A serious illness caused me to fall behind on my gross receipts tax filings — can New Mexico waive the negligence penalty for a medical hardship?

Plain-English summary

M & M Stores, Inc. operates three gas-station convenience stores in Albuquerque. Its manager and accountant, Murad Hijazi, prepares and pays the company's monthly gross receipts (CRS) tax returns. Beginning in October 2015 the Department issued fourteen assessments for gross receipts tax, penalty, and interest covering CRS periods from March 2014 through April 2015. By the hearing, the totals were $31,858.16 in tax, $6,234.65 in penalty, and $1,162.62 in interest.

The company did not dispute that it owed the tax and interest. The only issue was whether the civil negligence penalty should be abated because of Mr. Hijazi's medical situation. In 2014-2015 he suffered chronic back pain and underwent surgeries and whole-body imaging while doctors investigated a condition they initially feared might be terminal. Under that stress and pain, he let the business's tax obligations slip. (He was ultimately not diagnosed with a terminal condition and recovered.)

Chief Hearing Officer Brian VanDenzen denied the protest:

• The penalty is mandatory for negligence. Under Section 7-1-69, the 2%-per-month negligence penalty (up to 20%) "shall" be added when a taxpayer's inaction meets the definition of negligence in Regulation 3.1.11.10 NMAC — here, failing to report and pay CRS tax for more than a year (subsections (B) inaction where action is required, and (C) inattention).
• The good-faith-mistake-of-law escape did not apply. Section 7-1-69(B) excuses only a good-faith mistake of law on reasonable grounds. There was no evidence M&M made an informed judgment that the tax was not due (C & D Trailer Sales).
• The medical-hardship factor needs two things — and only one was met. Regulation 3.1.11.11(B) abates the penalty where a taxpayer disabled by injury or prolonged illness shows an inability to prepare the return and an inability to procure another person to prepare it. Mr. Hijazi clearly met the prolonged-illness prong. But he kept working through the period — handling payroll, inventory, and bank deposits — which showed he either had the capacity to handle the CRS returns himself or had the time and resources to hire someone to do them (the company already used an annual tax preparer). Because the second prong failed, the penalty could not be abated.

Result: the assessment was presumed correct (Section 7-1-17(C)), M&M did not overcome it, and the protest was denied — leaving $31,858.16 in tax, $6,234.65 in penalty, and $1,162.62 in interest.

What this means for you

Small-business owners facing illness or emergency

A serious illness is real and sympathetic, but by itself it does not get a New Mexico negligence penalty waived. The medical-hardship abatement is narrow: you must show the illness left you unable to prepare the return and unable to arrange for anyone else to do it. If you were well enough to keep running the day-to-day business, the state will expect you to have either filed or delegated the filing.

Owners who are also the bookkeeper

When one person is the manager, accountant, and filer, a health crisis puts the filings at risk. This decision effectively says: if you can still run the business, you can arrange for the returns — so build in a backup preparer (many businesses, like M&M, already use one for income taxes) who can cover CRS filings when you can't.

Accountants and tax professionals

The abatement grounds are Section 7-1-69(B) (good-faith mistake of law) and the eight nonnegligence indicators in Regulation 3.1.11.11 NMAC. For the illness indicator (subsection (B)), evidence that the taxpayer continued performing other essential business functions is fatal — it defeats the "unable to procure another person" element. To make the argument, you need proof the taxpayer was genuinely incapacitated from both filing and delegating.

Common questions

Q: I was seriously ill and fell behind on filings. Won't the state waive the penalty?
A: Not automatically. The medical-hardship abatement requires that the illness made you unable to prepare the return and unable to get anyone else to prepare it. If you were still running the business, that usually defeats the request.

Q: I don't dispute the tax — can I at least get the penalty and interest removed?
A: Interest is never discretionary. The negligence penalty can be abated only if you fit one of the specific nonnegligence indicators (or a good-faith mistake of law). A sympathetic hardship that doesn't meet the regulation's two-part test is not enough.

Q: What would have helped M&M's case?
A: Evidence that Mr. Hijazi was so incapacitated he could neither file nor arrange for the company's existing tax preparer (or anyone else) to file — rather than evidence that he kept handling payroll, inventory, and deposits throughout.

