Could a divorced New Mexico taxpayer use head-of-household status when her college-student son lived with her from June 24 through the end of the year?

Plain-English summary

Pamela Castaldi qualified to file as head of household for 2016, so New Mexico had to abate the entire related assessment of tax, penalty, and interest. Her testimony, her son's testimony, and his affidavit established that the required household and qualifying-child conditions were met.

Castaldi was divorced and maintained her own home. Her adult son, Max Gangestad, was under age 24 and enrolled in college during 2016. He testified that he began living with her on June 24, 2016 and remained there through the end of the calendar year and beyond.

Castaldi did not charge her son rent. She paid for food and other necessities, and the AHO found her testimony credible. Although divorce documents and testimony indicated that the father had primary custody at some times, the documents did not establish what actually occurred in 2016.

New Mexico followed the federal filing-status rules

Section 7-2-2(H) defined New Mexico “head of household” status by reference to federal law. The decision applied 26 U.S.C. § 2, Treasury Regulation 1.2-2(b), and the 2016 IRS Publication 501.

The ruling described three main requirements:

• the taxpayer was not married;
• the taxpayer paid more than half the cost of maintaining the home for the year; and
• a qualifying person lived with the taxpayer for more than half the calendar year.

For an adult son to be a qualifying child, the ruling also considered family relationship, principal place of abode, age and student status, support, and whether the child filed a joint return.

Credible evidence overcame the assessment

Department assessments were presumed correct, so Castaldi initially carried the burden of showing that the filing-status adjustment was wrong.

The AHO found that her evidence satisfied each federal requirement. She was single, maintained the home at her own expense, provided housing and necessities, and supported a son who was under 24 and attending college. His residence from June 24 through December 31 was more than half of 2016.

The Department did not challenge that evidence or present contradictory evidence. Castaldi therefore overcame the assessment and met New Mexico's head-of-household definition.

Result: protest GRANTED. The assessment of tax, penalty, and interest was abated in its entirety.

What this means for you

Divorced or separated parents

Custody language in an older divorce order may not resolve the tax-year facts. Evidence of where the child actually lived during the year can be decisive.

Parents supporting college students

An adult child under age 24 who is a student may be a qualifying child if the residence, relationship, support, and return-filing requirements are also met.

Taxpayers disputing filing-status adjustments

Prepare evidence for every element: marital status, household costs, the child's exact residence dates, student and age records, support, and joint-return status. Testimony and an affidavit succeeded here because the AHO found them credible and the Department offered nothing contrary.

Accountants and tax professionals

New Mexico's head-of-household definition follows federal law. Review the federal rules and the facts for the specific tax year instead of relying solely on general custody labels.

Common questions

Q: How long did Castaldi's son live with her in 2016?
A: From June 24 through the end of the year, and beyond. The AHO treated that period as more than half the calendar year.

Q: Was the son too old to be a qualifying child?
A: No. He was under age 24 and enrolled in college during 2016, satisfying the age-and-student component described in the decision.

Q: Did Castaldi charge him rent?
A: No. She maintained the home and paid for his food and other necessities.

Q: Did the father's prior primary custody defeat the claim?
A: No. The AHO found that the divorce documentation was not conclusive about where the son lived in 2016.

Q: What evidence supported Castaldi?
A: Her credible testimony, her son's telephone testimony, and his affidavit identifying the 2016 residence dates.

Q: Did the Department present contrary evidence?
A: No. The decision states that it did not challenge her evidence or present evidence contradicting it.

Q: What happened to the assessment?
A: The tax, penalty, and interest were abated in full. The decision did not state a dollar amount.

Citations and references

Statutes, regulations, and guidance:

• NMSA 1978, § 7-2-2(H) (2014) — New Mexico head-of-household definition conforming to federal law
• 26 U.S.C. § 2 — head-of-household filing status
• 26 U.S.C. § 152 — qualifying-child and dependent rules
• 26 C.F.R. § 1.2-2(b) — head-of-household definition
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(Y) — assessment presumption and tax definition
• NMSA 1978, § 9-11-6.2(G) — presumption for Department interpretations
• Regulation 3.1.6.13 NMAC — assessment presumption for penalty and interest
• IRS Publication 501 (2016), pages 8 and 13 — head-of-household and qualifying-child requirements

Cases cited:

• Archuleta v. O'Cheskey, 1972-NMCA-165 — taxpayer's burden to overcome an assessment
• New Mexico Taxation & Revenue Department v. Whitener, 1993-NMCA-161 — burden shifts after the assessment presumption is overcome
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — burden after rebutting an assessment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Pamela Castaldi
• Decision PDF: D&O 19-06

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
PAMELA CASTALDI
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L2082172720
AHO D&O 19-06
v. Case Number 18.12-323A

