Must New Mexico reduce interest when its scanning error sends the required pre-assessment audit notice to the wrong address?

Plain-English summary

Michael D. and Sue Callaway received a partial refund of interest because the Department sent required pre-assessment communications to an address created by its own scanning error. A text-recognition scan misread the handwritten “4” in their former street number as a “9,” causing the Notice of Intent to Assess to go to the wrong Albuquerque address.

The Department also had the Callaways' current Texas address from their 2019 return and had mailed a refund check there in July 2020. Nevertheless, the November 2020 notice went to the erroneous address. The Callaways did not learn of the issue until the February 4, 2021 assessment was correctly mailed to Texas.

The original assessment for 2017–2018 was $4,287.08: $3,331 of personal income tax, $666.20 of penalty, and $289.88 of interest. The Callaways did not contest the tax and paid it. The Department separately abated the entire penalty after recognizing the addressing error. By April 14, 2021, its statement of account showed $291.53 of interest as the only remaining amount.

Interest ordinarily runs from the tax's due date until the principal is paid, regardless of why payment was late. That prevented a complete interest abatement. But Section 7-1-67(A)(7) supplies a specific remedy when the Department fails to provide the notice required by Section 7-1-11.2: interest is excluded for the period from 180 days before the assessment through the assessment date.

The hearing officer rejected the Department's claim that mailing to any address generated in its records was enough. An erroneous record created by the Department through no taxpayer fault did not satisfy the notice statute, particularly when more current records contained the correct address.

The Callaways did not receive every remedy they requested. The Administrative Hearings Office lacked authority to order a managed audit, which was within the Department secretary's discretion; grant broader equitable relief on these facts; or direct destruction of the erroneous scanned record.

Result: protest GRANTED IN PART and DENIED IN PART. The Callaways were entitled to an interest reduction and refund under Section 7-1-67(A)(7), but the decision did not state the refund amount.

Date note

The preserved PDF's signature line says “February 17, 2021,” but the official decision is numbered D&O 22-04 and the Department's official post is dated February 17, 2022. The issued_date records the official 2022 publication date; the apparent one-year signature error remains verbatim in the original text below.

What this means for you

Incorrect audit notice can reduce interest

When the Department fails to give the pre-assessment notice required by Section 7-1-11.2, Section 7-1-67(A)(7) excludes a defined 180-day pre-assessment period from the interest calculation.

The remedy is partial, not a blanket waiver

Interest that accrued outside the statutory exclusion remained mandatory. The addressing error did not cause the original late payment, so it did not erase all interest.

Current address records matter

The Department had the correct address on the 2019 return and used it for a refund check. Reliance on an older, machine-generated erroneous address did not constitute proper notice.

An adjudicator cannot grant relief beyond its statutory authority

The hearing officer could apply the express interest-relief statute but could not compel a managed audit or order the Department to destroy its scan.

Common questions

Q: Why was the notice sent to the wrong address?
A: The Department's scanning system read a handwritten “4” as a “9” when digitizing the Callaways' prior return.

Q: Did the Callaways dispute the $3,331 tax?
A: No. They conceded and paid the principal tax; penalty and interest were the disputed items.

Q: Was the $666.20 penalty still at issue in the decision?
A: No. The Department had already fully abated it after recognizing the address error.

Q: How is the interest reduction calculated?
A: Section 7-1-67(A)(7) excludes the period between 180 days before the assessment and the assessment date. The decision ordered a reduction and refund but did not compute the dollars.

Q: Could the hearing officer order a managed audit or delete the bad record?
A: No. The decision found no authority to compel those remedies.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-67(A)(7) — interest exclusion when required audit notice was not provided
• NMSA 1978, § 7-1-11.2 — notice of audit commencement or request to review records
• NMSA 1978, § 7-1-11.1 — managed audits and the secretary's discretion
• NMSA 1978, § 7-1-9(A) — mailing to the last address on a registration certificate or other Department record
• NMSA 1978, § 7-1-60 — statutory estoppel
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(X) — assessment presumption and definition of tax
• NMSA 1978, § 7-1B-8 — hearing timing

Cases:

• Maso v. State, Taxation & Revenue Department, Motor Vehicle Division, 2004-NMSC-028 — notice reasonably calculated to apprise the interested party
• Buescher v. Jaquez, 1983-NMSC-107 — notice sent to the wrong address through no fault of the recipient was not proper
• New Mexico Taxation & Revenue Department v. Casias Trucking, 2014-NMCA-099 — taxpayer's burden to overcome an assessment
• AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085 — limits on equitable remedies by administrative bodies

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Michael D. Sue Callaway
• Decision PDF: D&O 22-04

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 MICHAEL D. & SUE CALLAWAY
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L1175577008

8 v. Case Number 21.04-020A, D&O #22-04

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER
11 GRANTING SUMMARY JUDGMENT FOR TAXPAYER

12 On September 9, 2021, Hearing Officer Chris Romero, Esq., conducted a hearing on the

13 competing motions for summary judgment in the protest of Michael D. and Sue Callaway

14 pursuant to the Tax Administration Act and the Administrative Hearings Office Act. Ms. Sue

15 Callaway, Esq., an attorney licensed to practice law in New Mexico, appeared representing

16 herself and her spouse (collectively referred to herein as “Taxpayer”). Mr. Kenneth Fladager,

17 Esq. appeared on behalf of the opposing party in the protest, the Taxation and Revenue

18 Department (“Department”) accompanied by Ms. Alma Tapia, protest auditor, and Mr. Richard

19 Galewaler, auditor. Ms. Callaway testified on behalf of Taxpayer. Ms. Tapia and Mr. Galewaler

20 testified for the Department.

