Could Peter Sinclaire and Elizabeth Durston receive a $60 refund from their 2004 New Mexico income tax return when they applied after the deadline?

Plain-English summary

Peter Sinclaire and Elizabeth Durston could not recover a $60 overpayment from their 2004 New Mexico personal income tax return because their written refund claim arrived after the statutory deadline. Their reliance on oral Department information and their claimed failure to receive the enclosed application did not establish estoppel.

On September 15, 2008, the Department sent the taxpayers a letter stating that they had overpaid their 2004 return by $60. Department protocol was to include instructions and a blank refund application with that notice.

The taxpayers acknowledged receiving the letter but said they did not receive the application or its instructions. They also said a Department employee gave them the impression that the money could be applied to their 2008 taxes without completing the refund form.

They did not submit an application until February 5, 2009. The Department denied it eight days later as untimely.

The claim deadline ended December 31, 2008

The 2004 personal income tax return was due April 15, 2005. Applying the decision's three-year rule from the end of the calendar year in which payment was originally due, the last day for a claim was December 31, 2008.

The February 5 application missed that outer limit. The decision treated the statutory language as clear and definite and held that taxpayers carry responsibility for timely maintaining a refund claim.

The letter itself required an application

Even assuming the blank form and separate instructions were missing, the notice told the taxpayers what to do. It said to complete Application for Tax Refund RPD-41071 and mail it with the letter to receive a refund check.

The same letter said that anyone wanting the overpayment applied to another tax liability or program also had to complete the application and identify the program, reporting period, and amount.

The hearing officer found that the letter put the taxpayers on notice that action was required. A reasonably prudent person who did not understand the process had to make inquiries rather than assume that the state would act automatically.

Oral statements did not establish estoppel

Estoppel against the state required reasonable reliance and affirmative government misconduct, and it could not compel action contrary to an express statute.

The taxpayers relied on an employee's oral statements, but the written letter said an application was necessary. New Mexico cases distinguished reliance on written government representations from reliance solely on oral advice and treated the latter as unreasonable on these facts.

There was also no affirmative misconduct. The Department notified the taxpayers of the overpayment before the deadline and described both the refund and transfer procedures.

Result: protest DENIED. The $60 refund claim remained time-barred.

What this means for you

Individuals receiving an overpayment notice

File the written refund application immediately, even if the Department identified the credit first. A notice of available money is not itself the taxpayer's claim.

Taxpayers wanting a credit transferred

Do not assume the Department will automatically move an overpayment to another year or tax program. Follow the written transfer procedure and submit all requested identifying information.

Anyone relying on telephone guidance

Compare oral guidance with the written notice and governing deadline. If they conflict or the form is missing, request written clarification before time expires.

Common questions

Q: How much was the overpayment?
A: $60 from the taxpayers' 2004 personal income tax return.

Q: When did the decision say the deadline expired?
A: December 31, 2008.

Q: When was the application filed?
A: February 5, 2009.

Q: Did the taxpayers have to file a form to apply the money to 2008 taxes?
A: Yes. The Department's letter said the refund application was required for that transfer too.

Q: Why did estoppel fail?
A: The written notice called for an application, reliance on contrary oral information was not reasonable, and no affirmative misconduct was shown.

Citations and references

Statutes:

• NMSA 1978, § 7-1-27(A) (2007) — written refund-claim procedure cited in the discussion
• NMSA 1978, § 7-1-26(D) — three-year limitation identified in the conclusions
• 26 U.S.C. § 6511 — federal refund limitation discussed by comparison

Cases cited:

• In the Matter of the Protest of Val Kilmer and Joanne Whalley v. Goodwin, 2004-NMCA-122
• Wisznia v. State, Human Services Department, 1998-NMSC-011
• Rainaldi v. Public Employees Retirement Board, 115 N.M. 650, 857 P.2d 761 (1993)
• Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)
• Maso v. State Taxation and Revenue Department, Motor Vehicle Division, 136 N.M. 161, 96 P.3d 286 (2004)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Peter Sinclaire and Elizabeth Durston
• Decision PDF: D&O 10-06

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 No. 10-06
PETER SINCLAIRE and ELIZABETH DURSTON
TO DENIAL OF REFUND ISSUED UNDER
LETTER ID NO. L0154758528.

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on February 23, 2010, before

Sally Galanter, Hearing Officer. The Taxation and Revenue Department ("Department") was

represented by Ida Lujan, Special Assistant Attorney General. Mr. Peter Sinclaire and Ms.

