Could New Mexico keep Ernest Aragon's 2002 income-tax refund as an offset when the Department could not prove that its 1996 assessment for 1995 tax was mailed?

Plain-English summary

The Department could not keep Ernest and Nora Aragon's $519 income-tax refund because it failed to prove that the old assessment used for the offset had ever been mailed. Without proof of timely mailing, the 1995 assessment was not valid, so there was no established liability against which to apply the 2002 refund.

The Aragons' 1995 return reported $2,112 of tax, a $1,321 prepayment, and $791 due. They sent a check for the $791 balance, but the Department's computer system could not locate the $1,321 prepayment.

Its Legacy computer system generated Assessment No. 662226 for $1,321 plus penalty and interest on June 7, 1996. Although the assessment showed the correct address, both taxpayers testified that they never received it. The Department took no collection action from 1998 through 2002.

In March 2003, the Department intercepted their $519 refund for tax year 2002 and applied it to the 1995 assessment.

A refund offset required a valid liability

Section 7-1-29(C) allowed a tax refund to be offset against tax for which the refund recipient was liable. The decisive question was therefore whether Assessment No. 662226 created a valid 1995 liability.

Under Section 7-1-17(B)(2), an assessment became effective when the notice was mailed or personally delivered. The statute did not require proof that the taxpayer actually received it, but the Department still had to prove mailing.

The taxpayers' nonreceipt testimony shifted the mailing issue

The hearing officer found both Aragons credible and accepted their testimony that the assessment was never received. Once mailing was challenged, the party relying on mail service bore the burden of proving it.

The Department pointed to a June 1996 letter in which Aragon complained generally about assessments involving earlier tax years and enclosed the Department's taxpayer-remedies publication. The decision found that neither item established receipt of this specific 1995 assessment. The publication was readily available and could have come from the earlier dispute.

Computer generation did not prove mailing

The Department's witness knew that the Legacy system generated assessments in Santa Fe but had never worked in the processing division. She could not explain how this assessment moved to the mail room, received postage, or entered the United States mail.

Her assumption that a generated assessment would have been mailed was not evidence of mailing. Possible periodic billing notices did not solve the problem because the Department kept no copies or recipient records, and a billing notice was not itself an assessment.

The limitations deadline passed without mailing proof

To establish the liability, the Department needed to show that the assessment was mailed by December 31, 1999, the end of the three-year assessment period identified in the decision. It produced no sufficient evidence that this occurred.

Result: protest GRANTED. The Department was ordered to refund the $519 intercepted from the Aragons' 2002 refund, with interest under Section 7-1-68.

Aragon separately withdrew his protest concerning penalty and interest on a 1999 income-tax assessment, so that issue was not decided.

What this means for you

Taxpayers whose refund is taken for an old assessment

Ask for the assessment notice, mailing evidence, and account history. An offset depends on an enforceable underlying liability.

Tax agencies relying on automated systems

A computer record showing that a notice was generated may not prove that it was mailed. Evidence of the actual mailing process can become critical when receipt is credibly disputed.

Taxpayers challenging mail service

Specific, credible testimony of nonreceipt can create a factual mailing dispute. General correspondence about other tax matters does not necessarily prove receipt of the notice at issue.

People reviewing limitations periods

Confirm not only when an assessment was created but when it became effective under the governing notice statute.

Common questions

Q: How much of the Aragons' 2002 refund was intercepted?
A: $519.

Q: What older amount was the Department trying to collect?
A: A $1,321 asserted prepayment shortfall for tax year 1995, plus penalty and interest.

Q: Did the decision require proof that the Aragons received the assessment?
A: No. It required proof that the assessment was mailed or personally delivered, and the Department did not prove mailing.

Q: Did the Legacy computer record establish mailing?
A: No. It established generation of the assessment but not the steps by which it entered the mail.

