Were Christopher Roche and Nguyen Park liable for penalty and interest when they timely mailed their 2015 return and check but USPS never delivered them?

Plain-English summary

Christopher Roche and Nguyen Park were not negligent when USPS lost their timely mailed personal income tax return and payment, so the AHO abated the $404.32 penalty. The $54.05 interest remained because the Department did not receive the tax by the due date.

The taxpayers mailed their 2015 federal and New Mexico returns with separate checks on April 16 or 17, 2016, before the April 18 deadline. They used regular USPS mail according to the PIT instructions because a recent data breach made them concerned about identity theft and electronic filing.

The federal check cleared. The New Mexico check did not.

After seeing no clearance, the taxpayers repeatedly called the Department but reached automated messages saying return processing was backed up. In October 2016, they finally learned that the Department had never received the return or payment. They immediately mailed replacements, which were received.

The Department assessed $404.32 penalty and $54.05 interest, totaling $458.37.

The original mailing was not legally timely

The AHO found the taxpayers entirely credible that they mailed the return and check before the deadline.

Section 7-1-9 generally treated authorized mailings as timely when mailed by the due date. But Regulation 3.1.4.10(C)(2) stated that when the Department does not receive a mailing, its contents are not timely.

Because neither the return nor payment arrived, the 2015 tax was not legally timely filed or paid.

USPS fault defeated negligence

Penalty required a late payment caused by negligence. The AHO found the taxpayers had exercised the ordinary care reasonable taxpayers would use by mailing the return and payment before the due date according to the instructions.

They did not fail to act, act carelessly, or make an inadvertent error. The delivery failure was attributed to USPS, a third party.

The decision distinguished D&O 17-13, where a taxpayer's own computer system failed to transmit an electronic payment. Here, the taxpayers' own system or conduct did not cause the failure.

They therefore rebutted the penalty assessment.

Interest did not depend on fault

Interest was mandatory whenever tax was not paid by the due date. It was compensatory, reflecting the time value of money unavailable to the state, rather than a punishment for negligence.

Since the Department did not receive payment until October, the taxpayers remained liable for interest even though the AHO found them blameless.

Result: protest GRANTED as to penalty and DENIED as to interest. The $404.32 penalty was abated; the taxpayers had to pay $54.05 interest.

What this means for you

Taxpayers mailing returns and checks

Use a mailing method that creates delivery evidence and monitor whether the payment clears. Under the cited regulation, an ordinary mailing that never arrives is not timely even if it was sent before the deadline.

Taxpayers seeking penalty relief after third-party failure

Document timely action, compliance with instructions, follow-up efforts, and the third party's role. Those facts allowed Roche and Park to prove reasonable care and defeat negligence.

Taxpayers disputing interest

Penalty and interest apply under different standards. Removing penalty for lack of fault does not remove interest when the state received payment late.

Common questions

Q: Did the AHO believe the taxpayers mailed the return on time?
A: Yes. It found their testimony entirely credible.

Q: Why was the return still treated as late?
A: The Department never received the original mailing, and the regulation treated unreceived contents as untimely.

Q: Why was the penalty abated?
A: The taxpayers used ordinary care, and USPS—not their actions—caused the delivery failure.

Q: Why did interest remain?
A: Interest was mandatory because the tax payment was not received by the due date, regardless of negligence.

Q: What was the final amount due?
A: $54.05 interest; the $404.32 penalty was removed.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-9 and 7-1-13(B) — timely mailing and filing by mail
• NMSA 1978, § 7-1-17 — assessment presumption
• NMSA 1978, §§ 7-1-67(A) and 7-1-69 — interest and negligence penalty
• Regulation 3.1.4.10(C)(2) NMAC — unreceived mail is not timely
• Regulations 3.1.6.12 and 3.1.6.13 NMAC — rebutting the assessment presumption
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and nonnegligence

Cases cited:

• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — shifting burden after rebutting an assessment
• Grogan v. New Mexico Taxation & Revenue Department, 2003-NMCA-033 — penalty for inadvertent or unintentional nonpayment
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory effect of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Christopher Roche & Nguyen H. Park
• Decision PDF: D&O 17-20

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
CHRISTOPHER ROCHE & NGUYEN H. PARK No. 17-20
TO ASSESSMENT
ISSUED UNDER LETTER
ID NO. L0267198768

DECISION AND ORDER

A formal administrative hearing on the above referenced protest was held on March 22,

2017 before Hearing Officer David Buchanan. The Taxation and Revenue Department

(Department) was represented by Peter Breen, Staff Attorney. Veronica Galewater, Auditor,

appeared as a witness on behalf of the Department. Christopher Roche and Nguyen H. Park

(Taxpayers) appeared for the hearing and represented themselves. Taxpayers both testified at the

hearing on their own behalf. 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. Taxpayers were residents of New Mexico in 2015.