21 The hearing occurred by videoconference pursuant to NMSA 1978, Section 7-1B-8 (H)

22 under the circumstances of the public health emergency presented by COVID-19, as discussed in

23 greater detail in Standing Order 21-02, which is made part of the record of the proceeding.

24 Department Exhibit A and Taxpayer Exhibits 1 – 34 were admitted as evidentiary exhibits

25 and Administrative Notice was taken of the Administrative File.

26 Taxpayer presents several issues for consideration. The primary issue is whether the Hearing

27 Officer can abate accrued interest where an undisputed error by the Department in addressing

In the Matter of the Protest of Michael D. & Sue Callaway
Page 1 of 21
1 correspondence allegedly deprived Taxpayer of the benefits of a managed audit, or

2 otherwise precluded and prejudiced Taxpayer’s ability to meaningfully engage with the

3 Department during the pre-assessment, audit process, and contributed to the additional

4 accrual of interest.

5 The remaining issues balance on the question of the Administrative Hearings

6 Office’s authority under the Tax Administration Act and the Administrative Hearings Office

7 Act to award other relief, including relief under the doctrine of equitable estoppel to

8 preclude imposition of interest, or even to order destruction of erroneous records generated

9 by the Department. Despite the Hearing Officer’s empathy for Taxpayer under the

10 circumstances of this protest, the Tax Administration Act does not permit a full abatement

11 of interest nor the other forms of relief sought by Taxpayer. Taxpayer is, however, entitled

12 to a partial abatement of interest under NMSA 1978, Section 7-1-11.2 and Section 7-1-67

13 (A) (7) as discussed herein. For the reasons that follow, Taxpayer’s protest should be

14 granted in part and denied in part. IT IS DECIDED AND ORDERED AS FOLLOWS:

15 FINDINGS OF FACT

16 Procedural History

17 1. On February 4, 2021, the Department issued a Notice of Assessment of

18 Taxes and Demand for Payment under Letter ID No. L1175577008 (“Assessment”). The

19 amount due under the Assessment was $4,287.08 comprised of $3,331.00 in personal

20 income tax, $666.20 in penalty, and $289.88 in interest for the periods from January 1,

21 2017 to December 31, 2018. [Administrative File (Letter ID No. L1175577008);

22 Taxpayer MSJ #4]

23 2. On February 12, 2021, Taxpayer, by and through Ms. Callaway, executed

In the Matter of the Protest of Michael D. & Sue Callaway
Page 2 of 21
1 a Formal Protest of the Assessment. The protest requested relief from assessed penalty and

2 interest. Taxpayer did not protest the imposition of the principal amount of tax assessed.

3 [Administrative File (Formal Protest); Taxpayer MSJ #6]

4 3. On March 18, 2021, under Letter ID No. L1787883952, the Department notified

5 Taxpayer that it was unable to abate penalty or interest under the facts of the protest as they were

6 then established or understood. [Administrative File (Letter ID No. L1787883952); Taxpayer

7 MSJ #8]

8 4. On April 12, 2021, the Department issued a Notice of Abatement of Tax

9 Assessment under Letter ID No. L1632528816 which fully abated penalty in the amount of

10 $666.20. [Administrative File (Letter ID. No. L1632528816); Taxpayer MSJ #18]

11 5. On April 14, 2021, the Department acknowledged the receipt of Taxpayer’s

12 protest under Letter ID No. L1987275184. [Administrative File (Letter ID No. L1987275184);

13 Taxpayer MSJ #25]

14 6. On April 14, 2021, the Department issued a Statement of Account under Letter ID

15 No. L1487235504 notifying Taxpayer that the only amount due under the Assessment was for

16 interest in the amount of $291.53. [Administrative File (Letter ID No. L1487235504); Taxpayer

17 MSJ #26]

18 7. As of April 14, 2021, the only outstanding and unresolved dispute arising from

19 the Assessment concerned the imposition of interest in the amount of $291.53. [Administrative

20 File (Letter ID Nos. L1175577008, L1632528816, L1487235504, and Formal Protest); Taxpayer

21 MSJ #26]

22 8. On April 23, 2021, the Department filed a Request for Hearing requesting a

23 hearing on the merits of Taxpayer’s protest. A copy of the Hearing Request was copied to

In the Matter of the Protest of Michael D. & Sue Callaway
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1 Taxpayer and included New Mexico Taxation and Revenue Department’s Answer to

2 Protest. [Administrative File]

3 9. On April 23, 2021, the Administrative Hearings Office entered a Notice of

4 Videoconference Administrative Hearing that set a hearing on the merits of the protest to

5 occur on June 30, 2021. [Administrative File]

6 10. On June 28, 2021, the Hearing Officer, through his assistant, inquired

7 whether the parties were available for a telephonic hearing. The inquiry was made

