I paid my New Mexico income tax months late because my spouse and I were seriously ill with COVID-19 and had no income — can the penalty and interest be waived?

Plain-English summary

Neal and Catherine Van Berg won part of their protest. The married couple represented themselves. Catherine is an artist who sells her work in galleries; Neal sells stereos. Both businesses were hit hard by the pandemic, and the couple received Medicaid and food assistance because they could not generate income in 2020 and 2021.

They filed their 2019 New Mexico personal income tax return on time (April 9, 2020) but did not pay the $3,407 of tax then. The state had pushed the 2019 payment deadline to April 15, 2021 because of the pandemic (through H.B. 6, a 2020 special-session law). Around that deadline both spouses were seriously ill with COVID-19: Catherine was hospitalized and treated with monoclonal antibodies in January–February 2021; Neal, a type-1 diabetic, was hospitalized and sick for three months from April into June 2021. When their federal COVID-19 relief funds arrived, they used the money to pay the tax on July 13, 2021 — about three months late.

On May 5, 2021, the Department had assessed $3,407.00 tax, $681.40 civil negligence penalty, $80.52 interest, and $2.05 estimated-tax underpayment penalty ($4,170.97 total). The couple paid the tax and protested the penalties and interest. Chief Hearing Officer Brian VanDenzen split the result:

• Negligence penalty abated. The hearing officer found the couple were not negligent in the ordinary sense — no one could plan around a once-in-a-century pandemic, and they missed the deadline because serious COVID-19 illness left them unable to work or generate income right around the due date. Although late payment technically fit the regulation's "inaction where action is required" definition, Regulation 3.1.11.11 (B) NMAC (disability from prolonged illness) together with Section 7-1-69 (B) supported abating the penalty. The hearing officer read the illness-abatement rule broadly, treating COVID-19 like a sudden-onset emergency, and refused the Department's narrow "physical inability to pay" reading as leading to an absurd result during the pandemic.
• Interest upheld. Section 7-1-67 makes interest mandatory; it compensates the state for the time value of the late-paid tax and is not conditioned on negligence, so the $101.52 of interest stood.
• Estimated-tax underpayment penalty upheld. The separate $2.05 penalty under Section 7-2-12.2 also stood, because that underpayment happened in 2019 or early 2020 — before the pandemic affected the couple — so pandemic circumstances did not excuse it.

Result: protest PARTIALLY GRANTED (negligence penalty abated) and PARTIALLY DENIED (interest and estimated-tax penalty due). A companion case decided the same day, Joseph & Jennifer Cervantes, D&O 22-17, reached the same penalty-abated/interest-due conclusion on different facts (deadline confusion rather than illness).

What this means for you

Serious illness around a deadline can abate a New Mexico penalty

Regulation 3.1.11.11 (B) NMAC lets the state abate a penalty when a taxpayer, disabled by injury or prolonged illness, could not prepare a return, make payment, or get someone else to do it. Here, hospitalization for COVID-19 near the deadline — plus the resulting inability to earn income — was enough. The couple did not have to cite the regulation by name; the hearing officer looked at whether the evidence showed they were non-negligent, which is the relief their protest actually requested.

Interest is never waived for late payment

As in every one of these cases, interest survives. It is not a punishment; it compensates the state for receiving its money late. However sympathetic the reason for paying late, plan on interest.

An estimated-tax penalty can survive even when the main penalty is abated

Watch the timing. The negligence penalty was abated because the late payment happened during the pandemic. But the estimated-tax underpayment penalty was tied to conduct in 2019/early 2020, before the pandemic hit the couple, so the same excuse did not reach it. Different penalties attach to different moments and are judged separately.

"I couldn't afford it" is not, by itself, penalty relief

The decision is explicit: inability to pay alone is generally not grounds to abate a penalty (Regulations 3.1.6.14 and 3.1.11.9 NMAC). The couple won because their inability to pay was intertwined with serious illness and the extraordinary pandemic — not simply because money was tight.

This is a pandemic-limited holding

The hearing officer stressed that the decision is limited to the pandemic period. Do not read it as a general rule that hardship or illness always erases a penalty in normal times.

Common questions

Q: Did they get out of the tax itself?
A: No — they never disputed the $3,407 of 2019 income tax and paid it in full on July 13, 2021. The dispute was only over the penalties and interest.

Q: Why was the negligence penalty abated but not the interest?
A: The penalty statute (Section 7-1-69) has exceptions for non-negligence and good-faith mistakes; the interest statute (Section 7-1-67) has none, because interest compensates the state for the time value of money rather than punishing the taxpayer.

Q: Why did the tiny $2.05 estimated-tax penalty survive?
A: That penalty (Section 7-2-12.2) was for underpaying estimated tax back in 2019 or early 2020 — before the pandemic affected the couple — so the pandemic-based non-negligence reasoning did not apply to it.

Q: They argued economic hardship, not illness — did that matter?
A: The hearing officer treated the two as intertwined during the pandemic: their COVID-19 illnesses forced isolation and stopped their income right around the deadline. He declined to hold a self-represented couple to reciting the "magic words," and looked at what the evidence showed.

Q: Does simply not being able to afford the tax get a penalty waived?
A: No. The decision says inability to pay alone is generally not a basis for abatement. It worked here only because it was bound up with serious illness during an extraordinary pandemic.

Q: Can another taxpayer rely on this decision?
A: No. It resolved this couple's protest on their specific facts and the law in effect for 2019, and it rests heavily on the extraordinary circumstances of the COVID-19 pandemic. Another taxpayer should analyze its own facts and current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69 (2007) — the civil negligence penalty "shall" be added; subsection (B) forgives it when the failure to pay results from a good-faith mistake of law made on reasonable grounds
• NMSA 1978, § 7-1-67 (2013) — interest "shall be paid" on tax not paid when due; it compensates the state for the time value of money and is not conditioned on negligence
• NMSA 1978, § 7-2-12.2 (2011) — imposes the estimated-tax underpayment penalty; no non-negligence factor allowed abatement here
• NMSA 1978, § 7-1-17 (C) (2007) — an assessment, including penalty and interest, is presumed correct; the taxpayer bears the burden to overcome it
• NMSA 1978, § 7-1-3 (X) (2013) — "tax" is defined to include interest and civil penalty
• NMSA 1978, § 7-2-12 (2016) — the income tax return and payment are due when the federal return is due (normally April 15)
• NMSA 1978, § 7-2-3 (1981) — income tax is imposed on the net income of every New Mexico resident
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 (2019) — Administrative Hearings Office procedure and 90-day hearing timing
• NMSA 1978, § 7-1-25 (2015) — right to appeal the decision to the New Mexico Court of Appeals
• H.B. 6, § 4, 55th Leg., 1st Special Sess. (N.M. 2020) — extended the 2019 personal income tax payment deadline to April 15, 2021 by shielding taxpayers from penalty and interest until then
• Regulation 3.1.11.10 NMAC — defines negligence three ways, including "inaction by taxpayer where action is required"
• Regulation 3.1.11.11 (B) NMAC — penalty may be abated where a taxpayer disabled by injury or prolonged illness could not prepare a return, make payment, or procure another's services
• Regulation 3.1.6.13 NMAC — the presumption of correctness extends to assessed penalty and interest
• Regulations 3.1.6.14 and 3.1.11.9 NMAC — a taxpayer's inability to pay, by itself, does not justify compromising a tax liability or penalty

