The state assessed me, abated that assessment, then assessed me again after a managed audit — is the second assessment valid, and can I refuse to pay because of the stress and confusion?

Plain-English summary

Guy and June Hence lost their protest. The dispute began when the IRS adjusted the couple's federal income for tax years 2014 and 2015. New Mexico bases its income tax on federal adjusted gross income, and a taxpayer must file an amended New Mexico return within 180 days of an IRS adjustment. The couple did not do so, so in September 2020 the Department issued a notice of intent to assess and offered a managed audit.

While the couple were seeking extensions to reconstruct their lost records, the Department's computer erroneously auto-generated a March 8, 2021 assessment — $2,953 tax, $590.60 penalty, and $671.90 interest — because a granted extension had not been entered correctly. Because a managed audit is available only if there is no outstanding assessment, the Department abated that erroneous March assessment in April 2021 so the couple could proceed with the managed audit. They completed the audit, agreed to the liability, and the Department then issued the real assessment on May 20, 2021: $2,975 in tax, with no penalty and no interest (the benefit of a managed audit). After a $500 payment, $2,475 remained.

The couple protested, arguing mainly that the Department could not assess them again after issuing an abatement, and that they should be excused because of duress and emotional distress from a frustrating, slow process. Hearing Officer Dee Dee Hoxie rejected each argument:

• An abatement does not bar a corrected assessment. The Department may abate an assessment that was "incorrectly, erroneously, or illegally made" (Section 7-1-28), and nothing in that statute stops it from issuing a proper assessment afterward. Indeed, the Department is required to assess any liability over $25.
• The managed audit waived the time limits. By signing the managed-audit agreement, the couple waived the usual limitations on assessment (Section 7-1-11.1), so timing was no obstacle — and the agreement is exactly what spared them penalty and interest.
• No records, no rebuttal. The couple admitted they owed New Mexico tax on the IRS adjustment. They believed the amount was wrong but had lost their records (a defective hard drive) and could not get copies from the IRS. Keeping records is the taxpayer's duty (Section 7-1-10), so they could not overcome the presumption that the assessment was correct.
• Frustration is not a defense. Duress requires a wrongful act by the other party, and the Department did nothing wrongful — it was required to assess and it offered the beneficial managed audit. Intentional infliction of emotional distress is a tort the state is generally immune from, and in any event the Hearings Office has no authority to grant an equitable remedy like estoppel.

Result: protest DENIED. The couple owes $2,475 in personal income tax.

What this means for you

An abatement is not a permanent "get out of tax" card

If the Department abates an assessment — especially one issued in error — it can still issue a correct assessment later. Abatement fixes a mistaken bill; it does not extinguish a real tax liability.

A managed audit trades away your time-limit defenses (but saves you penalty and interest)

A managed audit is a genuinely good deal: complete it and you typically avoid penalty and interest on the tax. But signing the agreement waives the normal statute-of-limitations protections on assessment. Here, that waiver is why the couple could not argue the assessment came too late — and voiding the agreement would only have exposed them to the penalty and interest they had avoided.

You must keep your own tax records — the state's presumption is hard to beat without them

An assessment is presumed correct, and the taxpayer bears the burden to prove otherwise. The couple thought the numbers were too high but had no records to show it, so the assessment stood. Lost data on a broken drive, and an unhelpful IRS, did not shift that burden.

File an amended New Mexico return within 180 days of an IRS change

When the IRS adjusts your federal income, New Mexico gives you 180 days to file a matching amended state return (Section 7-1-13(C)). Missing that step is what set this whole assessment in motion.

Frustration, stress, and "the process was unfair" are not tax defenses

The Hearings Office decides tax liability under the statutes; it cannot grant equitable relief, cannot resolve emotional-distress tort claims, and will not excuse a valid tax because the taxpayer found the agencies slow or unresponsive. Estoppel against the state in tax cases is disfavored and requires shocking, overreaching conduct that was not present here.

Common questions

Q: How can the state assess me again after it abated the first assessment?
A: The first assessment was issued in error (a computer glitch after a granted extension). The Department abated that erroneous bill so the couple could do a managed audit, then issued a correct assessment. The abatement statute does not prohibit a later, valid assessment.

Q: Why did the final assessment have no penalty or interest?
A: Because it came out of a managed audit. Completing a managed audit lets a taxpayer avoid the penalty and interest that would otherwise apply to unpaid tax.

Q: They lost their records — why did that count against them?
A: An assessment is presumed correct, and the taxpayer must prove any different amount. Keeping records is the taxpayer's own legal duty, so lost records meant they could not rebut the presumption.

Q: Can I get out of a tax because the agency was slow or the process was stressful?
A: No. Duress requires a wrongful act by the Department (there was none), emotional-distress claims are torts the state is generally immune from, and the Hearings Office has no power to grant equitable relief. The tax remains due.

Q: Did the couple actually dispute owing the tax?
A: Not really — they admitted they owed New Mexico tax based on the IRS adjustment and were grateful for the managed audit. They objected to being assessed after the abatement and to how they were treated, not to the underlying liability.

