Could taxpayers recover a $371 New Mexico income-tax overpayment when the Department failed to credit their estimated payment but they did not act within 210 days after filing the refund claim?

Plain-English summary

Gene F. and Gail G. Mortensen lost a valid $371 income-tax overpayment because they did not preserve their refund claim after the Department failed to act. The Department had made an accounting error, but Section 7-1-26 placed responsibility on the taxpayers to confront that inaction within the statutory window.

The Mortensens' 1998 New Mexico personal income tax return was due April 15, 1999. They did not file it then, but they did send the Department a $1,600 check for their estimated liability.

The Department failed to credit that payment to 1998. On April 12, 2002, the Mortensens filed the late return reporting $1,263 of tax, a $33 prescription-drug credit, $1 of withholding, and the $1,600 estimated payment. Those figures produced a $371 refund claim.

The Department took no action. The taxpayers did not inquire until July 2003, when they learned that the estimated payment had not been credited. The Department corrected its records, confirming the $371 overpayment, but then denied the refund.

Inaction triggered a 210-day preservation deadline

Under Section 7-1-26(B)(2), if the Department neither granted nor denied a refund claim within 120 days, the taxpayer could refile or had 90 additional days to choose one remedy under Subsection C: an administrative protest or a district-court action.

The Mortensens did neither. Their April 12, 2002 claim became time-barred on November 8, 2002, the 210th day after filing.

At that point, their remaining option was to refile before December 31, 2002, the end of the three-year refund period applied in the decision. They did not do that either.

The Department's payment error did not preserve the claim

The August 2003 denial letter gave an erroneous explanation: it said the original claim had not been filed within the three-year period. The decision nevertheless denied the refund on a different statutory ground—the taxpayers' failure to act after Department inaction.

The Court of Appeals authority cited in the decision described the deadline as placing the burden of maintaining an active refund claim on the taxpayer.

The taxpayers' late filing also reduced the time available to discover and correct the payment problem. Because they filed the return almost three years after its original due date, only months remained in the three-year period.

Result: protest DENIED. The $371 overpayment could not be refunded.

What this means for you

Taxpayers with an unanswered refund claim

Calendar the 120-day and 210-day points from filing. Agency silence can trigger a deadline to protest, sue, or refile rather than preserve the claim automatically.

Taxpayers making estimated payments

Keep proof of payment and verify that the amount appears on the correct account and year. An uncredited payment can go unnoticed if the return or refund follow-up is delayed.

Late filers expecting a refund

Filing near the end of the refund limitations period leaves little room to restart the claim if the Department does not act.

Taxpayers receiving a denial with a questionable reason

Protest within the stated deadline. Even where the Department's explanation was wrong, another statutory bar ultimately defeated this claim.

Common questions

Q: Did the Mortensens actually overpay?
A: Yes. Once the $1,600 estimated payment was credited correctly, the overpayment was $371.

Q: Why was the refund still denied?
A: They did not protest or sue within 210 days after filing the claim and did not timely refile it.

Q: When did the original claim become barred?
A: November 8, 2002.

Q: What was the final date to refile under the decision?
A: December 31, 2002.

Q: Did the Department's own error excuse the missed deadlines?
A: No. The decision treated the failure to preserve the claim as the direct cause of the lost refund.

Citations and references

Statute:

• NMSA 1978, § 7-1-26(B)(1) — remedy after written refund denial
• NMSA 1978, § 7-1-26(B)(2) — remedies after Department inaction
• NMSA 1978, § 7-1-26(C) — administrative protest or district-court action
• NMSA 1978, § 7-1-26(D)(1) — three-year refund-claim limitation

Case cited:

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

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Gene F. and Gail G. Mortensen
• Decision PDF: D&O 05-03

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
GENE F. AND GAIL G. MORTENSEN No. 05-03
TO REFUND DENIAL ISSUED UNDER
LETTER ID NO. L0870797312

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on March 2, 2005,

before Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department

("Department") was represented by Susanne Roubidoux, Special Assistant Attorney General.

Gene F. Mortensen appeared on behalf of himself and his wife. Based on the evidence

and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayers are New Mexico residents.

2. The Taxpayers’ 1998 New Mexico personal income tax return was due on

or before April 15, 1999.

3. The Taxpayers did not file their 1998 return by the statutory due date.

4. The Taxpayers did, however, mail a check to the Department on April 15,

1999 in the amount of $1,600 to cover their estimated 1998 New Mexico personal income

tax liability.