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

An administrative hearing on the above-referenced protest was held on January 31, 2019
before Hearing Officer Ignacio V. Gallegos. Mr. Peter Breen Staff Attorney, and Ms. Milagros
Bernardo, Auditor appeared on behalf of the Taxation and Revenue Department (Department).
Pamela Castaldi (Taxpayer) appeared for the hearing representing herself.
Pamela Castaldi and Max Gangestad appeared as the witnesses for the Taxpayer. The
Department presented no witnesses. Taxpayer presented one additional exhibit, marked Exhibit

1. The Department’s Exhibits B and C-1 through C-7 were admitted. The Hearing Officer took
   administrative notice of all documents contained in the administrative file. All exhibits are more
   fully described in the Administrative Exhibit Log.
   The sole issue presented before this tribunal in this protest is whether the Department
   properly assessed Taxpayer, after rejecting the Taxpayer’s claim for “head of household” filing
   status. After making findings of fact in this matter and discussing the arguments and the
   pertinent legal authority in more detail, this tribunal ultimately concludes/rules that the Taxpayer
   prevails in this matter, as the Taxpayer was able to show that she met the requirements for the
   “head of household” filing status for the tax year.
   Based on the evidence in the record, IT IS DECIDED AND ORDERED AS FOLLOWS:
   FINDINGS OF FACT
2. On July 25, 2018, the Department issued an assessment to the Taxpayer for taxes
   due for personal income tax reporting period ending December 31, 2016.
   [L2082172720].
3. On October 6, 2018, the Taxpayer filed a timely protest. [Administrative file].
4. On November 7, 2018, the Department issued a letter acknowledging the
   Taxpayer’s protest. [L1413230768].
5. On December 19, 2018, the Department filed a Request for Hearing asking that
   the Taxpayer’s protest be scheduled for a scheduling hearing. [Administrative
   file].
6. On December 20, 2018, the Administrative Hearings Office sent notice of a
   telephonic scheduling hearing to the parties, setting the telephonic scheduling
   hearing for January 9, 2019. The hearing was set within 90 days of the receipt of
   the protest as required by statute, NMSA 1978 Section 7-1B-8 (A).
   [Administrative File].
7. On January 9, 2019, the undersigned hearing officer conducted a telephonic
   scheduling hearing. The Department appeared through its representative Attorney
   Peter Breen, however, the Taxpayer did not appear pro se or through an
   authorized representative.
8. On January 10, 2019 the Administrative Hearings Office sent notice of a merits
   hearing to the parties. The Taxpayer and the Department were notified that a
   hearing would be held on January 31, 2019 at 1:30 PM in Room 269 of the
   Wendell Chino Building, 1220 S. St. Francis Drive, Santa Fe, New Mexico.
9. The notice of hearing was mailed by first class mail to the Taxpayer at the address
   on file in her protest.
10. At the Merits hearing on January 31, 2019, the Taxpayer appeared in person, and
    Staff Attorney Peter Breen represented the Department, accompanied by Milagros
    Bernardo, Protest Auditor.
11. Taxpayer credibly testified that her adult son Max Gangestad was living with her
    more than half the calendar year of 2016. As part of the living arrangement, Ms.

In the matter of the protest of Pamela Castaldi
Letter No. L2082172720
Page 2 of 6
Castaldi did not charge her son rent and she paid for food and other necessities.
[Testimony of Ms. Castaldi, Hearing Record (H.R.) 13:45-14:00].

11. During 2016, Max Gangestad would have been under the age of 24 years old, and
    enrolled in college. [Testimony of Ms. Castaldi H.R. 15:30-16:10; Exhibit B].
12. Max Gangestad credibly testified, by telephone, that he lived with his mother Ms.
    Castaldi beginning June 24, 2016 through the end of the calendar year and beyond
    that time. [Testimony of M. Gangestad H.R. 28:00-29:35].
13. Max Gangestad averred, through an affidavit, the dates in 2016 that he was living
    with his mother. [Exhibit 1].
14. Ms. Castaldi and her child’s father are divorced. Although there was some
    evidence from the divorce documentation, and from testimony that Max’s father
    had primary custody at times, the divorce documentation is not conclusive as to
    what occurred in 2016. [Exhibit C1-C7].
15. The Department denied the Taxpayer’s head of household filing status.
    [Testimony of Ms. Castaldi H.R. 38:45-39:20].

DISCUSSION
The sole issue in this protest is whether the Taxpayer is entitled to claim a “head of
household” filing status on her 2016 Personal Income Tax return. Under NMSA 1978, Section
7-1-17 (C), the underlying assessments of tax issued in this case are presumed correct. Unless
otherwise specified, for the purposes of the Tax Administration Act, “tax” is defined to include
interest and civil penalty. See NMSA 1978, Section 7-1-3 (Y). 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. Therefore, the Taxpayer has the burden to overcome the
assessment and show she was entitled to an abatement of tax. See Archuleta v. O'Cheskey, 1972-
NMCA-165, ¶11, 84 N.M. 428, 504 P.2d 638. If Taxpayer can overcome the presumption of
correctness in the assessment, the burden shifts to the Department to prove the assessment was
justified. See New Mexico Taxation & Revenue Dep’t. v. Whitener, 1993-NMCA-161, 117
N.M. 130, 869 P.2d 829; MPC Ltd. v. New Mexico Taxation & Revenue Dep’t., 2003-NMCA-
021, 133 N.M. 217, 62 P.3d 308.

