Could New Mexico keep two later tax liens on Samuel Ponce's property when both duplicated one 1997 assessment and extended beyond its ten-year collection period?

Plain-English summary

New Mexico had to release two overlapping tax liens because it lacked statutory authority to use them to extend collection of one 1997 assessment. The first recorded lien had already expired, and the 2003 and 2006 liens served no necessary purpose other than preserving collection leverage after the assessment's ten-year collection limit.

The Department issued Samuel Ponce one personal-income-tax assessment for 1996 on December 10, 1997. It then recorded three notices of lien against his property:

• an initial lien in 1998, numbered 191034;
• a second lien on February 7, 2003, numbered 104015, stating $25,438 of principal; and
• a third lien on February 20, 2006, numbered 199062, stating $25,104.21 of principal.

The initial lien was extinguished by the county clerk in 2008 after ten years. The Department nevertheless refused Ponce's request to release the later two liens.

Assessment collection and recorded-lien duration were different

Section 7-1-19 prohibited an action or proceeding to collect tax more than ten years after the assessment. Regulation 3.1.17 treated filing a lien as an “action.” The decision therefore found that collection action on the December 1997 assessment was barred beginning December 10, 2007.

A separately recorded lien ordinarily remained of record for ten years from its own filing date under Section 7-1-39(C). The decision recognized that this could leave a period when a lien remained recorded even though the underlying assessment was no longer enforceable.

That rule did not authorize repetitive liens created only to prolong collection. Tax liens exist by statute, so the Department needed statutory authority for each filing.

The later liens added no legitimate protection

Department witnesses said later liens had been used to update penalty and interest or address newly acquired property. But they also acknowledged that:

• the first lien already covered later-accruing interest;
• it covered after-acquired property;
• a second lien did not obtain an earlier priority date; and
• filing additional liens for those purposes was unnecessary.

One Revenue Agent Supervisor testified that the Department changed its policy in 2007 and that she would not now file multiple liens on Ponce's assessment. A collections supervisor said multiple liens could still be filed within the assessment period, while also acknowledging that they were unnecessary to update interest or reach new property. She testified that multiple liens gave revenue agents additional time after the assessment's ten-year period to collect the liability.

The hearing officer concluded that the sole purpose of Ponce's second and third liens was a collection action beyond the statutory period. Without specific authority for that use, both filings were contrary to law.

Release did not erase the tax liability

The decision distinguished release of the recorded liens from discharge of the underlying tax liability. It stated that the liability itself was not discharged under the New Mexico Constitution, even though the assessment had become uncollectible through enforcement action and the unlawful liens had to be released.

Result: protest granted. The Department was ordered to release liens 104015 and 199062.

What this means for you

Property owners facing an old state tax lien

Identify the date of the underlying assessment and the filing date of every lien. The assessment's collection deadline and a recorded lien's nominal duration may be different questions.

Taxpayers with multiple liens for one assessment

Determine whether each later lien has a specific statutory purpose. In this decision, updating interest and reaching later-acquired property did not justify duplicates because the first lien already did both.

Buyers, lenders, and other third parties

A recorded lien affects priority and title even when enforcement of the assessment is time-barred. The decision required release because the later notices themselves were filed outside the Department's authority.

Common questions

Q: Did Ponce challenge the amount of the original tax assessment?
A: No. The issue was whether the Department could keep two overlapping liens based on that single assessment.

Q: When did collection action on the assessment become barred?
A: December 10, 2007, ten years after the December 10, 1997 assessment.

Q: Why were the 2003 and 2006 liens unlawful?
A: They were unnecessary to cover interest, priority, or after-acquired property, and the evidence showed their purpose was to extend collection of the stale assessment.

Q: Was the first lien also at issue?
A: No. The county clerk had already extinguished lien 191034 in 2008, so the hearing officer had no jurisdiction over it.

Q: Did lien release cancel the underlying tax debt?
A: No. The decision expressly distinguished the released property liens from discharge of the tax liability itself.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-19 and Regulation 3.1.17 NMAC — ten-year collection limit and lien filing as an action
• NMSA 1978, § 7-1-37 — tax liens arising from assessments and effect against third parties
• NMSA 1978, § 7-1-38 — recording a notice of lien
• NMSA 1978, § 7-1-39 — release and extinguishment of recorded liens
• NMSA 1978, § 7-1-40 — lien enforcement
• N.M. Const. art. IV, § 32 — tax liability not discharged

Cases and prior decision cited:

