Could Jeannie Myers recover a $12.28 estimated-tax penalty when temporary Census wages pushed her 2010 tax above the $500 exception?

Plain-English summary

Jeannie Myers could not recover a $12.28 penalty for failing to make estimated 2010 income-tax payments. Her total tax exceeded wage withholding by $721, no statutory exception applied, and the hearing officer could not grant equitable relief based on her otherwise excellent payment history.

Myers had lived in New Mexico since 2005 on fixed retirement income from California. Her 2009 personal income tax was $493. In 2010, she temporarily worked for the Census Bureau, which pushed her tax above its prior level.

She arranged New Mexico withholding from the Census wages, but only $21 was withheld. Her total 2010 personal income tax was $742, leaving $721 after withholding. She made no quarterly estimated payments, then filed and paid the tax on April 14, 2011.

The Department assessed a $12.28 estimated-payment penalty. Myers paid it, protested, and requested a refund.

The $500 rule did not eliminate the payment duty

Section 7-2-12.2 required individuals subject to income tax to make installment payments through withholding or quarterly estimated payments. The $500 figure did not mean a person with lower tax had no installment duty; it operated as one exception to penalty.

That exception applied only when the difference between tax liability and withholding was less than $500. Myers's $742 tax minus $21 withholding left $721, so she did not qualify.

The other safe harbors also failed

The decision considered each remaining statutory exception:

• Myers had $493 of prior-year tax liability, so she did not qualify for the exception based on having no prior-year liability.
• She paid the 2009 tax in one lump sum with her return rather than through withholding or estimated installments, so she did not satisfy the prior-year-payment safe harbor.
• Her 2010 withholding did not equal at least 90% of the current-year tax.
• The Department Secretary had not determined that the underpayment was free from negligence or disregard of the rules.

Myers relied on Department publication FYI-320. The hearing officer agreed that it was “somewhat confusing,” but found that none of its listed exceptions applied when read with the statute.

Good history could not supply equitable relief

Myers argued that fairness favored abatement because she had an excellent payment history, did not know whether temporary Census work would push her above the threshold, and had difficulty arranging New Mexico withholding on the California income.

The hearing officer treated that as a request for equitable relief. Under the cited New Mexico Supreme Court decision, an administrative hearing officer's quasi-judicial authority did not include power to grant equitable relief. The statutory direction that penalty “shall” be imposed also could not be ignored.

The decision separately explained that the Department had discretion to issue an assessment between $10 and $25 under the statute and then-current regulation. It lawfully exercised that discretion for the $12.28 penalty.

Result: protest and refund claim denied.

What this means for you

Retirees taking temporary work

Recalculate expected state tax when new wages are added to fixed retirement income. A modest temporary job can move the tax-minus-withholding difference beyond a penalty threshold.

Taxpayers using a prior-year safe harbor

Check how the prior-year tax was paid. In this decision, paying the balance with the return did not count as prior-year withholding or estimated installments for the safe harbor.

Taxpayers relying on an agency publication

Read the publication together with the governing statute. The hearing officer acknowledged confusing guidance but applied the statutory conditions.

Common questions

Q: What was Myers's 2010 tax after withholding?
A: $721—$742 of tax minus $21 of wage withholding.

Q: Why did the $500 exception fail?
A: The difference between tax and withholding was $721, which exceeded $500.

Q: Did her $493 prior-year liability protect her?
A: No. It meant she had prior-year liability, and she had paid it with her return rather than through withholding or estimated installments.

Q: Was FYI-320 clear?
A: The decision called it somewhat confusing, but none of its statutory exceptions applied to Myers's facts.

Q: Could the hearing officer waive the penalty because Myers had always paid responsibly?
A: No. The AHO lacked equitable authority and had to apply the mandatory statute.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-17(A), (C) — assessment thresholds and presumption of correctness
• NMSA 1978, § 7-2-12.2(G)-(H) — estimated-payment penalty and exceptions
• Regulation 6.1.6.9 NMAC — minimum assessment amount

Cases and guidance cited:

• Archuleta v. O'Cheskey, 84 N.M. 428 (Ct. App. 1972)
• AA Oilfield Service, Inc. v. New Mexico State Corporation Commission, 118 N.M. 273 (1994)
• New Mexico Taxation and Revenue Department FYI-320

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Jeannie L. Myers
• Decision PDF: D&O 11-24

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
JEANNIE L. MYERS No. 11-24
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0893691456

DECISION AND ORDER

A hearing was held on the above captioned matter on October 4, 2011 before Brian

VanDenzen Esq., Hearing Officer, in Santa Fe. Ms. Jeannie L. Myers (“Taxpayer”) appeared pro

se telephonically from Reserve, New Mexico. The Taxation and Revenue Department of the

State of New Mexico (“Department”) was represented by Special Attorney General and Chief

Legal Counsel, Nelson Goodin. Extern Jordan M. DeHann, a law student, was allowed to

participate in the hearing pursuant to Rule 1-094. Protest Auditor Andrick Tsbatseaye appeared

as a witness for the Department. In addition to the documents contained in the Administrative

File articulated in the beginning of the hearing, Department Exhibit A (Taxpayer’s 2010 PIT

Return) and Department Exhibit B (July 19, 2011 Letter of Andrick Tsabetsaye) are admitted

into the record. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Since 2005, Taxpayer has been a full time resident of New Mexico on a fixed out-

of-state retirement income.