Cases:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the word "shall" makes a statutory requirement mandatory
• GEA Integrated Cooling Tech. v. State Taxation & Revenue Dep't, 2012-NMCA-010, 268 P.3d 48 — interest compensates the state for the time value of money, while the penalty is punitive and meant to deter late payment
• El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep't, 1989-NMCA-070, 108 N.M. 795 — courts look to the regulatory definition of negligence to interpret the penalty statute
• Kewanee Indus., Inc. v. Reese, 1993-NMSC-006, 114 N.M. 784 — courts apply the statutory, regulatory, or case-law definition applicable to the periods at issue
• Hi-Country Buick GMC, Inc. v. Taxation & Revenue Dep't, 2016-NMCA-027, 367 P.3d 862 — the penalty is punitive and should not be imposed on those who bore no responsibility for the unpaid tax
• City of Eunice v. State Taxation & Revenue Dep't, 2014-NMCA-085 — statutes and regulations are not read to produce absurd, unreasonable, or unjust results
• Archuleta v. O'Cheskey, 1972-NMCA-165, 84 N.M. 428 — a taxpayer bears the burden to overcome the presumption of correctness
• MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021, 133 N.M. 217 — once the taxpayer rebuts the presumption, the burden shifts back to the Department
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, 336 P.3d 436 — the taxpayer's burden to show entitlement to abatement of an assessment
• DeMichele v. Taxation & Revenue Dep't Motor Vehicle Div., 2015-NMCA-095, 356 P.3d 523 — the word "may" indicates discretion, so the non-negligence examples are not exclusive

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Neal J and Catherine A Van Berg
• Decision PDF: D&O 22-18

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 NEAL J. & CATHERINE A. VAN BERG
6 TO ASSESSMENT OF TAX ISSUED UNDER
7 LETTER ID NO. L0988256688

8 v. AHO No. 22.05-024A, D&O No. 22-18

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On July 19, 2022, Chief Hearing Officer Brian VanDenzen, Esq., of the Administrative

12 Hearings Office conducted a merits administrative hearing in the matter of the tax protest of Neal

13 J. & Catherine A. Van Berg (Taxpayers) pursuant to the Tax Administration Act and the

14 Administrative Hearings Office Act. At Taxpayers’ request, and without objection, the merits

15 hearing occurred via videoconference, as permitted under NMSA 1978, Section 7-1B-8 (H)

16 (2019) and Regulation 22.600.3.10 NMAC. At the hearing, Taxpayers appeared, representing

17 themselves. Staff Attorney Richard Pener appeared, representing the opposing party in the

18 protest, the Taxation and Revenue Department (Department). Department Protest Auditor

19 Nicholas Pacheco appeared as a Department witness.

20 During the hearing, Taxpayers Exhibits #1-1 (E-check payment receipt from the

21 Department’s Taxpayer Access Point), #1-2 (Proof of Benefits, Income Support Division), #1-3

22 (Food and Medical Assistance Benefits Status), #1-4 (Detailed Food and Medical Assistance

23 Benefits Status), and #1-5 (Taxpayers’ 2020 Federal 1040 SR return) were admitted into the

24 record without objection. Further, Department Exhibits A (GenTax Payment Information for

25 Taxpayers’ 2019 personal income tax), B (GenTax Return filing information for Taxpayers’

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 1 of 26.
1 2019 personal income tax), C (Notice of Assessment) and D (updated spreadsheet of liabilities)

2 were admitted into the record without objection.

3 In quick summary and substantively similar to another decision and order issued today1, this

4 protest involves Taxpayers’ request for abatement of penalty and interest on their untimely paid

5 2019 personal income taxes because payment was due at the worst part of the COVID-19 pandemic

6 and because of personal financial hardship related to the pandemic’s impact on the economy.

7 Ultimately, after making findings of fact and discussing the issue in more detail throughout this

8 decision, the Hearing Officer partially finds for Taxpayers in that the imposition of civil negligence

9 penalty should be abated pursuant to NMSA 1978 Section 7-1-69 (B) (2007) and Regulation

10 3.1.11.11 (B) NMAC under the circumstance of the extraordinary, once-in-a-century COVID-19

11 pandemic. However, the protest to the remaining portions of the assessment—the interest and the

12 estimated tax underpayment penalty— must be denied and those totals remain due and owing. IT IS

13 DECIDED AND ORDERED AS FOLLOWS:

14 FINDINGS OF FACT

15 1. On May 5, 2021, under letter id. no. L0988256688, the Department issued a

16 Notice of Assessment of Taxes and Demand for Payment to Taxpayers for $3,407.00 in personal

17 income tax, $681.40 in civil negligence penalty, $80.52 in interest, and $2.05 in estimated tax

18 underpayment penalty for a total assessment of $4,170.97 for the personal income tax reporting

19 period ending on December 31, 2019. [Administrative Record, Hearing Request Packet,

20 Assessment; Dept. Ex. C].

21 2. On July 14, 2021, Taxpayers filed a formal protest of the Department’s

22 assessment. In the protest, Taxpayers asked for forgiveness of the assessed penalty and interest

1
See In the Matter of the Protest of Joseph & Jennifer Cervantes, D&O No. 22-17 (Aug. 8, 2022).

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 2 of 26.
1 because the amount due occurred during the worst part of the COVID-19 crisis and due to

2 personal financial hardship at a time when they were receiving financial assistance from the

3 state. [Administrative Record, Hearing Request Packet, Protest and Department Answer, p.1 ¶3].

4 3. On November 30, 2021, the Department acknowledged receipt of Taxpayers’

5 protest. [Administrative Record, Hearing Request Packet, Acknowledgement Letter].

6 4. On May 17, 2021, the Department filed a request for hearing on the protest with

7 the Administrative Hearings Office, along with its formal answer to Taxpayers protest.

8 [Administrative Record, Hearing Request Packet, Request for Hearing].

9 5. In its May 17, 2021, answer to the protest, the Department stated that Taxpayers

10 were seeking forgiveness of penalty and interest on two grounds: “Taxpayers allege [in their

11 protest] that amounts due occurred during the worst part of the COVID-19 pandemic and due to

12 personal financial hardship…” [Administrative Record, Department Answer, p.1 ¶3, emphasis

13 added].

14 6. Taxpayers are a married couple that filed their personal income tax returns as

15 “Married filing jointly” during the relevant times. [Dept. Ex. B-001; Taxpayer Ex. 1-5].