• Patten v. Corbin, 42 N.M. 561 (1938)
• City of Sunland Park v. Santa Teresa Services Co., 2003-NMCA-106
• State v. Montoya, 32 N.M. 314 (1927)
• Field Enterprises Educational Corp. v. Commissioner of Revenue, 82 N.M. 24 (Ct. App. 1970)
• Sterling M. Kennedy, D&O 05-17

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Samuel O. Ponce
• Decision PDF: D&O 11-23

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
SAMUEL O. PONCE No. 11-23
TO DEPARTMENT’S REFUSAL TO RELEASE
LIENS #104015 AND #199062

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on December 21, 2009 and

reconvened on April 20, 2010, before Monica Ontiveros, Hearing Officer. The Taxation and

Revenue Department (“Department”) was represented by Peter Breen, attorney for the

Department. Mr. Andrick Tsabetsaye, Shannon Baxter and Kimberly Lowe appeared and testified

as witnesses for the Department. Mr. Samuel O. Ponce (“Taxpayer”) appeared at the appointed

time and was represented by counsel, Thomas Smidt, II. Mr. Denis Burt, CPA, appeared and

testified on behalf of Taxpayer. The Department presented no exhibits and Taxpayer presented

Exhibits 1 and 2 which were admitted into the record. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Both parties agreed and stipulated that one personal income tax assessment

(assessment) was issued by the Department for tax year 1996. (No assessment was introduced

into the record.) The assessment was issued on December 10, 1997 as stated on Department Lien

104015.

2. Sometime in 1998, the Department filed and recorded its first Notice of Claim of

Lien (Lien #1) in Bernalillo County on Taxpayer’s property based on the assessment issued by the

Department. Department Lien #191034.

3. On February 7, 2003, the Department filed and recorded a Second Notice of Claim
   of Lien (Lien #2) in Bernalillo County on Taxpayer’s property based on the assessment issued by

the Department. The amount of principal stated on the tax lien was $25,438.00. Department Lien

104015.

4. On February 20, 2006, the Department filed and recorded a Notice of Claim of

Lien (Lien #3) in Bernalillo County on Taxpayer’s property based on the assessment issued by the

Department. The amount of principal stated on the tax lien was $25,104.21. Department Lien

199062.

5. The discrepancy between the two amounts in principal in Liens #2 and #3 may be

attributed to Taxpayer paying a small amount of principal.

6. On January 22, 2009, the Department denied Mr. Smidt’s request that the

Department’s Lien Nos. #2 and 3 be released pursuant to NMSA 1978, Section 7-1-19, which

states that no action or proceeding shall be brought to collect taxes due under an assessment after

ten years from the date of such assessment. The Department’s letter also referred to NMSA 1978,

Section 7-1-39 which sets out the circumstances under which a tax lien will be released or

extinguished, but generally requires the tax liability to be paid or that a period of ten years has

passed from the date of filing of the lien.

7. On February 5, 2009, Taxpayer filed a protest to the refusal to release the liens

(Liens # 2 and #3).

8. On April 16, 2009, the Department acknowledged the protest.

9. The Department requested a hearing in this matter on August 12, 2009.

10. On September 1, 2009, the Hearings Bureau mailed a Notice of Administrative

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Hearing in this matter setting the hearing for November 17, 2009.

11. On November 16, 2009, the parties filed a Stipulated Motion for Continuance.

12. An Order was issued granting the Motion for Continuance and this matter was reset

for December 21, 2009.

13. A hearing was convened on December 21, 2009, and the parties were permitted

time in which to discuss settlement.

14. On March 9, 2010, Taxpayer’s counsel requested that the matter be reset for

closing argument.

15. On March 26, 2010, the Hearings Bureau mailed a Notice of Administrative

Hearing in this matter setting the hearing for April 20, 2010.

16. On or after December 10, 2007, the Department was precluded from taking any

action or proceeding to collect on the assessment issued on December 10, 1997, pursuant to

NMSA 1978, Section 7-1-19 (1986).

17. On December 10, 2007, the Department was precluded from enforcing and

collecting Liens #1, #2 and #3.

18. Sometime in 2008, Lien #1 was conclusively presumed to have been paid as to the

taxes, penalties and interest pursuant to NMSA 1978, Section 7-1-39(C) (1997). The County

Clerk extinguished Lien #1.

19. The Department took no enforcement action on the collection of any of the liens

that it filed.

20. Kimberly Lowe, an employee of the Department, testified that as of 2007 the

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Department’s procedure was to only file one lien per assessment.

21. Shannon Baxter, an employee of the Department, testified that the current policy of

the Department is that multiple liens may be filed to let the public know of increased amounts in

interest, even though it was unnecessary to do so since the first lien covered any accrued amounts

of interest.