Citations and references

Statutes:

• § 7-1-69 NMSA 1978 — civil negligence penalty (2% per month, capped at 20%); subsection (B) excuses only a good-faith mistake of law on reasonable grounds
• § 7-1-17(C) NMSA 1978 — a Department assessment is presumed correct; the taxpayer bears the burden to overcome it
• § 7-1-3(X) NMSA 1978 — "tax" includes interest and civil penalty
• § 7-1B-8 NMSA 1978 — a protest hearing must be held within 90 days of the Department's acknowledgment of a valid protest

Regulations:

• Regulation 3.1.11.10 NMAC — defines negligence, including inaction where action is required and inattention or carelessness
• Regulation 3.1.11.11(B) NMAC — medical-hardship nonnegligence factor: disability from injury or prolonged illness plus an inability both to prepare the return and to procure another person to prepare it
• Regulation 3.1.6.13 NMAC — the presumption of correctness extends to assessed penalty and interest

Cases cited:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the statutory word "shall" makes a provision mandatory absent a clear contrary indication
• Archuleta v. O'Cheskey, 1972-NMCA-165, 84 N.M. 428 — the taxpayer bears the burden to overcome an assessment
• Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-050, 139 N.M. 498 — agency regulations interpreting a statute are presumed proper and given substantial weight
• C & D Trailer Sales v. Taxation & Revenue Dep't, 1979-NMCA-151, 93 N.M. 697 — penalty upheld where the taxpayer did not rely on any informed consultation in deciding not to pay tax

Source

• Listing: New Mexico Decisions & Orders
• Decision post: M & M Stores, Inc.
• Decision PDF: D&O 16-25

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
M & M STORES INC. No. 16-25
TO ASSESSMENTS ISSUED UNDER LETTER
ID NO. L0799385648, L1873127472, L1496557616, L0959686704, L0530950192,
L1604692016, L1067821104, L2141562928, L0006662192, L1083689008, L1922936880,
L0597272624, L1671014448 and L0178106416

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on January 25, 2016 before

Brian VanDenzen, Esq., Chief Hearing Officer, in Santa Fe. At the hearing, Murad Hijazi

appeared for M&M Stores, Inc. (“Taxpayer”) pro se. Staff Attorney Melinda Wolinsky appeared

representing the State of New Mexico Taxation and Revenue Department (“Department”).

Protest Auditor Veronica Galewaler appeared as a witness for the Department. Taxpayer Exhibit

1 and Department Exhibits A were admitted into the record. All exhibits are more thoroughly

described in the Administrative Exhibit Coversheet. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On October 8, 2015, under letter id. no. L0799385648, the Department assessed

Taxpayer for $1,176.41 in gross receipts tax, $235.28 in penalty, and $50.57 in interest for the

CRS reporting period ending March 31, 2014.

2. On October 8, 2015, under letter id. no. L1873127472, the Department assessed

Taxpayer for $2,515.23 in gross receipts tax, $503.00 in penalty, and $101.50 in interest for the

CRS reporting period ending April 30, 2014.

3. On October 8, 2015, under letter id. no. L1496557616, the Department assessed

Taxpayer for $2,752.14 in gross receipts tax, $550.40 in penalty, and $104.50 in interest for the

CRS reporting period ending May 31, 2014.

4. On October 8, 2015, under letter id. no. L0959686704, the Department assessed

Taxpayer for $2,691.41 in gross receipts tax, $538.28 in penalty, and $94.01 in interest for the

CRS reporting period ending June 30, 2014.

5. On October 8, 2015, under letter id. no. L0530950192, the Department assessed

Taxpayer for $2,778.62 in gross receipts tax, $555.70 in penalty, and $91.58 in interest for the

CRS reporting period ending July 31, 2014.

6. On October 8, 2015, under letter id. no. L1604692016, the Department assessed

Taxpayer for $2,606.46 in gross receipts tax, $521.29 in penalty, and $79.27 in interest for the

CRS reporting period ending August 31, 2014.

7. On October 8, 2015, under letter id. no. L1067821104, the Department assessed

Taxpayer for $2,488.81 in gross receipts tax, $497.76 in penalty, and $69.14 in interest for the

CRS reporting period ending September 30, 2014.