2. The deadline for 2015 New Mexico Personal Income Tax (PIT) returns was April 18,

2016 absent the request for an extension of time to file.

3. Taxpayers mailed their 2015 PIT return along with a personal check for taxes owed to the

Department by regular United States Postal Service mail on April 16th or April 17th, 2016.

4. Taxpayers mailed the 2015 PIT return and the payment check pursuant to the PIT

instructions.

5. Taxpayers mailed their 2015 Federal income tax return and a personal check for taxes

owed to the Internal Revenue Service (IRS) at the same time they mailed their New

Mexico return.

6. Taxpayers mailed their 2015 tax returns instead of filing electronically because they

victims of a recent data breach and concerned about potential identity theft.

7. Taxpayers’ check to the IRS cleared in a timely manner.

8. Taxpayers’ check to the Department never cleared so they contacted the Department by

telephone. They received an automated response indicating that the processing of returns

was backed up for up to six weeks.

9. Veronica Galewater acknowledged that the Department had widespread problems

processing refunds for the 2015 tax year, but she was unaware of any other issues that the

Department experienced.

10. Taxpayers attempted to contact the Department several other times by telephone, but

each call received an automated response.

11. Taxpayers were able to get in touch with a Department employee by telephone during the

first or second week of October 2016. Taxpayers were advised that the Department had

never received their 2015 PIT return or their payment.

12. Taxpayers did not speak with Veronica Galewater at that time, but did speak with her

after the protest was filed.

13. After learning of the issue, Taxpayers re-mailed their 2015 PIT return and payment in the

form of a check to the Department in October 2016. That payment was received by the

Department.

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 2 of 7.

14. On November 21, 2016, the Department assessed Taxpayers for penalty and interest

owed in relation to their 2015 PIT in letter ID number L0267198768. The assessment

was for $404.32 penalty and $54.05 interest for a total of $458.37.

15. On December 23, 2016, Taxpayers filed a formal protest of the assessment.

16. On January 13, 2017, the Department issued a letter acknowledging the protest.

17. On January 24, 2017, the Department requested a hearing before the Administrative

Hearings Office to consider Taxpayers’ protest.

18. On January 25, 2017, the Administrative Hearings Office issued notice of the hearing.

DISCUSSION

The issue to be decided is whether Taxpayers are liable for penalty and interest for the 2015

tax year due to a failure to timely file their return.

Burden of Proof.

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

The presumption of correctness also applies to any interest or penalty that are imposed in the

assessment. See 3.1.6.13 NMAC (2001) Therefore, the assessment issued to Taxpayers is

presumed to be correct, and it is Taxpayers’ burden to present evidence and legal argument to

show that they are entitled to an abatement of penalty and interest. See 3.1.6.12 NMAC (2001).

When a taxpayer presents evidence sufficient to rebut the presumption, the burden shifts to the

Department to show that the assessment is correct. See MPC Ltd. v. N.M. Taxation and Revenue

Dep’t., 2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308 (filed October 2, 2002).

Filing of the Return.

Taxpayers presented evidence, through their testimony, that they filed their 2015 PIT

return on April 16th or April 17th, 2016 by placing the return and a check for payment in the

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 3 of 7.
United States Postal Service mail addressed to the Department as required by the 2015 PIT

Instructions. Returns may be filed by mail. See NMSA 1978, § 7-1-13 (B) (2013). All

authorized mailings are timely if they are mailed on or before the date on which they are due.

See NMSA 1978, § 7-1-9 (1997). However, “[i]f a mailing is not received by the department,

the contents of the mailing are not timely.” See 3.1.4.10 (C) (2) NMAC (2010).

Taxpayers provided evidence that they mailed their PIT return and payment check on

April 16th or 17th, 2016. I found Taxpayers to be entirely credible on that issue. However, the

evidence presented at the hearing established that the Department did not receive the PIT return

or the payment. Based upon the totality of the evidence, Taxpayers did not timely file their 2015

PIT return or payment.

Assessment of Penalty.

Penalty “shall be added to the amount assessed” when a tax is not paid on time due to

negligence. See NMSA 1978, § 7-1-69 (2007) (emphasis added). The word “shall” indicates that

the assessment of penalty is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil

Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. It is a taxpayer’s responsibility to

make payments. See NMSA 1978, § 7-1-13 (2013). Negligence includes the failure to exercise

ordinary business care and prudence which reasonable taxpayers would exercise under like

circumstances; inaction by taxpayers were action is required; or inadvertence, indifference,

thoughtlessness, carelessness, erroneous belief or inattention. See 3.1.11.10 NMAC (2001).