22. Ms. Baxter testified that if an account had been deactivated because of the 10 year

prohibition on collecting after the date of the assessment, that while the Department did not call

taxpayers to collect the liability, the Department actively negotiated with taxpayers and third

parties on the amount of money the Department would accept prior to releasing a lien.

23. Ms. Baxter testified that the Department was entitled to file as many as six liens or

more based on one assessment if additional interest had accrued, even though it was not legally

necessary to file six or more liens on the same assessment.

24. On February 7, 2013, Lien #2 will be the conclusively presumed to have been paid

as to the taxes, penalties and interest pursuant to NMSA 1978, Section 7-1-39(C) (1997).

25. On February 20, 2016, Lien #3 will be the conclusively presumed to have been

paid as to the taxes, penalties and interest pursuant to NMSA 1978, Section 7-1-39(C) (1997).

26. Mr. Dennis Burt, CPA, testified that the assessment was based on capital gains

accrued on the sale of Taxpayer’s business. The buyer of Taxpayer’s business defaulted on paying

on the installment contract for the business.

27. Mr. Burt testified Taxpayer had both federal and state liabilities. Taxpayer worked

out a closing agreement with the Internal Revenue Service, and he attempted to work out a

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payment agreement with the Department but the Department was unwilling to accept the amount

of payments Taxpayer offered to make.

28. Mr. Burt testified that in his 34 years of experience with representing clients, that

he never had a situation where the Department filed multiple liens on one assessment.

29. Mr. Burt testified that Taxpayer eventually filed for Bankruptcy.

DISCUSSION

The issue to be determined is whether the Department is authorized to record multiple

overlapping liens based on one assessment. Taxpayer and the Department argued that the issue is

whether the expiration of the ten-year limitations period set out in Section 7-1-19 which bars the

Department from bringing any action or proceeding to collect the income taxes assessed against

Taxpayer, requires the Department to release the related tax liens that were filed in 2003 and

2006. Taxpayer argued that Liens #2 and #3 should be released because the time in which to

collect or take any action to enforce collection on the assessment has expired. Taxpayer further

argued that by recording multiple overlapping liens on the same assessment, the Department was

impermissibly extending the statutory period in Section 7-1-39(C) in which to collect on the taxes,

penalties and interest due from the assessment. Taxpayer’s proposed remedy was that Liens #2

and #3 should be released.

The Department argued that it had the authority to file multiple overlapping liens based on

the same assessment and that it cannot release a lien unless the taxes, penalties and interest have

been paid. (It should be noted that there was no evidence presented that the Department took any

action to enforce any of the tax liens on property. It simply filed the liens.) Both parties referred

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to the Decision and Order No. 05-17, Sterling M. Kennedy for guidance in making the

determination that a lien cannot be released until certain conditions have been met.

Section7-1-19 states that “(n)o action or proceedings shall be brought to collect taxes

administered under the provisions of the Tax Administration Act [this Article] and due under an

assessment or notice of assessment of taxes after ten years from the date of such assessment or

notice.” (Emphasis added). NMSA 1978, Section 7-1-19 (1986). Regulation 3.1.17 NMAC

(1996) provides that the term “action” includes the filing of a lien.

The lien on Taxpayer’s property arose at the time the Department issued its assessment in

December 1997. Section 7-1-37(A) provides that:

(i)f any person liable for any tax neglects or refuses to pay the tax after
assessment and demand for payment as provided in Section 7-1-7NMSA 1978 or
if any person liable for tax pursuant to Section 7-1-63 NMSA 1978 neglects or
refuses to pay after demand has been made, unless and only so long as such a
person is entitled to the protection afforded by a valid order of a United States
court entered pursuant to Section 362 or 1301 of Title 11 of the United States
Code, as amended or renumbered, the amount of the tax shall be a lien in favor
of the state upon all property and rights to property of the person.

(Emphasis added). NMSA 1978, Section 7-1-37 (A) (1993). In order for the lien to be effective

against third parties, the Department is required to file and record a notice of lien with the county

clerk as provided in Section 7-1-37(C), which states:

(a)s against any mortgagee, pledge, purchaser, judgment creditor, personal
claiming a lien under Section 48-2-1 through 48-11-9 NMSA 1978, lienor for
value or other encumbrance for value, the lien imposed by Subsection A of this
section shall not be considered to have arisen or have any effect whatever until
notice of the lien has been filed as provided in Section 7-1-38 NMSA 1978.