8. On October 8, 2015, under letter id. no. L2141562928, the Department assessed

Taxpayer for $2,440.19 in gross receipts tax, $488.00 in penalty, and $61.97 in interest for the

CRS reporting period ending October 31, 2014.

9. On October 8, 2015, under letter id. no. L0006662192, the Department assessed

Taxpayer for $2,134.72 in gross receipts tax, $426.90 in penalty, and $48.78 in interest for the

CRS reporting period ending November 30, 2014.

In the Matter of the Protest of M&M Stores, Inc., page 2 of 10

10. On October 1, 2015, under letter id. no. L1083689008, the Department assessed

Taxpayer for $1,999.67 in gross receipts tax, $325.44 in penalty, and $39.37 in interest for the

CRS reporting period ending December 31, 2014.

11. On October 1, 2015, under letter id. no. L1922936880, the Department assessed

Taxpayer for $1,892.90 in gross receipts tax, $265.02 in penalty, and $32.52 in interest for the

CRS reporting period ending January 1, 2015.

12. On October 1, 2015, under letter id. no. L0597272624, the Department assessed

Taxpayer for $1,724.69 in gross receipts tax, $206.94 in penalty, and $25.66 in interest for the

CRS reporting period ending February 28, 2015.

13. On October 1, 2015, under letter id. no. L1671014448, the Department assessed

Taxpayer for $2,482.87 in gross receipts tax, $248.30 in penalty, and $30.20 in interest for the

CRS reporting period ending March 31, 2015.

14. On October 1, 2015, under letter id. no. L0178106416, the Department assessed

Taxpayer for $2,139.84 in gross receipts tax, $171.20 in penalty, and $20.93 in interest for the

CRS reporting period ending April 30, 2015.

15. On October 20, 2015, Taxpayer protested the assessments, asking for abatement

of penalty because of a hospitalization.

16. On October 28, 2015, the Department’s protest office acknowledged receipt of a

valid protest of the assessments.

17. On December 9, 2015, the Department filed a request for hearing in this matter

with the Administrative Hearings Office.

In the Matter of the Protest of M&M Stores, Inc., page 3 of 10

18. On December 10, 2015, the Administrative Hearings Office sent Notice of

Administrative Hearing, scheduling this matter for a merits hearing on January 25, 2016, within

90-days of the Department’s acknowledgment of receipt of a valid protest.

19. Taxpayer operates three gas stations and convenience stores in Albuquerque.

20. Mr. Murad Hijazi is Taxpayer’s manager and accountant.

21. Mr. Hijazi is responsible for preparing and paying Taxpayer’s CRS returns.

22. Although Mr. Hijazi files the monthly CRS returns, Taxpayer engages the service

of a tax preparer annually, presumably to handle its income tax obligations.

23. Taxpayer did not dispute that it owed the assessed gross receipts tax principal and

interest. The only issue at protest is Taxpayer’s request for abatement of penalty based on Mr.

Hijazi’s medical condition.

24. In 2013 or 2014, Mr. Hijazi developed a chronic back pain that doctors believed

might be indicative of a very serious, potentially terminal, medical condition. Under the

supervision of medical professionals, Mr. Hijazi underwent significant medical testing,

observation, and procedures to determine the exact nature of the condition1.

25. Attached to Taxpayer’s protest was Mr. Hijazi’s medical history report from

Presbyterian hospital showing that Taxpayer:

a. Underwent a diagnostic-surgical procedure related to a back condition on August

21, 2014.

b. Underwent a whole body radiology imaging on November 12, 2014.

1
To the extent possible, specifics about Taxpayer’s medical condition and treatment will not be identified to protect
medical privacy in this publicly available document. However, it is clear that it was a legitimate and potentially
serious medical condition that required ongoing treatment and diagnostic procedures. The medical records Taxpayer
submitted, although not extensive, are part of the non-public administrative record of this proceeding in the event of
an appeal to the Court of Appeals.

In the Matter of the Protest of M&M Stores, Inc., page 4 of 10
c. Underwent a diagnostic-surgical procedure related to a back condition on March

6, 2015.

26. Mr. Hijazi was on a prescription pain medication at that time.

27. Mr. Hijazi reported that because of the stress of the situation including the

possibility of suffering a terminal illness and the pain he was suffering during this period, he let

Taxpayer’s business obligations slip.

