim only for the difference it computes. Raising one ground doesn't reopen the year for unrelated grounds — you have to make each claim on time.

Q: My carryback is clearly correct under federal law. Doesn't that force the state to allow it?
A: Not if the state claim is late. New Mexico follows the federal Code except where it enacts its own rule, and its refund statute of limitations is one of those rules. A proper carryback still fails if the claim misses the state deadline.

Q: The Department once allowed my late claim. Can't I rely on that?
A: Generally no. Estoppel against the state on a limitations defense is rare and usually requires that the Department's conduct actually kept you from filing on time. A past leniency doesn't bind it or extend your deadline.

Citations and references

Statutes:

• § 7-1-26(B)(1)(a) NMSA 1978 — a refund claim must be made within three years of the end of the calendar year in which the tax was originally due
• § 7-1-26(A) NMSA 1978 — a refund claim must state the nature of the complaint and contain enough information to process it; § 7-1-26(G) NMSA 1978 — a fully completed amended corporate income tax return is a claim for refund of the difference in tax shown on the original and amended returns
• § 7-1-26(D) NMSA 1978 — one-year extended deadline where an overpayment results from an IRS audit or a federal change requiring federal approval (the parties agreed this did not apply)
• § 7-2A-9 NMSA 1978 — when corporate income tax is due
• § 7-1-60 NMSA 1978 — the Department is estopped only for action taken in accordance with a regulation or a written ruling addressed to the party
• 26 U.S.C. §§ 1211(a), 1212(a) — federal offset of capital losses against gains, with a three-year carryback and five-year carryforward

Cases cited:

• Kraft General Foods v. Iowa Department of Revenue, 505 U.S. 71 (1992) — the foreign-dividend issue underlying Amoco's separate December 1993 amended return
• Taxation & Revenue Department v. Bien Mur Indian Market Center, 108 N.M. 228, 770 P.2d 873 (1989); Rainaldi v. Public Employees Retirement Board, 115 N.M. 650, 857 P.2d 761 (1993) — equitable estoppel is applied against the state only rarely
• Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 839 P.2d 630 (Ct. App. 1992); Continental Potash v. Freeport-McMoran, 115 N.M. 690, 858 P.2d 66 (1993) — elements of estoppel and the claimant's burden to prove them
• Kern v. St. Joseph Hospital, Inc., 102 N.M. 452, 697 P.2d 135 (1985); Molinar v. City of Carlsbad, 105 N.M. 628, 735 P.2d 1134 (1987); Bolton v. Board of County Commissioners of Valencia County, 119 N.M. 355, 890 P.2d 808 (Ct. App. 1994) — to estop a limitations defense, the claimant must have been prevented from filing within the period

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Amoco Oil Company and Affiliated Subsidiaries
• Decision PDF: D&O 97-18

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTESTS OF
AMOCO OIL COMPANY AND AFFILIATED SUBSIDIARIES, NO. 97-18
ID NO. 01-604972-00 1,
Claim for Refund

DECISION AND ORDER

This matter was scheduled for hearing on April 8, 1997. In lieu of an evidentiary

hearing, the matter was submitted for decision based upon stipulated facts and written argument.

Amoco Oil Company and Affiliated Subsidiaries (hereinafter referred to as "the Taxpayer",

"Amoco", or "the company") was represented by James L. Siddall, the company's manager of

state income and franchise tax planning. The Taxation and Revenue Department ("the

Department") was represented by Bruce J. Fort, Special Assistant Attorney General.

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

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a Maryland corporation with its principal place of business in

Illinois. For all years relevant to this matter, the company filed income tax returns with the state

of New Mexico on a domestic combined basis as Amoco Oil Company and Combined Affiliates.

2. On September 15, 1993, the Taxpayer completed a federal application, Internal

Revenue Service (IRS) Form 1139, for a refund of federal corporate income taxes paid for 1989,

based on the carryback to that year of a capital loss incurred in 1992.

3. The capital loss incurred by the Taxpayer in 1992 was not the result of a federal audit,

the changing of a federal election, or any other change in federal tax reporting for which federal

approval was required.

4. The Taxpayer filed its original 1992 New Mexico corporate income tax return with

the Department on October 15, 1993.