8 because the Administrative Hearings Office was notified that there was some

9 misunderstanding or confusion from Taxpayer regarding pre-hearing procedures which

10 suggested that Taxpayer would not be ready to proceed to the hearing as scheduled. A

11 hearing was held on June 28, 2021 upon concurrence of the parties. [Administrative File]

12 11. Neither party objected that conducting the hearing on June 28, 2021

13 satisfied the 90-day hearing requirements of Section 7-1B-8 while still allowing

14 meaningful opportunity to engage in other prehearing activities provided by NMSA 1978,

15 Section 7-1B-6 (e.g. motions, discovery). [Record of Hearing 6/28/2021]

16 12. On June 29, 2021, the Administrative Hearings Office entered an Order

17 Continuing Hearing and Notice of Motion Hearing upon the parties’ suggestion that the

18 issues in dispute presented questions of law and that no material facts were likely to be

19 disputed. A hearing was set for September 8, 2021. [Administrative File]

20 13. On August 2, 2021, Taxpayer filed Taxpayers Michael D. & Sue

21 Callaway’s Motion for Summary Judgment and Memorandum of Law in Support

22 Thereof. [Administrative File]

23 14. On August 17, 2021, the Department filed New Mexico Taxation and

In the Matter of the Protest of Michael D. & Sue Callaway
Page 4 of 21
1 Revenue Department’s Response to Taxpayer’s Motion for Summary Judgment and Cross

2 Motion and Memorandum in Support of Cross Motion for Summary Judgment. [Administrative

3 File]

4 15. On August 26, 2021, Taxpayer filed Taxpayers Michael D. & Sue Callaway’s

5 Reply to New Mexico Taxation and Revenue Department’s Response to Taxpayers’ Motion for

6 Summary Judgment and Taxpayers’ Response to New Mexico Taxation and Revenue

7 Department's Cross Motion for Summary Judgment. [Administrative File]

8 Undisputed Material Facts1

9 16. The Department conducted an audit after detecting a Schedule C mismatch in

10 Taxpayer’s 2017 and 2018 tax returns. [Taxpayer MSJ #1 (4 pages)]

11 17. The results of the audit generated a Notice of Intent to Assess - Personal Income

12 Tax dated November 19, 2020. The deadline to respond was January 18, 2021, and Taxpayer

13 missed the deadline due to not receiving the notice. [Taxpayer MSJ #1; #13]

14 18. Taxpayer did not receive the notice because it was incorrectly addressed.

15 [Taxpayer MSJ #1; #13]

16 19. The Notice of Intent to Assess - Personal Income Tax was incorrectly mailed to

17 8529 San Diego Court NE, Albuquerque, NM 87122 which was neither a correct address nor

18 Taxpayer’s address of record with the Department. [Taxpayer MSJ #2 (2 pages); #13]

19 20. Taxpayer’s correct previous address was 8524 San Diego Court NE,

20 Albuquerque, NM 87122. [Taxpayer MSJ#22; #23]

21 21. The parties concur that the discrepancy derived from a text recognition scan of

1
The following facts derive from the respective motions. Some facts provided have been reproduced exactly as
derived from the pleadings while others may have been edited for sake of simplicity, clarification, or to omit facts
the Hearing Officer did not perceive as material to the issues under consideration, including duplicative procedural
history.

In the Matter of the Protest of Michael D. & Sue Callaway
Page 5 of 21
1 Taxpayer’s handwritten tax returns which erroneously identified a handwritten “4” as a

2 “9.” [Taxpayer MSJ #22; Cross Examination of Ms. Tapia; Cross Examination of Mr.

3 Galewaler]

4 22. Nonetheless, Taxpayer’s address of record as of the date the Notice of Intent to

5 Assess was mailed on or about November 19, 2020 was 309 Jake Drive, Jarrell, TX

6 76537. The Department had knowledge of Taxpayer’s address because it was utilized in

7 Taxpayer’s 2019 tax return, to which the Department also mailed a tax refund check on

8 or about July 2, 2020. [Taxpayer MSJ #2 (2 pages); #13]

9 23. In addition to filing the 2019 tax return containing Taxpayer’s correct

10 address, Taxpayer also filed a change of address with the United States Postal Service

11 (“USPS”) and requested forwarding service to 309 Jake Drive, Jarrell, TX 76537.

12 [Taxpayer MSJ #3]

13 24. Because Taxpayer did not have notice of the Department’s pre-assessment

14 contacts, the opportunity to resolve questions or concerns prior to the assessment lapsed

15 resulting in the issuance of the Assessment on February 4, 2021.

16 25. Despite the Department’s reliance on an incorrect address in prior written

17 communications, the Assessment was mailed to Taxpayer’s correct address at 309 Jake

18 Dr., Jarrell, TX 76537-1772 which brought the issue to Taxpayer’s attention for the first

19 time. [Administrative File (Letter ID No. L1175577008); Taxpayer MSJ #4; Testimony

20 of Ms. Callaway]

21 26. In response to further inquiries from Taxpayer, the Department informed

22 Taxpayer that any relief from the Assessment would need to be obtained through filing a

23 protest of the Assessment. [Taxpayer MSJ #1]

In the Matter of the Protest of Michael D. & Sue Callaway
Page 6 of 21
1 27. Taxpayer does not contest the assessment of tax, conceding prior to the hearing

2 that the assessment derived from an error that Taxpayer subsequently rectified. [Taxpayer MSJ

3 #5]

4 28. Penalty in the amount of $666.20 was abated on or about April 12, 2021 as a

5 result of the Department recognizing its erroneous reliance on an incorrect address. [Taxpayer

6 MSJ #18; Cross Examination of Ms. Tapia]

7 29. Due to lack of resources, the Department is not able to verify the accuracy of

8 scanned compilations of handwritten Personal Income Tax returns. [Direct Examination of Mr.