Elizabeth Durston (“Taxpayers”) appeared representing themselves. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 15, 2008, the Department sent Taxpayers a letter notifying them

that they had made an overpayment in the amount of $60.00 on the 2004 personal income tax

return. (Department Exhibit A)

2. The Department’s protocol is to mail along with the notice of overpayment

instructions the blank application for refund form. (Department Exhibit A)

3. Taxpayers completed the application for refund on February 5, 2009 and delivered

it to the Department on the same date. (Department Exhibit B)

4. By letter dated February 13, 2009, the Department notified Taxpayers that the

refund request was denied based on the claim being filed late as it was not filed within three

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years of the end of the calendar year in which payment was due. The Department enclosed

information for Taxpayers to protest the denial of refund. (Department Exhibit C)

5. On February 26, 2009 Taxpayers filed a written protest to the Department’s denial

of their refund claim. (Department Exhibit D).

6. On March 11, 2009 the Department acknowledged receipt of the protest.

7. The Department requested a hearing on November 5, 2009.

DISCUSSION

The issues to be decided are whether Taxpayers are entitled to a refund of the

overpayment made on their 2004 personal income tax return and whether estoppel should be

applied against the Department. Taxpayers claim that while they received the Department’s

letter dated September 15, 2008, they never received the instructions to the application for

refund. They also argued that the information from an employee of the Department gave them

the impression that they would be able to have the refund applied to their 2008 taxes and that it

was not necessary to complete the refund application. Taxpayers claim that no one told them that

there was a deadline for the refund claim or that an application for refund must be completed.

Refund. NMSA 1978, §7-1-27 (A) (2007) allows an individual who is owed a refund to

claim the refund “by directing to the secretary, within the time limited by the provisions of

Subsections D, E and F of this section, a written claim for refund.” The applicable subsection D

limits the possibility of obtaining a refund, stating that “no credit or refund of any amount may be

allowed or made to any person unless as the result of a claim made by that person as provided in

this section: (1) within three years of the end of the calendar year in which: (a) the payment was

originally due…”

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The refund was for an overpayment of taxes for the tax year 2004. The tax return was due

April 15, 2005. In counting the three years, December 31, 2008 would have been the last date for

which a claim for refund could be made and be within the statutory requirement of within “three

years of the calendar year in which payment was originally due. The claim for refund was

delivered to the Department on February 5, 2009.

The question as to whether the application for the refund being submitted by Taxpayers is

time barred based on the time restraints in the statute was recently answered in the Court of

Appeals decision, In the matter of the protest of Val Kilmer and Joanne Whalley v. Jan Goodwin,

Secretary, New Mexico Taxation and Revenue, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690.

While this case dealt with a request for a refund claim based on the Department’s inaction in

approving or denying the claim, the court determined that the legislature has placed the “burden

of maintaining an active claim on the taxpayer.” The court explained that the legislature has

allocated the responsibility to taxpayers as “it is the taxpayer who can more easily keep track of

the status of a refund claim.” ¶16. In Kilmer, the court determined that legislative intent in

creating the statute is paramount and that “when the language is free from ambiguity, we will not

resort to any other means of interpretation.” ¶18. The court then determined that the time

deadlines as set out in the statute have a “clear and definite outer limit” (¶19) and that Taxpayer’s

argument would undermine the legislature’s definite time limit. ¶20. The policy reasons for

having a statute of limitations for claims for refund are clear. It would be fiscally irresponsible

for the State if it allowed claims for refund to be filed at any time. Therefore as the time

limitation for requesting a refund and submitting the application for refund is clear and definite

and as the claim was made after this deadline, the claim for refund is time barred by the statute.

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Equitable Estoppel. Taxpayers claim that the refund should be allowed based on information they

obtained from a Department employee arguing that the Department had an obligation to notify them

as to the deadline for applying for the refund. They claim that the Internal Revenue Service has a

protocol for returning refunds to taxpayers when there is an overpayment and that the cover letter

notifying Taxpayers of a potential refund should notify Taxpayers of the time deadline for applying

for the refund. It should be noted that the Internal Revenue Service has a statute of limitations for

claims for refunds. See IRC Title 26, subtitle F, Chapter 66, paragraph 6511 and IRC publication

556.

Previously our courts have determined that estoppel will not be applied against a state

governmental entity “unless there is a shocking degree of aggravated and overreaching conduct

or where right and justice demand it.” Wisznia v. State, Human Servs. Dep’t, 1998-NMSC-11,

P17, 125 N.M. 140, 958 P.2d 98. Additionally, “Estoppel cannot lie against the state when the

act sought would be contrary to the requirements express by statute.” Rainaldi v. Pub Employees

Ret. Bd., 115 NM 650, 658-59, 857 P.2d 761, 769-70 (1993). In determining whether estoppel is

appropriate, the conduct of both parties must be considered Gonzales v. Public Employees

Retirement Board, 114 NM 420, 427, 839 P.2d 630, 637, cert. denied, 114 Nm 227, 836 P.2d

1248 (1992).