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 at the time. Another taxpayer should analyze its own facts, records, and current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17 (2007) — an assessment is presumed correct and the taxpayer must overcome it; the Department must assess any liability over $25; assessments issue in the Secretary's name
• NMSA 1978, § 7-1-11.1 (2003) — managed audits; the Department "shall" assess the liability found due, and the taxpayer waives limitations on assessment (and thereby avoids penalty and interest)
• NMSA 1978, § 7-1-28 (A) (2013) — the Department may abate an assessment that was incorrectly, erroneously, or illegally made
• NMSA 1978, § 7-1-18 (2013) — time limits on assessment; none of them turn on whether an abatement was previously issued
• NMSA 1978, § 7-1-13 (C) (2013) — a taxpayer has 180 days to file an amended New Mexico return after an IRS adjustment to federal adjusted gross income
• NMSA 1978, § 7-1-10 (2007) — the taxpayer's duty to retain records
• NMSA 1978, § 7-2-3 (1981) — personal income tax is imposed on the net income of every New Mexico resident
• NMSA 1978, § 7-2-2 (2014) — New Mexico adjusted gross income is based on federal adjusted gross income
• NMSA 1978, § 7-2-28 — abatements are issued by the Secretary or the Secretary's delegate
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 (2019) — Administrative Hearings Office procedure; formal rules of procedure do not apply; the Department had 180 days from the protest to request a hearing
• NMSA 1978, § 7-1-25 (2015) — right to appeal the decision to the New Mexico Court of Appeals
• Regulations 22.600.3.8 and 3.3.1.9 NMAC — hearing timing and the presumption of correctness

Cases:

• Archuleta v. O'Cheskey, 1972-NMCA-165, 84 N.M. 428 — a taxpayer bears the burden to overcome the presumption of correctness
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, 336 P.3d 436 — the taxpayer's burden to show entitlement to relief from an assessment
• 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
• 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
• Mathews v. Eldridge, 424 U.S. 319 (1976) — due process requires a meaningful opportunity to be heard
• Dente v. State, 1997-NMCA-099, 124 N.M. 93 — there is no due-process violation without a showing of prejudice
• Cordova v. State, 2005-NMCA-009, 136 N.M. 713; Dusenbery v. United States, 534 U.S. 161 (2002) — the state must attempt notice, but actual receipt is not required
• Romero v. Bank of the Southwest, 2003-NMCA-124, 135 N.M. 1; Richards v. Allianz Life Ins. Co., 2003-NMCA-001, 133 N.M. 229 — duress requires an agreement caused by the wrongful act of another
• Garcia-Montoya v. State Treasurer's Office, 2001-NMSC-003, 130 N.M. 25 — the state is generally immune from intentional-infliction-of-emotional-distress claims for acts within the scope of duties
• Wisznia v. State, Human Servs. Dep't, 1998-NMSC-011, 125 N.M. 140; Taxation & Revenue Dep't v. Bien Mur Indian Market, 1989-NMSC-015, 108 N.M. 228 — equitable estoppel against the state is disfavored, especially in tax cases
• AA Oilfield Serv. v. N.M. State Corp. Comm'n, 1994-NMSC-085, 118 N.M. 273 — an agency with quasi-judicial powers cannot grant an equitable remedy such as estoppel

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Guy & June Hence
• Decision PDF: D&O 22-19

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 GUY & JUNE HENCE
6 TO THE ASSESSMENT
7 ISSUED UNDER LETTER ID NO. L1606171056

8 v. AHO No. 21.11-064A, D&O No. 22-19

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On July 21, 2022, Hearing Officer Dee Dee Hoxie, Esq. conducted an in-person hearing

12 on the merits of the protest to the assessment. Cordelia Friedman, Staff Attorney, appeared for

13 the Taxation and Revenue Department (Department). Andres Sanchez, Auditor, and Tiffany

14 Smyth, Deputy Director of Audit and Compliance, also appeared. Guy and June Hence

15 (Taxpayers) appeared for the hearing, and Mr. Hence represented them. Mr. Hence, Ms. Smyth,

16 and Mr. Sanchez testified. The Hearing Officer took notice of all documents in the

17 administrative file.

18 The Taxpayers’ exhibits #1 (abatement), #2 (current assessment), #3 (correspondence),

19 #4 (advocate), #5 (FYI-404), #6 (IRS article), and #7 (returned letter) were admitted. The

20 Department’s exhibits A (March assessment), B (engagement letter), C (managed audit), D

21 (returns), E (abatement), F (current assessment), G (notice), and H (emails) were admitted. A

22 more detailed description of exhibits submitted at the hearing is included on the Administrative

23 Exhibit Coversheet. As the parties had some issues exchanging their exhibits prior to the

24 hearing, the Administrative Hearings Office emailed copies of the exhibits that were submitted at

25 the hearing, which were the exhibits scanned into the official electronic file, to the parties on July

26 25, 2022. The parties had seven days from that date to file objections, and seven days from the

Guy & June Hence
Case No. 21.11-064A
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1 objection deadline to file responses. The parties understood that the hearing would not be

2 considered complete until the final deadline for responses, which was on August 8, 2022. The

3 parties understood that the decision would be issued within 30 days after that final deadline.

4 The main issue to be decided is whether the Taxpayers are liable under the assessment.

5 The Taxpayers contend that the Department was prohibited from issuing the assessment because

6 they had previously issued an abatement. The Hearing Officer considered all of the evidence and

7 arguments presented by both parties. Because the law does not prohibit the Department from

8 issuing an assessment after an abatement, the Taxpayers agreed to be liable for the tax under the

9 terms of the managed audit, and the Taxpayers failed to overcome the presumption that the

10 assessment is correct, the Hearing Officer finds in favor of the Department. IT IS DECIDED

11 AND ORDERED AS FOLLOWS:

12 FINDINGS OF FACT

13 Procedural history of the hearing.

14 1. On May 20, 2021, the Department assessed the Taxpayers for personal income tax

15 (PIT) for the tax periods ending December 31, 2014 and December 31, 2015. The assessment

16 was for $2,975.00 in tax. The assessment was made pursuant to a managed audit, so no penalty

17 was assessed, and no interest was assessed. [Testimony of Mr. Sanchez; Testimony of Mr.