9 Galewaler]

10 30. Taxpayers may submit an amended return to correct identified errors generated by

11 the Department’s automated scanning system. [Direct Examination of Mr. Galewaler]

12 31. Mr. Galewaler offered Taxpayer an opportunity to complete a post-Assessment

13 managed audit for PIT years 2017 and 2018 and suggested that the managed audit agreement

14 also include 2019. Taxpayer declined preferring to address any 2019 issues, if any, separate and

15 apart from any issues known to exist in 2017 and 2018. [Cross Examination of Mr. Galewaler]

16 32. Taxpayers are not entitled to a managed audit when the relevant assessment is

17 subject to an active protest. [Cross Examination of Mr. Galewaler]

18 33. There is no technical difference between a Notice of Intent to Assess and a Notice

19 of Commencement of Audit and despite the different names, they essentially serve the same

20 purpose. [Examination by Hearing Officer of Mr. Galewaler]

21 34. Taxpayer observed other differences between the scanned versions and the

22 handwritten versions of the relevant tax returns. For example, the scanned versions excluded

23 initials, contained an erroneous date of birth, and seemingly omitted dependent information.

In the Matter of the Protest of Michael D. & Sue Callaway
Page 7 of 21
1 [Taxpayer MSJ #15; #21]

2 DISCUSSION

3 Because the issues presented center on questions of law, and there are no disputed material

4 facts, both parties moved for summary judgment. In controversies involving a question of law, or

5 application of law where there are no disputed facts, summary judgment is appropriate. See

6 Koenig v. Perez, 1986-NMSC-066, ¶10-11, 104 N.M. 664. If the movant for summary judgment

7 makes a prima facie showing that it is entitled to a judgment as a matter of law, the burden shifts

8 to the opposing party to show evidentiary facts that would require a trial on the merits. See Roth

9 v. Thompson, 1992-NMSC-011, ¶17, 113 N.M. 331.

10 The material facts presented by this protest are not in dispute. Although Taxpayer presents

11 several issues for consideration, entitlement to any relief stems from the fact that the Department

12 relied on an incorrect address in its efforts to engage in pre-Assessment communications with

13 Taxpayer, particularly a Notice of Intent to Assess which is analogous to a Notice of Audit. When

14 those attempts at communication failed by no fault of Taxpayer, the Department proceeded with the

15 Assessment of taxes. Not until the Assessment was received, at the correct address, did Taxpayer

16 realize there had been issues with its 2017 and 2018 tax returns and that any possibility to resolve

17 those issues prior to the Assessment had been undermined by the Department’s unsuccessful

18 attempts to communicate with Taxpayer.

19 By that time, however, any opportunity to enter into a managed audit had dissolved, also

20 evaporating Taxpayer’s opportunity to resolve any potential liability without imposition of interest

21 and penalty under NMSA 1978, Section 7-1-11.1.

22 Taxpayer ultimately did not dispute the imposition of the tax and the Department fully

23 abated the imposition of penalty. Accordingly, the only remaining issue with respect for Taxpayer’s

In the Matter of the Protest of Michael D. & Sue Callaway
Page 8 of 21
1 tax liability concentrates on the imposition of interest. Taxpayer also requests other forms of relief

2 separate and apart from a determination of its liability for interest, such as ordering the destruction

3 of erroneous records created by the Department.

4 Presumption of Correctness

5 Pursuant to NMSA 1978, Section 7-1-17 (C) (2007), the Assessment of tax issued in this

6 case is presumed correct and unless otherwise specified, for the purposes of the Tax

7 Administration Act, “tax” includes interest and civil penalty. See NMSA 1978, Section 7-1-3 (X)

8 (2013). Therefore, under Regulation 3.1.6.13 NMAC, the presumption of correctness under

9 Section 7-1-17 (C) also extends to the Department’s assessment of penalty and interest. See

10 Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation & Revenue, 2006-NMCA-050, ¶16, 139

11 N.M. 498, 134 P.3d 785 (agency regulations interpreting a statute are presumed proper and are to be

12 given substantial weight).

13 As a result, the presumption of correctness in favor of the Department requires that

14 Taxpayer carry the burden of presenting countervailing evidence or legal argument to establish

15 entitlement to abatement of the Assessment. See N.M. Taxation & Revenue Dep’t v. Casias

16 Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated statements that [an] assessment

17 is incorrect cannot overcome the presumption of correctness.” See MPC Ltd. v. N.M. Taxation &

18 Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d 308; See also Regulation 3.1.6.12

19 NMAC. If a taxpayer presents sufficient evidence to rebut the presumption, then the burden

20 shifts to the Department to re-establish the correctness of the assessment. See MPC, 2003-

21 NMCA-021, ¶13.

22 Although pre-Assessment communications were addressed to an incorrect address, the

23 Hearing Officer notes that the Assessment was correctly addressed and received by Taxpayer.

In the Matter of the Protest of Michael D. & Sue Callaway
Page 9 of 21
1 This observation is relevant because the presumption of correctness attaches to the Assessment

2 despite previous addressing errors in written communications. See NMSA 1978, Section 7-1-17

3 (B) & (C) (2007) and Regulation 3.1.6.11 NMAC (1/15/01). See also Torridge Corp. v.