28. Mr. Hijazi did continue to work to ensure basic operations of Taxpayer’s business

in terms of payroll, ordering/maintaining sufficient inventory, and depositing money from the

convenience stores into the bank.

29. Mr. Hijazi acknowledged that he retained his mental faculties throughout this

time.

30. Mr. Hijazi finally received a conclusive diagnosis at the end of 2014 (which

thankfully did not entail the feared terminal condition that originally was a possibility),

undertook a course of treatment to address the back pain, and stabilized.

31. When Mr. Hijazi’s medical condition had stabilized in 2015, he returned his focus

back on Taxpayer’s business

32. On November 3, 2015, Dr. Bernard Agbemadzo submitted a letter on behalf of

Mr. Hijazi describing Mr. Hijazi’s course of treatment since September of 2014 and reporting

that as of the date of letter Mr. Hijazi was stable and doing well.

33. As of the date of hearing, Taxpayer owed $31,858.16 in gross receipts tax,

$6,234.65 in penalty, and $1,162.62 in interest. [Dept. Ex. A].

In the Matter of the Protest of M&M Stores, Inc., page 5 of 10
DISCUSSION

Taxpayer agrees that it owed the assessed tax principal and interest in this case. The only

issue is the Department’s assessment of civil negligence penalty under NMSA 1978, Section 7-1-

69 (2007), which Taxpayer argues should be abated because of Mr. Hijazi’s medical situation in

2014.

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

presumed correct. Consequently, Taxpayer has the burden to overcome the assessments. See

Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless otherwise specified, for the

purposes of the Tax Administration Act, “tax” is defined to include interest and civil penalty. See

NMSA 1978, §7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the presumption of

correctness under Section 7-1-17 (C) extends to the Department’s assessment of penalty and

interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-50,

¶16, 139 N.M. 498, 503 (agency regulations interpreting a statute are presumed proper and are to be

given substantial weight).

When a taxpayer fails to pay taxes due to the State because of negligence or disregard of

rules and regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

(2007) requires that

there shall be added to the amount assessed a penalty in an amount equal
to the greater of: (1) two percent per month or any fraction of a month
from the date the tax was due multiplied by the amount of tax due but not
paid, not to exceed twenty percent of the tax due but not paid.

(italics added for emphasis).

The statute’s use of the word “shall” makes the imposition of penalty mandatory in all instances

where a taxpayer’s actions or inactions meets the legal definition of “negligence.” See Marbob

In the Matter of the Protest of M&M Stores, Inc., page 6 of 10
Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the

word “shall” in a statute indicates provision is mandatory absent clear indication to the contrary).

Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to

exercise that degree of ordinary business care and prudence which reasonable taxpayers would

exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

“inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” In this

case, Taxpayer was negligent under Regulation 3.1.11.10 (B) & (C) NMAC because Taxpayer

failed to take action to report and pay appropriate gross receipts on its CRS system returns in the

reporting periods between March 31, 2014 and April 30, 2015.

In instances where a taxpayer might otherwise fall under the definition of civil negligence

generally subject to penalty, Section 7-1-69 (B) provides a limited exception: “[n]o penalty shall

be assessed against a taxpayer if the failure to pay an amount of tax when due results from a

mistake of law made in good faith and on reasonable grounds.” Here, there is no evidence that

Taxpayer made an informed judgment or determination based on reasonable grounds that gross

receipts taxes were not due and owing. See C & D Trailer Sales v. Taxation and Revenue Dep’t,

1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where there was no evidence that the

taxpayer “relied on any informed consultation” in deciding not to pay tax). Consequently, this

mistake of law provision of Section 7-1-69 (B) does not mandate abatement of penalty in this

case.

The other grounds for abatement of civil negligence penalty are found under Regulation

3.1.11.11 NMAC. That regulation establishes eight indicators of nonnegligence where penalty

may be abated. Based on the argument of Taxpayer and the evidence presented, the only factor

In the Matter of the Protest of M&M Stores, Inc., page 7 of 10
under Regulation 3.1.11.11 NMAC potentially pertinent is subsection B, which reads

the taxpayer, disabled because of injury or prolonged illness, demonstrates
the inability to prepare a return and make payment and was unable to
procure the services of another person to prepare a return because of injury
or illness.