In the matter of the protest of Pamela Castaldi
Letter No. L2082172720
Page 3 of 6
Head of Household.
State statute NMSA 1978, Section 7-2-2 (H) (2014) defines “head of household” to
conform with federal law. Internal Revenue Code, 26 U.S.C. Section 2, is the federal statute
which is the starting point to determine whether an individual qualifies as a head of household.
Likewise, 26 C.F.R. 1.2-2 (b) is the federal regulation issued by the Department of the Treasury,
Internal Revenue Service (IRS) that defines the term. The law requires three things: that the
taxpayer is not married, the taxpayer paid more than half the cost of keeping up a home for the
year, and that a qualifying person lived with the taxpayer for more than half the calendar year.
See IRS Publication 501 1, page 8. In New Mexico, the instructions issued by the Secretary of the
Taxation and Revenue Department are presumed to be an accurate implementation of the law.
NMSA 1978, Section 9-11-6.2 (G) indicates: “[a]ny regulation, ruling, instruction or order issued
by the secretary or delegate of the secretary is presumed to be a proper implementation of the
provisions of the laws that are charged to the department, the secretary, any division of the
department or any director of any division of the department.” Likewise, in federal
jurisprudence, IRS regulations and interpretations are afforded significant deference. See Mayo
Found. For Med. Educ. & Research v. United States, 562 U.S. 44, 53-57 (2011) (applying two-
part test of Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) to
IRS interpretation of statutes).
In order to be a “qualifying person” the federal law then considers a dependent child as a
“qualifying child.” See 26 U.S.C. 152 and 26 C.F.R. 152-1 and 152-4. Under the federal law,
there are five requirements for a dependent child: to have a certain familial relationship, to have
the same principal place of abode, to be under 24 years of age (if a student), the child does not
provide more than half his or her own support, and the child does not file a joint return. See IRS
Publication 501, page 13.
Taxpayer presented credible evidence supporting each of the requirements under federal
law. Ms. Castaldi is a single person who maintained a home in 2016 at her own expense, and
provided a home and other necessities, including food, for her adult son. Her adult son was
under the age of 24 years old and attending college at the time. In each of these requirements,
the Department did not challenge the Taxpayer’s evidence, or present any evidence that may

1
2016 IRS Publication 501 is available online at https://www.irs.gov/pub/irs-prior/p501--2016.pdf

In the matter of the protest of Pamela Castaldi
Letter No. L2082172720
Page 4 of 6
contradict the evidence presented. The evidence presented showed clearly that Taxpayer meets
the federal requirements for “head of household” as defined by 26 U.S.C. Section 2 and 26
C.F.R. 1.2-2. By meeting these requirements, the Taxpayer also meets the statutory
requirements of New Mexico law, Section 7-2-2 (H).

CONCLUSIONS OF LAW
A. The Taxpayer filed a timely written protest to the Assessment issued under Letter ID
number L2082172720, and jurisdiction lies over the parties and the subject matter of
this protest.
B. The Administrative Hearings Office held a hearing within the 90-day hearing
requirement provided in NMSA 1978, Section, 7-1B-8 (A) and Regulation
22.600.3.8 (E).
C. Pursuant to NMSA 1978, Section 7-1-17 (C) (2007), the Department’s assessment is
presumed to be correct, and it is Taxpayer’s burden to come forward with evidence
and legal argument to establish the assessment was made in error.
D. The Taxpayer has satisfactorily met the burden of establishing she was entitled to
the claimed “head of household” filing status at issue. See NMSA 1978, Section
7-2-2 (H) (2014). See also 26 U.S.C. Section 2. See also 26 C.F.R. 1.2-2 (b).

For the foregoing reasons, the Taxpayer’s protest IS GRANTED and the assessment of tax,

penalty and interest should be ABATED in its entirety.

DATED: February 15, 2019.

Ignacio V. Gallegos
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

In the matter of the protest of Pamela Castaldi
Letter No. L2082172720
Page 5 of 6
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 timely 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 proper with the Court of Appeals,
which occurs within 14 days of the Administrative Hearings Office receipt of the docketing
statement from the appealing party. See Rule 12-209 NMRA.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Decision and Order to the parties listed below this 15th
day of February, 2019 in the following manner:

First Class Mail Interoffice Mail

INTENTIONALLY BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505) 827-0466
FX: (505) 827-9732

In the matter of the protest of Pamela Castaldi
Letter No. L2082172720
Page 6 of 6