5. On December 20, 1993, the Taxpayer filed an amended 1989 state corporate income

tax return with the Department, seeking a refund of previously-paid taxes. The amended return

related to the reclassification of foreign dividend income subsequent to the United States

Supreme Court's decision in Kraft General Foods v. Iowa, 505 U.S. 71 (1992), and not to
carryback of the 1992 capital loss.

6. The Taxpayer's refund claim filed on December 20, 1993 was resolved in October,

1994 pursuant to a closing agreement between the Taxpayer and the Department which allowed

the Taxpayer a credit for taxes previously paid for the 1989-1991 tax years.

7. Pursuant to the closing agreement, the Taxpayer was permitted to apply these credits

to its New Mexico corporate income tax liabilities for the 1994 tax year. The Taxpayer's return

for the 1994 tax year, originally due March 15, 1995, was filed on or about October 15, 1995,

pursuant to permitted extensions of time.

8. On January 17, 1995, the Taxpayer filed an amended 1989 New Mexico corporate

income tax return, reflecting deduction of a 1992 capital loss of $40,735,848 from capital gains

reported on the Taxpayer's original 1989 return. Under Internal Revenue Code §§1211 and

1212, the Taxpayer could not use the capital loss to reduce its 1992 income for state or federal

tax purposes, but was permitted to carry the loss back to 1989 to reduce income for that year.

9. The net effect of the carryback of the 1992 capital loss to the 1989 tax year was to

reduce the amount of federal taxable income reported in that year and thereby reduce the state

income taxes owed for the 1989 tax year by $64,588.

10. The Taxpayer's amended return for the 1989 tax year, reflecting a reduction in

taxable income, constituted a claim for refund by the Taxpayer.

11. On July 12, 1995, the Department denied the refund claim.

12. The Taxpayer filed a timely protest of the denial on August 10, 1995.

13. On June 24, 1992, the Taxpayer filed an amended return for the 1990 tax year,

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showing a capital loss, and filed amended returns for the 1987, 1988 and 1989 tax years,

offsetting capital gains reported for those years with the 1990 capital loss, which could not be

used to offset income reported on the 1990 federal and state tax returns. The Department

allowed the Taxpayer's refund claims for the 1987-1989 tax years.

DISCUSSION
The federal Internal Revenue Code (IRC) permits corporate taxpayers to offset capital

losses against capital gains in computing income tax. IRC §1211(a). The loss may be carried

back to the three taxable years prior to the loss year or forward to the succeeding five taxable

years. IRC §1212(a)(i). The Taxpayer's claim in this matter arises from its attempt to carry

back a capital loss sustained in 1992 to the 1989 tax year, for purposes of determining its state

tax liability.

The New Mexico Tax Administration Act provides that a claim for refund must be made

within three years of the end of the calendar year in which the tax was originally due.

§7-1-26(B)(1)(a) NMSA 1978.1 The tax at issue here is for the 1989 tax year. That tax was

due in 1990. See §7-2A-9 NMSA 1978. Thus, by the terms of §7-1-26(B), any claim for

refund was due no later than December 31, 1993. The Taxpayer's claim here was made by

means of an amended tax return filed with the Department in January of 1995, more than a year

after December 31, 1993.

Tax year at issue
The Taxpayer argues that the tax year at issue is not 1989, but 1992, the year in which the

Taxpayer incurred the capital loss that it carried back to 1989 in the amended return filed in

1
The Tax Administration Act, §7-1-26(D) NMSA 1978, provides that where an overpayment
of tax results from an audit by the IRS or from the filing of an amended federal return changing a
prior election or making any other change for which federal approval is required by the IRC, a
claim for refund may be made to the Department within one year after the date of the audit or
payment of the federal refund. The parties agree that the circumstances specified in §7-1-26(D)
do not exist here, so that the possibly extended deadline for submission of a refund claim
provided by that subsection is not at issue in this case.

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January 1995. Because the return for 1992 was not due until 1993, the Taxpayer argues that it

had until December of 1996 to carry back that loss through amendment of its 1989 return. The

Taxpayer cites no authority for this position. This is not surprising, as it is unlikely that the

Taxpayer could locate authority supporting the proposition that a return for the 1989 tax year is

in fact a return for the 1992 tax year. Amoco seeks to amend its liability for 1989 taxes, and the

applicable time limitation is that for the 1989 tax year.

