Could a taxpayer recover a $258 New Mexico income-tax overpayment when the Department failed to credit a $2,700 check but he waited six years to follow up on the refund claim?

Plain-English summary

Fred W. Schonfeld lost a valid $258 income-tax overpayment because he did not act within the statutory period after the Department failed to process his refund claim. The Department's failure to credit his $2,700 estimated payment did not keep the claim open indefinitely.

In April 1997, Schonfeld requested more time to file his 1996 returns and sent the Department a $2,700 check for estimated New Mexico tax. He wrote “1996 Tax” on the check but did not include his Social Security number, so the Department did not credit it to his account.

His October 15, 1997 return reported $7,642 of tax, $7,900 of prepayments including that check, and a $258 refund.

Because the payment was missing from the account, the Department did not issue the refund. It instead assessed $2,442 of additional tax plus penalty and interest in December 1997. Schonfeld did not recall receiving the assessment.

He made no inquiry about the missing refund for six years. In July 2003, a statement of account led his accountant to discover the uncredited payment. The Department corrected the account, confirming the $258 overpayment, but denied the refund.

Schonfeld had 210 days to preserve the claim

Under the version of Section 7-1-26(B) applied in the decision, the Department had 120 days to grant or deny the October 1997 claim.

After no action during that period, Schonfeld had 90 more days to file an administrative protest or a district-court action. He did neither.

The claim became time-barred on May 13, 1998, the 210th day after it was filed. His remaining option was to refile within the separate three-year period, but he did not do that either.

A late denial did not revive the refund

The Department's August 2003 letter incorrectly said the claim had not originally been filed within three years. Schonfeld timely protested that letter.

But the Court of Appeals authority cited in the decision held that a Department denial issued after the 210-day period cannot restart the taxpayer's time to protest or sue. Allowing that result would erase the Legislature's definite inaction deadline.

The Department's bookkeeping error established the overpayment, but Schonfeld's failure to maintain an active claim prevented its recovery.

Result: protest DENIED. The $258 overpayment could not be refunded.

What this means for you

Taxpayers mailing estimated payments

Include the taxpayer identifier, tax year, and payment purpose required to route the money correctly, and keep proof of delivery and cancellation.

Taxpayers waiting for a refund

Follow up promptly and calendar the statutory inaction periods. Six years of silence left this taxpayer far outside every available remedy.

Taxpayers with an uncredited payment

An accounting correction may prove an overpayment without making the refund legally payable if the claim-preservation deadlines have expired.

Taxpayers receiving a late denial

Do not assume a new denial letter revives an older silent claim. The decision applied the original 210-day period.

Common questions

Q: Why was the $2,700 check not credited?
A: It identified “1996 Tax” but omitted Schonfeld's Social Security number.

Q: Was there a real overpayment?
A: Yes. Correcting the payment produced a $258 overpayment.

Q: When did the refund claim become time-barred?
A: May 13, 1998.

Q: Did the 2003 denial letter restart the deadline?
A: No. A denial after the 210-day period could not revive the claim.

Q: What happened to the $258?
A: The Department was statutorily barred from refunding it.

Citations and references

Statute:

• NMSA 1978, § 7-1-26(B) — remedies after refund denial or Department inaction
• NMSA 1978, § 7-1-26(C) — three-year period to refile refund claim

Case cited:

• Kilmer v. Goodwin, 2004-NMCA-122, 99 P.3d 690

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Fred W. Schonfeld
• Decision PDF: D&O 05-02

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
FRED W. SCHONFELD No. 05-02
TO REFUND DENIAL ISSUED UNDER
LETTER ID NO. L0801591296

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 11, 2005, before

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

was represented by Susanne Roubidoux, Special Assistant Attorney General. Fred W. Schonfeld

(“Taxpayer”) was represented by James A. Dinkel, CPA. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a New Mexico resident.

2. In April 1997, the Taxpayer applied for an extension of time to file his 1996

personal income tax returns. At that time, the Taxpayer sent the Department a check in the

amount of $2,700 to cover his estimated New Mexico income tax liability.

3. The Taxpayer noted “1996 Tax” on his check, but did not include his social

security number. As a result, the Department did not credit the check to the Taxpayer’s 1996

estimated payments.

4. On October 15, 1997, the Taxpayer filed his 1996 state income tax return

reporting a tax liability of $7,642, prepayments of $7,900 (which included the $2,700 payment

made in April 1997), and a refund due of $258.

5. Because the Taxpayer’s $2,700 check had not been credited to his account, the

Department did not grant the Taxpayer’s refund request. Instead, the Department issued an

assessment to the Taxpayer on December 17, 1997, assessing him for $2,442 of additional tax,

plus penalty and interest.

6. The Taxpayer does not recall receiving the December 17, 1997 assessment.

7. During the following six years, the Taxpayer did not make any inquiry as to why

his $258 refund of 1996 income tax had not been granted, nor did he take any action to protest

the Department’s failure to act on his refund claim.

