Did a business owe a $900 late-filing penalty when it timely mailed and paid its 2012 withholding return, then refiled electronically after learning e-filing was required?

Plain-English summary

Tierra Resources Intern avoided a $900 penalty because its timely paper withholding return gave the Department the required tax information, and the company promptly refiled electronically when told to do so. On these facts, treating the return as late would have elevated form over substance.

The company paid its 2012 withholding tax on time and mailed a paper return. After receiving communication from the Department, it filed the same return electronically about one month later.

The Department assessed a $900 late-filing penalty because taxpayers with a specified amount of withholding were required to file electronically. Tierra Resources said it had not received the earlier letters explaining that requirement.

The paper return counted as timely in this instance

New Mexico generally allowed filing by mail, while also authorizing the Department to require electronic filing. The hearing officer emphasized three facts:

• the paper return was filed by the due date;
• it gave the Department enough information to know the tax liability; and
• the company refiled electronically soon after the Department directed it to do so.

The decision held that Tierra Resources did not fail to file by the required date. It cautioned, however, that the company now had actual notice of the e-filing rule, so future paper filing would not be accepted. The company remained free to make a formal request for an electronic-filing exemption.

Accountant reliance independently defeated negligence

Tierra Resources consulted its accountant, discussed the return and payment, and gave the accountant a check to submit with the return. The accountant said he was resolving a problem with the Department and that the company did not need to act.

The hearing officer found that the accountant was doing more than acting as a filing agent. The company relied on his advice that the return and payment would—and should—be mailed.

Because Section 7-1-69(A) required negligence or disregard of Department rules before imposing the penalty, that reasonable reliance provided a separate ground for relief even if the return had technically been late.

Result: protest granted. The $900 penalty was abated.

What this means for you

Businesses newly subject to electronic filing

Correct the method immediately when notified. This decision was fact-specific and expressly warned that future paper returns would not be accepted after actual notice.

Taxpayers relying on an accountant

Advice must concern the actual return and payment method. Regular communication and specific filing advice distinguished this case from simple delegation to an agent.

Employers seeking an e-filing exception

The decision noted that a taxpayer could formally request an exemption under the regulation. It did not say Tierra Resources had requested or received one.

Common questions

Q: Was the withholding tax paid late?
A: No. The decision found that the tax was paid on time.

Q: Why did the paper return count?
A: It was timely, fully disclosed the liability, and was promptly replaced by an electronic return when the Department gave direction.

Q: Did the decision eliminate the electronic-filing requirement?
A: No. It warned the company that future paper returns would not be accepted after this notice.

Q: Why did accountant reliance matter?
A: The company had discussed the return and payment with the accountant and relied on his specific advice that mailing was appropriate.

Q: How much penalty was abated?
A: $900.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-1-69(A) — penalty for negligent failure to file
• NMSA 1978, § 7-1-13(B) — filing by mail
• NMSA 1978, § 9-11-6.4 and Regulation 3.1.4.18 NMAC — electronic filing authority and requirements
• Regulation 3.1.11.11(D) NMAC — reasonable reliance on accountant advice
• NMSA 1978, § 7-1-25 and Rule 12-601 NMRA — appeal procedure

Cases cited:

• Rauscher, Pierce, Refsnes, Inc. v. Taxation and Revenue Department, 2000-NMCA-065
• Wakeland v. New Mexico Department of Workforce Solutions, 2012-NMCA-121
• In the Matter of Cable Family Trust, 2010-NMSC-017
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795 (Ct. App. 1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Tierra Resources Intern Inc.
• Decision PDF: D&O 13-25

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
TIERRA RESOURCES INTERN INC, No. 13-25
TO ASSESSMENT ISSUED UNDER
ID NO. L0327318848

DECISION AND ORDER

A formal hearing on the above-referenced protest was held August 23, 2013, before Dee

Dee Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was

represented by Mr. Nelson Goodin, Chief Legal Counsel, and Mr. Aaron Rodriguez, Staff Attorney.

Ms. Sonya Varela, Auditor, also appeared on behalf of the Department. Tierra Resources Intern,

Inc. (Taxpayer) appeared for the hearing by and through its President, Mr. Anthony Filyk, and its

Vice-President, Ms. Margaret Filyk. The Hearing Officer took notice of all documents in the

administrative file. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was engaged in business in New Mexico in 2012.

2. Employers with a certain amount of withholding are supposed to file their withholding

returns electronically. See NMSA 1978, § 9-11-6.4. See also 3.1.4.18 NMAC.

3. The Taxpayer paid its withholding tax on time and filed a paper withholding tax return.

After receiving some communication from the Department, the Taxpayer re-filed its

return electronically.

4. On February 14, 2013, the Department assessed the Taxpayer for penalty for the tax

period ending on December 31, 2012 for late filing of the return. The assessment was for

$900.00 in penalty.

5. On May 5, 2013, the Taxpayer filed a request for extension of time to file protest.

6. On May 7, 2013, the Taxpayer filed a formal protest.

7. On May 13, 2013, the Department granted a retroactive extension of time to file and

acknowledged its receipt of the protest.