16 7. On April 9, 2020, Taxpayers timely filed their New Mexico 2019 personal income

17 tax return but did not make payment of the outstanding 2019 personal income tax liability at that

18 time. [Dept. Ex. B-001; testimony of Mr. Pacheco].

19 8. The Hearing Officer took administrative notice during the hearing, without

20 objection, that the worldwide COVID-19 pandemic impacted New Mexico acutely beginning in

21 early March 2020 when the first public health orders were issued. The COVID-19 pandemic

22 continued significantly through the relevant time frames at issue in this protest, through July

23 2021.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 3 of 26.
1 9. The New Mexico Legislature convened a special session to address the impact of

2 the COVID-19 pandemic in June 2020. During that first special session in 2020, the Legislature

3 provided specific relief to taxpayers in certain tax programs from imposition of penalty and

4 interest. The legislation effectively extended the 2019 personal income tax payment deadline to

5 April 15, 2021 by shielding taxpayers from assessment of interest or penalty through that date.

6 See H.B. 6, §4, 55th Leg., 1st Special Sess. (N.M. 2020), available at

7 https://www.nmlegis.gov/Sessions/20%20Special/final/HB0006.pdf2.

8 10. Catherine Van Berg is an artist who sells her work in galleries. [Testimony of

9 Catherine Van Berg].

10 11. Because of the economic impact of the pandemic, Catherine Van Berg was unable

11 to sell her art for extended periods in 2020 and 2021. [Testimony of Catherine Van Berg].

12 12. Neil Van Berg sells stereos and also was impacted significantly by the pandemic,

13 as his business carefully complied with the various public health orders during 2020 and 2021.

14 [Testimony of Catherine Van Berg].

15 13. Because of their inability to generate income during the COVID-19 pandemic,

16 Catherine Van Berg received Medicaid from April 1, 2020, through the relevant period at issue

17 in the protest. [Testimony of Catherine Van Berg; Taxpayer Ex. #1-2].

18 14. Because of their inability to generate income during the COVID-19 pandemic,

19 Taxpayers received food assistance through August 31, 2021. [Testimony of Catherine Van

20 Berg; Taxpayer Ex.’s #1-3 and #1-4].

2
Laws 2020, Chapter 4, Section 4 (1st S.S.).

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 4 of 26.
1 15. During calendar year 2020, Taxpayers generated no income and in fact reported a

2 taxable loss for that subsequent 2020 tax year3. [Testimony of Catherine Van Berg; Taxpayer Ex.

3 #1-5].

4 16. Taxpayers stated that they were of an age of potential increased risk for severe

5 COVID-19. [Testimony of Neil Van Berg].

6 17. Catherine Van Berg became ill with COVID-19 around January and February

7 20214. [Testimony of Catherine Van Berg].

8 18. Catherine Van Berg was briefly hospitalized with COVID-19 around day three of

9 her illness. [Testimony of Catherine Van Berg].

10 19. Catherine Van Berg was given monoclonal antibodies to treat her case of COVID-

11 19, which helped her recover. [Testimony of Catherine Van Berg].

12 20. Catherine Van Berg remained ill with COVID-19 for 4-6 weeks during the winter

13 of 2021 before she could resume more normal activity. [Testimony of Catherine Van Berg].

14 21. Neil Van Berg became ill with COVID-19 in the spring of 2021, shortly after

15 receiving his second booster shot on April 8, 2021, and visiting his elderly mother who was

16 hospitalized in Albuquerque. [Testimony of Neil Van Berg].

17 22. Neil Van Berg, as a type-1 diabetic, became significantly ill with COVID-19, was

18 hospitalized, received monoclonal antibodies, and remained significantly ill for three months.

19 [Testimony of Catherine & Neil Van Berg].

3
The tax period in dispute is 2019. Typically, personal income taxes are reported and paid on or about April 15 th of
the subsequent calendar year, which is presumably why Taxpayers pointed out their low income in the subsequent
calendar year even though that is not the tax year in dispute.
4
Ms. Van Berg initially testified that she became ill in January 2020. However, that date was unlikely because in
January 2020, there were very few known COVID-19 cases anywhere in the country and no known cases in New
Mexico. Additionally, monoclonal antibodies were not widely known or available as a potential treatment in January
2020. However, subsequent follow-up questions and testimony made clear that she in fact became ill in early 2021
rather than 2020, which is far more consistent with the timeframe of when COVID-19 first impacted New Mexico as
well as the widespread availability of the monoclonal antibodies for treating that condition.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 5 of 26.
1 23. Taxpayers were unable to pay their outstanding 2019 personal income tax liability

2 by April 15, 2021, because of how the COVID-19 pandemic impacted the country and how it

3 affected Taxpayers economically and individually. [Testimony of Catherine Van Berg].

4 24. In testimony and closing argument, and contrary to the other record evidence,

5 Neil Van Berg limited Taxpayers’ request for relief to their lack of income related to the

6 pandemic’s economic climate rather than extended COVID-19 illnesses each had suffered

7 beginning in January 2021 and extending through the April 15, 2021, extended payment

8 deadline. [Testimony of Neil Van Berg].

9 25. When Taxpayers received their federal COVID-19 relief funds in 2021, they used

10 that money to pay their outstanding New Mexico 2019 personal income tax liability. [Testimony

11 of Catherine Van Berg].

12 26. On July 13, 2021, Taxpayers paid $3,407.00 in 2019 personal income tax. [Dept.

13 Ex. A-001; testimony of Taxpayers; testimony of Mr. Pacheco].

14 27. Mr. Pacheco is a protest auditor with the Department. In that capacity, Mr.

15 Pacheco reviews protest cases and decides how to proceed on the protest. Mr. Pacheco was

16 assigned this case and became familiar with Taxpayers’ protest. [Testimony of Mr. Pacheco].

17 28. After reviewing Taxpayers payment history in GenTax5, Mr. Pacheco concluded

18 that Taxpayers’ 2019 personal income tax liability payment was made after the April 15, 2021

19 extended deadline under H.B. 6 for avoidance of penalty and interest.

20 29. As of the date of hearing, Mr. Pacheco calculated the updated liabilities for

21 penalty ($681.40) and interest ($101.52), plus the $2.05 underpayment penalty, for an updated,

22 alleged remaining liability of $784.97. [Testimony of Mr. Pacheco; Dept. Ex. D-001].

5
GenTax is the Taxation and Revenue Department’s computer tax data management and record system.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 6 of 26.
1 DISCUSSION

2 Taxpayers in this protest seek abatement of the assessed penalty and interest for their late

3 payment of 2019 New Mexico personal incomes taxes because payment was due at the worst

4 part of the COVID-19 pandemic and because of economic hardship attributable to the COVID-

5 19 pandemic. While Taxpayers focused their hearing presentation and argument on their inability

6 to pay the liability by the April 15, 2021, extended deadline, their protest letter referenced that in

7 addition to economic hardship, the payment deadline occurred at the worst part of the pandemic.