Timeliness of the claim for refund
The Taxpayer was unable to apply the capital loss to reduce its tax for 1992. It therefore
hoped to carry back the loss to 1989, when it had reported a gain against which the loss could be

applied to reduce the total tax due. It had the right to do so, but was required to file the amended

return within the time period provided in the Tax Administration Act. This it failed to do.

The Taxpayer has not shown that it was prevented from filing a timely amendment to its

New Mexico return for 1989. Amoco was aware of the existence of the 1992 capital loss by

September 15, 1993, the date on which it sought a refund of federal income taxes for 1989 based

on carryback of the 1992 capital loss. Thus, this case does not present a situation where

application of the statute of limitations would be unfair because the party could not have known

of the existence of a claim prior to the expiration of the statute. Amoco apparently knew of its

claim but failed to take timely action.

Amoco also argues that the statute of limitations for the 1989 tax year was extended to

October 1995, by virtue of an amended return for 1989 that was filed by the Taxpayer in

December 1993. The closing agreement between Amoco and the Department was executed in

October 1994.2 It appears that the agreement recognized an overpayment by Amoco for 1989
and allowed the Taxpayer to apply the overpaid amount to its New Mexico tax liability for 1994.

Since that return was filed in October 1995, the Taxpayer argues that the filing deadline for the

2
That agreement is not included in the record in this matter. However, the Department does
not contest Amoco's characterization of the agreement's terms, and that description therefore is
assumed to be correct for the purposes of this decision.

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1989 return was extended to 1995, and its January 1995 amended return was therefore timely.

The amended return submitted by Amoco in December 1993 sought a refund of taxes

previously paid for the 1989 tax year, based on the reclassification of foreign dividend income

following a decision on that issue by the United States Supreme Court. Although Amoco

characterizes the December 1993 amended return as having been filed to preserve the company's

rights to redetermination of its 1989 state tax liability, the company does not contend that the

amended return made any reference to carryback of the 1992 capital loss to the 1989 tax year or

to any grounds for amendment of the original return other than the issue relating to classification
of foreign dividend income.

Again, Amoco cites no authority for the proposition that its filing of an amended return

seeking a refund on specific grounds could operate as a general reservation of the right to

redetermine its tax liability on grounds other than those raised in the amendment. The Tax

Administration Act requires that a claim for refund "state the nature of the [taxpayer's] complaint

and contain information sufficient to allow processing of the claim, except as provided in

Subsection G of this section." §7-1-26(A) NMSA 1978. Subsection G states that "[t]he filing

of a fully completed ... corporate income tax return ... constitutes the filing of a claim for refund

for the difference in tax due shown on the original and amended return." Amoco's

December 1993 amended return did not recompute tax based on the capital loss carryback and

thus did not constitute a claim for refund of that amount under §7-1-26(G). Whether a claim for

refund should be granted cannot be determined unless the nature of the claim is set forth.

Amendment of the 1989 return on one ground did not operate to reopen that return to revision on

other, unstated grounds.

Amoco also argues that the Department should allow its claim for refund,

notwithstanding the provisions of §7-1-26(B), because its carryback of the 1992 capital loss to

1989 was proper under the IRC. The Taxpayer's position is that New Mexico has adopted the

federal Code except where the state legislature has specifically enacted variances from the Code's

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provisions. Section 7-1-26 is such a specific variance. The Taxpayer's state claim is governed

by state law, and is untimely under the provisions of state statute.

Estoppel
The Taxpayer also argues that the Department has in the past allowed it to apply capital

loss carrybacks to a year as to which the statute of limitations had run. In 1992, Amoco was

allowed to apply a 1990 capital loss to 1987, 1988 and 1989, although adjustment of the 1987

liability was technically barred because more than three years had passed from the time the return

for that year was due. Although Amoco does not clearly argue estoppel in this regard, it appears
to contend that, because the Department in the past allowed a time-barred carryback, the

Department should be estopped to reject that course of action here.