4 Commissioner of Revenue, 84 N.M. 610, 612 (N.M. Ct. App. 1972) (“after…notice of

5 assessment of taxes is delivered to a taxpayer, taxpayer must carry burden of proof in order to

6 negate the presumption of correctness.”)

7 Effect of Erroneous Mailing Address

8 The undisputed facts establish that the Department relied on an incorrect address when

9 attempting to engage in pre-Assessment communications, particularly the Notice of Intent to

10 Assess. The Department was solely accountable for the incorrect address.

11 In the normal course of business, the Department scans hand-written tax returns in order

12 to compile the contents of the return in a digital and readily accessible format. The scan does not

13 simply generate an image of the document but recognizes handwritten text and assembles it in a

14 digital format that the Department can then access for a variety of purposes, such as to review or

15 verify computations.

16 The technology upon which the Department relies, like any technology, apparently has its

17 limitations. The relevant limitation in this protest concerns the scanner’s inability to distinguish

18 Taxpayer’s handwritten “4” from a “9.” Although Taxpayer identified other errors in the scan,

19 this inability to distinguish between these digits ultimately formed the basis for this protest

20 because that caused all pre-Assessment communications to be misdirected.

21 Recognizing the error of its technology, the Department fully abated penalty, but not

22 interest. Accordingly, the amount in dispute in this protest as of the time the Department

In the Matter of the Protest of Michael D. & Sue Callaway
Page 10 of 21
1 requested a hearing was approximately $300. Taxpayer did not dispute the imposition of tax

2 which was paid in full.

3 Thus, the first question presented for consideration is whether under the circumstances

4 presented by the undisputed facts, the Hearing Officer can relieve Taxpayer of liability, in full or

5 in part, for accrued interest.

6 Interest

7 Despite Taxpayer’s reasonable frustrations with the Department’s reliance on an erroneous

8 mailing address, that reliance did not cause Taxpayer to incur the interest on any tax due. In

9 contrast, interest is imposed when a taxpayer fails to make timely payment of taxes due to the state.

10 “[I]nterest shall be paid to the state on that amount from the first day following the day on which

11 the tax becomes due...until it is paid.” NMSA 1978, Section 7-1-67 (2007) (italics for emphasis).

12 The Department retains no discretion in the imposition of interest regardless of the reason

13 for non-payment of the tax, as the statutory use of the word “shall” makes the imposition of interest

14 mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22,

15 146 N.M. 24, 32 (use of the word “shall” in a statute indicates the provision is mandatory absent clear

16 indication to the contrary).

17 The language of the statute also makes it clear that interest begins to run from the original due

18 date of the tax and continues until the tax principal is paid in full. Again, the Department has no

19 discretion under Section 7-1-67 and must assess interest against Taxpayer from the time the tax was

20 due, but not paid, until the tax principal liability is satisfied.

21 In this case, the event triggering the accrual of interest had already occurred as of the date of

22 the misdirected communications. Conversely stated, interest was already due and continuing to accrue

In the Matter of the Protest of Michael D. & Sue Callaway
Page 11 of 21
1 despite the Department’s subsequent reliance on an erroneous address. Therefore, misaddressed

2 communications did not instigate the accrual of interest on Taxpayer’s liability.

3 However, the Department’s reliance on an erroneous address did contribute to the Taxpayer’s

4 inability to resolve its liability with a managed audit under NMSA 1978, Section 7-1-11.1, which if

5 accepted, could have relieved Taxpayer of interest.2 Yet, this perceived harm may also be

6 somewhat speculative as there is no absolute right to a managed audit. Section 7-1-11.1 (E) states,

7 “The decision whether to enter into an agreement for a managed audit rests solely with the

8 secretary or the secretary’s delegate.” This is significant because a taxpayer has no right to a

9 managed audit in that the authority to confer its benefits rest solely with the Department.

10 On the other hand, the undisputed facts suggest that if the Department was offering the

11 opportunity to enter into a managed audit, that there was also a likelihood that it would grant the

12 application. Despite the suggestion that the Department would likely view Taxpayer’s application

13 favorably, that outcome is not certain, nor does that suggestion now permit the Administrative

14 Hearings Office to rectify the harm caused by any misaddressed communications by ordering a

15 managed audit after the fact. The Hearing Officer is not aware of any legal authority, nor has

16 Taxpayer directed the tribunal to any authority, which would permit the Administrative Hearings

17 Office to order a managed audit under the circumstances at issue in this protest. That authority lies

18 within the discretion of the Department.

19 Yet, given the harm identified, the next question centers on what other remedy might

20 rectify the Department’s error. As previously stated, the imposition of interest is mandatory.

21 Neither the Department nor the Administrative Hearings Office have the authority to fully abate

22 interest, even under the circumstances presented in this protest.