8 The Department acknowledged those two grounds for the protest in its answer. The evidence at

9 hearing indeed showed that the extended payment deadline occurred at the worst part of the

10 pandemic for Taxpayers: both the Van Bergs were directly impacted by acute COVID-19

11 illnesses at various extended periods from January 2021 through June 2021, the period

12 surrounding the April 15, 2021 extended payment deadline and their subsequent untimely

13 payment on July 13, 2021. Given the broader context of the pandemic and the illnesses that

14 impacted Taxpayers around the critical period around the extended payment deadline, the

15 Hearing Officer finds grounds to abate the assessed civil penalty in this case under Regulation

16 3.1.11.10 (B) NMAC. However, nothing allows abatement of interest and the underpayment

17 penalty, and those portions of the assessment remain due and owing.

18 Presumption of Correctness.

19 Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment issued in this case is

20 presumed correct. Consequently, Taxpayers have the burden to overcome the assessment. See

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

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

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

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

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 7 of 26.
1 interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-50,

2 ¶16, 139 N.M. 498, 503 (agency regulations interpreting a statute are presumed proper and are to be

3 given substantial weight). Accordingly, it is Taxpayers’ burden to present some countervailing

4 evidence or legal argument to show that they are entitled to an abatement, in full or in part of the

5 tax, penalty, and interest, of the assessment issued against them. See N.M. Taxation & Revenue

6 Dep't v. Casias Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. When a taxpayer presents

7 sufficient evidence to rebut the presumption, the burden shifts to the Department to show that the

8 assessment is correct. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133

9 N.M. 217.

10 New Mexico Personal Income Tax, the Pandemic, and the Extended Payment Deadline.

11 The tax program at dispute in this protest is personal income tax, governed by the Income

12 Tax Act under NMSA 1978, Section 7-2-1 through 39. Unless otherwise exempted by law, a tax is

13 imposed “upon the net income of every” New Mexico resident. NMSA 1978, § 7-2-3 (1981).

14 NMSA 1978, Section 7-2-12 (2016) requires any resident or person deriving income from New

15 Mexico to file a state income tax return. Like many states, the calculation of New Mexico’s

16 personal income tax liability begins with a taxpayer’s adjusted gross income as reported to the

17 IRS. See NMSA 1978, § 7-2-2 (A) (2010); See also Holt v. N.M. Dep't of Taxation & Revenue,

18 2002- NMSC-34, ¶23, 133 N.M. 11 (“calculation of the taxpayers’ state income tax is based upon

19 their adjusted gross income…on their federal return.”). Under Section 7-2-12, the required tax

20 return and any amount of tax due under the return are due on or before the date which the federal

21 income tax return us due, which is typically April 15th of the next calendar year6. Thus, the

6
In some years, depending on whether April 15th in that calendar year falls on a weekend or a federal holiday, the
traditional April 15th deadline might extend out a few additional days. That is not an issue in this case and the
broader point is that it is well understood and accepted in society that personal income tax returns and payments are
generally due on April 15th of the following year.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 8 of 26.
1 personal income taxes for the reporting period ending on December 31, 2019, would have

2 normally been due on or before April 15, 2020.

3 However, there was nothing normal about 2020. In early 2020, the COVID-19 pandemic

4 spread across the planet, landing in New Mexico in early March 2020. On March 11, 2020, the

5 pandemic was declared a public health emergency in New Mexico. See Lujan Grisham v.

6 Romero, 2021-NMSC-009, ¶ 3, 483 P.3d 545, 549. On that same date, Governor Michelle Lujan

7 Grisham invoked the All Hazard Emergency Response Act and directed all branches of state

8 government to take immediate action to minimize the spread of COVID-19 and minimize the

9 attendant physical and economic harms. See State ex rel. Riddle v. Oliver, 2021-NMSC-018, ¶ 7,

10 487 P.3d 815, 820 (internal citations omitted). In a matter of weeks, this once-in-a-century

11 pandemic impacted everyone across the globe, including in the United States and New Mexico,

12 in ways unimaginable only months before. Courts across the country, including our own Court of

13 Appeals, have recognized that the pandemic was beyond the ordinary circumstances anyone could

14 foresee regardless of the level of their diligence, care, or preparation. See State v. Alejandro M.,

15 2021-NMCA-013, ¶ 9-11, 485 P.3d 787, 790, cert. denied (S-1-SC-38654, Mar. 8, 2021).

16 Systems, laws, rules, and regulations designed to work in a status quo, “normal” era quickly

17 buckled under the weight of the pandemic, forcing individuals, businesses, institutions,

18 governments, and society itself to adapt and improvise in short order.

19 Long understood and traditional rules of taxation—like the traditional April 15th personal

20 income tax deadline—also yielded to the pressures of the pandemic. The New Mexico

21 Legislature convened at a special session in June 2020 to address some of the consequences of

22 the pandemic, including the need to provide relief for taxpayers in the context of the pandemic.

23 In pertinent part, by temporarily restricting the imposition of penalty and interest on 2019

24 income taxes, the Legislature effectively extended the payment deadline of 2019 personal

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 9 of 26.
1 income taxes a full year until April 15, 2021. See H.B. 6, §4 (A)(1), 55th Leg., 1st Special Sess.

2 (N.M. 2020)7, available at https://www.nmlegis.gov/Sessions/20%20Special/final/HB0006.pdf.

3 In this case, Taxpayers timely filed their 2019 personal income tax return on April 9,

4 2020. However, Taxpayers did not pay their outstanding 2019 personal income tax liabilities by

5 the extended 2021 deadline and instead finally paid their 2019 personal income taxes some three

6 months later on July 13, 2021. Because of that late payment, the Department assessed Taxpayers

7 penalty, estimated payment underreporting penalty, and interest, all which Taxpayers challenge

8 in this protest.

9 Interest Properly Assessed.

10 Imposition of interest is mandatory in all circumstances where a taxpayer fails to pay an

11 outstanding tax by the deadline. Under NMSA 1978, Section 7-1-67 (A) (2013), interest “shall be

12 paid” on taxes that are not paid on or before the date on which the tax is due. The word “shall”

13 indicates that the assessment of interest is mandatory and not discretionary. See Marbob Energy

14 Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24.

15 Nothing in Section 7-1-67 (A), even giving that section a broad reading, would permit

16 abatement of accrued interest under the circumstances of the pandemic. Unlike the civil penalty

17 statute, Section 7-1-67 is not conditioned on a taxpayer’s negligence. Nor does Section 7-1-67

18 provide any potential relief tied to a good faith mistake of law made on reasonable grounds or other

19 nonnegligence factors. This is because, distinct from penalty provisions, the assessment of interest

20 is not designed to punish taxpayers but to compensate the State for the time value of the unpaid

21 tax revenue. See GEA Integrated Cooling Tech. v. State Taxation & Revenue Dept., 2012-

22 NMCA-010, ¶ 23, 268 P.3d 48, 55. Because the tax was not paid when it was due, interest was

7
Laws 2020, Chapter 4, Section 4 (1st S.S.).

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 10 of 26.
1 properly assessed and that portion of Taxpayers protest is denied. Assessing interest makes the

2 State whole for the lapse of payment of the 2019 personal income tax by the April 15, 2021

3 extended deadline because the State will receive both the underlying tax liability plus the time

4 value of the lost revenue in the form of interest for the period of time after the April 15, 2021

5 deadline.