The Tax Administration Act, §7-1-60 NMSA 1978, provides that the Department may be

estopped to withhold relief from a party if the party's action or inaction was in accordance with

any regulation or any written ruling addressed personally to the party. Amoco does not argue

that it relied on any such regulation or ruling. The Department therefore is not estopped by the

terms of §7-1-60.

Although statutory estoppel does not apply here, the Department still may be estopped to

deny the relief sought by the Taxpayer if right and justice demand such action. Taxation &
Revenue Department v. Bien Mur Indian Market Center, 108 N.M. 228, 770 P.2d 873 (1989).

However, estoppel against the state is applied only rarely. Rainaldi v. Public Employees

Retirement Board, 115 N.M. 650, 857 P.2d 761 (1993); Bien Mur.

In determining whether estoppel is appropriate, the conduct of both parties

must be considered. Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 427, 839

P.2d 630 (Ct.App. 1992), cert. den. 8/14/92. The following elements must be shown as to the

party to be estopped: 1) conduct that amounts to a false representation or concealment of

material facts, 2) actual or constructive knowledge of the true facts, and 3) an intention or

expectation that the other party will act on the representations. As to the party claiming

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estoppel, the following must be shown: 1) lack of knowledge of the true facts, 2) detrimental

reliance on the adverse party's representations or concealment of facts, and 3) that such reliance

was reasonable. Id. The Taxpayer, as the party alleging an estoppel, has the burden to prove all
facts necessary to support it. Continental Potash v. Freeport-McMoran, 115 N.M. 690, 858 P.2d

66 (1993), cert. den. 114 S.Ct. 1064.

Here, the Taxpayer has failed to demonstrate an essential element of estoppel: that it

relied on the Department's actions when it delayed making the claim for refund at issue in this

matter. The Taxpayer was aware by September 1993 of the 1992 capital loss and its ability to

carry that loss back to 1989 to reduce its New Mexico tax liability for that year. There is no

showing that Amoco chose to defer submitting its amended return reflecting carryback of the

1992 capital loss on the basis of the Department's earlier action permitting it to amend its 1987

return beyond the time permitted by statute.

The estoppel sought by the Taxpayer here is as to the statute of limitations and not as to

the substance of the claim. The Department does not deny that Amoco could properly amend its

1989 New Mexico tax return to carry back the 1992 capital loss; it simply argues that the

company did not do so within the time provided by law.

In order to estop a party to raise the statute of limitations as a defense, it must be shown

that the plaintiff was prevented from bringing suit within the prescribed period. Kern v. St.

Joseph Hospital, Inc., 102 N.M. 452, 697 P.2d 135, 138-39 (1985). Thus, a defendant who has

assured the plaintiff that a claim can be settled without litigation, or who has concealed facts

from the plaintiff to prevent the latter from being aware of the existence of a claim, will be barred

to assert the statute of limitations. See Molinar v. City of Carlsbad, 105 N.M. 628, 735 P.2d

1134 (1987); Kern, supra. In such circumstances, the statute is tolled until the right of action is

discovered, or until it could have been discovered through the exercise of due diligence on the

part of the plaintiff. Bolton v. Board of County Commissioners of Valencia County, 119 N.M.

355, 890 P.2d 808 (Ct.App. 1994), cert. den. 119 N.M. 311, 889 P.2d 1233 (1995).

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Here, there was no conduct by the Department to interfere with the Taxpayer claiming a

refund for 1989 within the three-year period set out in §7-1-26(B). A previous error by the

Department in allowing Amoco to recover on an untimely claim is insufficient to estop the

Department from asserting the statute of limitations here.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely protest of the Department's denial of its claim for refund

of corporate income taxes for 1989. Jurisdiction thus lies over the parties and the subject matter

of the protest.

2. The Taxpayer's claim for refund of taxes for 1989 was not submitted to the

Department until January of 1995, more than three years following the end of the calendar year in

which the tax return and payment for the 1989 tax year were originally due, and thus was barred

by the statute of limitations set out in §7-1-26(B) of the Tax Administration Act.

3. The Department is not estopped to assert the statute of limitations as a bar to the

Taxpayer's claims.

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

DONE, this 8th day of May, 1997.

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