18 Hence; Exhibit 2; Exhibit F].

19 2. On June 4, 2021, the Taxpayer filed a timely written protest to the assessment.

20 [Admin. file protest].

21 3. On June 9, 2021, the Department acknowledged its receipt of the protest.

22 [Admin. file L1532819888].

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Case No. 21.11-064A
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1 4. On November 8, 2021, the Department filed a request for hearing with the

2 Administrative Hearings Office with its answer to the protest. [Admin. file request].

3 5. On November 9, 2021, the Administrative Hearings Office sent notices for

4 telephonic scheduling hearing to the parties. [Admin. file].

5 6. On December 17, 2021, a telephonic scheduling hearing was conducted. The

6 parties agreed that the first telephonic scheduling hearing satisfied the requirements of the statute

7 as it was held within 90 days of the request for hearing. [Admin. file].

8 7. On December 20, 2021, the Administrative Hearings Office issued scheduling

9 orders with notices for the hearing on the merits to the parties. [Admin. file].

10 8. On April 12, 2022, due to a change in office location, the Administrative Hearings

11 Office issued amended scheduling orders (Amended Scheduling Order) with notices for the

12 hearing on the merits to the parties. [Admin. file].

13 9. On June 29, 2022, the Department filed its prehearing statement. [Admin. file].

14 10. On June 30, 2022 and again on July 11, 2022, the Taxpayers filed their prehearing

15 statement1. [Admin. file].

16 11. On July 5, 2022, the Taxpayers requested and filed subpoenas, one for Ms.

17 Smyth, one for Mr. Sanchez, and one for the Secretary of the Department. [Admin. file].

18 12. On July 11, 2022, the Department filed a motion to quash (Motion to Quash) the

19 subpoena for the Secretary. [Admin. file].

20 13. On July 13, 2022, the Taxpayers filed a motion to dismiss the motion to quash.

21 [Admin. file].

1
The same prehearing statement was filed twice, apparently once via electronic transmission and once via physical
copy.
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Case No. 21.11-064A
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1 14. On July 13, 2022, the Department filed its response to the Taxpayers’ motion.

2 [Admin. file].

3 15. On July 15, 2022, the Administrative Hearings Office issued an order granting the

4 motion to quash to the parties. [Admin. file].

5 16. On July 21, 2022, the hearing on the merits was held. [Admin. file].

6 17. At the hearing, the Taxpayers objected to the Department’s exhibits, and the

7 Department objected to the Taxpayers’ exhibits. [Admin. file].

8 18. The Hearing Officer announced that copies of the exhibits provided by both

9 parties at the hearing would be the officially filed exhibits. The filed exhibits would be scanned

10 and sent to the parties, the parties would have the opportunity to object to the substance of the

11 exhibits, and the parties would have the opportunity to respond to any objections that were filed.

12 [Admin. file].

13 19. The scanned exhibits were emailed to the parties on July 25, 2022. The parties

14 had until August 1, 2022 to file objections, and until August 8, 2022 to file responses. The

15 parties understood that the hearing would not be considered finished until the final deadline

16 passed. [Admin. file].

17 20. On July 28, 2022, the Taxpayers filed their objection (Taxpayers’ Objection) to

18 the Department’s exhibits. [Admin. file].

19 21. On August 1, 2022, the Department filed its objection (Department’s Objection)

20 to some of the Taxpayers’ exhibits. In the same document, the Department also responded to the

21 Taxpayers’ objection to its exhibits. [Admin. file].

22 22. The Taxpayers did not file a response. [Admin. file].

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Case No. 21.11-064A
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1 23. The Department served the Taxpayers with copies of the exhibits prior to hearing

2 by sending them an email with a secure file-sharing link. [Exhibit H].

3 24. Mr. Hence admitted that he received the Department’s email, but he was not

4 familiar with the secure file-sharing program and did not download the exhibits. The Taxpayers

5 did not contact the Department with any questions or concerns regarding the secure file-sharing

6 program. [Testimony of Mr. Hence; Taxpayers’ Objection].

7 Substantive facts.

8 25. The Taxpayers’ federal adjusted gross income was modified by an IRS

9 adjustment for the 2014 and 2015 tax years. [Testimony of Mr. Sanchez].

10 26. The Taxpayers failed to file an amended PIT return within 180 days of the IRS

11 adjustment. [Testimony of Mr. Sanchez].

12 27. On or about September 18, 2020, the Department issued a notice of intent to

13 assess to the Taxpayers based on the IRS adjustment. The notice gave the Taxpayers 60 days to

14 respond. It also included an application for a managed audit and information on eligibility.

15 [Testimony of Mr. Sanchez; Exhibit G; Testimony of Mr. Hence].

16 28. The Taxpayers requested extensions of time to respond to the notice because they

17 were trying to recover their tax information for the 2014 and 2015 tax years. [Testimony of Mr.

18 Hence; Exhibit 3; Exhibit 6; Exhibit 7].

19 29. The Taxpayers did not retain copies of their tax records for those years, could not

20 recover their records from a defective hard drive, and have not been able to get copies from the

21 IRS. [Testimony of Mr. Hence; Exhibit 3; Exhibit 6; Exhibit 7].

Guy & June Hence
Case No. 21.11-064A
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1 30. The Department granted extensions of time to respond and to apply for a managed

2 audit to the Taxpayers. [Testimony of Mr. Sanchez; Testimony of Mr. Hence; Testimony of Ms.