Mr. Hijazi clearly suffered from sustained and prolonged pain and the stress of an unclear

diagnosis for over a year, with the possibility of a terminal illness. Thankfully, Mr. Hijazi was

not diagnosed with a terminal condition and has recovered well. Such chronic pain and stress

related to the ongoing medical treatment undoubtedly impacted his ability to focus at work and

perform all essential work functions, meeting the prolonged injury or illness portion of

Regulation 3.1.11.11 (B) NMAC.

But that is not enough under Regulation 3.1.11.11 (B) NMAC to abate penalty, as a

Taxpayer must also demonstrate an inability to procure the services of another person to prepare

the return. In this case, Mr. Hijazi acknowledged that he did work during this period of the

medical conditions to ensure the basic functioning of his businesses, including handling bank

deposits, managing inventory, and payroll. If Mr. Hijazi had sufficient mental capacity and time

to complete these essential business functions to ensure continuing operations, there is no clear

reason why he could not similarly complete the equally important task of managing Taxpayer’s

CRS tax obligations. Even if Mr. Hijazi did not have the time or energy to complete the monthly

CRS returns after completing these other essential tasks, this evidence of him able to work on

these other tasks strongly suggests that Taxpayer still had sufficient time and resources to secure

the services of another person to complete the CRS returns. Indeed, Taxpayer acknowledged it

already annually employed the services of a tax preparer. Mr. Hijazi did not present any reason

why Taxpayer could not have temporarily used the services of that tax preparer to assist with the

CRS returns while he focused on his medical condition. This analysis of this issue is consistent

In the Matter of the Protest of M&M Stores, Inc., page 8 of 10
with a number of other Decision and Orders (non-precedential but persuasive) issued on this

subject. See S.J. Tile Company, No. 16-23; Jimmy Stuart, No. 16-22; Gail Stefl, No. 15-15;

Promoco, No. 11-06; Sandia Oil Company No. 01-01; Gregory and Shirley Hale, No. 01-02; BR

Gordon Construction Co., No. 98-01; and Rio Rancho Pharmacy, No. 97-05. Cf, Tafoyas Store,

No. 97-43.

Although Mr. Hijazi’s situation was quite sympathetic, Taxpayer did not establish it was

entitled to an abatement of assessed penalty under Regulation 3.1.11.11 (B) NMAC because the

evidence showed that Mr. Hijazi was able to work enough to satisfy basic operational needs and

thus had either the capacity to take care of the CRS tax obligations or the ability/time/resources

to procure the services of another to handle the CRS returns. Therefore, Taxpayer’s protest is

denied.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the Department’s assessments, and

jurisdiction lies over the parties and the subject matter of this protest.

B. The hearing was timely set and held within 90-days of the Department’s

acknowledged receipt of a valid protest under NMSA 1978, Section 7-1B-8 (2015).

C. Taxpayer did not overcome the presumption of correctness on the assessed penalty

under NMSA 1978, Section 7-1-17 (C) (2007), NMSA 1978, §7-1-3 (X) (2013), Regulation

3.1.6.13 NMAC, and Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428.

D. Under NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for civil negligence

penalty because Taxpayer’s inaction/inattention in not paying gross receipts tax met the definition

of civil negligence under Regulation 3.1.11.10 NMAC.

In the Matter of the Protest of M&M Stores, Inc., page 9 of 10
E. Taxpayer did not establish a good faith, mistake of law made on reasonable grounds

that would allow for abatement of penalty under Section 7-1-69 (2007).

F. Regulation 3.1.11.11 (B) NMAC does not allow for abatement of penalty in this

protest because Mr. Hijazi was able to work enough to satisfy basic operational needs and thus

either had the capacity to take care of the CRS tax obligations directly or the

ability/time/resources to procure the services of another to handle the CRS returns.

For the foregoing reasons, the Taxpayer’s protest IS DENIED. IT IS ORDERED that the

Taxpayer is liable for $31,858.16 in gross receipts tax, $6,234.65 in penalty, and $1,162.62 in

interest.

DATED: June 7, 2016.

Brian VanDenzen
Chief Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. Either party filing an appeal shall file a courtesy copy of

the appeal with the Administrative Hearings Office contemporaneous with the Court of Appeals

filing so that the Administrative Hearings Office may being preparing the record proper.

In the Matter of the Protest of M&M Stores, Inc., page 10 of 10