6 Civil Penalty is Abated.

7 By making payment after the extended statutory deadline, Taxpayers were potentially

8 subject to a civil negligence penalty under NMSA 1978 Section 7-1-69 (2007). Although the State

9 eventually received the full outstanding tax liability from Taxpayers, and will receive compensation

10 for the time-value of money associated with the delayed payment in the form of interest discussed in

11 the previous section, the question remains whether the State also is entitled to the additional punitive

12 civil negligence penalty under the circumstances of the pandemic that directly impacted these

13 Taxpayers. See GEA, 2012-NMCA-010, ¶ 23 (purpose of penalty is to encourage timely payment

14 and punish untimely payment).

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

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

17 (2007) requires that

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

22 (emphasis added).

23 Again, under a plain language reading, the statute’s use of the word “shall” makes the imposition

24 of penalty mandatory in all instances where a taxpayer’s actions or inactions meets the legal

25 definition of “negligence” or otherwise disregards Department rules and regulations. See Marbob

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 11 of 26.
1 Energy Corp., ¶22. In that sense, the Department was compelled by statute to assess the penalty

2 initially when it received Taxpayers’ payment after the April 15, 2021 extended deadline.

3 As will be addressed in more detail, the Hearing Officer has some general concern about

4 whether Taxpayers failure to timely pay the outstanding liability amounted to negligence, as that

5 term is commonly understood8, in light of the circumstances of the pandemic that fundamentally

6 altered any concept of ordinary diligence and care. However, case law addressing the civil

7 negligence penalty has relied on the Department’s broader regulatory definition of negligence to

8 define that term for purposes of Section 7-1-69. See El Centro Villa Nursing Ctr. v. Taxation &

9 Revenue Dept. of State of N.M., 1989-NMCA-070, ¶ 8, 108 N.M. 795, 797, 779 P.2d 982, 984

10 (looking to regulatory definition of negligence to ascribe meaning to the statutory use of that term);

11 see also Kewanee Indus., Inc. v. Reese, 1993-NMSC-006, ¶¶ 24-25, 114 N.M. 784, 790–91, 845

12 P.2d 1238, 1244–45 (court looks to the controlling statutory, regulatory, or case law definition

13 applicable to the time periods at issue). Regulation 3.1.11.10 NMAC defines negligence in three

14 separate ways: (A) “failure to exercise that degree of ordinary business care and prudence which

15 reasonable taxpayers would exercise under like circumstances;” (B) “inaction by taxpayer where

16 action is required”; or (C) “inadvertence, indifference, thoughtlessness, carelessness, erroneous

17 belief or inattention.”

18 Given the circumstances of the pandemic that impacted every person, taxpayer, and every

19 business in this country regardless of their level of care, knowledge, or understanding of tax law, the

20 Hearing Officer expressly finds that Taxpayers did not meet the regulatory definition of negligence

21 under 3.1.11.10 (A) NMAC. No person or business, regardless of their degree of prudence,

22 planning, or caution, could have planned for, accounted for, or anticipated every consequence of a

8
Black’s Law Dictionary defines “ordinary negligence” as “lack of ordinary diligence; the failure to use ordinary
care.” Black’s Law Dictionary 1198 (10th ed. 2009).

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 12 of 26.
1 once-in-a-century pandemic. For these same reasons, it cannot be said that Taxpayers were

2 negligent under Regulation 3.1.11.10 (C) NMAC because their delay in paying the 2019 personal

3 income taxes by the extended April 15, 2021, deadline was not due to “inadvertence, indifference,

4 thoughtlessness, carelessness, erroneous belief or inattention” but to the unforeseen and

5 uncontrollable health and economic circumstances of the pandemic that directly impacted them.

6 Again, the common understanding of negligence, which most closely aligns with these two

7 regulatory provisions, simply does not apply to the facts of this protest in the context of the

8 pandemic. However, a broad catch-all provision contained in the regulatory definition—inaction

9 when action is required—does apply to the facts of this case: by not making timely payment by the

10 April 15, 2021 extended deadline, Taxpayers met the technical regulatory definition of negligence

11 under Regulation 3.1.11.10 (B) NMAC for their inaction (non-payment) when action (payment by

12 the extended deadline) was otherwise required.

13 Nevertheless, there still are potential grounds for abatement of a civil negligence penalty.

14 One ground for abatement is found in statute. Section 7-1-69 (B) provides a limited exception to

15 civil negligence penalty: “[n]o penalty shall be assessed against a taxpayer if the failure to pay an

16 amount of tax when due results from a mistake of law made in good faith and on reasonable

17 grounds.” Related to the mistake of law provision, the Department has provided guidance under

18 Regulation 3.1.11.11 NMAC on what circumstances where a taxpayer may be entitled to relief from

19 penalty under Section 7-1-69. Of particular relevance to the facts of this protest is Regulation

20 3.1.11.11 (B) NMAC, which states that penalty may be abated when

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

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 13 of 26.
1 The Department makes two arguments against application of this regulation. First, the

2 Department cites Neil Van Berg’s statement at the hearing that, because Taxpayers were asking for

3 relief on economic grounds rather than because of their illnesses and the protest letter did not

4 specifically cite the regulation, no basis exists as part of this protest to consider Regulation

5 3.1.11.11 (B) NMAC, which focuses on illness rather than economic ability to pay. Related to

6 this argument, the Department argues that mere inability to pay is not grounds for the Secretary

7 to compromise a tax liability under another regulation, 3.1.6.14 NMAC.

8 As to the grounds of the protest and Mr. Van Berg’s limiting comment at hearing,

9 Taxpayers in their protest sought general relief from civil penalty, which is reasonably specific

10 enough to put the Department on notice that the proceeding would focus on whether there was in

11 fact negligence under the civil penalty statute, whether there were grounds to abate penalty under

12 the statutory, good faith mistake of law provision of NMSA 1978, Section 7-1-69 (B), or whether

13 there were grounds for relief from penalty under any of the Department’s own regulatory

14 implementation of the statute, the nonnegligence circumstances generally outlined under

15 Regulation 3.1.11.11 NMAC. See e.g. Valles v. Silverman, 2004-NMCA-019, ¶ 18, 135 N.M. 91,

16 97, 84 P.3d 1056, 1062 (As to the adequacy of a complaint, the standard under the more formal

17 but inapplicable rules of civil procedure is one of notice. Even under the more formal rules, the

18 complaint is sufficient when the allegations give the opposing party and the court a fair idea of

19 the complaint and relief requested). Indeed, in terms of notice of the scope of the protest, the

20 Department’s answer to the protest acknowledged there were two grounds to the protest:

21 inability to pay and the fact that the tax was due at the worst part of the pandemic. The Hearing

22 Officer does not find, at least in the context of this pandemic, that asking for relief on economic

23 grounds is mutually exclusive from illness. In the context of the pandemic, where a diagnosis of

24 COVID-19 in accord with the various public health orders and CDC guidance required self-

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 14 of 26.
1 isolation, the two concepts of financial and medical hardship were potentially intermixed:

2 someone who was ill with COVID-19 and thus required self-isolation may have lacked the

3 ability to work or generate income because of their illness.