3 Smyth; Exhibit 3].

4 31. An extension of time was not entered properly into the Department’s computer

5 system, and an assessment was automatically generated after a previous deadline had passed.

6 Mr. Sanchez took responsibility for the mistake and apologized. [Testimony of Mr. Sanchez;

7 Exhibit A].

8 32. On March 8, 2021, the Taxpayers were assessed for PIT (the March assessment)

9 for the tax periods from January 1, 2014 to December 31, 2015. The assessment was for

10 $2,953.00 in tax, $590.60 in penalty, and $671.90 in interest, for a total liability of $4,215.50.

11 [Exhibit A].

12 33. On March 16, 2021, the Taxpayers signed the managed audit agreement. By

13 signing the agreement, the Taxpayers waived limitations on assessments and waived other

14 statutory remedies. [Testimony of Mr. Hence; Testimony of Mr. Sanchez; Exhibit C].

15 34. On March 23, 2021, the Department approved the Taxpayers’ application for a

16 managed audit. [Testimony of Mr. Hence; Testimony of Mr. Sanchez; Exhibit C; Exhibit B].

17 35. The deadline to complete the managed audit was May 24, 2021. [Exhibit B].

18 36. A managed audit may be done only if a taxpayer has not already been assessed.

19 [Testimony of Mr. Sanchez; Exhibit G].

20 37. For the Taxpayers to receive the benefit of a managed audit, the previous

21 assessment had to be abated. [Testimony of Mr. Sanchez; Exhibit 3].

22 38. On April 19, 2021, the Department abated the March assessment. [Testimony of

23 Mr. Hence; Testimony of Mr. Sanchez; Exhibit 1; Exhibit E].

Guy & June Hence
Case No. 21.11-064A
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1 39. The Taxpayers and the Department reached an agreement as to the tax liability

2 and completed the managed audit. [Testimony of Mr. Hence; Testimony of Mr. Sanchez;

3 Exhibit 3].

4 40. During the managed audit, the Taxpayers made a $500.00 payment. [Testimony

5 of Mr. Hence; Testimony of Mr. Sanchez; Exhibit 1].

6 41. The Department then issued the assessment according to the agreement reached in

7 the managed audit. The assessment did not reflect the $500.00 payment. [Testimony of Mr.

8 Sanchez; Testimony of Mr. Hence; Exhibit 2; Exhibit F; Exhibit D; Exhibit 3].

9 42. The assessment afforded the Taxpayers the benefit of the managed audit, so no

10 penalty and no interest were assessed. [Testimony of Mr. Sanchez; Testimony of Mr. Hence;

11 Exhibit 2; Exhibit F].

12 43. The Taxpayers’ account has been credited with the $500.00 payment against the

13 assessed liability, leaving a current outstanding tax liability of $2,475.00. [Testimony of Mr.

14 Sanchez].

15 44. Throughout the course of the audit, the managed audit, and the protest, the

16 Taxpayers have been frustrated by the perceived lack of response and communication from the

17 Department and the IRS. The Taxpayers have contacted various agencies2 and made complaints

18 about the process. [Testimony of Mr. Hence; Exhibit 3; Exhibit 6].

19 45. The Taxpayers were grateful to be allowed to participate in a managed audit and

20 do not dispute that they owe the amount of tax assessed. [Testimony of Mr. Hence; Exhibit 3;

21 Exhibit D].

2
Including but not limited to the Department’s tax advocate, the Secretary of the Department, the VA, the
Governor’s office, and the Attorney General’s office.
Guy & June Hence
Case No. 21.11-064A
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1 46. Despite their participation in and agreement to the managed audit, the Taxpayers

2 felt that the assessment was unjust because of the previous abatement. The Taxpayers feel that

3 they should be excused from paying their past due tax based on their frustration and emotional

4 distress. [Testimony of Mr. Hence; Exhibit 3].

5 DISCUSSION
6 Burden of proof.

7 The assessment issued in this case is presumed correct. See NMSA 1978, § 7-1-17 (C)

8 (2007). Consequently, the Taxpayers have the burden to overcome the assessment. See

9 Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. See also N.M. Taxation & Revenue

10 Dep't v. Casias Trucking, 2014-NMCA-099, ¶8. When a taxpayer presents sufficient evidence to

11 rebut the presumption, the burden shifts to the Department to show that the assessment is correct.

12 See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133 N.M. 217.

13 The request for hearing.

14 The Taxpayers argue that their right to a hearing was frustrated by the Department’s

15 delays. The Taxpayers argue that the protest was not handled expediently and only began to

16 move forward after several months, when Ms. Friedman was assigned to the case. Because the

17 Department filed the request for hearing by the statutory deadline, the Taxpayers’ argument does

18 not prevail.

19 Neither party may request a hearing until 60 days after the protest was filed. See NMSA

20 1978, § 7-1B-8 (B) (2019). After 60 days, either party may request a hearing by filing the

21 request with the Administrative Hearings Office. See id. If the taxpayer has not already filed a

22 request, the Department must file a request no later than 180 days after the protest was filed. See

23 id.

Guy & June Hence
Case No. 21.11-064A
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1 The Taxpayers were in communication with two protest auditors after their protest was

2 filed. [Exhibit 3]. The protest was filed on June 4, 2021; therefore, either party could have filed

3 a request for hearing on or after August 3, 2021, which was 60 days after the protest was filed.