NMSA 1978, Section 7-1-37 (C) (1993). Therefore, the importance of the filing of a lien is to

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perfect the Department’s rights as to other credits and to seek priority status as to any other liens

filed by third parties. Further, Section 7-1-38 provides that a lien may be recorded in any county

and the recording of the notice of lien is effective as to all property and rights to property of the

taxpayer.

A notice of the lien provided for in Section 7-1-37 NMSA 1978 may be recorded in
any county in the state in the tax lien index established by Sections 48-1-1 through
48-1-7 NMSA 1978 and a copy thereof shall be sent to the taxpayer affected….
Recording of the notice of lien shall be effective as to all property and rights to
property of the taxpayer.

NMSA 1978, Section 7-1-38 (1996).

The statutes provide that a lien is extinguished after a period of ten years from the date the

lien was filed as shown on the notice of lien. NMSA 1978, Section 7-1-39 (C) (1997). Once the

ten year period has expired, the county clerk is required to enter in her or his records a notice

including the words “canceled by act of legislature,” extinguishing the lien. The Department is

forbidden from taking any collection action after the extinguishment of the lien. NMSA 1978,

Section 7-1-39 (C) (1997). The Legislature deliberately created some time between when the

assessment becomes uncollectible and when the lien is extinguished by the county clerk. In other

words, the Department is prohibited from releasing the lien if the conditions have not been met,

even if the 10 year assessment period has expired, making the lien in essence unenforceable. The

tax liability is never discharged, however, pursuant to N.M. Const. art. IV, Section 32.

Generally, liens to secure taxes did not exist at common law and must be provided for in

statute. Patten v. Corbin, 42 N.M. 561, 562, 82 P.2d 789, 790 (1938). An assessment is an

unrecorded tax lien based on the amount of the tax liability. NMSA 1978, Section 7-1-37 (A)

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(1993). If a lien is filed based on an assessment, the Department has the authority to enforce and

collect on the lien. NMSA 1978, Section 7-1-40 (1979) (foreclosing by seizing and selling

property). The filing of the lien protects the Department’s ability to collect and enforce the lien.

NMSA 1978, Section 7-1-40 (1979). A tax lien can be enforced by sale of property or personal

collection action. Tax liens are imposed by statute to help ensure payment of the taxes. City of

Sunland Park v. Santa Teresa Services Company, 2003-NMCA-106, ¶57, 134 N.M. 243, 75 P.3d

843, cert. denied, 2003 NMCERT- 203, 74 P.3d, 1071 (No., 28,166, August 18, 2003). Therefore

the statutes must provide the mechanism for creating and enforcing the liens.

As for releasing a tax lien, in State v. Montoya, 32 N.M. 314, 318, 255 P. 634, 637 (1927),

the New Mexico Supreme Court held that the Legislature could not statutorily release a taxpayer

from personal liability for accrued taxes, but could enact a statute providing for the discharge of a

tax lien. Section 7-1-39 was enacted by the Legislature to provide for statutory circumstances in

which a tax lien may be released or extinguished. Subsection A provides for a full or partial

release when “any substantial part” of the tax due from a taxpayer is paid. Subsection B provides

for a full or partial release when the Department determines that the filing of a lien was premature

or did not follow requirements of law, or when release would facilitate collection of the taxes due.

Subsection C provides for extinguishment of a recorded lien after the passage of ten years from the

date the lien was filed. Therefore, a lien may be released if the lien was filed contrary to law.

In this case, the law or regulation 3.1.17 NMAC (1996) specifically precludes the

Department from filing liens to collect on a stale assessment. The evidence is that the Department

filed multiple liens in this case, to allow it to continue to collect on the 1997 assessment. Both

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Ms. Lowe and Ms. Baxter testified credibly. Ms. Kimberly Lowe, a Revenue Agent Supervisor,

testified that she filed the 2006 tax lien (Lien #3) on the same assessment to update penalty and

interest. Upon further examination, Ms. Lowe testified that it was not necessary to file a second

lien based on the same assessment to update the penalty and interest since the original lien would

include all interest amounts past the filing of the lien. She also testified that in the past the policy

of the Department was to file multiple overlapping tax liens on an assessment or on multiple

assessments. Now the Department only files liens on separate periods and the Department no

longer files overlapping multiple liens based on an assessment. The change in policy occurred

sometime in 2007. Ms. Lowe testified that it was not the Department’s policy to file multiple liens

on the same assessment to extend the 10 year collection period. Ms. Lowe was asked whether,

today, she would file multiple liens on Taxpayer’s assessment. Ms. Lowe responded “no.”