8. In July 2003, the Department sent the Taxpayer a “Statement of Account for

Personal Income Tax” showing the outstanding balance on the December 17, 1997 assessment

issued against the Taxpayer.

9. The Taxpayer took the Statement of Account to his accountant, who called the

Department and discovered that the Taxpayer’s April 1997 estimated payment had not been

credited to his account and that this had created the assessed deficiency.

10. The Department subsequently corrected its records by applying the $2,700

payment to the Taxpayer’s 1996 tax liability, resulting in an overpayment of $258.

11. On August 14, 2003, the Department sent the Taxpayer a letter stating that his

$258 claim for refund for the 1996 tax year had been denied. That letter erroneously stated that

the claim was denied because it had not been filed within the three-year period required by

NMSA 1978, § 7-1-26.

12. On August 26, 2003, the Taxpayer filed a protest to the Department’s letter

denying his claim for refund.

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DISCUSSION

The issue to be decided is whether the Taxpayer is entitled to the $258 refund requested on

his 1996 New Mexico income tax return. The Department maintains that it is statutorily barred

from granting the refund, citing to the provisions of NMSA 1978, § 7-1-26(B). At the time the

Taxpayer filed his claim for refund in October 1997, that statute read as follows:

B. The secretary or the secretary's delegate may allow the claim in whole
or in part or may deny the claim. If the claim is denied in whole or in part in
writing, the claim may not be refiled. If the claim is not granted in full, the person,
within ninety days after either the mailing or delivery of the denial of all or any
part of the claim, may elect to pursue one, but not more than one, of the remedies
in Paragraphs (1) and (2) of this subsection. [Paragraph 1 provides for the filing
of an administrative protest; Paragraph 2 provides for the filing of a suit in district
court.] If the department has neither granted nor denied any portion of a
claim for refund within one hundred twenty days of the date the claim was
mailed or delivered to the department, the department may not approve or
deny the claim but the person may refile it within the time limits set forth in
Subsection C of this section or may within ninety days elect to pursue one,
but only one, of the remedies in Paragraphs (1) and (2) of this subsection.
(Emphasis added.)

In this case, the Taxpayer filed his claim for refund on October 15, 1997. The Department did

not take any action to approve or deny the claim during the following 120 days. In order to

preserve his claim, the Taxpayer was required to file an administrative protest or a suit in district

court within 90 days after the expiration of the initial 120-day period. The Taxpayer did neither.

As a result, his refund claim was time barred on May 13, 1998, the 210th day after the day it was

filed. At that point, the Taxpayer’s only remaining option was to refile the claim within the

three-year period allowed in NMSA 1978, § 7-1-26(C). Again, the Taxpayer failed to take the

action required and has now lost the opportunity to recover his $258 overpayment.

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At the administrative hearing, the Taxpayer’s certified public accountant admitted that he

has never read the statutory provisions relating to taxpayer refunds. He nonetheless argues that

the Taxpayer should not be penalized for the Department’s error in failing to properly credit his

April 1997 estimated payment. The Taxpayer’s accountant believes the Department should grant

the Taxpayer’s refund, even though the Taxpayer failed to protect his claim by filing an

administrative protest or a suit in district court.

The New Mexico Court of Appeals recently considered—and rejected—a similar

argument raised by the taxpayers in Kilmer v Goodwin, Secretary, New Mexico Taxation and

Revenue Department, 2004 NMCA 122, 99 P.3d 690. In that case, the court found that the

purpose of the time deadline in § 7-1-26 is to avoid stale claims, and that “[t]he time deadline

places the burden of maintaining an active claim on the taxpayer and makes it the taxpayer's

responsibility to confront the Department inaction.” Kilmer, 2004 NMCA 122, ¶ 16. The court

further found that the Department’s erroneous denial of a refund claim after the 210-day period

has elapsed cannot serve to revive the claim, stating:

If we were to accept Taxpayers' argument, we would be undermining the
legislature's definite time limit. A construction of Section 7-1-26 that allows a
taxpayer ninety days to protest or file a civil action when the Department issues a
written denial after the 210-day period has run would read the 210-day period out
of the statute and potentially extend the time limit well beyond 210 days. We will
not do so without a clear indication from the legislature.

Id., 2004 NMCA 122, ¶ 20.

The plain language of § 7-1-26, and the interpretation of that statute by the New Mexico

Court of Appeals, support the Department’s position that once the initial 120-day period for

acting on the Taxpayer’s claim had expired, the Taxpayer was required to take action to protect

his claim by filing an administrative protest or an action in district court. Because the Taxpayer

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did neither, and because the time for refiling the claim has passed, the Taxpayer is foreclosed

from recovering his $258 overpayment of 1996 personal income tax.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s August 14, 2003

letter denying his claim for refund, and jurisdiction lies over the parties and the subject matter of

this protest.

2. Because the Taxpayer did not take any action to challenge the Department’s failure

to act on his claim for refund within the time period provided in NMSA 1978, § 7-1-26, the

Taxpayer’s claim is time barred and cannot be granted.

For the foregoing reasons, the Taxpayer's protest is DENIED.

DATED January 12, 2005.

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