4 The Taxpayers did not file a request for hearing with the Administrative Hearings Office. The

5 Department was required to file a request for hearing no later than December 1, 20213. The

6 Department filed the request for hearing with the Administrative Hearings Office on November

7 8, 2021, which was before the 180-day deadline. Therefore, the Department’s request for

8 hearing was filed timely under the statute. See NMSA 1978, § 7-1B-8.

9 The hearing procedures and exhibits.

10 The Taxpayers objected to various issues related the hearing and hearing procedures.

11 Due process requires an opportunity to be heard in a meaningful time and meaningful manner. See

12 Mathews v. Eldridge, 424 U.S. 319, 47 L.Ed.2d 18 (1976). See also State ex rel. Battershell v. City

13 of Albuquerque, 108 N.M. 658, 777 P.2d 386 (Ct. App. 1989) (holding that in an administrative

14 hearing due process is flexible and should conform to the demands of a particular situation). See

15 Dente v. State, 1997-NMCA-099, 124 N.M. 93, overruled in part on other grounds by State v.

16 Bargas, 2000-NMCA-103, 129 NM 800. There is not a due process violation without a showing

17 of prejudice. See Dente v. State, 1997-NMCA-099, 124 N.M. 93. “An assertion of prejudice is not

18 a showing of prejudice.” In re Ernesto M., Jr., 1996-NMCA-039, ¶ 10, 121 N.M. 562.

19 The Taxpayers argue that the Department did not follow the Amended Scheduling Order4

20 by filing its Motion to Quash after the deadline for filing motions. Motions were required to be

21 filed on or before 30 calendar days prior to the hearing. [Amended Scheduling Order]. The

3
This is 180 days from the date that the protest was filed.
4
Neither party perfectly followed the Amended Scheduling Order. For example, the Taxpayers’ Exhibit 3 and the
Department’s Exhibit G are not marked and paginated correctly.
Guy & June Hence
Case No. 21.11-064A
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1 hearing was held July 21, 2022. Therefore, the final date for filing motions was ostensibly June

2 21, 2022. The Motion to Quash was filed on July 11, 2022, which was 20 days after the

3 deadline. The subpoena that was the subject of the Motion to Quash was issued on July 5, 2022,

4 which was 14 days after the motion-filing deadline of June 21, 2022. It is unreasonable to expect

5 the Department to file a motion before the action that was the subject of that motion had

6 occurred. Consequently, the Motion to Quash was filed timely in relation to the date that the

7 subpoenas were issued and could not have been filed by the earlier deadline since the subpoenas

8 were not issued until after that deadline. Moreover, the Taxpayers had a meaningful opportunity

9 to be heard on the Motion to Quash when they filed their motion to dismiss the motion to quash

10 on July 13, 2022, and the Taxpayers did not demonstrate prejudice.

11 The Taxpayers argue that the Secretary should have been subject to subpoena as her

12 name appeared on the abatement and on the assessments. Assessments are required to be issued

13 in the current Secretary’s name. See NMSA 1978, § 7-1-17. Abatements are issued by the

14 Secretary or the Secretary’s delegate. See NMSA 1978, § 7-2-28. These statutory provisions do

15 not require the Secretary to have personal knowledge of every assessment or abatement. See id.

16 See also NMSA 1978, § 7-1-17. The subpoena was quashed as the Secretary has no personal

17 factual knowledge regarding the Taxpayers’ managed audit, abatement, and assessments.

18 [Motion to Quash]. The Taxpayers contacted the Secretary after they filed their protest. [Exhibit

19 3; Motion to Quash]. The Secretary directed the Taxpayers to continue to work with the

20 Department’s attorney as their matter was under formal protest. [Motion to Quash; Exhibit 3].

21 The Taxpayers were given the opportunity to elicit testimony or other evidence and to make a

22 proffer of evidence regarding the Secretary’s involvement in their managed audit and protest.

23 There was no evidence presented or proffered that the Secretary had any personal factual

Guy & June Hence
Case No. 21.11-064A
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1 knowledge regarding the Taxpayers’ managed audit, abatement, or assessment prior to the

2 protest. Therefore, there is not a showing of prejudice based on the lack of testimony from the

3 Secretary.

4 The Taxpayers argue that the Department wrongly interrupted their questioning of Mr.

5 Sanchez. The Department requested to voir dire Mr. Sanchez, and the Taxpayers agreed to let

6 the Department ask questions at that time. Several minutes later the Taxpayers objected to the

7 length of the Department’s questioning, and the Department immediately ceased asking

8 questions and the Taxpayers resumed their questioning. [Recording of hearing at 01:03-01:265].

9 Formal rules of procedure do not apply to the hearing. See 7-1B-6 (D) (2019). The Taxpayers

10 agreed to the Department’s interruption and were afforded a meaningful opportunity to ask their

11 own questions of Mr. Sanchez. Therefore, there was not a showing of prejudice.

12 The Taxpayers argue that the Department did not follow the Amended Scheduling Order

13 by failing to provide the Taxpayers with copies of the exhibits prior to the hearing. The

14 Taxpayers object to all of the Department’s exhibits for that reason. [Taxpayers’ Objection].

15 The Taxpayers admitted that the Department sent them the link for secure file-sharing prior to

16 the hearing. The Taxpayers were unfamiliar with the secure file-sharing program and feared that

17 it might be spam, a scam, a hack, or a virus. [Taxpayers’ Objection]. Generally, an attempt to

18 serve documents must be made, but actual notice is not required. See Cordova v. State, 2005-

19 NMCA-009, 136 N.M. 713 (holding that the relevant inquiry concerning notice of property tax sale

20 does not include whether the notice was actually received). See also Dusenbery v. United States,

21 534 U.S. 161 (2002) (holding that reasonableness requires that the State attempt to provide actual

22 notice, but due process does not require actual notice).