In Kilmer, ¶27, the court sets out that an individual seeking to establish estoppel against

the government must prove:

(1) the government knew the facts; (2) the government
intended its conduct to be acted upon or so acted that
plaintiffs had the right to believe it was so intended; (3)
plaintiffs must have been ignorant of the true facts; and (4)
plaintiffs reasonably relied on the government’s conduct to
their injury…the party seeking to establish estoppel must

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show that reliance was reasonable). In addition to these four
factors the plaintiff must demonstrate ‘affirmative
misconduct on the part of the government.’”

In examining the conduct of both parties, the courts have been willing to grant estoppel

when a party has relied on written representations but unwilling to grant estoppel when a party

has relied solely on oral representations. See Bien Mur Indian Ctr., 108 NM 228, 231, 770 P.2d

873, 876 (refusing to apply estoppel when only oral representations were made and relied on).

Here, Taxpayers claim that they relied on the oral representations of an employee of the

Department’s Santa Fe office. The oral statements of a Department employee do not give rise to

estoppel. The Department’s written communications with Taxpayers (Department A) notified

them as to the refund for 2004 taxes and notified them of forms to complete either for obtaining

the refund or applying the refund to a subsequent tax liability. In Bien Mur, 108 N.M. at 231, 770

P.2d at 876, the court held that the taxpayer “did not act reasonably in relying on the oral

representation of the Department.”

Further, in considering the conduct of both parties to determine whether or not estoppel

should apply against the government, Taxpayers acknowledge having received Department

Exhibit A although denying receipt of the attached application instructions and application for

refund. The letter itself, which is acknowledged as received, provides sufficient information to

place Taxpayers on notice to complete the application for refund and provide sufficient

information such that the Department has information as to its proper allocation. The letter states,

“If after reviewing your records you agree that you have overpaid, complete the enclosed

Application for Tax Refund (RPD-41071) and mail it with this letter to the address listed below.

A refund check will be mailed to you.” It subsequently states, “If you would like to have the

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overpayment applied to another tax liability or tax program, please fill out the attached

Application for Tax Refund. Be sure to include the tax program you would like the overpayment

applied to, the reporting period and the amount you want applied.” Therefore even if the

instructions and application form were not enclosed, the letter put Taxpayers on notice as to the

method to apply for the refund or have the refund applied to another tax liability. New Mexico

law has determined that when an individual receives documentation that he/she does not

understand that “a reasonable person who did not understand those papers would seek to have

them translated or explained.” See Maso v. State Taxation and Revenue Dept., Motor Vehicle

Division, 136 Nm 161, 96 P.3d 286 (2004) ¶13. Further, in Bogan v. Sandoval County Planning

& Zoning Comm’n, 119 NM 334, 890 P.2d 395 (Ct. App. 1994), our Court of Appeals held,

“where circumstances are such that a reasonably prudent person should make inquiries, that

person is charged with knowledge of the facts reasonable inquiry would have revealed.” Id at

341, 890 P.2d at 402.

Taxpayers were informed of the procedure of filing a claim for refund and the procedure

to apply the refund to another tax liability. They were required to act as reasonably prudent

person should have and made inquires based on the letter they received. Taxpayers are charged

with knowledge of the facts reasonable inquiry would have revealed. It was unreasonable for

Taxpayers to assume they did not have to do anything but wait for the state to do something.

Kilmer ¶41. See also Patten v. Santa Fe Nat’l Life Ins. Co., 47 N.M. 202, 208, 138 P.2d

1019,1023 (1943) (stating that when a party seeking to establish estoppel has the ability to obtain

relevant information and shows indifference to the information at hand, the party may be

precluded form relying on the doctrine of estoppel).

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Taxpayers have not met their burden of proving that estoppel is appropriate in this

matter. The facts presented do not support a finding of estoppel as the action sought by taxpayers

is time barred by the statute and is contrary to the requirements expressed by the statute. There

was no affirmative misconduct by the Department. The Taxpayers were on notice that there was

a process for either receiving the tax refund or for having that refund applied to a subsequent tax

liability by the letter sent by the Department on September 15, 2008. Having that information

Taxpayers had a duty to know, to research and conform to the requirements of the statute.

CONCLUSIONS OF LAW

A. The Taxpayers filed a timely, written protest to the Department’s denial of their

claim for refund of 2004 personal income taxes, and jurisdiction lies over the parties and the subject

matter of this protest.

B. Taxpayers claim for refund is time barred pursuant to NMSA 1978, §7-1-26.

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

DATED April 21, 2010.

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