2. In 2009, Taxpayer had a personal income tax liability of $493, less than the $500

minimum difference between income earned and wage withholdings that triggers imposition of

penalty for failure to make estimated tax payments.

3. In tax year 2010 (“TY10”), Taxpayer remained on a fixed retirement income from

the State of California that by itself resulted in personal income tax liability below $500.

4. In TY10, Taxpayer accepted a temporary position with the Census Bureau.

5. Taxpayer set-up set wage withholding on her TY10 Census Bureau pay. The total

of that wage withholding was $21.00.

6. Taxpayer’s pay from this temporary position with the Census Bureau pushed her

personal income tax liability above $500 more than her wage withholding.

7. Taxpayer did not make any quarterly estimated tax payments for TY10.

8. For TY10, Taxpayer had a total personal income tax liability of $742.00.

Subtracting the $21.00 of withholdings, Taxpayer’s personal income liability was $721.00.

9. Taxpayer filed and paid her TY10 personal income taxes on April 14, 2011

10. On June 9, 2011, the Department assessed Taxpayer for $12.28 in penalty for

failure to make quarterly estimated payments.

11. On June 13, 2011, Taxpayer paid the assessed penalty in the amount of $12.28,

filed a protest to the assessment, and requested a refund for her $12.28 payment.

12. On June 21, 2011, the Department acknowledged Taxpayer’s protest.

13. On August 24, 2011, the Department requested a hearing.

14. On August 26, 2011, the Hearing Bureau issued Notice of Administrative

Hearing, scheduling the hearing for October 4, 2011.

In the Matter of the Protest of Jeannie L. Myers, page 2 of 7
DISCUSSION

Taxpayer protests the imposition of penalty for her failure to make quarterly estimated

payments. There are two issues in this case: first, whether Taxpayer qualifies for an exception to

the assessment of penalty for failure to make estimated quarterly tax payments under NMSA

1978, Section 7-2-12.2 (H) (2010), which is the basis of the Department FYI-320 form that

Taxpayer relies upon; and second, whether Taxpayer’s previous excellent payment history

mandates equitable relief in this situation. While Taxpayer’s situation is unfortunate, especially

in light of her otherwise excellent payment history, no exception applies that allows the

Department to abate penalty and the hearing officer lacks the authority to grant equitable relief

based on previous payment history.

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is

presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment

and establish that he or she was not required to pay the assessment. See Archuleta v. O'Cheskey,

84 N.M. 428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972).

Payment of Estimated Tax.

Under NMSA 1978, § 7-2-12.2 (2010), all individuals subject to income tax are required

to make annual installment payments on their income tax either through withholdings or through

estimated quarterly tax payments. In instances where a taxpayer fails to make required estimated

tax payments, and no other exception applies, the legislature mandates by the use of the word

In the Matter of the Protest of Jeannie L. Myers, page 3 of 7
“shall” that the Department impose a penalty on that taxpayer. NMSA 1978, § 7-2-12.2(G)

(2010).

NMSA 1978, § 7-2-12.2 (2010) applies to taxpayers whether their tax liability is more or

less than $500. Although Taxpayer repeatedly pointed out that her personal income tax liability

in previous tax years did not exceed $500, she still was required by statute to either have

withholdings or make estimated tax payments even when her tax liability was less than $500.

Where the $500 amount that Taxpayer references comes into play is determining whether a

taxpayer’s failure to have an appropriate withholding or make estimated tax payments, as

required by statute, is subject to a civil penalty. When the difference between the tax liability and

the withholding is less than $500, than a taxpayer’s failure to make estimated payments in

violation of NMSA 1978, § 7-2-12.2 (2010) is nevertheless exempted from penalty under NMSA

1978, § 7-2-12.2(H)(1) (2010). In this case, Taxpayer’s tax liability for 2010 was $742.00. Her

withholding was only $21, meaning that the difference between her withholding and her income

tax liability exceeded $500. Consequently, Taxpayer gets no shelter from penalty under NMSA

1978, § 7-2-12.2(H)(1) (2010).