Q: What relief was ordered?
A: Return of the $519 refund, with statutory interest.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-29(C) — offset of a refund against tax liability
• NMSA 1978, § 7-1-17(B)(2) — assessment effective upon mailing or personal delivery
• NMSA 1978, § 7-1-18 — assessment limitations period
• NMSA 1978, § 7-1-68 — interest on refunds
• Regulation 3.1.6.12 NMAC — assessment presumption after mailing or personal delivery

Cases cited:

• Garmond v. Kinney, 91 N.M. 646, 579 P.2d 178 (1978)
• State Farm Fire and Casualty Co. v. Price, 101 N.M. 438, 684 P.2d 524 (Ct. App. 1984)
• Myers v. Kapnison, 93 N.M. 215, 598 P.2d 1175 (Ct. App. 1979)
• Estate of Griego ex rel. Griego v. Reliance Standard Life Insurance Co., 2000-NMCA-022, 128 N.M. 676, 997 P.2d 150

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ernest I. Aragon
• Decision PDF: D&O 03-24

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
ERNEST I. ARAGON
PROTEST TO OFFSET OF 2002 INCOME No. 03-24
TAX REFUND AGAINST 1995 LIABILITY
PROTEST OF PENALTY AND INTEREST
ASSESSED UNDER LETTER ID L0292458496

DECISION AND ORDER

A formal hearing on the above-referenced protest was held December 2, 2003, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department")

was represented by Javier Lopez, Special Assistant Attorney General. Ernest I. Aragon represented

himself. Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. In 1996, Ernest and Nora Aragon filed a New Mexico personal income tax return

(Form PIT-1) for the 1995 tax year.

2. The Aragons’ PIT-1 showed a tax liability of $2,112, a prepayment of $1,321, and

tax due of $791. A check for $791 was enclosed with the return.

3. Upon receipt of the Aragons’ return, the Department checked its records, but was

unable to locate the $1,321 prepayment on its computer system.

4. On June 7, 1996, an assessment in the amount of $1,321, plus interest and penalty,

was generated by the Department’s “Legacy” computer system in Santa Fe. The number

assigned to the assessment was 662226.

5. Although the address shown on Assessment No. 662226 was the Aragons’ correct

address in Albuquerque, the Aragons never received the assessment.

6. Between June 1996 and December 1997, periodic billing notices were sent to at

least some taxpayers with outstanding tax assessments. The Department did not keep copies of the

billing notices, and there is no record to indicate exactly when or to whom these notices were sent.

7. In 1997, the Department switched its personal income tax program from the

Legacy computer system to the “TRIMS” computer system.

8. In 2002, the Department switched its personal income tax program from the

TRIMS computer system to the new “GenTax” computer system.

9. During the period 1998 through 2002, the Department did not take any action to

collect the $1,321 of tax assessed against the Aragons under Assessment No. 662226.

10. In February 2003, Assessment No. 662226 was assigned to the Department’s

collection unit in Albuquerque.

11. On March 20, 2003, the Department notified the Aragons that the Department had

intercepted their $519 personal income tax refund for tax year 2002 and applied this amount to

the $1,321 of tax shown on Assessment No. 662226.

12. On April 7, 2003, Mr. Aragon filed a written protest to the Department’s offset of

his 2002 personal income tax refund.

13. On July 14, 2003, the Department issued an assessment against the Aragons under

Letter ID No. L0292458496 for $261.00 of personal income tax due for the 1999 tax year, plus

penalty and interest.

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14. On July 23, 2003, Mr. Aragon filed a written protest to the assessment of penalty

and interest on the tax due for 1999.

15. On September 11, 2003, a formal administrative hearing was scheduled for

December 2, 2003 to consider the merits of Mr. Aragon’s protest to the Department’s offset of

his 2002 refund and his protest to the assessment of penalty and interest issued under Letter ID

No. L0292458496.

16. At the December 2, 2003 hearing, Mr. Aragon withdrew his protest to the

assessment of penalty and interest issued under Letter ID No. L0292458496.

DISCUSSION

The issue raised in this protest is whether the Department’s application of the Aragons’

2002 personal income tax refund to the $1,321 of tax assessed under Assessment No. 662226 was

authorized by law. NMSA 1978, § 7-1-29(C) provides that “any amount of tax due to be refunded

may be offset against any amount of tax for the payment of which the person due to receive the

refund is liable.” Given the authority granted to the Department by this statute, the question to be

addressed is whether the Aragons are “liable” for the assessment of 1995 personal income tax

generated by the Department’s Legacy computer system in June 1996. If the assessment is a valid

assessment, the offset was proper; if the assessment is not valid, the offset was improper and the

Aragons are entitled to the return of their 2002 refund, with interest.