8. On June 20, 2013, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

9. The Taxpayer consulted its accountant about its return and provided a check to be

submitted with its return. The accountant submitted the return and payment on behalf of

the Taxpayer.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for penalty for the tax period

ending in December 2012, due to its failure to file withholding tax reports on time by electronic

transmission.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is

Tierra Resources Intern Inc.
Letter ID No. L0327318848
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presumed to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to

show that it is not liable for the penalty.

Filing of the Return.

Generally, a taxpayer is liable for penalty “in the case of failure…to file by the date

required a return[.]” NMSA 1978, § 7-1-69 (A). Generally, “the payment of any tax or the filing

of any return may be accomplished by mail.” NMSA 1978, § 7-1-13 (B). However, the

Department has the authority to require some taxpayers to file their returns electronically. See

NMSA 1978, § 9-11-6.4.

The Taxpayer argues that it filed its return by mail and made its tax payments on time.

The Department argues that the Taxpayer was required to file electronically and that its return

was not filed until the return was submitted electronically. The Taxpayer’s electronic return was

filed approximately one month after it filed its paper return. The Taxpayer argues that it should

not be subject to penalty when it filed a return on time. The Taxpayer explained that it filed its

return again electronically after being notified of the need to do so by the Department. The

Department argued that it mailed several letters in previous years to the Taxpayer that informed

it of its obligation to file electronically. The Taxpayer explained that it never received any of

those letters and was unaware that it should be filing electronically until after it filed its 2012

return by mail.

Generally, form is not favored over substance. See Rauscher, Pierce, Refsnes, Inc. v.

Taxation and Revenue Dep’t., 2000-NMCA-065, ¶22, 129 N.M. 404. See Wakeland v. N.M.

Dep’t. of Workforce Solutions, 2012-NMCA-121, ¶19. See also In the Matter of Cable Family

Trust, 2010-NMSC-017, ¶39, 148 N.M. 127. Given the fact that the Taxpayer’s paper return was

filed by the due date, that its paper return was sufficient to inform the Department of its tax

Tierra Resources Intern Inc.
Letter ID No. L0327318848
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liability, and that it re-filed its return electronically when directed to do so by the Department

shortly after filing its return by mail, the Taxpayer did not fail to file by the date required. To

hold otherwise in this instance would be to exalt form over substance. However, the Taxpayer is

now sufficiently on notice that it is required to file its returns electronically, and should

understand that filing by mail will not be accepted in the future. See 3.1.4.18 (F) NMAC.

Nothing in this decision should be construed to prevent the Taxpayer from making a formal

request for an exemption from electronic filing. See 3.1.4.18 NMAC.

Negligence.

Penalty for failure to file is only permitted when there is “negligence or disregard of

department rules and regulations[.]” NMSA 1978, § 7-1-69 (A). Generally, when a taxpayer

relies on advice from an accountant, the taxpayer is not negligent or in disregard of the rules and

regulations. See 3.1.11.11 NMAC (D). See also El Centro Villa Nursing Center v. Taxation and

Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989).

The Taxpayer explained that it was using an accountant for its tax filing and payments.

The Department argued that the accountant was merely acting as an agent for the Taxpayer, and

that the Taxpayer did not rely on any advice from the accountant. The Taxpayer explained that it

was communicating with its accountant about its tax return and its payments. The Taxpayer

discussed the return with the accountant and sent the accountant a check to be included for

payment of its tax liability when the return was filed. The accountant also indicated that it was

sorting out a problem with the Department, and that the Taxpayer did not need to do anything on it

because the accountant was close to being done with it. After the Taxpayer learned that it should

be filing electronically, the Taxpayer inferred that the accountant had been referring to this

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Letter ID No. L0327318848
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electronic filing requirement as the problem he had been working out with the Department for

more than a year.

Based upon the totality of the circumstances in this case, I find that the Taxpayer was not

merely using the accountant as agent for filing its returns. The Taxpayer was regularly discussing

its returns and payments with the accountant, and was relying on the accountant’s advice when he

indicated that the return and payments would, and consequently should, be sent in by mail.

Therefore, the Taxpayer was not negligent for purposes of the penalty statute even if it failed to file

its return on time. See 3.1.11.11 NMAC.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to the Notice of Assessment of penalty

for the 2012 return issued under Letter ID number L0327318848, and jurisdiction lies over the

parties and the subject matter of this protest.

2. The Taxpayer did not fail to file its return by the date required.

3. Even if the Taxpayer had failed to file its return by the date required, the Taxpayer

was not negligent because it was relying on advice from its accountant.

For the foregoing reasons, the Taxpayer's protest is GRANTED and the penalty is hereby

ABATED.

DATED: September 23, 2013.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630
Tierra Resources Intern Inc.
Letter ID No. L0327318848
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NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, § 7-1-25, the parties have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date

shown above. See Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision

and Order will become final. A copy of the Notice of Appeal should be mailed to John Griego,

P. O. Box 630, Santa Fe, New Mexico 87504-0630. Mr. Griego may be contacted at 505-827-

0466.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this _ day of
___, 20__ in the following manner:

First Class Mail Interoffice Mail

Tierra Resources Intern, Inc. Nelson Goodin
Anthony Filyk, President Taxation and Revenue Department, Legal
8416 Rancho Colina Way, NW 1100 S. St. Francis
Albuquerque, NM 87120-5811 Santa Fe, NM 87504

Tierra Resources Intern Inc.
Letter ID No. L0327318848
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