4 That is the case here, where the actual evidence made clear that their illnesses prevented

5 Taxpayers from working and generating income during the critical months up to and after the

6 extended April 15, 2021 payment deadline. Catherine Van Berg fell ill with COVID-19 in January

7 2021, a mere four months before the extended filing deadline. She was so ill that she was

8 hospitalized and received monoclonal antibody treatment, a treatment which at the time was not

9 regularly available to everyone diagnosed with COVID-19 but instead was generally reserved for

10 people at risk of severe infection. Ms. Van Berg remained ill for six weeks, which pushed her illness

11 well into the middle of February, just two months before the extended April 15, 2021 payment

12 deadline. Because of her illness, Ms. Van Berg was unable to work and generate income during the

13 period of her illness, the critical months before the extended payment deadline.

14 Then, Neil Van Berg became ill with COVID-19 in early April 2021, the very month of the

15 extended payment deadline. Mr. Van Berg, who was more susceptible given an underlying medical

16 condition, struggled even more than Ms. Van Berg. His illness extended for three months, into June

17 2021, covering the period of time between when Taxpayers failed to make the April 15,

18 2021payment and when they were finally able to pay their 2019 personal income tax obligation in

19 July 2021. Again, even if described as an inability to generate income because of the economic

20 conditions of the pandemic, Mr. Van Berg would have been unable to work and generate income for

21 these three months around the payment deadline because he was suffering from an acute infection

22 of COVID-19.

23 Given that Taxpayers specifically sought relief from penalty in their protest letter, that the

24 payment was due at the worst portion of the pandemic, and that the evidentiary record established

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 15 of 26.
1 that around the time payment was due, Taxpayers were inflicted with significant cases of COVID-

2 19 that contributed to their inability to generate income, Mr. Van Berg’s well-intentioned but

3 inartful argument that their request for relief was limited to only economic conditions rather than

4 illness is not grounds to ignore whether Regulation 3.1.11.11 (B) NMAC might provide Taxpayers

5 relief from civil penalty. The question is not whether a self-represented litigant can say the correct

6 magic words under the applicable statute or regulation, but whether the evidence at hearing showed

7 they were nonnegligent for purposes of abating civil negligence penalty—the very relief requested

8 in their formal protest.

9 Regulation 3.1.6.14 NMAC does limit the Secretary’s ability to compromise a tax liability

10 merely because of a taxpayer’s inability to pay the liability. Regulation 3.1.11.9 NMAC similarly

11 limits the Secretary’s ability to compromise penalty because of a taxpayer’s inability to pay. The

12 focus of Regulation 3.1.6.14 NMAC and Regulation 3.1.11.9 NMAC is when the Secretary can

13 consider entering into a voluntary settlement of a case because of a good faith doubt about the

14 liability through a closing agreement. In this case, no such closing settlement agreement was

15 reached before, during, or after the protest hearing. More importantly, whether the Secretary can

16 voluntarily enter into a closing agreement is a different issue than adjudicating a protest involving

17 whether there are grounds to abate civil negligence penalty. The Hearing Officer has been

18 statutorily tasked with adjudicating and ruling on the issue of whether Taxpayers were negligent for

19 purposes of civil penalty. Taxpayers may not be entitled to abatement solely because of inability to

20 pay, but nevertheless may still be found to be nonnegligent under Regulation 3.1.11.11 NMAC,

21 which lists examples of nonnegligent circumstances potentially supporting abatement of civil

22 penalty. The undersigned Hearing Officer does not find that the existence of Regulation 3.1.6.14

23 NMAC or Regulation 3.1.11.9 NMAC precludes consideration of the nonnegligence circumstances

24 identified by Regulation 3.1.11.11 (B) NMAC on the question of whether a taxpayer was civilly

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 16 of 26.
1 negligent, especially in the circumstances of the pandemic where causes for inaction could

2 intermix (extended illness requires self-isolation, which leads to inability to work and generate

3 income by the date of the extended deadline).

4 The Department further speculated in closing argument that since the income was earned

5 in 2019 and Taxpayers knew the amount that would be due when they filed their taxes, they

6 should have set the money aside in preparation for the payment and kept the money available for

7 the tax payment. That speculation may be valid in normal circumstances, but certainly part of the

8 legislative purpose of extending the 2019 payment deadline was recognition that the pandemic

9 had so fundamentally altered the traditional health, work, and economic conditions for all of

10 society that many taxpayers who earned income in 2019 would not be able to pay their liability

11 by the traditional deadline April 15, 2020 deadline. As Taxpayers argued, because the time was

12 extended between filing and paying the taxes, the traditional time relationship between when the

13 income was earned and when payment was due was uniquely altered, making the Department’s

14 argument and speculation less persuasive in the circumstances of the pandemic.

15 The Department also argues that the penalty under Regulation 3.1.11.11 (B) NMAC should

16 not be abated because Taxpayers in this case failed to expressly demonstrate that their illnesses

17 prevented them from physically making payment of the tax by the deadline or, prevented them from

18 procuring services of another to make payment. The Department asserts that the regulation only

19 applies when there is a physical inability to pay related to illness rather than a financial inability to

20 pay related to illness. While the Department’s proposed strict application interpretation of this

21 regulation may be compelling during normal times, the pandemic was a time that was anything but

22 normal. The statute and rules addressing civil negligence penalty were written for a normal time, not

23 the extraordinary time presented by the COVID-19 pandemic. Applying the abatement provision

24 narrowly—as the Department argues for—in the context of the COVID-19 pandemic leads to an

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 17 of 26.
1 unreasonable and absurd result of not being able to abate penalty in the extraordinary circumstance

2 in which people were seriously ill with COVID-19 and unable to generate income near the extended

3 tax deadline. See e.g. City of Eunice v. State Taxation & Revenue Dep't, 2014-NMCA-085, ¶8

4 (provisions not to be read to render their application absurd, unreasonable, or unjust); see also

5 AMREP Sw. Inc. v. Sandoval Cnty. Assessor, 2012-NMCA-082, ¶ 9, 284 P.3d 1118, 1120 (rules of

6 statutory construction also apply to the administrative code).