2
A managed audit under Section 7-1-11.1 may also relieve a taxpayer of liability for penalty. In this protest, the
Department exercised its authority to fully abate penalty without need for a managed audit.

In the Matter of the Protest of Michael D. & Sue Callaway
Page 12 of 21
1 However, NMSA 1978, Section 7-1-67 does contemplate a limited form of relief “if the

2 taxpayer was not provided with proper notices as required in Section 7-1-11.2 NMSA 1978,” in

3 which case, “interest shall be paid from the first day following the day on which the tax becomes

4 due until the tax is paid, excluding the period between one hundred eighty days prior to the date

5 of assessment and the date of assessment.” See NMSA 1978, Section 7-1-67 (A) (7). Meanwhile,

6 Section 7-1-11.2 requires notice to taxpayer of the intent to audit or the Department’s desire to

7 review records. It would seem at first blush to the Hearing Officer that this provision contemplates

8 the sort of circumstances at issue in this protest in which pre-Assessment communications

9 purporting to alert Taxpayer of an issue were misaddressed and never received according to the

10 Taxpayer’s credible testimony.

11 The Department does not necessarily dispute the potential application of Section 7-1-67

12 (A) (7). Instead, it asserts that despite addressing errors with its pre-Assessment communications,

13 all mailings were reasonably calculated to provide notice. It argues “actual notice of an

14 administrative action is not required as long as the administrative agency took reasonable measures

15 to effect notice.” (Emphasis in Original) It also relies on long standing and well-established

16 authority of our federal and state courts that “[a]ctual notice is not required, so long as the notice

17 given is ‘reasonably calculated, under all the circumstances, to apprise interested parties of the

18 pendency of the action and afford them an opportunity to present their objections.’” See Maso v.

19 State, Taxation & Revenue Dept., Motor Vehicle Div., 2004-NMSC-028, ¶10, 136 N.M. 161, 164,

20 96 P.3d 286, 289 (citing Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314, 70 S. Ct.

21 652, 657, 94 L. Ed. 865 (1950)); see also City of Albuquerque v. Juarez, 1979-NMCA-084, ¶ 10,

22 93 N.M. 188, 190, 598 P.2d 650, 652, overruled on other grounds by State v. Herrera, 1991-

23 NMCA-005, ¶ 10, 111 N.M. 560, 807 P.2d 744.

In the Matter of the Protest of Michael D. & Sue Callaway
Page 13 of 21
1 The Department goes on to explain that its reliance on the erroneous address, deriving from

2 a scanner’s inability to distinguish a “4” from a “9,” was reasonable and consistent with NMSA

3 1978, Section 7-1-9 (A) which states, “[a]ny notice … to be given by mail is effective if mailed …

4 to the taxpayer or person at the last address shown on his registration certificate or other record of

5 the department.” (Emphasis Added) The Department, despite now knowing that its scan was

6 imperfect, asserts that reliance on the address generated by the scanner was nevertheless

7 reasonable because, notwithstanding the error, the contents of the erroneous scan constituted “a

8 record of the department.” Taxpayer, in contrast, points out that our Supreme Court has previously

9 observed that a notice to an incorrect address through no fault of the person entitled to notice, was

10 not proper. See Buescher v. Jaquez, 1983-NMSC-107, ¶ 12, 101 N.M. 2, 5, 677 P.2d 615, 618.

11 The Hearing Officer agrees with Taxpayer and is not persuaded that the Legislature

12 intended for the provision, “a record of the Department,” to include erroneous records generated

13 by the Department through no fault of a taxpayer. In fact, applying the statute with such loose

14 regard effectively renders the provision meaningless contrary to the rule that no statute should be

15 construed in a manner that renders any other part surplusage or superfluous. See Katz v. New

16 Mexico Dept. of Human Services, Income Support Div., 1981-NMSC-012, ¶18, 95 N.M. 530, 534,

17 624 P.2d 39, 43.

18 “Statutes are to be read in a way that facilitates their operation and the achievement of their

19 goals.” See Rutherford v. Chaves County, 2003-NMSC-010, ¶ 24, 133 N.M. 756, 762, 69 P.3d

20 1199, 1205. Statutes should not be literally applied “when [to do so] would lead to

21 counterproductive, inconsistent, and absurd results[.]” See Eldridge v. Circle K Corp., 1997-

22 NMCA-022, ¶ 29, 123 N.M. 145, 151–52, 934 P.2d 1074, 1080–81. Under the circumstances of

23 this protest, the Department’s interpretation of “a record of the department” also produces absurd

In the Matter of the Protest of Michael D. & Sue Callaway
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1 results in that it diminishes any incentive for the Department to maximize the accuracy of its

2 record-keeping capabilities, and permits unreasonable latitude for the Department to determine

3 what will, or will not, constitute a record which, in this case, would include an erroneous record

4 generated by the Department, not a taxpayer.

5 For this reason, the Hearing Officer is persuaded that Section 7-1-11.2 is relevant and

6 applicable in this protest, and the applicable portion of Section 7-1-67 entitles Taxpayer to a

7 reduction in interest for failing to comply with the former. That statute entitles taxpayers to notice

8 of a commencement of an audit3, identifying the tax program at issue, as well as the relevant

9 reporting periods. The Department’s reliance on its scanner which failed to distinguish between

10 “4” and “9” deprived Taxpayer of such notice, not to mention the fact that other, more current

11 records of the Department contained Taxpayer’s current address in Texas.