5
Time is cited by hour and minute.
Guy & June Hence
Case No. 21.11-064A
page 11 of 20
1 By providing the secure file-sharing link, the Department made a reasonable attempt to

2 serve copies of the exhibits prior to the hearing. The Department also advised the Taxpayers that

3 the exhibits were being sent via a secure link. [Exhibit H]. The Taxpayers did not notify the

4 Department of their concerns with the secure file-sharing link that they received, despite the fact

5 that the Department advised them to expect the link and that the link came in an email from the

6 same Department employee’s email address used in other correspondence with the Taxpayers.

7 [Exhibit H; Exhibit 3]. The Taxpayers also admitted that they were familiar with all of the

8 documents that comprised the Department’s exhibits, that most of the documents were

9 exchanged between the Department and the Taxpayers during the managed audit, and that at

10 least two of the Department’s exhibits were the same as the Taxpayers’ exhibits6. Consequently,

11 there was no showing of prejudice. The Taxpayers’ objection to the Department’s exhibits is

12 overruled.

13 The Department objects to the Taxpayers’ Exhibit 2 and Exhibit 3 because they had

14 handwritten notes on them, to Exhibit 3 because the emails are not complete copies and include

15 at least one draft, and to Exhibit 6 and Exhibit 77 for lack of relevance. [Department’s

16 Objection]. The Department objects to the Taxpayers’ exhibits because they do not match

17 exactly, due to the handwritten notes, the copies that were provided to the Department prior to

18 the hearing. The annotations on Exhibit 2 and Exhibit 3 do not substantively change the

19 underlying documents, Exhibit 3 is a sampling8 of the Taxpayers’ correspondence with the

20 Department as well as other agencies regarding their tax issues, and Exhibit 6 and Exhibit 7 are

6
Exhibit 1 is substantively the same as Exhibit E. Exhibit 2 is substantively the same as Exhibit F.
7
The objection on Exhibit 7 is limited to references to tax years other than 2014 and 2015; however, Exhibit 7 does
not mention any tax year. It is a letter about the Taxpayers’ defective hard drive.
8
Several copies of the emails in Exhibit 3 have been cut off mid-paragraph or mid-sentence. As such, Exhibit 3
does not represent a complete record of the Taxpayers’ correspondence, but it does provide a general overview of
their communications with various agencies about their tax issues.
Guy & June Hence
Case No. 21.11-064A
page 12 of 20
1 relevant to the Taxpayers’ arguments regarding their attempts to reconstruct their tax records and

2 their lack of success. The Department’s objections to the Taxpayers’ exhibits are overruled.

3 Personal income tax.

4 New Mexico imposes a personal income tax upon the net income of every resident. See

5 NMSA 1978, § 7-2-3 (1981). New Mexico’s adjusted gross income is based on the taxpayer’s

6 federal adjusted gross income. See NMSA 1978, § 7-2-2 (2014). If the IRS issues an adjustment to

7 a taxpayer’s federal adjusted gross income, the taxpayer has 180 days to file an amended New

8 Mexico PIT return reflecting the adjustment. See NMSA 1978, § 7-1-13 (C) (2013).

9 The Taxpayers admit that there was an adjustment made on their federal adjusted gross

10 income, and that they owed New Mexico personal income tax for the 2014 and 2015 tax years

11 based on the adjustment. The Taxpayers believe that the amount of income reported for the 2014

12 and 2015 tax years was incorrect, but they did not retain their tax records for those years, lost data

13 on a defective hard drive, and have been unsuccessful getting tax records from the IRS. Retention

14 of records is the Taxpayers’ responsibility. See NMSA 1978, § 7-1-10 (2007). As the Taxpayers

15 did not have records, they failed to prove that their tax liability should be different, and the

16 assessment is presumed to be correct. See NMSA 1978, § 7-1-17. See also Archuleta, 1972-

17 NMCA-165, ¶11. See also Casias Trucking, 2014-NMCA-099, ¶8. Moreover, the Taxpayers

18 agreed to the managed audit and its outcome. [Exhibit C; Exhibit D].

19 Managed audit assessment.

20 The Department has discretion to make agreements for managed audits. See NMSA 1978, §

21 7-1-11.1 (2003). All managed audits agreements must satisfy the statutory requirements, which

22 include deadlines and waivers. See id. By entering into a managed audit agreement, the Taxpayers

23 waived limitations on assessments. See id. [Exhibit C]. Again, the Taxpayers admit that they owe

Guy & June Hence
Case No. 21.11-064A
page 13 of 20
1 the tax and that they agreed to the managed audit. When any taxpayer is liable for taxes in excess of

2 $25.00, the Department is required to assess. See NMSA 1978, § 7-1-17 (2007). Moreover, “[t]he

3 department shall assess the tax liability found to be due as the result of a managed audit”. NMSA

4 1978, § 7-1-11.1 (F) (2003) (emphasis added). The word “shall” indicates that the assessment of the

5 tax liability is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation

6 Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. Therefore, the assessment based on the managed

7 audit agreement is appropriate.