7 If the plain language interpretation of a statute or regulation would lead to an

8 unreasonable or absurd result, it is necessary to look beyond the plain meaning of the statute or

9 regulation to effectuate the legislative intent and purpose. See Bishop v. Evangelical Good

10 Samaritan Soc'y, 2009-NMSC-036, ¶11, 146 N.M. 473. Recent decisions of the Court of

11 Appeals have reemphasized the importance of searching for and effectuating legislative intent.

12 See High Desert Recovery, LLC, v. New Mexico Taxation & Revenue Dep't, 2021-NMCA-___,

13 ¶8, 2021 WL 5815749, (No. A-1-CA-37852, N.M. Ct. App., Dec. 6, 2021) (quoting Sacred

14 Garden, Inc. v. New Mexico Taxation & Revenue Dep't, 2021-NMCA-038, ¶5, ¶15-16, 495 P.3d

15 576, cert. quashed (No. S-1-SC-38164, February 23, 2022)); see also Golden Services Home

16 Health & Hospice v. Taxation & Revenue Dep't, No. A-1-CA-36987, 2020 WL 2045956

17 (Unpublished, non-precedential opinion, N.M. Ct. App. Apr. 20, 2020). Although those cases

18 dealt with arguably ambiguous statutory language, the logic of that recent line of cases would

19 seem equally to extend to an instance where a narrow, plain reading of the statute and

20 accompanying regulations would lead to an unreasonable result during the pandemic. The

21 Department’s narrow, technical interpretation of Regulation 3.1.11.11 (B) NMAC in the context of

22 the pandemic leads to an unreasonable result that does little to further the legislative purpose of the

23 penalty provision. The Department’s rigid interpretation also exalts form over substance where the

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 18 of 26.
1 circumstances at issue require flexibility and adaptability to address the unintended consequences of

2 a once-in-a-century pandemic.

3 In GEA, 2012-NMCA-010, ¶ 23, the Court of Appeals noted that the purpose of the civil

4 negligence penalty provision is punitive in nature, designed to encourage timely payment of tax and

5 punish untimely payment. See also Hi-Country Buick GMC, Inc. v. Taxation & Revenue Dept. of

6 State, 2016-NMCA-027, ¶ 22, 367 P.3d 862, 868 (penalty is effectively punitive in nature and in

7 some circumstances should not be imposed on those who bore no responsibility for the unpaid tax).

8 Imposing the civil negligence penalty for the untimely payment of taxes in circumstances

9 attributable to a once-in-a-lifetime global health pandemic—particularly when the state is otherwise

10 made whole by payment of the underlying tax liability plus interest for the delayed payment—

11 serves little effective deterrent value traditionally served by a punitive punishment. This is not a

12 circumstance where Taxpayers failed to pay because of lack of due care, carelessness, inadvertent

13 error, lack of attention, or common negligence. Instead, they missed timely payment because the

14 circumstances of the pandemic—which were beyond their control—left them ill and without the

15 ability to generate income during the critical period before, during, and after the extended payment

16 deadline. Punishment in this extraordinary once-in-a-century pandemic circumstance does little to

17 encourage timely payment or punish untimely payment in normal times and thus abatement of that

18 penalty for pandemic-related circumstances does not contravene the legislative purpose of the

19 civil negligence provision. See GEA, ¶ 23, citing N. Slope Borough v. Sohio Petroleum Corp., 585

20 P.2d 534, 546 (Alaska 1978) (abating late payment penalty is logical and not contrary to the

21 punitive component of the penalty provision when a taxpayer bears no responsibility for

22 misconduct). Because the Department’s narrow, technical reading of the illness abatement provision

23 under this circumstance would do little to further the legislative purpose of the penalty provision,

24 the Hearing Officer declines such an application as unreasonable in the context of the COVID-19

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 19 of 26.
1 pandemic, where Taxpayers were impacted by circumstances beyond their reasonable ability to

2 control or anticipate given the time period of their illness and the associated economic impact.

3 Before the two decisions issued today, the undersigned Hearing Officer has only

4 considered abatement of penalty in one previous COVID-19 related case, In the Matter of the

5 Protest of XTO Energy Inc. To Assessment Issued Under Letter Id No. L1185855152 v. New

6 Mexico Taxation and Revenue Department, 2021 WL 6112848 (non-precedential) (hereinafter

7 XTO). In that case, the undersigned Hearing Officer came very close to abating penalty under

8 Regulation 3.1.11.11 (B) NMAC but declined to do so because affirmative evidence in that

9 record indicated that the taxpayer had previously secured the services of another employee to

10 prepare and file the tax return in a previous month when the employee responsible for the tax

11 filing was ill with COVID-19. See XTO, p.11:16-13:5, p. 14:5-20, 2021 WL 6112848, at 7-9.

12 This case is clearly distinguishable in that there is no such affirmative evidence and this case

13 involves untimely payment of the tax while the XTO case involved the untimely filing of a

14 return. Under Regulation 3.1.11.11 (B) NMAC, the requirement to show inability to procure the

15 services of another ties to return preparation (“…unable to procure the services of another person

16 to prepare a return because of injury or illness.”) rather than to the payment of the tax.

17 The current protest also is distinguishable from In the Matter of the Protest of Santa Fe

18 Baking Company & Café Inc. No. 15-36, 2015 WL 8802099 (Dec. 7, 2015)(non-precedential)

19 which the Department cited in its closing argument because this protest involves a once-in-a-

20 century pandemic largely outside the control of any taxpayer (let alone these Taxpayers who

21 were directly impacted by illness around the time of the extended payment deadline) whereas

22 that case involved circumstances within the control of that taxpayer and its agents.

23 The undersigned Hearing Officer previously applied Regulation 3.1.11.11 (B) NMAC to

24 abate penalty when there was a sudden onset of an emergency medical condition, even though

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 20 of 26.
1 the taxpayer in that case presented little evidence about whether it could have procured the

2 services of another to file and pay the tax. See In the Matter of the Protest of New Mexico Food

3 Distributors Inc. et al., Decision and Order No. 18-31, 2018 WL 5486263 (October 18, 2018;

4 non-precedential). The Hearing Officer’s decision to abate the penalty in New Mexico Food

5 Distributors was based on the reasoning that some medical situations are so severe that there is

6 little time, opportunity, or even a reasonable priority in the context of the medical situation for a

7 taxpayer to arrange or seek the services of a third party to assist with filing of a return. Within

8 the context of a once-in-a-century pandemic that reshaped all aspects of society in short order,

9 the Hearing Officer tends to view COVID-19 related illnesses akin to sudden onset of an

10 emergency medical situation, where taxpayers may not have had a chance or opportunity to

11 arrange another to file their return, justifying a broad reading and application of the penalty

12 abatement provisions of Regulation 3.1.11.11NMAC, including subsection (B), even without

13 evidence related to whether a taxpayer could have secured the services of another.