The other exceptions mentioned under NMSA 1978, § 7-2-12.2(H) (2010) do not apply to

Taxpayer. NMSA 1978, § 7-2-12.2(H)(2) (2010) does not apply in this situation because

Taxpayer did have a tax liability in the previous year of $493. NMSA 1978, § 7-2-12.2(H)(3)

(2010) also does not apply because Taxpayer did not pay her 2009 tax liability through either

withholding or estimated tax payments but through one-time payment when she filed her

personal income tax return. There is no indication that the Secretary of the Department, pursuant

to NMSA 1978, § 7-2-12.2(H)(4) (2010), determined that the underpayment did not result from

“…negligence, or disregard of rules and regulations.” In fact, although not an intentional

In the Matter of the Protest of Jeannie L. Myers, page 4 of 7
oversight, Taxpayer did disregard the rules requiring withholding or estimated tax payments even

before 2010 when her tax liability was below $500.

Taxpayer’s main argument in support of her position is a document she attached to her

protest letter: FYI-320, a Department publication informing a taxpayer of when estimated tax

payments are required. Taxpayer is correct that FYI-320 is somewhat confusing. However,

reading FYI-320 in conjunction with the statute, the exceptions to penalty listed on FYI-320 do

not apply to Taxpayer. Under the first exception to penalty under FYI-320, which tracks NMSA

1978, § 7-2-12.2(H)(2) (2010), Taxpayer did have a personal income tax liability the previous

year, making her ineligible for that exception. Under the second exception listed on FYI-320,

which tracks 1978, § 7-2-12.2(H)(3) (2010), Taxpayer did not either pay 100% her previous

year’s personal income tax liability or pay 90% of the current year’s tax liability with

withholding or estimated payment because in 2009 she made a lump sum payment with her tax

filing and her withholding in 2010 did not meet or exceed 90% of her TY10 tax liability.

Since no exception applied to this situation, the Department imposed a penalty on

Taxpayer for her failure to make quarterly estimated tax payments under NMSA 1978, § 7-2-12.2

(G) (2010). That penalty amount was calculated at $12.28.

It is worth briefly discussing the amount of assessed penalty. The Department is

compelled by the legislature to issue an assessment for any tax liability in excess of $25.00. See

NMSA 1978, Section 7-1-17 (A) (2007). The Department is prohibited by its own regulation to

issue an assessment if the tax liability at issue is less than $10.00. See 6.1.6.9 NMAC (1/15/01).

The variance in the minimum levels needed to issue an assessment between the statutory and

regulatory amount may come from the fact that the regulation has not been amended to reflect

more recent statutory changes. However, as currently written, while the Department is prohibited

In the Matter of the Protest of Jeannie L. Myers, page 5 of 7
from assessing for a liability less than $10.00 and is compelled to assess for a liability above

$25.00, the Department has the discretion to assess for a tax liability between $10.00 and $25.00.

The Department chose to exercise its discretion in this case in assessing Taxpayer for penalty in

the amount of $12.28, an assessment that as discussed above is supported by statute.

Taxpayer’s Request for Equitable Relief.

Taxpayer argued that given her excellent payment history, her inability to have California

set up a New Mexico wage withholding, and her uncertainty as to whether her temporary

employment would push her tax-liability above $500, justice dictates that penalty be abated in

this case even if the letter of the law says differently. Although Taxpayer uses the language of

justice, what she is really arguing for is equitable relief.

However, unlike a court, the Hearing Officer generally lacks authority to consider

equitable relief in an administrative hearing under the Tax Administration Act. The adjudicative

functions of an administrative agency like the Department are considered by New Mexico courts

to be “quasi-judicial” powers. According to the New Mexico Supreme Court, the quasi-judicial

powers of an administrative agency do not include the authority to grant equitable relief to a party

before the agency. See AA Oilfield Service v. New Mexico State Corporation Commission, 118

N.M. 273, 279, 881 P.2d 18, 24 (1994). Further, the Department (including this Hearing Officer)

lack authority to ignore the legislature’s mandate that penalty “shall” be imposed under NMSA

1978, § 7-2-12.2 (G) (2010). Taxpayer’s protest and claim for refund is denied.

In the Matter of the Protest of Jeannie L. Myers, page 6 of 7
CONCLUSIONS OF LAW

1. Taxpayer filed a timely, written protest of the assessment of penalty under Letter

No. # L8936914560, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer is liable for penalty under NMSA 1978, § 7-2-12.2 (G) (2010).

3. No exception under NMSA 1978, § 7-2-12.2(H) (2010) allows abatement of

penalty.

4. The Hearing Officer lacks authority to grant equitable relief despite Taxpayer’s past

payment history.

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

DATED: October 11, 2011.

BRIAN VANDENZEN
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Jeannie L. Myers, page 7 of 7