8 The abatement.

9 The Taxpayers argue that the Department cannot assess them after issuing an abatement.

10 The Taxpayers cite no authority for this proposition. The Department has the authority to abate any

11 assessment that was “incorrectly, erroneously, or illegally made.” NMSA 1978, § 7-1-28 (A)

12 (2013). As Mr. Sanchez explained, the Taxpayers were erroneously issued the March assessment

13 because he failed to enter an extended deadline into the Department’s computer system correctly.

14 [Exhibit A]. Moreover, the Taxpayers could not engage in a managed audit if there was an

15 outstanding assessment. Therefore, the March assessment was issued incorrectly and erroneously,

16 and it was properly abated. See NMSA 1978, § 7-1-28 (A).

17 Nothing in the statute allowing abatements prohibits the Department from reassessing in the

18 future. See NMSA 1978, § 7-1-28. In fact, the ability to abate incorrect assessments suggests that

19 the Department can remedy an error and may issue a corrected, valid assessment. See id. Again,

20 the Department is required to assess on any liability of $25.00 or more. See NMSA 1978, § 7-1-17.

21 There are some limitations on when assessments may be made. See NMSA 1978, § 7-1-18 (2013).

22 None of these limitations are based on whether an abatement had previously been issued. See id.

23 Generally, the limitations are all time deadlines within which the Department must assess. See id.

Guy & June Hence
Case No. 21.11-064A
page 14 of 20
1 In the Taxpayers’ case, the Department would have had three years to assess from the end of the

2 calendar year in which the filing of the amended return based on the IRS adjustment was required.

3 See id. However, the Taxpayers waived any such time limitations by signing the managed audit

4 agreement. [Exhibit C]. Therefore, the Department could assess at any time. See NMSA 1978, §

5 7-1-18.

6 Duress and emotional distress.

7 The Taxpayers argue that they should not be held to the managed audit agreement because

8 they entered it under duress. The Taxpayers argue that they felt they had no other options because

9 they were not able to get copies of their tax documents from the IRS and their copies had been lost.

10 Duress is not articulated as a defense in the Tax Administration Act. See NMSA 1978, § 7-1-1, et.

11 seq. However, contracts made under duress may be voided. See Romero v. Bank of the Southwest,

12 2003-NMCA-124, ¶ 19, 135 N.M. 1. The relevant inquiry for duress is whether the agreement was

13 caused by the wrongful act of another. See Richards v. Allianz Life Ins. Co. of N. Am., 2003-

14 NMCA-001, ¶ 30, 133 N.M. 229 (October 7, 2002), cert. denied No. 27, 791 (NMSC, December

15 17, 2002). See also Skinner v. Lopez, No. A-1-CA-35817, mem. op., ¶ 16 (NMCA, August 23,

16 2018) (non-precedential) (detailing what types of wrongful acts may constitute duress).

17 The Department’s conduct was not wrongful; rather, the Department was required to make

18 an assessment when it learned that the Taxpayers owed more than $25.00 in tax to New Mexico.

19 See NMSA 1978, § 7-1-17. The Department notified the Taxpayers of its intent to assess and gave

20 the Taxpayers the opportunity to respond with evidence of their tax records. [Exhibit G]. The

21 Taxpayers’ inability to provide or to obtain copies of their own tax records, which they had a duty to

22 maintain, is not wrongful conduct by the Department. See NMSA 1978, § 7-1-10. The Department

23 also gave the Taxpayers the opportunity to engage in a managed audit. [Exhibit G]. A managed

Guy & June Hence
Case No. 21.11-064A
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1 audit is beneficial to a taxpayer, as it allows a taxpayer to avoid paying penalty and interest on an

2 unpaid tax liability. See NMSA 1978, § 7-1-11.1. The Taxpayers’ argument to void the managed

3 audit can only work to their detriment. The consequence of voiding the managed audit agreement

4 would mean that the Department was free to assess the Taxpayers for the penalty and interest owed

5 on the past due tax. See id. See also NMSA 1978, § 7-1-17, § 7-1-67, and § 7-1-69. However,

6 there was no evidence that the Department’s conduct was wrongful, and there is no basis for

7 voiding the managed audit for duress.

8 The Taxpayers argue that they should be excused from paying their past due tax based on

9 their emotional distress. The Taxpayers felt that the Department did not make timely responses to

10 their inquiries. The Taxpayers did not understand how they could be assessed after receiving an

11 abatement. The Taxpayers were frustrated with the responses of the Department and other agencies

12 to their inquiries. The Taxpayers argue that the tax advocates did not perform their duties. The

13 Taxpayers argue that the Department’s conduct was an intentional infliction of emotional distress

14 and that they should not have to pay the tax due for that reason.

15 Intentional infliction of emotional distress is not articulated as a defense in the Tax

16 Administration Act. See NMSA 1978, § 7-1-1, et. seq. The Department did provide responses to

17 the Taxpayers’ inquiries. [Exhibit 3]. Ms. Smyth testified that she saw only one email from the

18 Taxpayers, which had been forwarded to her from the Governor’s office. She testified that she

19 investigated their inquiry, promptly replied to the Taxpayers, and informed them of the deadline

20 extension. The subsequent tax advocate answered questions and provided information about the

21 hearing process. [Exhibit 3.12]. Intentional infliction of emotional distress is a tort issue, and

22 government entities and employees are generally immune from liability for intentional infliction of

23 emotional distress when they are acting within the scope of their duties. See Garcia-Montoya v.