12 The Hearing Officer concurs with the observation made by the Department in Dusenbery v.

13 United States, 534 U.S. 161, 170, 122 S. Ct. 694, 701, 151 L. Ed. 2d 597 (2002), that the “Due Process

14 Clause does not require such heroic efforts by the Government; it requires only that the Government’s

15 effort be ‘reasonably calculated’ to apprise a party of the pendency of the action[.]” However, the

16 Hearing Officer does not believe that effective pre-Assessment communications required heroic

17 efforts. The Department only needed to rely on the address that Taxpayer provided which is well

18 within what might be deemed reasonable.

19 Of course, the Hearing Officer recognizes the enormous task with which the Department is

20 confronted. It receives, processes, and generates numerous records every day. It may be impossible

21 to cross-check even a fraction of hand-written returns against the scan of those returns to identify

22 errors. Really, the fact that this sort of issue does not arise more frequently despite the enormity of its

3
Mr. Galewaler explained that there is no technical difference between a notice of intent to audit and a Notice of
Intent to Assess.

In the Matter of the Protest of Michael D. & Sue Callaway
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1 mission demonstrates the success of its efforts to maximize the accuracy of its procedures despite the

2 occasional irregularity, such as that seen in this case. However, when such error occurs, such as that

3 in this case, a taxpayer should be entitled to the relief afforded by the Legislature, just as the

4 Department should be amenable to recognizing and correcting its errors.

5 For these reasons, the Hearing Officer concurs with Taxpayer that the relief provided by

6 NMSA 1978, Section 7-1-11.2 (2003) and NMSA 1978, Section 7-1-67 (A) (7) (2013) is appropriate

7 under the circumstances of this protest and has established entitlement to a partial abatement of

8 interest.

9 Equitable and Other Relief Requested

10 In addition to seeking relief under Section 7-1-67 (A) (7), Taxpayer also seeks equitable relief.

11 Taxpayer first relies on NMSA 1978, Section 7-1-60 which provides:

12 In any proceeding pursuant to the provisions of the Tax
13 Administration Act, the department shall be estopped from obtaining
14 or withholding the relief requested if it is shown by the party adverse
15 to the department that the party’s action or inaction complained of was
16 in accordance with any regulation effective during the time the
17 asserted liability for tax arose or in accordance with any ruling
18 addressed to the party personally and in writing by the secretary,
19 unless the ruling had been rendered invalid or had been superseded by
20 regulation or by another ruling similarly addressed at the time the
21 asserted liability for tax arose.

22 The Hearing Officer is not persuaded that this statute is applicable in the circumstances at

23 hand since a more specific statute, Section 7-1-67 (A) (7), contemplates and addresses the specific

24 issues arising in this protest. See Lubbock Steel & Supply, Inc., Div. of Lubbock Am. Iron & Metal,

25 Inc. v. Gomez, 1987-NMSC-025, ¶ 14, 105 N.M. 516, 518, 734 P.2d 756, 758 (“As a general rule of

26 statutory construction[,] … general language in a statute is limited by specific language.”)

27 Moreover, this statute only affords relief when “it is shown by the party adverse to the

28 department that the party’s action or inaction complained of was in accordance with any regulation

In the Matter of the Protest of Michael D. & Sue Callaway
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1 effective during the time the asserted liability for tax arose” and the Department is now taking a

2 position contrary to that regulation. In this case, the Hearing Officer does not necessarily perceive a

3 scenario where Taxpayer’s “action or inaction complained of was in accordance with any regulation

4 effective during the time the asserted liability for tax arose” and the Department is now taking a

5 position contrary to that regulation. The asserted liability arose years prior to the circumstances giving

6 rise to this protest and the Department’s position is not necessarily contrary to its position at that time,

7 but addressed to the consequences of its error at the time it addressed its pre-Assessment

8 communications in 2020.

9 Even if this statute did apply, there is no indication that its application would entitle Taxpayer

10 to relief beyond that to which Taxpayer is entitled under Section 7-1-67 (A) (7) because, despite

11 subsequent errors in addressing correspondence to Taxpayer, interest was lawfully incurred and

12 assessed for an unpaid tax obligation and negating a lawful assessment of interest, in its entirety, under

13 these circumstances would produce absurd results conflicting with other provisions of the Tax

14 Administration Act which address imposition of interest for unpaid tax obligations.

15 To the extent Taxpayer seeks relief under the doctrine of equitable estoppel, as opposed

16 to statutory estoppel, the Supreme Court has recognized that although administrative bodies,

17 such as the Administrative Hearings Office, may exercise “quasi-judicial powers,” application of

18 equitable doctrines might extend beyond the reach of the administrative body’s limited powers.

19 See AA Oilfield Service v. New Mexico State Corp. Comm’n, 1994-NMSC-085, 118 N.M. 273,

20 279, 881 P.2d 18 (“authority to grant an equitable remedy depends on whether such authority

21 may be fairly encompassed within the realm of ‘quasi-judicial powers.’ We do not believe that it

22 can.”). In the absence of clear authority, the Hearing Officer declines to test the limits of the

In the Matter of the Protest of Michael D. & Sue Callaway
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1 court’s comments in AA Oilfield Service by affording relief in reliance on powers which are not

2 explicit in any authority cited by the parties or otherwise known to the Hearing Officer.