NMSA 1978, § 7-1-17(B)(2) states that assessments of tax are effective:

(2) when a document denominated “notice of assessment of taxes”, issued in the
name of the secretary, is mailed or delivered in person to the taxpayer against whom
the liability for tax is asserted, stating the nature and amount of the taxes assertedly
owed by the taxpayer to the state, demanding of the taxpayer the immediate
payment of the taxes and briefly informing the taxpayer of the remedies available to
the taxpayer….

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In this case, the evidence establishes that Assessment No. 662226, addressed to the Aragons at

their Albuquerque address, was generated by the Department’s Legacy computer system on or

about June 7, 1996 (Department Exhibits 2000 E and 2000 G). Mr. Aragon has consistently

maintained that he never received the Department’s assessment. Mrs. Aragon also testified that

the assessment was never received.

Although NMSA 1978, § 7-1-17 does not require proof of receipt by the taxpayer, it does

require proof of mailing. Department Regulation 3.1.6.12 NMAC confirms that the presumption

of correctness that applies to Department assessments attaches only after the assessment “has

been mailed or personally delivered to a taxpayer….” There is a presumption that a properly

addressed letter that is mailed will be received by the addressee. Garmond v. Kinney, 91 N.M.

646, 647, 579 P.2d 178, 179 (1978). The addressee may rebut this presumption by introducing

evidence that the letter was not received. State Farm Fire and Casualty Co. v. Price, 101 N.M.

438, 443, 684 P.2d 524, 529 (Ct. App.), cert. denied, 101 N.M. 362, 683 P.2d 44 (1984),

overruled on other grounds, Ellingwood v. N.N. Investors Life Ins. Co., 111 N.M. 301, 805 P.2d

70 (1991). When a mailing is challenged, the “party relying on service by mail has the burden of

proving the mailing.” Myers v. Kapnison, 93 N.M. 215, 217, 598 P.2d 1175, 1177 (Ct. App.

1979).

In Myers, the court found that the existence of a transmittal memorandum and an

attorney’s certificate of mailing was not sufficient to establish that the legal document at issue

was mailed. As stated by the court:

Unchallenged, the attorney's certificate was sufficient proof of mailing.
Timmons v. United States, 194 F.2d 357 (4th Cir. 1952). Here, the fact of
mailing was challenged. Four affidavits were submitted on behalf of plaintiff….

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These affidavits raised a factual question as to whether the answer was mailed
on November 3, 1978.

The transmittal memorandum says nothing about mailing. The attorney's
certificate concludes that the answer was mailed, but states nothing in support of
that conclusion. There is no reference to postage or to placing in a mail box of
any kind. See Davis v. Pennsylvania R.R., 7 F.R.D. 622 (N.D. Ohio E.D. 1947).
Compare the certificate in Timmons v. United States, supra. See N.M. Crim.
App. 301(b) which states: "'Mailing' shall include deposit in an outgoing mail
container which is maintained in the usual and ordinary course of business of
the serving attorney."

93 N.M. at 216-217, 598 P.2d 1175, 1176-1177. See also, Estate of Griego ex rel. Griego v.

Reliance Standard Life Insurance Co., 2000-NMCA-022, ¶¶ 40-42, 128 N.M. 676, 685, 997 P.2d

150, 159 (testimony of non-receipt was sufficient to create a factual question as to whether

insurance company properly mailed a premium notice).

In this case, Mr. Aragon challenged the mailing of Assessment No. 662226. In support of

its position that the Aragons received the assessment, the Department introduced a June 20, 1996

letter from Mr. Aragon concerning a refund application he filed for the 1990-1993 tax years. In his

letter, Mr. Aragon maintains that the “collection of taxes entails more than simply computing taxes,

interest and penalties, and making the assessments: you must also establish communication and

coherent rapport with the taxpayer to resolve an issue.” The letter also states that “[s]imply making

an assessment while ignoring the taxpayer amounts to repressive government….” The Department

maintains that Mr. Aragon’s references to “the assessments” and “an assessment” serve as proof

that he received Assessment No. 662226. There is nothing in these references, however, to indicate

that Mr. Aragon received the particular assessment at issue in this case. His letter sets out his

general dissatisfaction with the Department’s actions and procedures and states that his complaints

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involve his 1990-1993 returns. There is no reference in the letter to Assessment No. 662226 or to

personal income taxes due for the 1995 tax year.