14 The Hearing Officer does find that Regulation 3.1.11.11 (B) NMAC is an appropriate

15 basis to abate penalty on this record under the circumstances of the pandemic. However, even if,

16 arguably, the technical, narrow specifics of 3.1.11.11 (B) NMAC are inapplicable to the facts of

17 this case, nonnegligence factors are not limited to the specific, narrow language and examples

18 contained in Regulation 3.1.11.11 NMAC. See e.g. Hoffman v. New Mexico Taxation & Revenue

19 Dep't, No. A-1-CA-36399, 2019 WL 3765579, at *4 (N.M. Ct. App. July 18, 2019) (non-

20 precedential9) (3.1.11.11 NMAC uses non-exclusive language that, in conjunction with the broad

21 language of the statutory good faith, mistake of law, reasonable grounds provision, allows for

22 penalty abatement in circumstances beyond the narrow language of that regulation). Because the

9
While the Court of Appeals decision is non-precedential, it addressed the same statutory and regulatory language
applicable here, making its legal observation insightful even if not technically controlling.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 21 of 26.
1 regulation uses the phrase “may indicate” the permissive language permits some discretion with the

2 hearing officer to determine that nonnegligence exists in situations which may not strictly fall within

3 the eight enumerated examples. See DeMichele v. Taxation & Revenue Department Motor Vehicle

4 Div., 2015-NMCA-095, ¶ 11, 356 P.3d 523 (the word “may” used in a statute indicates discretion);

5 see also Albuquerque Bernalillo Co. Water Utility Authority v. NMPRC, 2010-NMSC-013, ¶ 51,

6 148 N.M. 21, 229 P.3d 494 (“canons of statutory construction guide our interpretation of

7 administrative regulations”). Here, the record is ample to show Taxpayers’ nonnegligence under

8 Regulation 3.1.11.11 NMAC and the broad language of Section 7-1-69 (B).

9 Today, in conjunction with another decision and order In the Matter of the Protest of

10 Joseph & Jennifer Cervantes, D&O No. 22-17 (Aug. 8, 2022), the undersigned Hearing Officer

11 finds that the extraordinary circumstances of the COVID-19 pandemic generally require a broad

12 reading and liberal application of the statutory and regulatory authority for abatement of penalty

13 in COVID-19 related cases. Such broad construction gives the Department flexibility in

14 addressing unintended consequences of the pandemic largely beyond the control of taxpayers

15 and prevents unreasonable, absurd, and unjust results in the context of the pandemic. Moreover,

16 such broad construction in the context of the pandemic is not contrary to the legislative purpose

17 of the penalty provision of encouraging timely payment and punishing untimely payment in

18 normal periods. There is little deterrent value in imposing penalty in circumstances beyond

19 anyone’s control in a once-in-a-century pandemic. The State, under the circumstances of the

20 pandemic and this case, was made whole in that it received the outstanding, underlying tax

21 liability and will under this decision also receive the lost time value of money for the delayed

22 payment in the form of interest. Under these specific circumstances of the pandemic, there is no

23 additional value, encouragement, or useful punishment in the State collecting a civil negligence

24 penalty.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 22 of 26.
1 The Hearing Officer wishes to emphasize that this decision is limited to the time period

2 of the pandemic and that an inability to pay is generally not grounds for penalty abatement unless

3 it is caused by some other circumstances showing nonnegligence. In this case the inability to

4 timely pay that Taxpayers cite in their argument intermingles with the effects of their COVID-19

5 illness and the broader public health and economic circumstances of the pandemic,

6 demonstrating nonnegligence for purposes of penalty abatement. As such, Taxpayers’ protest as

7 to the assessment of a civil negligence penalty is compelling under 3.1.11.11 NMAC,

8 specifically but not limited to subsection B, and Section 7-1-69 (B). That portion of the protest

9 related to civil negligence penalty IS GRANTED.

10 However, there is no similar nonnegligence provision that allows for abatement of

11 NMSA 1978, Section 7-2-12.2 (2011)’s estimated tax underpayment penalty. The failure to pay

12 the correct estimated tax would have occurred in 2019 or early 2020, before the pandemic

13 impacted Taxpayers, also mitigating against abatement of that amount. Nor are there any

14 grounds to abate the assessment of interest under Section 7-1-67. Therefore, the protest regarding

15 those two assessed amounts IS DENIED.

16 CONCLUSIONS OF LAW

17 A. Taxpayers filed a timely, written protest to the Department’s assessment, and

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

19 B. The hearing was timely set and held within 90 days of the filing of the hearing

20 request and accompanying Department answer under NMSA 1978, Section 7-1B-8 (2019).

21 C. Taxpayers’ 2019 personal income tax return was timely filed, however payment of

22 the 2019 personal income tax liability did not occur until after the extended April 15, 2021 deadline

23 articulated in H.B. 6, §4, 55th Leg., 1st Special Sess. (N.M. 2020), available at

24 https://www.nmlegis.gov/Sessions/20%20Special/final/HB0006.pdf.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 23 of 26.
1 D. Under the mandatory “shall” language contained in Section 71-1-69, the

2 Department was required to assess Taxpayers a civil negligence penalty because they failed to

3 pay the tax due under their 2019 personal income tax returns by the extended deadline, meeting the

4 definition of civil negligence under Regulation 3.1.11.10 (B) NMAC. See Marbob Energy Corp. v.

5 N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24, 32 (use of the word “shall” in

6 a statute indicates provision is mandatory absent clear indication to the contrary).

7 E. Nevertheless, within the context of the a once-in-a-century pandemic, Taxpayers are

8 entitled to abatement of the civil negligence penalty under Regulation 3.1.11.11 (B) NMAC because

9 the evidence showed that Taxpayers were both ill from COVID-19 during the critical months

10 immediately before, during, and after the extended payment deadline, preventing them from

11 generating the income needed to pay the liability by the extended deadline.

12 F. NMSA 1978, Section 7-2-12.2 (2011) requires imposition of estimated tax

13 underpayment penalty and there are no nonnegligence regulatory factors that would allow

14 abatement in this case.

15 G. Interest cannot be abated under NMSA 1978, Section 7-1-67, as interest is

16 designed to compensate for the time value of money from the original due date until the date of

17 the untimely payment.

18 H. Taxpayer overcame the presumption of correctness as to the assessed civil

19 negligence penalty but did not overcome the presumption of correctness as to interest and estimated

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

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

22 428; see also N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8, 336

23 P.3d 436; and MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003 NMCA 21, ¶13, 133 N.M. 217.

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 24 of 26.
1 For the foregoing reasons, the Taxpayers protest IS PARTIALLY GRANTED AND

2 PARTIALLY DENIED. The Department is ordered to abate the civil negligence penalty of

3 $681.40. Taxpayers are ordered to pay interest of $101.52 and the assessed estimated penalty of

4 $2.05.

5 DATED: August 15, 2022.

6
7 Brian VanDenzen
8 Chief Hearing Officer
9 Administrative Hearings Office
10 P.O. Box 6400
11 Santa Fe, NM 87502

12 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

19 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

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

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

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

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

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 25 of 26.
1 CERTIFICATE OF SERVICE

2 On August 15, 2022, a copy of the foregoing Decision and Order was submitted to the

3 parties listed below in the following manner:

4 First Class Mail & E-Mail First Class and E-Mail

5
6 INTENTIONALLY BLANK
7

In the Matter of the Protest of Neal J. and Catherine A. Van Berg, page 26 of 26.