Several factors may be considered in determining that a taxpayer was not negligent, such as

relying on the advice of an accountant or a prolonged illness. See 3.1.11.11 NMAC. Penalty

may be assessed even when the failure to pay is based on an inadvertent error or unintentional

failure to pay the tax when it was due. See id. See also Grogan v. N.M. Taxation and Revenue

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 4 of 7.
Dep’t, 2003-NMCA-033, ¶ 32-35, 133 N.M. 354. See also Arco Materials, Inc. v. Taxation and

Revenue Dep’t, 1994-NMCA-062, ¶ 14, 118 N.M. 12 rev’d on other grounds by Blaze Constr.

Co v. Taxation and Revenue Dep’t, 1995-NMSC-110, 118 N.M. 647.

Taxpayers in this case exercised the degree of ordinary business care and prudence which

reasonable taxpayers would exercise under like circumstances by mailing their 2015 PIT return

and payment through the United States postal service prior to the due date. Taxpayers did not fail

to act when action was required. Taxpayers did not act with indifference, thoughtlessness,

carelessness, inattentively or under an erroneous belief. Nor did Taxpayers commit any

inadvertent error.

At the hearing, the Department noted a recent decision from the Administrative Hearings

Office regarding the consolidated protests of the City of Albuquerque and Mid-Region Counsel

of Governments issued March 16, 2017 (No. 17-13). In that case, there was an inadvertent error

when the City of Albuquerque’s computer system failed to properly transmit an electronic funds

transfer request to the City of Albuquerque’s bank so that taxes could be paid to the Department.

The City of Albuquerque was found negligent in that decision due to the inadvertent error caused

by their own computer system.

The Hearing Officer finds that fact pattern distinguishable from the facts in this protest.

There the City of Albuquerque was responsible for the inadvertent error because the error was

due to a malfunction in their own computer system. In this case, Taxpayers were not negligent in

any way. The failure to deliver Taxpayers’ 2015 PIT return and payment check in this case was

due to a third party’s error, the United States Postal Service, and not due to Taxpayers’ actions.

Taxpayers fully exercised reasonable and ordinary care when sent their 2015 PIT return and

payment through the regular United States Postal Service mail. Taxpayers were not negligent.

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 5 of 7.
Taxpayers have overcome the presumption of the correctness of the penalty assessment. The

penalty shall be abated.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). Again, the word “shall” indicates that the assessment of interest

is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n.,

2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish

taxpayers, but to compensate the state for the time value of unpaid revenues. Because the tax

was not paid when it was due, interest was properly assessed.

CONCLUSIONS OF LAW

1. Taxpayers filed a timely written protest to the Notice of Assessment of 2015

personal income taxes issued under respective Letter ID number L0267198768, and jurisdiction lies

over the parties and the subject matter of this protest.

2. Taxpayers mailed their 2015 PIT return and payment on April 16th or 17th, 2016,

however, the Department did not receive the return or payment. The PIT was not timely paid.

3. Taxpayers did not act negligently in this matter and any error was on the part of the

United States Postal Service. Taxpayers overcame the presumption of correctness of the assessment

of penalty. Taxpayer is entitled to an abatement of the assessment of penalty.

4. The PIT was not timely paid. Taxpayers did not overcome the presumption of

correctness of the assessment of interest.

For the foregoing reasons, Taxpayers’ protest with regard to the penalty assessment IS

GRANTED and Taxpayers’ protest with regard to the interest assessment IS DENIED. The

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 6 of 7.
penalty assessed by the Department shall be abated. Taxpayers are ordered to pay the interest

assessed by the Department.

Dated: April 14, 2017

David Buchanan
David Buchanan
Hearing Officer
Administrative Hearings Office
Post Office 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. If an appeal is not filed with the Court of Appeals within 30 days, this Decision and Order will

become final. Rule of Appellate Procedure 12-601 NMRA articulates the requirements of perfecting an

appeal of an administrative decision with the Court of Appeals. 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 begin preparing the record proper. The

parties will each be provided with a copy of the record proper at the time of the filing of the record with

the Court of Appeals, which occurs within 14 days of the Administrative Hearings Office’s receipt of the

docketing statement from the appealing party. See Rule 12-209 NMRA.

Christopher Roch and Nguyen H. Park
Letter ID No. L0267198768
Page 7 of 7.