The Department also points out that Mr. Aragon’s June 1996 letter enclosed a copy of

Department publication FYI-402 on taxpayer remedies. Because it is the Department’s practice to

include FYI-402 with all assessments, the Department argues that the copy of FYI-402 enclosed

with Mr. Aragon’s letter must have been the copy sent to him with Assessment No. 662226. There

is no basis for this conclusion. Publication FYI-402 is readily available to taxpayers, and Mr.

Aragon could have obtained a copy in any number of ways. The evidence shows that Mr. Aragon

had an ongoing dispute with the Department long before Assessment No. 662226 was generated,

and it is reasonable to assume that the copy of FYI-402 included with Mr. Aragon’s letter was

provided to him in connection with that earlier dispute. Mr. Aragon’s June 1996 letter actually

lends support to his assertion that he never received Assessment No. 662226. Given his history of

vigorously protesting any Department action (or inaction) taken in connection with his personal

income taxes, it would have been completely out of character for Mr. Aragon to ignore receipt of an

assessment of tax for the 1995 tax year.

I find that the Aragons were credible witnesses and accept their testimony that they never

received the Department’s assessment of 1995 tax. This places the burden on the Department to

come forward with evidence to establish that the assessment was properly mailed. Myers, supra.

No evidence was introduced on this issue. Shannon Baxter, the acting bureau chief of the

Department’s collection unit in Albuquerque, testified that assessments issued by the Legacy

system were generated and mailed by the Department’s Revenue Processing Division in Santa Fe.

Ms. Baxter conceded that her knowledge of the Legacy system was limited and that she had never

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worked in the Revenue Processing Division. Ms. Baxter did not provide any testimony to explain

the process by which a 1996 assessment generated by the Legacy system would have been

transported to the Department’s mail room, how postage would have been affixed, or how the

assessment would have been deposited with the United States Postal Service. Her assumption that

once Assessment No. 662226 was generated it would have been properly mailed to the taxpayers

does not constitute evidence of mailing.1

Ms. Baxter also testified that periodic billing notices were generated by the Legacy system

up through December 1997, when the Department switched its personal income tax program to the

TRIMS computer system. Ms. Baxter said that billings were sent out either monthly or quarterly at

the direction of management. The Department did not keep copies of billing notices, however, and

there is no record to indicate exactly when or to whom notices were sent between June 1996 (the

date appearing on Assessment No. 662226) and December 1997. Although Ms. Baxter testified

that billing notices were generated and mailed from Santa Fe during this period, she did not provide

any information to explain the mailing process. Such evidence would have minimal value in any

event, since billing notices do not constitute assessments. In order to establish the Aragons’

liability for 1995 personal income tax, and thereby justify the offset of their 2002 refund, the

Department was required to show that an

1
Prior to the December 2, 2003 hearing, Mr. Aragon notified the Department that he wanted to call the “person
responsible for programming the computer handling the taxpayer’s assessment in 1996” and the “person responsible
for administering…Assessment Number 662226.” The Department responded that it did not know the identities of
these persons. There is no indication that the Department made any effort to locate other Department employees
who might have first-hand knowledge of the Legacy computer system and the procedures for mailing assessments
generated by the system.

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assessment of taxes was mailed to the taxpayers on or before December 31, 1999, the end of the

three-year limitations period set out in NMSA 1978, § 7-1-18. The Department failed to present

sufficient evidence to meet its burden of proof on this issue.

CONCLUSIONS OF LAW

1. Ernest I. Aragon filed a timely, written protest to the Department’s offset of his

2002 personal income tax refund, and jurisdiction lies over the parties and the subject matter of this

protest.

2. The Department failed to meet its burden of proving that Assessment No. 662226

was mailed to Mr. Aragon on or before December 31, 1999.

3. Without proof of mailing, Assessment No. 662226 does not constitute a valid

assessment under NMSA 1978, § 7-1-17, and the Department may not apply tax refunds due to Mr.

Aragon against the liability shown on that assessment.

For the foregoing reasons, Mr. Aragon’s protest IS GRANTED. The Department is ordered

to refund the $519 of personal income tax due to the Aragons for tax year 2002, with interest as

provided in NMSA 1978, § 7-1-68.

DATED December 29, 2003.

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