Guy & June Hence
Case No. 21.11-064A
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1 State Treasurer’s Office, 2001-NMSC-003, ¶ 49, 130 N.M. 25. Determining tort liabilities is

2 beyond the scope of this hearing. See NMSA 1978, § 7-1B-8. Nevertheless, the Taxpayers did not

3 argue that the Department or its employees were acting beyond the scope of their duties; rather, the

4 Taxpayers were frustrated with the manner and speed with which they carried out those duties.

5 The Taxpayers’ argument is essentially one for equitable estoppel. Equitable estoppel

6 may be found against the state where there is “a shocking degree of aggravated and overreaching

7 conduct or where right and justice demand it." Wisznia v. State, Human Servs. Dep't, 1998-

8 NMSC-011, ¶ 17, 125 N.M. 140. Equitable estoppel against the state is disfavored, especially in

9 cases involving taxes. See Taxation and Revenue Dep’t v. Bien Mur Indian Market, 1989-

10 NMSC-015, ¶9-10, 108 N.M. 228. Equitable estoppel will not apply against the state when it

11 would be contrary to the requirements of statute or law. See Rainaldi v. Pub. Employees Ret.

12 Bd., 1993-NMSC-028, ¶ 18-19, 115 N.M. 650. See also In Re Kilmer, 2004-NMCA-122, ¶ 26,

13 136 N.M. 440.

14 An essential element of equitable estoppel is that the Taxpayers relied on the

15 government’s conduct to their detriment. See In Re Kilmer, 2004-NMCA-122, ¶ 27. The

16 Department’s conduct in allowing the managed audit was to the Taxpayers’ benefit, not to their

17 detriment. Moreover, there was no evidence that the Department or its employees acted beyond

18 the scope of their duties. Even if there were sufficient evidence of duress and intentional infliction

19 of emotional distress, the Administrative Hearings Office has not been granted statutory authority

20 to exercise an equitable judicial remedy. See AA Oilfield Serv. v. N.M. State Corp. Comm’n,

21 1994-NMSC-085, ¶ 18, 118 N.M. 273 (holding that the quasi-judicial powers of an

22 administrative body did not empower it to grant equitable relief, such as estoppel, because the

23 authority is limited to making factual and legal determinations as authorized by the statute). See

Guy & June Hence
Case No. 21.11-064A
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1 Gzaskow v. Pub. Employees Ret. Bd., 2017-NMCA-064, ¶35 (recognizing AA Oilfield Serv. for

2 the proposition that an agency with quasi-judicial powers did not have authority to grant an

3 equitable remedy). See also NMSA 1978, § 7-1B-1, et seq.

4 CONCLUSIONS OF LAW

5 A. The Taxpayers filed a timely written protest to the assessment and jurisdiction lies

6 over the parties and the subject matter of this protest. See NMSA 1978, § 7-1B-8.

7 B. The first hearing was timely set and held within 90 days of the request for hearing.

8 See id. See also 22.600.3.8 (J) NMAC (2020).

9 C. The Department filed a timely request for hearing within 180 days of the protest.

10 See NMSA 1978, § 7-1B-8. See also 22.600.3.8 NMAC.

11 D. The Taxpayers failed to file an amended PIT return with New Mexico after the

12 IRS adjustment to their federal adjusted gross income. See NMSA 1978, § 7-1-13 (C).

13 E. The Taxpayers agreed to a managed audit and waived time limitations on

14 assessment. See NMSA 1978, § 7-1-11.1.

15 F. The Department’s assessment pursuant to the managed audit agreement was

16 appropriate and was not prohibited by the prior abatement of the erroneously issued March

17 assessment. See id. See also NMSA 1978, § 7-1-28, § 7-1-17, and § 7-1-18.

18 G. The Taxpayers failed to prove that equitable estoppel should apply for duress or

19 intentional infliction of emotional distress. See Romero, 2003-NMCA-124, ¶ 19. See also

20 Richards, 2003-NMCA-001, ¶ 30. See also Skinner, No. A-1-CA-35817, mem. op., ¶ 16 (non-

21 precedential). See also Garcia-Montoya, 2001-NMSC-003, ¶ 49. See also AA Oilfield Serv.,

22 1994-NMSC-085, ¶ 18. See also Gzaskow, 2017-NMCA-064, ¶35.

Guy & June Hence
Case No. 21.11-064A
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1 H. The Taxpayers failed to overcome the presumption that the assessment was correct.

2 See NMSA 1978, § 7-1-17. See also 3.3.1.9 NMAC. See also Archuleta, 1972-NMCA-165, ¶11.

3 See also Casias Trucking, 2014-NMCA-099, ¶8.

4 For the foregoing reasons, the Taxpayers’ protest IS DENIED. IT IS ORDERED that the

5 Taxpayers are liable for $2,475.009 in outstanding personal income tax.

6 DATED: August 30, 2022.

7 Dee Dee Hoxie
8 Dee Dee Hoxie
9 Hearing Officer
10 Administrative Hearings Office
11 P.O. Box 6400
12 Santa Fe, NM 87502

13 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

9
The assessment was for $2,975.00. Again, the Department acknowledged that the Taxpayers made a $500.00
payment during the managed audit that was not reflected on the assessment but has been since credited to their
account. Therefore, the outstanding liability is $2,475.00.
Guy & June Hence
Case No. 21.11-064A
page 19 of 20
1 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

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

3 CERTIFICATE OF SERVICE

4 On August 30, 2022, a copy of the foregoing Decision and Order was submitted to the

5 parties listed below in the following manner:

6 First Class Mail and Email First Class Mail and Email
7
8
9 INTENTIONALLY BLANK

Guy & June Hence
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