5. The Department failed to credit the Taxpayers’ $1,600 check to their 1998

estimated personal income tax payments.

6. On April 12, 2002, the Taxpayers filed their 1998 state income tax return

reporting a tax liability of $1,263, a credit for prescription drugs of $33, withholding tax

of $1, and estimated payments of $1,600, resulting in a refund due of $371.

7. The Department took no action on the Taxpayers’ refund request.

8. The Taxpayers did not make any inquiry as to why their $371 refund of

1998 income tax had not been granted until July 2003, when they learned that the $1,600

estimated payment made in April 1999 had not been credited to their account.

9. The Department subsequently corrected its records by applying the $1,600

payment to the Taxpayers’ 1998 tax liability, resulting in an overpayment of $371.

10. On August 13, 2003, the Department sent the Taxpayers a letter stating that

their $371 claim for refund of 1998 personal income taxes 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.

11. On November 4, 2003, the Taxpayers filed a protest to the Department’s

letter denying their claim for refund.

DISCUSSION

The issue to be decided is whether the Taxpayers are entitled to the $371 refund

requested on their 1998 New Mexico personal income tax return, which was filed on April

12, 2002. The Department maintains that it is statutorily barred from granting the refund,

citing to the provisions of NMSA 1978, § 7-1-26. At the time the Taxpayers filed their

claim for refund in April 2002, that statute read, in pertinent part:

2
B. The secretary or the secretary's delegate may allow the claim
in whole or in part or may deny the claim.

(1) If the claim is denied in whole or in part in writing,
no claim may be refiled with respect to that which was denied but
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 Subsection C of this section.

(2) 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 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 Subsection C of this section. After the expiration
of the two hundred ten days from the date the claim was mailed or
delivered to the department, the department may not approve or
disapprove the claim unless the person has pursued one of the
remedies under Subsection C of this section. (Emphasis added)

C. A person may elect to pursue one, but only one, of the
remedies in Paragraphs (1) and (2) of this subsection….

(1) the person may direct to the secretary a written
protest against the denial of, or failure to either allow or deny the
claim or portion thereof,…or

(2) the person may commence a civil action in the district
court for Santa Fe county….

In this case, the Taxpayers filed their claim for refund on April 12, 2002. The Department

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

order to preserve their claim, the Taxpayers were required to file an administrative protest

or a civil suit in district court within 90 days after the expiration of the initial 120-day

period. The Taxpayers did neither. As a result, their refund claim was time barred on

November 8, 2002, the 210th day from the date the claim was filed. At that point, the

3
Taxpayers’ only remaining option was to refile the claim before December 31, 2002, the

end of the three-year statute of limitations set out in NMSA 1978, § 7-1-26(D)(1) (2001).

Again, the Taxpayers failed to take the action required and have now lost the opportunity

to recover their $371 overpayment.

At the administrative hearing, the Taxpayers argued that they should not be

penalized for the Department’s error in failing to properly credit their April 1999

estimated payment. While not to be condoned, this error was only one of the factors

leading to the present situation. The direct cause of the Taxpayers’ loss of their refund

was their failure to take action to protect their claim within the 210 days set out in § 7-1-

26. In Kilmer v Goodwin, Secretary, New Mexico Taxation and Revenue Department,

2004 NMCA 122, 99 P.3d 690, the New Mexico Court of Appeals 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.

In this case, the problem was compounded by the Taxpayers’ failure to file their

1998 tax return on time. Had they done so, the Department’s error in crediting their

estimated payment would have been discovered soon enough to allow the Taxpayers to

refile their claim before the expiration of the three-year statute of limitations. By the time

the Taxpayers filed their return in April 2002—three years after the statutory due date—

there were only a few months left on the limitations period. By the time the Taxpayers

4
called the Department in July 2003 to inquire as to why the refund had not been granted, it

was too late to refile their claim and restart the 210-day period within which the

Department could act.

CONCLUSIONS OF LAW

1. The Taxpayers filed a timely, written protest to the Department’s August 13,

2003 letter denying their claim for refund, and jurisdiction lies over the parties and the

subject matter of this protest.

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

failure to act on their claim for refund within the time period provided in NMSA 1978, § 7-

1-26, the Taxpayers’ claim is time barred and cannot be granted.

For the foregoing reasons, the Taxpayers’ protest is DENIED.

DATED March 7, 2005.

5