3 In addition to relief from assessed interest, Taxpayer requests an order of the Administrative

4 Hearings Office directing the Department to remove and destroy the erroneous scan or data from its

5 records. Taxpayer intends for this request, if granted, to remedy other errors she perceived with the

6 Department’s scan of Taxpayer’s handwritten return. However, Ms. Calloway, acknowledged that

7 she was not aware of the statutory authority that would permit such order. The Hearing Officer is also

8 unaware of such authority.

9 Generally speaking, “[a]gencies are created by statute, and limited to the power and authority

10 expressly granted or necessarily implied by those statutes.” See State ex rel. Stapleton v. Skandera,

11 2015-NMCA-044, ¶ 8, 346 P.3d 1191, 1194 (quoting Qwest Corp. v. N.M. Pub. Regulation Comm'n,

12 2006–NMSC–042, ¶ 20, 140 N.M. 440, 143 P.3d 478). A review of the Administrative Hearings

13 Office Act and the applicable portions of the Tax Administration Act fail to reveal any express

14 authority to enter an order directing those erroneous records be purged or destroyed. In the absence

15 of citation to legal authority, the Hearing Officer respectfully declines to engage in an analysis of

16 whether such authority is necessarily implied.

17 One would hope that on the infrequent occasion where errors are identified by a taxpayer or

18 by the Department, that the error could be efficiently corrected, either manually, by rescanning the

19 original document, or some other method that will assure that the information provided on a written

20 return will be accurately transferred to a taxpayer’s account. Instead, Mr. Galewaler explained that a

21 taxpayer in this situation could correct a misread electronic version of a handwritten return by filing

22 an amended return. This approach, although perhaps representing only one of several options, seems

23 unreasonable because it would require a taxpayer to amend a return, not because the original return

In the Matter of the Protest of Michael D. & Sue Callaway
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1 required amending, but because a Department scanner misinterpreted information. In other words,

2 after a taxpayer has incurred the burden of preparing an amended return, the amended return might

3 be identical to the original return in every way with exception for the date of its submission and

4 selection of the checkbox identifying it as an amendment, which at least to the Hearing Officer, defies

5 common sense.

6 Nevertheless, the request for an order directing the removal or destruction of the erroneous

7 scan is denied.

8 For the reasons stated, Taxpayer’s protest is DENIED IN PART and GRANTED IN PART.

9 Taxpayer is entitled to reduction in interest consistent with the computation provided in Section

10 7-1-67 (A) (7) (2013). Any further request for relief is DENIED.

11 CONCLUSIONS OF LAW

12 A. Taxpayer filed a timely, written protest to the Assessment. Jurisdiction lies over the

13 parties and the subject matter of this protest.

14 B. The Department made a timely request for hearing and the Administrative Hearings

15 Office conducted a hearing within 90 days of Taxpayer’s protest under NMSA 1978, Section 7-1B-

16 8 (2019).

17 C. Taxpayer carries the burden to present countervailing evidence or legal argument

18 to show entitlement to an abatement of an assessment. See Casias Trucking, 2014-NMCA-099,

19 ¶8.

20 D. If a taxpayer presents sufficient evidence to rebut the presumption, then the

21 burden shifts to the Department to re-establish the correctness of the assessment. See MPC Ltd.,

22 2003-NMCA-021, ¶13.

23 E. Taxpayer overcame the presumption of correctness with respect to the computation

In the Matter of the Protest of Michael D. & Sue Callaway
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1 of interest. See Section 7-1-17(C).

2 F. Under NMSA 1978, Section 7-1-67 (2007), Taxpayer is liable for accrued interest

3 under the assessment, which shall continue to accrue until the tax principal is satisfied, except

4 that Section 7-1-67 (A) (7) (2007) provides for partial relief from interest when a taxpayer was

5 not provided with proper notice as required by Section 7-1-11.2 in which case “interest shall be

6 paid from the first day following the day on which the tax becomes due until the tax is paid,

7 excluding the period between one hundred eighty days prior to the date of the assessment and the

8 date of the assessment.”

9 For the reasons stated, Taxpayer’s protest is DENIED IN PART and GRANTED IN

10 PART. Taxpayer is entitled to reduction and refund in interest consistent with the computation

11 provided in Section 7-1-67 (A) (7) (2013).

12 DATED: February 17, 2021

13
14 Chris Romero
15 Hearing Officer
16 Administrative Hearings Office
17 P.O. Box 6400
18 Santa Fe, NM 87502

19 NOTICE OF RIGHT TO APPEAL

20 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

21 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

22 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

23 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

24 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

25 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

In the Matter of the Protest of Michael D. & Sue Callaway
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1 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

2 Hearings Office may begin preparing the record proper. The parties will each be provided with a

3 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

4 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

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

6 CERTIFICATE OF SERVICE

7 I hereby certify that I served the foregoing on the parties listed below this 17h day of

8 February, 2022 in the following manner:

9 E-Mail E-Mail

10 INTENTIONALLY BLANK

In the Matter of the Protest of Michael D. & Sue Callaway
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