Ms. Baxter oversees the “hard-core” collections and the taxpayer assistance office. She

has been with the Department a total of 19 years. She testified that it was her job and

responsibility to collect the tax debt. Ms. Baxter testified that the Department has filed multiple

liens on the same assessment and that the Department was still filing multiple liens on the same

assessment to update the interest, even though it was not necessary to file a second lien on the

same assessment to update the interest. She said that the Department’s procedure is that the

Department has a right to file a second lien based on the same assessment, if there is a large

accrual of penalty and interest or if new property is acquired. Upon further examination, Ms.

Baxter testified that the Department’s filing of a second lien on the same assessment does not give

the Department a superior priority date, and that it was unnecessary to file a second tax lien based

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on additional accrued interest amounts because the original lien would cover after acquired

property. Ms. Baxter testified that if the Department needs to, it is allowed to file as many as six

or more liens based on the same assessment so long as the Department is filing the liens within the

10 year period of assessment.

When asked what occurs if an assessment can no longer be collected upon because of the

10 year statute, Ms. Baxter testified that taxpayers or third parties contact the Department and she

reactivates the account. She then discusses with the taxpayer or third parties a payment

arrangement, but she doesn’t ask for payment of the debt. Ms. Baxter testified that she cannot ask

for payment because that would violate the law. Regulation 3.1.1.17 permits the Department to

process any payment made by the taxpayer. Ms. Baxter testified that the filing of the multiple

liens on one assessment allows the revenue agents additional time after the expiration of the 10

years on the assessment to collect the tax liability.

From the testimony presented, it is clear that the sole purpose of filing a second or third

lien on Taxpayer’s stale assessment was a collection “action” barred by Section 7-1-19 and its

regulation. In this case, since there was no legal reason to file multiple liens on the same

assessment, Lien #2 and Lien #3 were filed contrary to law. Any doubtful meaning or intent of

tax statue must be resolved against the state and in favor of taxpayer. Field Enters. Educ. Corp. v.

Commissioner of Revenue, 82 N.M. 24, 28, 474 P.2d 510, 513 (Ct. App. 1970). Without specific

statutory authority to file multiple liens on the same assessment for a stated legal purpose other

than to collect on the underlying stale assessment, beyond the 10 year limit, the Hearing Officer

finds that the Department in this case acted outside of its statutory authority. The Hearing Officer

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does not believe it is her role to read into a statute words not provided for by the Legislature.

Both parties referred to the Decision and Order No. 05-17, Sterling M. Kennedy (Kennedy

Decision) as being applicable to this case. However the Kennedy Decision is very different from

this case. The Hearing Officer decided that none of the statutory prerequisites for releasing or

extinguishing the tax lien filed against the Taxpayer had been met. She noted that the Department

did not receive a substantial payment of the tax due from the Taxpayer; there was no evidence that

the lien was filed prematurely or did not follow the requirements of law; there was no evidence

that releasing the lien would facilitate collection of the underlying tax; and 10 years had not yet

passed since the date the lien was filed. In addition in the Kennedy Decision, there was one lien

filed based on multiple assessments. The Hearing Officer in the Kennedy Decision did not take

any position as to whether it was contrary to law to file multiple overlapping liens based on one

assessment. Therefore, the Kennedy Decision does not alter this Hearing Officer’s conclusion that

the Department acted outside of its statutory authority by filing multiple liens.

CONCLUSIONS OF LAW

A. Samuel O. Ponce filed a timely written protest to the Department’s refusal to

release Department Lien #104015 and Department Lien #199062.

B. In this case, there was no statutory authority for the Department to file multiple

overlapping tax liens based on one assessment.

C. The Hearing Officer has no jurisdiction over the Notice of Claim of Lien (Lien #1)

because the lien has been conclusively presumed to have been paid as to the taxes, penalties and

interest pursuant to NMSA 1978, Section 7-1-39(C) (1997). Department Lien #191034.

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D. The Department did not have statutory authority to file a second lien, or its Notice

of Claim of Lien #104015, filed on February 7, 2003, for the sole purpose of collecting on the

1997 assessment.

E. The Department did not have statutory authority to file a third lien, or its Notice of

Claim of Lien, #199062, filed on February 20, 2006 for the sole purpose of collecting on the 1997

assessment.

F. The Department shall release Notice of Claim of Lien, #104015, filed on February

7, 2003 and Notice of Claim of Lien, #199062, filed on February 20, 2006.

For the foregoing reasons, Samuel O. Ponce’s protest is GRANTED.

DATED: September 22, 2011.

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